SELECTED FINANCIAL DATA(2) (IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
OWENS & MINOR, INC. AND SUBSIDIARIES
Year ended December 31, 1994 1993 1992
INCOME STATEMENT DATA:
Continuing operations:
Net sales $ 2,395,803 $ 1,396,971 $1,177,298
Cost of sales 2,163,459 1,249,660 1,052,998
Gross margin 232,344 147,311 124,300
Selling, general and administrative expenses 163,621 106,362 90,027
Depreciation and amortization 13,034 7,593 5,861
Interest expense, net 12,098 2,939 2,472
Nonrecurring restructuring expenses (1) 29,594 - -
Total expenses 218,347 116,894 98,360
Income before income taxes 13,997 30,417 25,940
Provision for income taxes 6,078 11,900 10,505
Income from continuing operations 7,919 18,517 15,435
Discontinued operations:
Income from discontinued operations, net of taxes - - 77
Gain on disposals, net of other provisions and taxes - 911 5,610
Cumulative effect of change in accounting principles - 706 (730)
Net income 7,919 20,134 20,392
Dividends on preferred stock 3,309 - -
Net income attributable to common stock $ 4,610 $ 20,134 $ 20,392
COMMON SHARE DATA:
Net income per common share:
Continuing operations $ .15 $ .60 $ .52
Discontinued operations - .03 .20
Cumulative effect of change in accounting principles - .02 (.03)
Net income per common share $ .15 $ .65 $ .69
Cash dividends per common share $ .170 $ .140 $ .110
Weighted average common shares and common share
equivalents 31,108 31,013 29,682
Price range of common stock per share:
High $ 18.13 $ 15.59 $ 10.11
Low $ 13.25 $ 8.42 $ 7.33
SELECTED RATIOS:
Gross margin as a percent of net sales* 9.7% 10.5% 10.6%
Selling, general and administrative expenses as a percent
of net sales* 6.8% 7.6% 7.7%
Average receivable days sales outstanding* 35.9 34.2 35.7
Average inventory turnover* 8.8 11.5 11.4
Return on average total equity* 3.7% 14.6% 14.4%
Current ratio 1.8 2.0 1.8
BALANCE SHEET DATA:
Working capital $ 281,788 $ 139,091 $ 99,826
Total assets 868,560 334,322 274,540
Long-term debt 248,427 50,768 24,986
Capitalization ratio 49.2% 27.1% 17.6%
Shareholders' equity 256,176 136,943 116,659
Shareholders' equity per common share outstanding $ 4.59 $ 4.50 $ 3.97
* CONTINUING OPERATIONS ONLY.
(1) THE COMPANY INCURRED $17.9 MILLION (NET OF $11.7 MILLION TAX
BENEFIT) OR $.57 PER COMMON SHARE OF NONRECURRING RESTRUCTURING EXPENSES
RELATED TO ITS RESTRUCTURING PLAN DEVELOPED IN CONJUNCTION WITH ITS
COMBINATION WITH STUART MEDICAL, INC. SEE FURTHER DISCUSSION IN NOTE 3
OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
(2) SEE NOTE 2 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR A
DISCUSSION OF ACQUISITIONS AND DIVESTITURES THAT MAY AFFECT
COMPARABILITY OF DATA.
1991 1990 1989 1988
INCOME STATEMENT DATA:
Continuing operations:
Net sales $1,021,014 $ 916,709 $ 708,089 $500,435
Cost of sales 918,304 827,441 641,011 445,456
Gross margin 102,710 89,268 67,078 54,979
Selling, general and administrative expenses 77,082 67,171 57,943 42,668
Depreciation and amortization 4,977 4,210 2,795 2,416
Interest expense, net 4,301 5,858 5,078 2,230
Nonrecurring restructuring expenses (1) - - - -
Total expenses 86,360 77,239 65,816 47,314
Income before income taxes 16,350 12,029 1,262 7,665
Provision for income taxes 6,681 4,634 628 3,032
Income from continuing operations 9,669 7,395 634 4,633
Discontinued operations:
Income from discontinued operations, net of taxes 2,358 1,380 1,855 3,734
Gain on disposals, net of other provisions and taxes - - - -
Cumulative effect of change in accounting principles - - - -
Net income 12,027 8,775 2,489 8,367
Dividends on preferred stock - - - -
Net income attributable to common stock $ 12,027 $ 8,775 $ 2,489 $ 8,367
COMMON SHARE DATA:
Net income per common share:
Continuing operations $ .33 $ .26 $ .02 $ .16
Discontinued operations .08 .05 .07 .13
Cumulative effect of change in accounting principles - - - -
Net income per common share $ .41 $ .31 $ .09 $ .29
Cash dividends per common share $ .088 $ .077 $ .077 $ .075
Weighted average common shares and common share
equivalents 29,462 28,755 28,412 28,263
Price range of common stock per share:
High $ 10.78 $ 4.45 $ 4.71 $ 4.52
Low $ 4.17 $ 3.19 $ 3.37 $ 2.62
SELECTED RATIOS:
Gross margin as a percent of net sales* 10.1% 9.7% 9.5% 11.0%
Selling, general and administrative expenses as a percent
of net sales* 7.6% 7.3% 8.2% 8.5%
Average receivable days sales outstanding* 38.1 39.2 41.4 41.0
