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 September 30, 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
--------------
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 October 29, 2001, was 33,865,589 shares.
1
Owens & Minor, Inc. and Subsidiaries
Index
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations - Three Months and
Nine Months Ended September 30, 2001 and 2000 3
Consolidated Balance Sheets -
September 30, 2001 and December 31, 2000 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2001 and 2000 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
Part II. Other Information
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 6. Exhibits and Reports on Form 8-K 21
2
Part I. Financial Information
Item 1. Financial Statements
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------- -------------------------------------
2001 2000 2001 2000
------------------ ----------------- ----------------- -----------------
Net sales $ 968,230 $ 874,318 $ 2,846,269 $ 2,606,290
Cost of goods sold 865,162 781,197 2,543,597 2,328,405
-------------- ------------- --------------- ---------------
Gross margin 103,068 93,121 302,672 277,885
-------------- ------------- --------------- ---------------
Selling, general and administrative expenses 74,193 65,752 220,188 200,102
Depreciation and amortization 5,650 5,399 16,878 15,830
Interest expense, net 3,549 3,060 10,357 9,418
Discount on accounts receivable securitization 841 1,744 3,746 5,562
Impairment loss on investment 1,071 - 1,071 -
Distributions on mandatorily redeemable
preferred securities 1,773 1,773 5,321 5,321
Restructuring credit - - (1,476) (750)
-------------- ------------- --------------- ---------------
Total expenses 87,077 77,728 256,085 235,483
-------------- ------------- --------------- ---------------
Income before income taxes 15,991 15,393 46,587 42,402
Income tax provision 14,294 6,927 27,756 19,081
-------------- ------------- --------------- ---------------
Income before extraordinary item 1,697 8,466 18,831 23,321
Extraordinary loss on early retirement of
debt, net of income tax benefit (7,068) - (7,068) -
-------------- ------------- --------------- ---------------
Net income (loss) $ (5,371) $ 8,466 $ 11,763 $ 23,321
============== ============= =============== ===============
Per common share-basic:
Income before extraordinary item $ 0.05 $ 0.26 $ 0.57 $ 0.71
Extraordinary loss on early retirement of debt (0.21) - (0.22) -
-------------- ------------- --------------- ---------------
Net income (loss) $ (0.16) $ 0.26 $ 0.35 $ 0.71
============== ============= =============== ===============
Per common share-diluted:
Income before extraordinary item $ 0.05 $ 0.24 $ 0.54 $ 0.67
Extraordinary loss on early retirement of debt (0.21) - (0.17) -
-------------- ------------- --------------- ---------------
Net income (loss) $ (0.16) $ 0.24 $ 0.37 $ 0.67
============== ============= =============== ===============
Cash dividends per common share $ 0.07 $ 0.0625 $ 0.2025 $ 0.1850
============== ============= =============== ===============
See accompanying notes to consolidated financial statements.
3
Owens & Minor, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except per share data) September 30, December 31,
2001 2000
---------- ---------
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 878 $ 626
Accounts and notes receivable, net
of allowance of $5,667 and $6,419 308,869 261,905
Merchandise inventories 395,112 315,570
Other current assets 13,228 16,190
------------ ------------
Total current assets 718,087 594,291
Property and equipment, net of accumulated
depreciation of $64,080 and $58,876 26,234 24,239
Goodwill, net of accumulated amortization
of $38,468 and $33,977 200,358 204,849
Other assets, net 49,948 44,169
------------ ------------
Total assets $ 994,627 $ 867,548
============ ============
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 331,328 $ 291,507
Accrued payroll and related liabilities 6,878 9,940
Other accrued liabilities 64,407 59,207
------------ ------------
Total current liabilities 402,613 360,654
Long-term debt 221,125 152,872
Other liabilities 10,617 9,250
------------ ------------
Total liabilities 634,355 522,776
------------ ------------
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 - 33,861 shares and 33,180 shares 67,722 66,360
Paid-in capital 26,596 18,039
Retained earnings 133,954 129,001
Accumulated other comprehensive loss - (628)
------------ ------------
Total shareholders' equity 228,272 212,772
------------ ------------
Total liabilities and shareholders' equity $ 994,627 $ 867,548
============ ============
See accompanying notes to consolidated financial statements.