Average inventory turnover* 11.1 10.8 8.5 7.6
Return on average total equity* 10.6% 9.1% .8% 6.3%
Current ratio 1.9 1.9 2.4 2.7
BALANCE SHEET DATA: $ 122,675 $ 117,983 $ 133,309 $106,545
Working capital 311,786 290,233 258,683 189,916
Total assets
Long-term debt 67,675 71,339 85,324 46,819
Capitalization ratio 41.1% 45.6% 52.4% 37.8%
Shareholders' equity 97,091 85,002 77,560 77,170
Shareholders' equity per common share outstanding $ 3.34 $ 2.99 $ 2.75 $ 2.75
1987 1986 1985 1984
INCOME STATEMENT DATA:
Continuing operations:
Net sales $ 367,034 $ 272,222 $ 199,294 $170,777
Cost of sales 326,651 239,170 171,099 145,990
Gross margin 40,383 33,052 28,195 24,787
Selling, general and administrative expenses 31,302 26,204 23,196 21,262
Depreciation and amortization 1,922 1,319 1,050 772
Interest expense, net 2,006 1,789 1,303 1,279
Nonrecurring restructuring expenses (1) - - - -
Total expenses 35,230 29,312 25,549 23,313
Income before income taxes 5,153 3,740 2,646 1,474
Provision for income taxes 2,148 1,806 1,224 652
Income from continuing operations 3,005 1,934 1,422 822
Discontinued operations:
Income from discontinued operations, net of taxes 3,481 2,968 2,986 2,815
Gain on disposals, net of other provisions and taxes - - - -
Cumulative effect of change in accounting principles - - - -
Net income 6,486 4,902 4,408 3,637
Dividends on preferred stock - - - -
Net income attributable to common stock $ 6,486 $ 4,902 $ 4,408 $ 3,637
COMMON SHARE DATA:
Net income per common share:
Continuing operations $ .11 $ .07 $ .06 $ .04
Discontinued operations .12 .11 .12 .15
Cumulative effect of change in accounting principles - - - -
Net income per common share $ .23 $ .18 $ .18 $ .19
Cash dividends per common share $ .065 $ .059 $ .053 $ .047
Weighted average common shares and common share
equivalents 28,187 27,702 24,245 19,259
Price range of common stock per share:
High $ 4.37 $ 4.00 $ 3.61 $ 2.04
Low $ 2.32 $ 2.62 $ 1.75 $ 1.48
SELECTED RATIOS:
Gross margin as a percent of net sales* 11.0% 12.1% 14.1% 14.5%
Selling, general and administrative expenses as a percent
of net sales* 8.5% 9.6% 11.6% 12.5%
Average receivable days sales outstanding* 41.0 40.6 45.9 44.0
Average inventory turnover* 8.0 8.3 7.9 7.0
Return on average total equity* 5.4% 5.0% 4.2% 2.7%
Current ratio 2.8 2.7 2.6 3.0
BALANCE SHEET DATA: $ 89,056 $ 71,317 $ 54,248 $ 44,840
Working capital 154,390 126,779 96,825 74,702
Total assets
Long-term debt 33,713 42,562 27,546 20,092
Capitalization ratio 32.3% 51.0% 43.4% 38.5%
Shareholders' equity 70,761 40,878 35,914 32,059
Shareholders' equity per common share outstanding $ 2.52 $ 2.05 $ 1.85 $ 1.69
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
OWENS & MINOR, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
1994 COMPARED TO 1993
NET SALES
Net sales increased 71.5% to $2.4 billion in 1994. Assuming the
Stuart Medical, Inc. (Stuart) combination occurred January 1, 1993, the
increase was approximately 16.6%. The "same store" sales increase is due
primarily to new contracts with large healthcare providers such as
Columbia/HCA Healthcare Corp., Premier Health Alliance and the
Department of Defense; a new distribution agreement with VHA Inc., the
Company's largest contract, which provided incentives to member
hospitals to increase purchases from Owens & Minor; and the continued
product line expansion by the Company. Sales under the VHA agreement
grew to approximately $960 million, or 40% of total net sales, in 1994
from approximately $460 million, or 33% of net sales, in 1993. During
the fourth quarter of 1994, VHA expanded its distribution agreement to
include Baxter Healthcare Corporation, the Company's single largest
competitor. The loss of sales related to this change in the agreement is
projected to be offset by the ability of the Company to distribute
Baxter products to VHA member hospitals, which was not previously
possible.
GROSS MARGIN
Gross margin as a percent of net sales decreased by .8
percentage points to 9.7% in 1994. The decrease is a result of the sales
increases from large lower margin contracts. As the healthcare industry
consolidates, gross margin as a percent to net sales will continue to be
under pressure. However, the Company should continue to be able to
offset percentage decreases with sales volume increases, producing an
overall increase in gross margin dollars (58% increase in 1994).
Additionally, the Company anticipates stabilizing the gross margin
percent by offering more value-added services to its customers and
working with its manufacturing partners in achieving equitable returns,
on the sales it provides these partners.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased to 6.8%
of net sales in 1994 from 7.6% in 1993. This decrease was primarily the
result of the synergies obtained from the Stuart combination and the
sales volume increases from large customers such as VHA, Columbia/HCA
Healthcare Corp. and Premier Health Alliance. The Company will be able
to reduce this ratio further as conversions to one computer system are
completed, a distributed (client/server) environment is implemented and
the healthcare industry continues to consolidate. The majority of system
conversions are scheduled for completion by the latter part of 1995, the
client/server applications and distributed workflow will continue over
the next few years and the Company will continue to pursue consolidation
opportunities within the distribution segment of the healthcare industry
and assist its partners in the consolidation of other segments.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased by 71.7%, due primarily
to the additional goodwill amortization and depreciation expenses
related to the Stuart combination and the depreciation of the Company's
continued investment in new and improved technology.
INTEREST EXPENSE, NET
Net interest expense increased $9.2 million to $12.1 million in
1994. The increase is due primarily to the debt increase related to the
Stuart combination and the increase in the Company's average interest
rate on its variable rate revolving credit facility from 3.8% in 1993 to
5.6% in 1994. The rate increase is due to the overall rate increases in
the lending markets. The Company has initiated an interest rate
management program to fix the interest rate on a portion of the
revolving credit facility.
NONRECURRING RESTRUCTURING EXPENSES
As a result of the Company's combination with Stuart and its
related decision to outsource the operation of its mainframe computer
system, the Company implemented a restructuring plan. The plan was
designed to eliminate duplicate costs within the Company by closing
overlapping facilities and redesigning ineffective processes, and to
focus internal teammates on implementing client/server technology.
During 1994, the Company incurred approximately $29.6 million (pretax)
or $.57 per common share (after tax) of nonrecurring expenses related to
the plan. These expenses are comprised primarily of duplicate facility
costs (approximately $15.2 million), costs associated with redesigning
and implementing operating processes to increase efficiencies within the
combined company (approximately $7.1 million) and costs associated with
the contracting out of the Company's mainframe computer operations
(approximately $7.3 million). The total expenses and timeframe of the
plan have expanded from the Company's initial estimates for several
reasons. The sales growth combined with the Stuart combination created a
need to outsource the operations of the mainframe computer. Efforts were
extended to reduce duplicate costs and improveefficiencies in the
Company's operating processes. Finally and most importantly, the Company
wanted to ensure the effectiveness of the plan. The restructuring plan
is anticipated to be completed during 1995 with expected charges to
income of approximately $9.0 million in 1995.
INCOME TAXES
The effective tax rate increased by 4.3 percentage points to
43.4% in 1994, due primarily to the non-deductible goodwill arising out
of the Stuart combination. A complete reconciliation of the statutory
income tax rate to the Company's effective income tax rate is provided
in Note 11 of the Notes to Consolidated Financial Statements.
INCOME FROM CONTINUING OPERATIONS
Income decreased by $10.6 million due to the nonrecurring
restructuring expenses previously discussed. Without these expenses the
Company's income increased by $7.3 million or 39.3% and the Company's
income per common share increased to $.72 from $.60 in 1993. The
increase is due primarily to the sales growth and administrative
synergies the Company has achieved.
RESULTS OF OPERATIONS
1993 COMPARED TO 1992
CONTINUING OPERATIONS:
NET SALES
Net sales from continuing operations increased 18.7% to $1.4
billion in 1993. Same store sales increased 15.0%. The increase is
primarily the result of increased account penetration, the development
of new partnerships with key customers around the country, market share
improvement due to the continuing consolidation in the industry, the
sale of new products and lines and the opening or acquisitions of six
new distribution centers. Net sales under the VHA contract increased by
$72.6 million, or 18.8%, to $459.6 million in 1993.
GROSS MARGIN
Gross margin as a percent of net sales decreased by .1 percentage
point to 10.5% in 1993. This decrease is a result of continued margin
pressure and a greater percentage of business coming from major national
accounts. The margin decrease was offset through aggressive and
strategic buying practices, the development of revenue-producing
value-added services for our customers and tighter control of price and
contract adjustments using electronic data interchange (EDI).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased to 7.6% of
net sales in 1993 from 7.7% in 1992. This decrease was primarily the
result of the Company's effort to reduce administrative expenses to
offset the margin decrease. The decrease in administrative expense was
partially offset with the costs of opening new distribution centers in
Birmingham, Detroit, Boston and Seattle. The Company also continued its
commitment to quality through investing in training and information
system technology development.
INTEREST EXPENSE, NET
Net interest expense increased $.5 million to $2.9 million in
1993. The average interest rate decreased from 8.3% in 1992 to 6.5% in
1993. The increase in interest expense was primarily the result of
increased borrowings to finance the new distribution centers discussed
above, the acquisitions of Lyons Physician Supply Company in Youngstown,
Ohio and A. Kuhlman & Company in Detroit, Michigan and increased
inventory from product line expansion.
INCOME TAXES
The effective tax rate decreased by 1.4 percentage points
from 40.5% in 1992 to 39.1% in 1993. A reconciliation of the
statutory income tax rate to the Company's effective income
tax rate is provided in Note 11 of the Notes to Consolidated
Financial Statements.
INCOME FROM CONTINUING OPERATIONS
Income increased by $3.1 million to $18.5 million in
1993. Income per common share increased by $.08 to $.60
per common share in 1993.