4
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands) Nine Months Ended
(unaudited) September 30,
-------------------------------------------
2001 2000
-------------------- -------------------
Operating activities
Income before extraordinary item $ 18,831 $ 23,321
Adjustments to reconcile income before extraordinary item
to cash provided by (used for) operating activities:
Depreciation and amortization 16,878 15,830
Restructuring credit (1,476) (750)
Impairment loss on investment 1,071 -
Provision for LIFO reserve 2,750 2,280
Provision for losses on accounts and notes receivable 517 263
Collections of sold accounts receivable, net (26,000) (35,612)
Changes in operating assets and liabilities:
Accounts and notes receivable (21,481) 3,777
Merchandise inventories (82,292) 2,523
Accounts payable 36,171 13,227
Net change in other current assets
and current liabilities 11,277 7,298
Other, net 4,790 4,876
--------------- ---------------
Cash provided by (used for) operating activities (38,964) 37,033
--------------- ---------------
Investing activities
Additions to property and equipment (8,893) (5,981)
Additions to computer software (3,641) (9,415)
Other, net (870) (181)
--------------- ---------------
Cash used for investing activities (13,404) (15,577)
--------------- ---------------
Financing activities
Net proceeds from issuance of long-term debt 194,591 -
Payments to retire long-term debt (158,594) -
Additions (reductions) to other debt, net 11,839 (16,625)
Other, net 3,650 (1,896)
Cash dividends paid (6,810) (6,088)
Proceeds from exercise of stock options 7,944 3,190
--------------- ---------------
Cash provided by (used for) financing activities 52,620 (21,419)
--------------- ---------------
Net increase in cash and cash equivalents 252 37
Cash and cash equivalents at beginning of period 626 669
--------------- ---------------
Cash and cash equivalents at end of period $ 878 $ 706
=============== ===============
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 September 30, 2001 and
the consolidated results of operations for the three and nine month periods
and cash flows for the nine month periods ended September 30, 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 and nine month periods ended September 30, 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 three months and nine months ended
September 30, 2000 have been increased by $2.0 million and $6.3 million.
5. Investment
The company owns equity securities of a provider of business-to-business e-
commerce services in the healthcare industry. 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 or losses, net of tax, reported
as accumulated other comprehensive income or loss. Other than temporary
declines in market value from original cost are charged to net income.
Net income for the quarter ended September 30, 2001 includes an impairment
charge of $1.1 million, as the market value of these securities has fallen
significantly below the company's original cost basis and management believes
that recovery in the near term is unlikely. At September 30, 2001, the
estimated fair value (based on the quoted market price) and adjusted cost
basis of this investment was $0.2 million. At December 31, 2000, the
estimated fair value, unrealized loss, and cost basis were $0.2 million, $1.0
million, and $1.2 million.
6
6. 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 that included
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:
Balance at Balance at
December 31, September 30,
(in thousands) 2000 Charges 2001
------------------------------------------------------------------------
Losses under lease commitments $1,285 $143 $1,142
Employee separations 83 30 53
Other 281 - 281
------------------------------------------------------------------------
Total $1,649 $173 $1,476
------------------------------------------------------------------------
As of September 30, 2001, approximately 40 employees had been terminated
since the inception of the plan. While the integration of the Medix business
has been substantially completed, the company continues to make payments
under lease commitments and other obligations.
7. 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. In the second quarter of 2001, the company re-evaluated its
estimate of the remaining costs to be incurred in connection with the
restructuring plan and reduced the reserve by approximately $1.5 million. The
following table sets forth the activity in the restructuring reserve since
December 31, 2000:
Balance at Balance at
December 31, September 30,
(in thousands) 2000 Charges Adjustments 2001
--------------------------------------------------------------------------------------------------
Losses under lease commitments $2,718 $257 $(1,504) $ 957
Asset write-offs 821 - 28 849
--------------------------------------------------------------------------------------------------
Total $3,539 $257 $(1,476) $1,806
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8. Refinancing of Debt
In July 2001, the company issued $200.0 million of 8 1/2% Senior Subordinated
10-year notes (2011 Notes) which mature on July 15, 2011. Interest on the
2011 Notes is payable semi-annually on January 15 and July 15, beginning
January 15, 2002. The 2011 Notes are redeemable on or after July 15, 2006, at
the company's option, subject to certain restrictions. The 2011 Notes are
unconditionally guaranteed on a joint and several basis by all significant
subsidiaries of the company other than O&M Funding Corporation and Owens &
Minor Trust I. The net proceeds from the 2011 Notes were used to retire the
10.875% Senior Subordinated 10-year Notes due in 2006 (2006 Notes) and to
reduce the amount of accounts receivable sold under the company's off-balance
sheet receivables financing facility.
The early retirement of the 2006 Notes resulted in an extraordinary loss of
$7.1 million, comprised of $8.4 million of retirement premiums, a $3.2
million write-off of debt issuance costs, $0.2 million of fees, and an income
tax benefit of $4.7 million.