DISCONTINUED OPERATIONS
The Company's divestitures of the Wholesale Drug and Specialty
Packaging Divisions are discussed in Note 2 of the Notes to Consolidated
Financial Statements.
CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES. The
cumulative effect of this change in accounting for income taxes resulted
in a benefit of $.7 million in 1993.
FINANCIAL CONDITION
CAPITAL RESOURCES
As part of the Company's growth and commitment to being the low
cost distributor of medical/surgical supplies, the Company began in 1994
a major initiative to move from a mainframe computer system to an open
dis- tributed (client/server) environment. This initiative will be
ongoing over the next several years and will require significant capital
investment. The first phase of this project is scheduled for rollout
during the second quarter of 1995 and the payback is expected to be
realized immediately upon each phase's rollout. The payback should
consist of significantly improved asset management and reduced selling,
general and administrative expenses.
ASSET MANAGEMENT
During 1994, several factors unfavorably impacted the Company's
measurements of asset management. The Stuart combination, and several
new customer contracts requiring higher fill rates and expanded product
lines, combined to decrease asset turnover from 4.6 in 1993 to 3.7 in
1994, decrease inventory turnover from 11.5 in 1993 to 8.8 in 1994, and
increase accounts receivable days outstanding from 34.2 in 1993 to 35.9
in 1994. Although these measurements have declined, the Company
continues to be a leader in asset management within the industry. The
Company will continue to focus on asset management and, as its new
technology is implemented, should improve its measurements.
LIQUIDITY
The Company increased its debt to equity ratio to 49.2% in 1994
from 27.1% in 1993. This increase was caused by its combination with
Stuart, its interrelated restructuring plan, a reduction in operating
cash flow from Stuart receivables not purchased as part of the
combination, a reduction in operating cash flow from increased inventory
levels in response to customer requirements and its technology
investments. At December 31, 1994, the Company had approximately $115
million of unused credit under its $350 million revolving credit
facility. Subsequent to year end, the Company increased its credit
facility to $425 million to finance its technology initiatives, its
working capital growth and its initiatives to increase gross margin by
decreasing payment terms with its manufacturing partners. The Company
believes its financing resources more than adequately meet its needs.
CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
OWENS & MINOR, INC. AND SUBSIDIARIES
Year ended December 31, 1994 1993 1992
Continuing operations:
Net sales $2,395,803 $1,396,971 $1,177,298
Cost of sales 2,163,459 1,249,660 1,052,998
Gross margin 232,344 147,311 124,300
Selling, general and administrative expenses 163,621 106,362 90,027
Depreciation and amortization 13,034 7,593 5,861
Interest expense, net 12,098 2,939 2,472
Nonrecurring restructuring expenses 29,594 - -
Total expenses 218,347 116,894 98,360
Income before income taxes 13,997 30,417 25,940
Provision for income taxes 6,078 11,900 10,505
Income from continuing operations 7,919 18,517 15,435
Discontinued operations:
Income from discontinued operations, net of taxes - - 77
Gain on disposals, net of other provisions and taxes - 911 5,610
Cumulative effect of change in accounting principles - 706 (730)
Net income 7,919 20,134 20,392
Dividends on preferred stock 3,309 - -
Net income attributable to common stock $ 4,610 $ 20,134 $ 20,392
Net income per common share:
Continuing operations $ .15 $ .60 $ .52
Discontinued operations - .03 .20
Cumulative effect of change in accounting principles - .02 (.03)
Net income per common share $ .15 $ .65 $ .69
Cash dividends per common share $ .17 $ .14 $ .11
Weighted average common shares and common
share equivalents 31,108 31,013 29,682
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA)
OWENS & MINOR, INC. AND SUBSIDIARIES
December 31, 1994 1993
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 513 $ 2,048
Accounts and notes receivable, net of allowance of $
5,340 in 1994
and $4,678 in 1993 290,240 144,629
Merchandise inventories 323,851 124,848
Other current assets 26,222 10,638
TOTAL CURRENT ASSETS 640,826 282,163
Property and equipment, net 38,620 23,863
Excess of purchase price over net assets acquired, net 175,956 17,316
Other assets 13,158 10,980
TOTAL ASSETS $868,560 $334,322
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 236 $ 1,494
Accounts payable 296,878 120,699
Accrued payroll and related liabilities 11,294 5,768
Other accrued liabilities 50,630 15,111
TOTAL CURRENT LIABILITIES 359,038 143,072
Long-term debt 248,427 50,768
Accrued pension and retirement plan 4,919 3,539
TOTAL LIABILITIES 612,384 197,379
SHAREHOLDERS' EQUITY
Preferred stock, par value $100 per share; authorized
- 10,000 shares
Series A; Participating Cumulative Preferred
Stock; none issued - -
Series B; Cumulative Preferred Stock; 4.5%,
convertible; issued - 1,150 shares in 1994 115,000 -
Common stock, par value $2 per share; authorized -
200,000 shares;
issued - 30,764 shares in 1994 and 20,285 shares
in 1993 61,528 40,569
Paid-in capital 1,207 9,258
Retained earnings 78,441 87,116
TOTAL SHAREHOLDERS' EQUITY 256,176 136,943
Commitments and contingencies
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $868,560 $334,322
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
OWENS & MINOR, INC. AND SUBSIDIARIES
Year ended December 31, 1994 1993 1992
OPERATING ACTIVITIES
Net income $ 7,919 $ 20,134 $ 20,392
Noncash charges (credits) to income
Depreciation and amortization 13,034 7,593 5,861
Provision for losses on accounts and notes receivable 1,149 497 1,351
Provision for LIFO reserve 671 661 1,056
Gain on disposals of business segments, net - (911) (5,610)
Cumulative effect of change in accounting principles - (706) 730
Other, net 1,093 897 1,135
Cash provided by net income and noncash charges 23,866 28,165 24,915
Changes in assets and liabilities, net of effects from
acquisitions
Accounts and notes receivable (144,917) (23,424) 5
Merchandise inventories (81,318) (28,232) 359
Accounts payable 22,375 13,307 (8,885)
Net change in other current assets and current
liabilities 25,323 (258) (10,591)
Other, net 790 431 (2,112)
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES (153,881) (10,011) 3,691
INVESTING ACTIVITIES
Business acquisitions, net of cash acquired (40,608) (2,416) -
Proceeds from disposals of business segments - - 50,920
Additions to property and equipment (6,634) (6,288) (4,955)
Other, net (1,513) (3,377) (2,535)
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES (48,755) (12,081) 43,430
FINANCING ACTIVITIES
Additions to long-term debt 197,088 37,000 -
Reductions of long-term debt (55,032) (17,471) (44,619)
Other short-term financing 65,426 765 6,599
Cash dividends paid (7,664) (4,222) (3,224)
Exercise of options 1,283 1,000 436
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 201,101 17,072 (40,808)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,535) (5,020) 6,313
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,048 7,068 755
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 513 $ 2,048 $ 7,068
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT RATIOS AND PER
SHARE DATA)
OWENS & MINOR, INC. AND SUBSIDIARIES
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Owens &
Minor, Inc. and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and marketable securities with
an original maturity at the date of purchase of three months or less.
The carrying amount of marketable securities approximates fair value
because of the short maturity of these instruments.
MERCHANDISE INVENTORIES
Merchandise inventories are valued at the lower of cost or
market with the cost of approximately 64% of the Company's inventories
determined on a last-in, first-out (LIFO) basis and the remainder on a
first-in, first-out (FIFO) basis.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. At inception, capital
leases are recorded at the lesser of fair value of the leased property
or the discounted present value of the minimum lease payments. The cost
of assets sold or retired and the related amounts of accumulated
depreciation and amortization have been eliminated from the accounts in
the year of sale or retirement and the resulting gain or loss has been
reflected in operations. Normal maintenance and repairs are expensed as
incurred, and renovations and betterments are capitalized.
Depreciation is computed on the straight-line method over the
estimated useful lives of the various assets. Capital leases and
leasehold improvements are amortized by the straight-line method over
the shorter of their estimated useful lives or the term of the lease.
Accelerated methods and lives are used for income tax reporting
purposes. Estimated useful lives for financial reporting purposes are:
ESTIMATED
ASSETS USEFUL LIFE
Buildings and improvements 20-40 years
Furniture, fixtures and equipment 3-10 years
Transportation equipment 3-6 years
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED
The excess of purchase price over net assets acquired (goodwill) is
being amortized on a straight-line basis over 40 years from the dates of
acquisition. Based upon management's assessment of future cash flows of
acquired businesses, the carrying value of goodwill at December 31,
1994, has not been impaired.
COMPUTER SOFTWARE
Computer software, purchased in connection with major system
developments, is capitalized. Additionally, certain software development
costs are capitalized when incurred and when technological feasibility
has been established. Amortization of all capitalized software costs is
computed on a product-by-product basis over the estimated economic life
of the product which ranges from three to five years. Computer software
costs are included in other assets in the Consolidated Balance Sheets.
PENSION AND RETIREMENT PLANS
Annual costs of the Company's pension and retirement plans are
determined actuarially in accordance with Statement of Financial
Accounting Standards No. 87, EMPLOYERS' ACCOUNTING FOR PENSIONS.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Annual costs of the Company's postretirement benefits other than
pensions are determined actuarially in accordance with Statement of
Financial Accounting Standards No. 106, EMPLOYERS' ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS.
INCOME TAXES
The Company uses the asset and liability method in accounting for
income taxes in accordance with Statement of Financial Accounting
Standards No. 109, ACCOUNTING FOR INCOME TAXES. Deferred income taxes
result primarily from the use of different methods for financial
reporting and tax purposes.
NET INCOME PER COMMON SHARE
Net income per common share is computed using the weighted average
number of shares of common stock and common stock equivalents
outstanding during the year. The convertible preferred stock is
considered a common stock equivalent; however, it has been excluded
from the number of weighted average shares due to the dilutive effect
of the preferred dividend. The assumed conversion of all convertible
debentures has not been included in the computation because the
resulting dilution is not material.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into interest rate swap and cap agreements to
manage interest rate risk of variable debt and not for trading purposes.
The differences to be paid or received on the interest rate swaps and
the amortization of the cap fees are included in interest expense.