7
9. Off Balance Sheet Receivables Financing Facility
In the second quarter of 2001, the company adopted the provisions of
Statement of Financial Accounting Standards No. (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 revised
the standards for securitizations and other transfers of financial assets
and expanded 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. The adoption of this Standard did not require a
change in the company's accounting treatment of sales of accounts receivable
under its off balance sheet receivables financing facility (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.
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 to receive up to $225.0 million from a group of unrelated
third party purchasers. At September 30, 2001 and December 31, 2000, net
accounts receivable of $54.0 million and $80.0 million had been sold under
the agreement and, as a result, have been excluded from the consolidated
balance sheets.
10. 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. 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 adoption of this Standard did not have a material impact on
the company's results of operations or financial position.
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 in order to manage
interest rate risk. In July 2001, the company entered into interest rate
swap agreements of $100.0 million notional amounts that effectively
converted a portion of the company's fixed rate financing instruments to
variable rates. These swaps were designated as fair value hedges of a
portion of the company's 8 1/2% Senior Subordinated 10-year Notes due in
2011, and qualify for an assumption of no ineffectiveness under the
provisions of SFAS 133. Previously, the company had similar interest rate
swap agreements of $100.0 million notional amounts that were designated as
fair value hedges of a portion of the company's 10.875% Senior Subordinated
10-year Notes due in 2006, which were cancelled by their respective
counterparties on May 28, 2001.
8
11. Comprehensive Income
The company's comprehensive income for the three months and nine months
ended September 30, 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, and a reclassification adjustment due to an
unrealized loss included in net income.
(in thousands) Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------------------------------------
2001 2000 2001 2000
---------------------- ----------------------
Net income (loss) $(5,371) $8,466 $11,763 $23,321
Other comprehensive income (loss), net of tax:
(Increase) decrease in unrealized loss on investment (19) (392) (14) (232)
Reclassification adjustment for unrealized loss
included in net income 642 - 642 -
-------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) 623 (392) 628 (232)
-------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $(4,748) $8,074 $12,391 $23,089
===================================================================================================================
12. Income Before Extraordinary Item per Common Share
The following sets forth the computation of basic and diluted income before
extraordinary item per common share:
(in thousands, except per share data) Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------
2001 2000 2001 2000
-------------------- -----------------------
Numerator:
Numerator for basic income before extraordinary item
per common share - income before extraordinary item $ 1,697 $ 8,466 $ 18,831 $ 23,321
Distributions on convertible mandatorily redeemable
preferred securities, net of income taxes - 976 3,023 2,927
-------------------------------------------------------------------------------------------------------------
Numerator for diluted income before extraordinary
item per common share - income before extraordinary
item after assumed conversions $ 1,697 $ 9,442 $ 21,854 $ 26,248
-------------------------------------------------------------------------------------------------------------
Denominator:
Denominator for basic income before extraordinary
item per common share - weighted average shares 33,560 32,793 33,280 32,658
Effect of dilutive securities:
Conversion of mandatorily redeemable
preferred securities - 6,400 6,400 6,400
Stock options and restricted stock 636 526 628 366
-------------------------------------------------------------------------------------------------------------
Denominator for diluted income before extraordinary
item per common share - adjusted weighted average
shares and assumed conversions 34,196 39,719 40,308 39,424
-------------------------------------------------------------------------------------------------------------
Income before extraordinary item per common share -
basic $ 0.05 $ 0.26 $ 0.57 $ 0.71
Income before extraordinary item per common share -
diluted $ 0.05 $ 0.24 $ 0.54 $ 0.67
-------------------------------------------------------------------------------------------------------------
9
13. Contingency
In August 2000, the company received notice from the Internal Revenue Service
that it has disallowed certain prior year deductions for interest on loans
associated with the company's corporate-owned life insurance (COLI) program.
Management believes that the company has complied with the tax law as it relates
to its COLI program, and has filed an appeal with the Internal Revenue Service
(IRS). However, several cases involving other corporations' COLI programs have
been decided in favor of the IRS, and consequently, the climate has become less
favorable to taxpayers with respect to these programs. As a result, a provision
for the estimated liability of $7.2 million for taxes and interest, included in
"income tax provision," was recorded in the third quarter of 2001 as management
believes that it has now become probable that the company will not achieve a
favorable resolution of this matter. Notwithstanding this action, management
does not agree with the IRS position and will continue to protest this matter
either administratively or through litigation.
14. Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS 142,
Goodwill and Other Intangible Assets. The provisions of SFAS 142 state that
goodwill should not be amortized but should be tested for impairment upon
adoption of the standard, and at least annually, at the reporting unit level.