NOTE 2 - BUSINESS ACQUISITIONS AND DIVESTITURES
On May 10, 1994, the Company paid $40,200 and exchanged 1,150 shares
of 4.5%, $100 par value, Series B Cumulative Preferred Stock for all the
capital stock of Stuart Medical, Inc. (Stuart), a distributor of
medical/surgical supplies. The Series B Cumulative Preferred Stock is
convertible into approximately 7,000 shares of common stock. The
transaction was accounted for as a purchase and, accordingly, the
operating results of Stuart have been included in the Company's
consolidated operating results since May 1, 1994. The purchase price
exceeded the net assets acquired by approximately $159,000 which is
being amortized on a straight-line basis over 40 years.
The following unaudited pro forma results of operations for the years
ended December 31,1994, and 1993 assume the Stuart combination occurred
January 1, 1993. The amounts reflect adjustments, such as increased
interest expense on acquisition debt, amortization of the excess of
purchase price over net assets acquired, reversal of nonrecurring
restructuring expenses and related income tax effects.
Year Ended December 31, 1994 1993
Net sales $2,718,000 $2,331,000
Net income $ 28,100 $ 24,200
Net income per common share $ .74 $ .62
The pro forma results are not necessarily indicative of what actually
would have occurred if the combination had been in effect for the
entire years presented. In addition, they are not intended to be a
projection of future results.
On October 1, 1994, the Company acquired substantially all of the
assets of Emery Medical Supply, Inc. (Emery) of Denver, Colorado for
cash. The acquisition was accounted for as a purchase with results of
Emery included from the acquisition date. Pro forma results of this
acquisition, assuming it had been made at the beginning of the year,
would not be materially different from the results reported.
On May 28, 1993, the Company issued shares of its common stock for
all the outstanding common stock of Lyons Physician Supply Company
(Lyons) of Youngstown, Ohio. This merger has been accounted for as a
pooling of interests, and the Company's 1993 consolidated financial
statements include the activity of Lyons as of January 1, 1993.
On June 25, 1993, the Company acquired all of the outstanding common
stock of A. Kuhlman & Co. (Kuhlman) of Detroit, Michigan. The
acquisition was accounted for as a purchase with the results of Kuhlman
included from the acquisition date. The cost of the acquisition was
approximately $2,900 and exceeded the net book value of the tangible
assets acquired and liabilities assumed by approximately $1,700. Pro
forma results of this acquisition, assuming it had been made at the
beginning of the year, would not be materially different from the
results reported.
On February 28, 1992, the Company sold substantially all of the net
assets of its Wholesale Drug Division to Bergen Brunswig Corporation.
Accordingly, the operations of the Wholesale Drug Division have been
classi- fied as discontinued operations for all years presented in the
accompanying Consolidated Statements of Income. The proceeds from the
sale of approximately $49,552 resulted in a gain of $9,783, net of
applicable income tax expense of $6,408, for the year ended December 31,
1992.
On May 29, 1992, the Company sold substantially all of the net
assets of Vangard Labs, Inc., completing the disposition of the
Specialty Packaging Segment, to Medical Technology Systems, Inc. The
proceeds from the sale of approximately $2,000 resulted in a loss of
$2,858, net of applicable income tax benefit of $1,257, for the year
ended December 31, 1992.
The Company periodically re-evaluates the adequacy of its accruals
associated with discontinued operations. In 1993, the Company decreased
its loss provision for discontinued operations by $911 based on
settlement of established liabilities and changes in prior estimates of
expenses. In 1992, the loss provision was increased by $1,315 for such
changes in prior estimates.
NOTE 3 - NONRECURRING RESTRUCTURING EXPENSES
During 1994, the Company incurred $29,594 of nonrecurring
restructuring expenses in connection with the Company's combination with
Stuart and the Company's related decision to contract out the management
and operation of its mainframe computer system. These expenses are
comprised primarily of duplicate facility costs (approximately $15,200),
costs associated with redesigning and implementing operating processes
to increase efficiencies within the combined company (approximately
$7,100) and costs associated with the contracting out of the Company's
mainframe computer operations (approximately $7,300). The nonrecurring
expenses include non-cash asset write downs of approximately $3,200 and
accrued liabilities of $2,100 at December 31, 1994. The restructuring
plan is anticipated to be completed during 1995 with expected charges to
income of approximately $9,000 in 1995.
NOTE 4 - MERCHANDISE INVENTORIES
Approximately 64% of the Company's inventories are valued using the
last-in, first-out (LIFO) method of inventory valuation. If LIFO
inventories had been valued at current costs (FIFO), they would have
been greater by the following amounts:
DECEMBER 31, 1994 $18,291
December 31, 1993 $17,620
December 31, 1992 $16,959
NOTE 5 - PROPERTY AND EQUIPMENT
The Company's investment in property and equipment consists of the
following:
December 31, 1994 1993
Land and buildings $13,589 $ 4,617
Furniture, fixtures and equipment 39,566 27,042
Transportation equipment 1,264 1,093
Capitalized leases 835 7,776
Leasehold improvements 6,891 5,898
62,145 46,426
Less: Accumulated depreciation 22,930 17,304
Less: Accumulated amortization of capitalized leases 595 5,259
Property and equipment, net $38,620 $23,863
For continuing operations, depreciation expense for property and
equipment for 1994, 1993, and 1992 was $8,417, $6,368 and $5,129,
respectively.
NOTE 6 - ACCOUNTS PAYABLE
The Company's accounts payable consists of the following:
December 31, 1994 1993
Trade accounts payable $209,849 $ 99,096
Drafts payable 87,029 21,603
Total accounts payable $296,878 $120,699
NOTE 7 - LONG-TERM DEBT
The Company's long-term debt consists of the following:
December 31, 1994 1993
Revolving credit notes $235,300 $ 37,000
0% Subordinated Note 9,067 8,214
Convertible Subordinated Debenture 3,333 3,500
Other 963 3,548
248,663 52,262
Current maturities (236) (1,494)
Long-term debt $248,427 $ 50,768
Simultaneous with the Stuart combination, the Company entered into a
$350,000 Senior Credit Agreement with interest based on, at the
Company's discretion, the London Interbank Borrowing Offering Rate
(LIBOR) or the Prime Rate. The Agreement expires in April 1999. Under
certain provisions of the Agreement, the Company is required to maintain
tangible net worth at specified levels. Other financial covenants relate
to levels of indebtedness, liquidity and cash flow. The proceeds were
used to fund the $40,200 cash paid in the combination, repay certain of
the long-term debt of Stuart and the Company and fund the working
capital requirements associated with the accounts receivable of Stuart.
Stuart sold its accounts receivable at a discount to a related funding
company, thus no receivables were acquired by the Company in the
combination.
The Company entered into interest rate swap and cap agreements to
reduce the potential impact of increases in interest rates on the
$350,000 Senior Credit Agreement. Under the swap agreements the Company
pays the counterparties a fixed interest rate, ranging from 6.35%-6.71%,
and the counterparties pay the Company interest at a variable rate based
on the 3-month LIBOR. The total notional amount of the interest rate
swaps was $55,000 at December 31, 1994 and the term of the agreements
ranged from 2-3 years. Under the interest rate cap agreements, the
Company receives from the counterparties amounts by which the 3-month
LIBOR rate exceeds 6.5% based on the notional amounts of the cap
agreements which total $20,000. The term of these agreements is 2 years.
The Company is exposed to certain losses in the event of nonperformance
bythe counterparties to these agreements, however, the Company's
exposure is not significant and nonperformance is not anticipated. Based
on estimates obtained from a dealer at which the interest rate swap and
cap agreements could be settled, the Company had unrealized gains of
approximately $1,547 and $266, respectively, as of December 31, 1994.
On May 31, 1989, the Company issued an $11,500, 0% Subordinated Note
and a $3,500, 6.5% Convertible Subordinated Debenture to partially
finance the National Healthcare acquisition. The 0% SubordinatedNote due
May 31, 1997 was discounted for financial reporting purposes at an
effective rate of 10.4% to $5,215on the date of issuance. In 1994, the
6.5% Convertible Subordinated Debenture was exchanged for a $3,333, 9.1%
Convertible Subordinated Debenture which is convertible into
approximately 867 common shares. Interest is payable semi-annually on
May 31 and November 30. The Company can redeem all or any portion of the
debentures without penalty.
Based on the borrowing rates currently available to the Company for
loans with similar terms and average maturities, except for the
convertible debenture which is valued at book value because the
conversion price was substantially below the current market price, the
fair value of long-term debt, including current maturities, is
approximately $248,980 as of December 31, 1994.
Cash payments for interest during 1994, 1993 and 1992 were $9,831,
$2,341 and $2,126, respectively.
Maturities of long-term debt for the five years subsequent to 1994
are: 1995 - $236; 1996 - $3,491;1997 - $9,143; 1998 - $78; and 1999 -
$235,381.
NOTE 8 - EMPLOYEE BENEFIT PLANS
The Company has a noncontributory pension plan covering substantially
all employees. Employees become participants in the plan after one year
of service and attainment of age 21. Pension benefits are based on years
of service and average compensation. The amount funded for this plan is
not less than the minimum required under federal law nor more than the
amount deductible for federal income tax purposes. Plan assets consist
primarily of equity securities, including 34 shares as of December 31,
1994 of the Company's common stock, and U.S. Government securities.
The Company also has a noncontributory, unfunded retirement plan for
certain officers and other key employees. Benefits are based on a
percentage of the employees' compensation. The Company maintains life
insurance policies on plan participants to act as a financing source for
the plan.
The following table sets forth the plans' financial status and the
amounts recognized in the Company's Consolidated Balance Sheets at
December 31, 1994 and 1993:
Pension Plan Retirement Plan
1994 1993 1994 1993
Actuarial present value of benefit obligations:
Accumulated benefit obligations
Vested $ (12,302) $ (10,984) $ (1,195) $ (1,225)
Non-vested (939) (528) (1,018) (780)
Total accumulated benefit obligations (13,241) (11,512) (2,213) (2,005)
Additional amounts related to projected salary increases (1,446) (2,110) (1,366) (1,226)
Projected benefit obligations for service rendered to date (14,687) (13,622) (3,579) (3,231)
Plan assets at fair market value 12,696 13,603 - -
Plan assets under projected benefit obligations (1,991) (19) (3,579) (3,231)
Unrecognized net (gain) loss from past experience 1,058 (42) 1,108 1,080
Unrecognized prior service cost (benefit) 407 479 (22) (23)
Unrecognized net (asset) obligation being recognized
over 11 and 17 years, respectively (214) (321) 328 369
Adjustment required to recognize minimum liability
under SFAS 87 - - (49) (200)
Accrued pension asset (liability) $ (740) $ 97 $ (2,214) $ (2,005)
The components of net periodic pension cost for both plans are as follows:
Year ended December 31, 1994 1993 1992
Service cost-benefits earned during the year $ 1,314 $ 1,146 $ 944
Interest cost on projected benefit obligations 1,232 1,056 994
Actual return on plan assets 436 (1,450) (748)
Net amortization and deferral (1,462) 453 (145)
Net periodic pension cost $ 1,520 $ 1,205 $1,045
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of
the projected benefit obligations was assumed to be 8.0% and 5.5% for
1994, respectively, and 7.5% and 5.5% for 1993, respectively. The
expected long-term rate of return on plan assets was 8.5% for 1994 and
9.0% for 1993.