The company will be required to adopt the provisions of this standard beginning
on January 1, 2002. As a result, the company will no longer record goodwill
amortization expense. The company will also be required to perform an assessment
of whether there is an indication that goodwill is impaired as of the date of
adoption. Any such transitional impairment loss will be recognized as the
cumulative effect of a change in accounting principle in the company's
consolidated statement of income.
As of the date of adoption, the company expects to have unamortized goodwill in
the amount of $198.9 million, which will be subject to the transition provisions
of SFAS 142. Amortization expense related to goodwill was $1.5 million for each
of the three month periods ended September 30, 2001 and 2000, and $4.5 million
for each of the nine month periods ended September 30, 2001 and 2000. Based on
current values, management believes that the company is unlikely to incur a
transitional impairment loss.
15. 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 2011 Notes; and the non-guarantor subsidiaries of the 2011 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.
10
Condensed Consolidating Financial Information
(in thousands)
For the three months ended Owens & Guarantor Non-guarantor
September 30, 2001 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------------------------
Statements of Operations
Net sales $ - 968,230 - - 968,230
Cost of goods sold - 865,162 - - 865,162
- ----------------------------------------------------------------------------------------------------------------------------------
Gross margin - 103,068 - - 103,068
- ----------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses - 73,961 232 - 74,193
Depreciation and amortization - 5,650 - - 5,650
Interest expense, net 4,544 (995) - - 3,549
Intercompany interest expense, net (5,824) 10,478 (4,654) - -
Discount on accounts receivable securitization - 4 837 - 841
Impairment loss on investment 1,071 - - - 1,071
Distributions on mandatorily redeemable
preferred securities - - 1,773 - 1,773
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses (209) 89,098 (1,812) - 87,077
- ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 209 13,970 1,812 - 15,991
Income tax provision 564 12,933 797 - 14,294
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item (355) 1,037 1,015 - 1,697
Extraordinary loss on early retirement of
debt, net of income tax benefit (7,068) - - - (7,068)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (7,423) 1,037 1,015 - (5,371)
- ----------------------------------------------------------------------------------------------------------------------------------
For the three months ended Owens & Guarantor Non-guarantor
September 30, 2000 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------------------------
Statements of Operations
Net sales $ - 874,318 - - 874,318
Cost of goods sold - 781,197 - - 781,197
- ----------------------------------------------------------------------------------------------------------------------------------
Gross margin - 93,121 - - 93,121
- ----------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 155 64,905 692 - 65,752
Depreciation and amortization - 5,399 - - 5,399
Interest expense, net 4,480 (1,420) - - 3,060
Intercompany interest expense, net (1,886) 8,490 (6,604) - -
Discount on accounts receivable securitization - 4 1,740 - 1,744
Distributions on mandatorily redeemable
preferred securities - - 1,773 - 1,773
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses 2,749 77,378 (2,399) - 77,728
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (2,749) 15,743 2,399 - 15,393
Income tax provision (benefit) (1,210) 7,044 1,093 - 6,927
- ----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (1,539) 8,699 1,306 - 8,466
- ----------------------------------------------------------------------------------------------------------------------------------
11
Condensed Consolidating Financial Information
(in thousands)
For the nine months ended Owens & Guarantor Non-guarantor
September 30, 2001 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------------------------
Statements of Operations
Net sales $ - $ 2,846,269 $ - $ - $ 2,846,269
Cost of goods sold - 2,543,597 - - 2,543,597
- ----------------------------------------------------------------------------------------------------------------------------------
Gross margin - 302,672 - - 302,672
- ----------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses - 219,615 573 - 220,188
Depreciation and amortization - 16,878 - - 16,878
Interest expense, net 13,498 (3,141) - - 10,357
Intercompany interest expense, net (10,049) 25,016 (14,967) - -
Intercompany dividend income (126,386) - - 126,386 -
Discount on accounts receivable securitization - 10 3,736 - 3,746
Impairment loss on investment 1,071 - - - 1,071
Distributions on mandatorily redeemable
preferred securities - - 5,321 - 5,321
Restructuring credit - (1,476) - - (1,476)
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses (121,866) 256,902 (5,337) 126,386 256,085
- ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 121,866 45,770 5,337 (126,386) 46,587
Income tax provision (benefit) (1,517) 26,911 2,362 - 27,756
- ----------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary item 123,383 18,859 2,975 (126,386) 18,831
Extraordinary loss on early retirement of debt,
net of income tax benefit (7,068) - - - (7,068)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 116,315 $ 18,859 $ 2,975 $ (126,386) $ 11,763
- ----------------------------------------------------------------------------------------------------------------------------------
For the nine months ended Owens & Guarantor Non-guarantor
September 30, 2000 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------------------------
Statements of Operations
Net sales $ - $ 2,606,290 $ - $ - $ 2,606,290
Cost of goods sold - 2,328,405 - - 2,328,405
- ----------------------------------------------------------------------------------------------------------------------------------
Gross margin - 277,885 - - 277,885
- ----------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 155 198,695 1,252 - 200,102
Depreciation and amortization - 15,830 - - 15,830
Interest expense, net 13,418 (4,000) - - 9,418
Intercompany interest expense, net (5,913) 23,068 (17,155) - -
Discount on accounts receivable securitization - 13 5,549 - 5,562
Distributions on mandatorily redeemable
preferred securities - - 5,321 - 5,321
Restructuring credit - (750) - - (750)
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses 7,660 232,856 (5,033) - 235,483
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (7,660) 45,029 5,033 - 42,402
Income tax provision (benefit) (3,371) 19,884 2,568 - 19,081
- ----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (4,289) $ 25,145 $ 2,465 $ - $ 23,321
- ----------------------------------------------------------------------------------------------------------------------------------
12
Condensed Consolidating Financial Information
(in thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
Owens & Guarantor Non-guarantor
Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- ---------------------------------------------------------------------------------------------------------------------------------
September 30, 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Balance Sheets
Assets
Current assets
Cash and cash equivalents $ 7 $ 870 $ 1 $ - $ 878
Accounts and notes receivable, net - - 308,869 - 308,869
Merchandise inventories - 395,112 - - 395,112
Intercompany advances, net 187,069 91,175 (278,244) - -
Other current assets 29 13,195 4 - 13,228
- ---------------------------------------------------------------------------------------------------------------------------------
Total current assets 187,105 500,352 30,630 - 718,087
Property and equipment, net - 26,232 2 - 26,234
Goodwill, net - 200,358 - - 200,358
Intercompany investments 340,023 15,001 136,083 (491,107) -
Other assets, net 16,293 32,654 1,001 - 49,948
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $ 543,421 $ 774,597 $ 167,716 $ (491,107) $ 994,627
=================================================================================================================================
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ - $ 331,328 $ - $ - $ 331,328
Accrued payroll and related liabilities - 6,878 - - 6,878
Other accrued liabilities 3,733 61,470 (796) - 64,407
- ---------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 3,733 399,676 (796) - 402,613
Long-term debt 221,125 - - - 221,125
Intercompany long-term debt 136,083 143,890 - (279,973) -
Other liabilities (930) 11,550 (3) - 10,617
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities 360,011 555,116 (799) (279,973) 634,355
- ---------------------------------------------------------------------------------------------------------------------------------
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 67,722 40,879 5,583 (46,462) 67,722
Paid-in capital 26,596 149,671 15,001 (164,672) 26,596
Retained earnings 89,092 28,931 15,931 - 133,954
- ---------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 183,410 219,481 36,515 (211,134) 228,272
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 543,421 $ 774,597 $ 167,716 $ (491,107) $ 994,627
=================================================================================================================================
13
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 213,637 15,001 136,083 (364,721) -
Other assets, net 8,735 35,157 277 - 44,169
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 352,343 $ 714,973 $ 164,953 $ (364,721) $ 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 18,039 167,175 15,001 (182,176) 18,039
Retained earnings (accumulated deficit) (20,413) 136,458 12,956 - 129,001
Accumulated other comprehensive loss (628) - - - (628)
- -----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 63,358 344,512 33,540 (228,638) 212,772
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 352,343 $ 714,973 $ 164,953 $ (364,721) $ 867,548
===================================================================================================================================
14
Condensed Consolidating Financial Information
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
For the nine months ended Owens & Guarantor Non-guarantor
September 30, 2001 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Statements of Cash Flows
Operating activities
Income before extraordinary item $ 123,383 $ 18,859 $ 2,975 $ (126,386) $ 18,831
Adjustments to reconcile income before extraordinary item
to cash provided by (used for) operating activities:
Depreciation and amortization - 16,878 - - 16,878
Restructuring credit - (1,476) - - (1,476)
Impairment loss on investment 1,071 - - - 1,071
Provision for LIFO reserve - 2,750 - - 2,750
Provision for losses on accounts and notes receivable - 874 (357) - 517
Collections of sold accounts receivable, net - - (26,000) - (26,000)
Changes in operating assets and liabilities:
Accounts and notes receivable - 23,350 (44,831) - (21,481)
Merchandise inventories - (82,292) - - (82,292)
Accounts payable - 36,171 - - 36,171
Net change in other current assets
and current liabilities 6,802 4,439 36 - 11,277
Other, net 2,621 2,169 - - 4,790
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) operating activities 133,877 21,722 (68,177) (126,386) (38,964)
- ------------------------------------------------------------------------------------------------------------------------------------
Investing activities
Additions to property and equipment - (8,893) - - (8,893)
Additions to computer software - (3,641) - - (3,641)
Investments in intercompany debt (143,890) - - 143,890 -
Decrease in intercompany investment 17,504 - - (17,504) -
Other, net - 105 (975) - (870)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash used for investing activities (126,386) (12,429) (975) 126,386 (13,404)
- ------------------------------------------------------------------------------------------------------------------------------------
Financing activities
Net proceeds from issuance of long-term debt 194,591 - - - 194,591
Payments to retire long-term debt (158,594) (158,594)
Additions (reductions) to other debt 12,500 (661) - - 11,839
Proceeds from issuance of intercompany debt - 143,890 - (143,890) -
Change in intercompany advances (57,622) (11,530) 69,152 - -
Decrease in intercompany investment - (17,504) - 17,504 -
Other financing, net - 3,650 - - 3,650
Cash dividends paid (6,810) - - - (6,810)
Intercompany dividends paid - (126,386) - 126,386 -
Proceeds from exercise of stock options 7,944 - - - 7,944
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities (7,991) (8,541) 69,152 - 52,620
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (500) 752 - - 252
Cash and cash equivalents at beginning of period 507 118 1 - 626
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 7 $ 870 $ 1 $ - $ 878
====================================================================================================================================
15
Condensed Consolidating Financial Information
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
For the nine months ended Owens & Guarantor Non-guarantor
September 30, 2000 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Statements of Cash Flows
Operating activities
Net income (loss) $ (4,289) $ 25,145 $ 2,465 $ - $ 23,321
Adjustments to reconcile net income (loss) to cash
provided by (used for) operating activities:
Depreciation and amortization - 15,830 - - 15,830
Restructuring credit - (750) - - (750)
Provision for LIFO reserve - 2,280 - - 2,280
Provision for losses on accounts and notes receivable - 579 (316) - 263
Collections of sold accounts receivable, net - - (35,612) - (35,612)
Changes in operating assets and liabilities:
Accounts and notes receivable - 91,674 (87,897) - 3,777
Merchandise inventories - 2,572 (49) - 2,523
Accounts payable - 13,227 - - 13,227
Net change in other current assets
and current liabilities 3,785 3,764 (251) - 7,298
Other, net 2,256 1,716 904 - 4,876
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) operating activities 1,752 156,037 (120,756) - 37,033
- ------------------------------------------------------------------------------------------------------------------------------------
Investing activities
Additions to property and equipment - (5,978) (3) - (5,981)
Additions to computer software - (9,415) - - (9,415)
Other, net (155) (26) - - (181)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash used for investing activities (155) (15,419) (3) - (15,577)
- ------------------------------------------------------------------------------------------------------------------------------------
Financing activities
Reduction of debt (16,000) (625) - - (16,625)
Change in intercompany advances 18,547 (139,303) 120,756 - -
Other financing, net (1,246) (650) - - (1,896)
Cash dividends paid (6,088) - - - (6,088)
Proceeds from exercise of stock options 3,190 - - - 3,190
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities (1,597) (140,578) 120,756 - (21,419)
Net increase (decrease) in cash and cash equivalents - 40 (3) - 37
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 507 158 4 - 669
====================================================================================================================================
Cash and cash equivalents at end of period $ 507 $ 198 $ 1 $ - $ 706
====================================================================================================================================
16
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
(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 Annual Report on Form 10-K for the year
ended December 31, 2000.
Results of Operations
Third quarter and first nine months of 2001 compared with 2000
Overview. In the third quarter of 2001, the company incurred a net loss of $5.4
million, compared with net income of $8.5 million in the third quarter of 2000.
For the first nine months of 2001, net income decreased to $11.8 million from
$23.3 million in the first nine months of 2000.
Excluding a $1.1 million impairment loss on investment, a $7.2 million
additional tax provision, discussed below, and a $7.1 million after-tax
extraordinary loss on the early retirement of debt, net income increased to $9.9
million, or $0.27 per diluted common share, for the third quarter of 2001 from
$8.5 million, or $0.24 per diluted common share, for the third quarter of 2000.
Excluding these unusual items and the adjustments to the restructuring reserve
in the second quarters of 2001 and 2000, net income increased to $26.2 million,
or $0.73 per diluted common share, for the first nine months of 2001 from $22.9
million, or $0.66 per diluted common share, for the same period of 2000. The
increase is primarily due to the increase in sales and success in reducing
financing costs.
Net sales. Net sales increased 11% to $968.2 million in the third quarter of
2001 from $874.3 million in the third quarter of 2000. Net sales increased 9%
to $2.8 billion in the first nine months of 2001 from $2.6 billion in the first
nine months of 2000. These increases resulted from further penetration of
existing accounts as well as new business.
In April 2001, the company signed a new three-year distribution agreement with
Novation, the supply company of VHA, Inc. and University Health System
Consortium, continuing its long-standing relationship with these organizations.
Under the new agreement, the company is one of two national medical and surgical
distributors authorized to serve all areas of the country. Sales to Novation
members represented approximately 52% and 51% of the company's net sales for the
first nine months of 2001 and 2000.
Gross margin. Gross margin as a percentage of net sales decreased slightly to
10.6% for the third quarter and for the first nine months of 2001 compared with
10.7% for the same periods of 2000. As the company continues to face margin
pressure, it is focusing on opportunities for margin improvement, including an
emphasis on providing value-added services.
Selling, general and administrative expenses. Selling, general and
administrative (SG&A) expenses as a percentage of net sales increased to 7.7% of
net sales for the third quarter of 2001, compared to 7.5% for the third quarter
of 2000. This increase resulted, in part, from higher personnel costs incurred
to support sales growth, distribution center relocations and higher employee
healthcare costs. For the first nine months of 2001, SG&A expense remained
consistent with the first nine months of 2000 at 7.7% of net sales. Management
plans to look for new ways to use technology to improve productivity, and to
find better ways to efficiently share best operating practices across the
company.
17
Depreciation and amortization. Depreciation and amortization expense for the
third quarter and first nine months of 2001 increased by approximately 5% and 7%
from the same periods in 2000, primarily as a result of continued investments in
information technology.
Interest expense, net, and discount on accounts receivable securitization
(financing costs). Financing costs totaled $4.4 million for the third quarter
of 2001 and $14.1 million for the first nine months of 2001, compared with $4.8
million and $15.0 million for the same periods of 2000. This decrease was
primarily driven by lower effective interest rates resulting from the
refinancing of the company's 2006 Notes with new lower-rate 2011 Notes and from
decreases in short-term interest rates.
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.
Impairment loss on investment. The company owns equity securities of a provider
of business-to-business e-commerce services in the healthcare industry. The
market value of these securities has fallen significantly below the company's
original cost basis and, as management believes that recovery in the near term
is unlikely, the company recorded an impairment charge of $1.1 million in the
third quarter of 2001.
Restructuring credits. As a result of the cancellation of a significant
customer contract in 1998, the company recorded a nonrecurring restructuring
charge of $6.6 million, after taxes, to downsize operations. The company
periodically re-evaluates its restructuring reserve, and since the actions under
this plan had resulted in lower projected total costs than originally
anticipated, the company recorded reductions in the reserve in the second
quarters of both 2001 and 2000, which increased net income by approximately
$0.8 million in 2001 and $0.4 million in 2000.
Income taxes. The income tax provision was $14.3 million for the third quarter
of 2001, including an additional $7.2 million provision for estimated tax
liabilities related principally to interest deductions for corporate-owned life
insurance claimed on the company's tax returns for the years 1995 through 1998.
Excluding this charge and the impairment loss on investment, the effective tax
rate was 43.2% for the first nine months of 2001, compared to 45.0% for the same
period in 2000. This reduction in rate resulted primarily from decreases in the
effect of certain nondeductible items.
Financial Condition, Liquidity and Capital Resources
Liquidity. Combined outstanding debt and off balance sheet accounts receivable
securitization increased by $42.3 million from December 31, 2000 to $275.8
million at September 30, 2001. This increase was primarily a result of an
increased investment in inventory to support growing sales volume. Excluding
sales of accounts receivable and their subsequent collections under the
receivables financing facility, $13.0 million of cash was used for operating
activities in the first nine months of 2001, compared with $72.6 million
provided by operating activities in the first nine months of 2000. This
decrease in operating cash flow resulted largely from the increased purchases of
inventory mentioned above.
On July 2, 2001, the company issued $200 million of 8 1/2% Senior Subordinated
Notes maturing in July 2011. The proceeds from these notes were used to retire
the company's $150 million of 10 7/8% Senior Subordinated Notes and to reduce
the amount of accounts receivable sold under the receivables financing facility.
The retirement of the 10 7/8% Notes resulted in an extraordinary loss on the
early retirement of debt of $7.1 million, net of income tax benefit. In
conjunction with the new notes, the company entered
18
into interest rate swap agreements under which the company pays counterparties a
variable rate based on LIBOR and the counterparties pay the company a fixed
interest rate of 8 1/2% on a notional amount of $100 million. In addition,
effective July 12, 2001, the company extended the expiration of its receivables
financing facility to July 11, 2002.
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 September 30, 2001, the company had $210.3 million of unused credit
under its revolving credit facility and the ability to sell an additional $171.0
million of accounts receivable under its receivables financing facility.
Working Capital Management. The company's working capital increased by $81.8
million from December 31, 2000 to $315.5 million at September 30, 2001, as a
result of increased levels of inventory and accounts receivable. Annualized
inventory turnover for the third quarter of 2001 decreased to 8.9 from 9.7 in
the fourth quarter of 2000, as the company increased inventory levels to begin
service to new customers. Accounts receivable, excluding the effect of the
company's receivables financing facility, increased by $21.0 million to $362.9
million at September 30, 2001 as a result of sales growth.
Capital Expenditures. Capital expenditures were approximately $12.5 million in
the first nine months of 2001, including $3.3 million for the purchase of land
to be used for the company's future headquarters. The company spent $5.7
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.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued the
following new accounting pronouncements: SFAS 141, Business Combinations, SFAS
142, Goodwill and Other Intangible Assets, and SFAS 143, Accounting for Asset
Retirement Obligations.
The provisions of SFAS 141 require that all business combinations initiated
after June 30, 2001 be accounted for by the purchase method and also specify
criteria that intangible assets acquired in a business combination must meet to
be recognized and reported apart from goodwill. The adoption of this standard
will affect the company's accounting for future acquisitions.
The provisions of SFAS 142 state that goodwill should not be amortized but
should be tested for impairment upon adoption of the standard, and at least
annually, at the reporting unit level. The company will be required to adopt
the provisions of this standard beginning on January 1, 2002. As a result, the
company will no longer record goodwill amortization expense. The company will
also be required to perform an assessment of whether there is an indication that
goodwill is impaired as of the date of adoption. Any such transitional
impairment loss will be recognized as the cumulative effect of a change in
accounting principle in the company's consolidated statement of income.
As of the date of adoption, the company expects to have unamortized goodwill in
the amount of $198.9 million, which will be subject to the transition provisions
of SFAS 142. Amortization expense related to goodwill was $1.5 million for each
of the three month periods ended September 30, 2001 and 2000, and $4.5 million
for each of the nine month periods ended September 30, 2001 and 2000. Based on
current values, management believes that the company is unlikely to incur a
transitional impairment loss.
19
The provisions of SFAS 143 address financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The company will be required to adopt the
provisions of this standard beginning on January 1, 2003. Management believes
that adoption of this standard will not have a material effect on the company's
results of operations.
In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. The provisions of SFAS 144 will modify the
accounting treatment for impairments of long-lived assets and discontinued
operations. The company will be required to adopt the provisions of this
standard beginning on January 1, 2002. Management believes that adoption of
this standard will not have a material effect on the company's 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, dependence on sales to
certain customers, dependence on suppliers, competition, changing trends in
customer profiles, the ability to timely or adequately respond to technological
advances in the medical supply industry, the ability to successfully identify,
manage or integrate possible future acquisitions, outcome of outstanding
litigation and changes in government regulations. Although management 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
Management 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.
20
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 September 30, 2001, there have been no material developments in any
legal proceedings reported in such Annual Report.
Item 2. Changes in Securities and Use of Proceeds
On July 2, 2001, Owens & Minor, Inc. issued $200 million of 8 1/2% Senior
Subordinated Notes. The Senior Subordinated Indenture and First Supplemental
Indenture governing the Notes (attached as Exhibits 4.1 and 4.2 hereto) contain
certain financial covenants and limitations on the payment of dividends.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10 Form of Authorized Distributor Agreement between Novation, LLC and Owens &
Minor, effective as of July 1, 2001.*
* The company has requested confidential treatment by the Commission of
certain portions of this Agreement, which portions have been omitted and
filed separately with the Commission.
(b) Reports on Form 8-K
The company filed a Current Report on Form 8-K dated October 16, 2001,
under Items 5 and 7, with respect to the press release issued by the
company reporting earnings for the three month period ended September 30,
2001.
21
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 November 14, 2001
--------------------- ___________________________
Jeffrey Kaczka
Senior Vice President
Chief Financial Officer
Date November 14, 2001
---------------------- ___________________________
Olwen B. Cape
Vice President & Controller
Chief Accounting Officer
22
Exhibits Filed with SEC
-----------------------
Exhibit #
---------
10 Form of Authorized Distributor Agreement between Novation, LLC and Owens &
Minor, effective as of July 1, 2001.*
* The company has requested confidential treatment by the Commission of certain
portions of this Agreement, which portions have been omitted and filed
separately with the Commission.
23