Substantially all employees of the Company may become eligible for
certain medical benefits if they remain employed until retirement age
and fulfill other eligibility requirements specified by the plan. The
plan is contributory with retiree contributions adjusted annually.
The Company adopted the accounting provisions of the Statement of
Financial Accounting Standards No. 106, EMPLOYERS' ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS as of January 1, 1992. This
standard requires that the expected cost of retiree health benefits be
charged to expense during the years that the employees render service
rather than the Company's past practice of recognizing these costs on a
pay-as-you-go basis. As part of adopting the new standard, the Company
recorded in the first quarter of 1992, a one-time, non-cash charge
against earnings of $1,200 before taxes and $730 after taxes, or $.03
per share. The cumulative adjustment as of January 1, 1992 represents
the discounted present value of expected future retiree health benefits
attributed to employees' service rendered prior to that date.
The following table sets forth the plan's financial status and the
amount recognized in the Company's Consolidated Balance Sheets at
December 31, 1994 and 1993:
Accumulated postretirement benefit obligation: 1994 1993
Retirees $ (246) $ (251)
Fully eligible active plan participants (590) (464)
Other active plan participants (1,391) (980)
Accumulated postretirement benefit obligation (2,227) (1,695)
Unrecognized loss from past experience 262 64
Accrued postretirement benefit liability $ (1,965) $ (1,631)
The components of net periodic postretirement benefit cost are as follows:
Year Ended December 31, 1994 1993 1992
Service cost-benefits earned during the year $206 $142 $137
Interest cost on accumulated postretirement benefit
obligation 160 122 105
Net amortization 6 - -
Net periodic postretirement benefit cost $372 $264 $242
For measurement purposes, a 13% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1994 and
1993; the rate was assumed to decrease gradually to 6.5% for the year
2001 and remain at that level thereafter. The health care cost trend
rate assumption has a significant effect on the amounts reported. To
illustrate, increasing the assumed health care cost trend rate by 1
percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1994 by $179 and
the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the year then ended by $49. The
weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8.0% for 1994 and 7.5% for 1993.
NOTE 9 - SHAREHOLDERS' EQUITY
On May 10, 1994, the Company issued 1,150 shares of Series B preferred
stock as part of its combination with Stuart. Each share of preferred
stock has an annual dividend of $4.50, payable quarterly, has voting
rights on items submitted to a vote of the holders of common stock, is
convertible into approximately 6.1 shares of com- mon stock at the
shareholders' option and is redeemable by the Company after April 1997
at a price of $100.
The changes in common stock, paid-in capital and retained earnings are
shown as follows:
COMMON
SHARES COMMON PAID-IN RETAINED
OUTSTANDING STOCK CAPITAL EARNINGS TOTAL
Balance December 31, 1991 12,924 $25,848 $ 19,319 $51,924 $ 97,091
Net income - - - 20,392 20,392
Cash dividends of $.11 per common share - - - (3,224) (3,224)
Proceeds from exercised stock options,
including tax benefits realized of $493 85 170 759 - 929
Common stock issued for incentive plan 15 30 269 - 299
Acquisition related payout 40 79 724 - 803
Stock split (three-for-two) 6,532 13,064 (13,064) - -
Retirement plan liability adjustment - - - 369 369
Balance December 31, 1992 19,596 39,191 8,007 69,461 116,659
Net income - - - 20,134 20,134
Cash dividends of $.14 per common share - - - (4,222) (4,222)
Proceeds from exercised stock options,
including tax benefits realized of $495 119 239 1,256 - 1,495
Common stock issued for incentive plan 31 62 387 - 449
Pooling of interests with Lyons Physician
Supply Co. 476 951 (1,189) 1,743 1,505
Acquisition related payout 63 126 797 - 923
Balance December 31, 1993 20,285 40,569 9,258 87,116 136,943
NET INCOME - - - 7,919 7,919
CASH DIVIDENDS OF $.17 PER COMMON SHARE - - - (5,221) (5,221)
CASH DIVIDENDS OF $4.50 PER PREFERRED SHARE - - - (3,309) (3,309)
PROCEEDS FROM EXERCISED STOCK OPTIONS,
INCLUDING TAX BENEFITS REALIZED OF $761 189 379 1,665 - 2,044
COMMON STOCK ISSUED FOR INCENTIVE PLAN 24 48 515 - 563
ACQUISITION RELATED PAYOUT 63 125 2,112 - 2,237
STOCK SPLIT (THREE-FOR-TWO) 10,203 20,407 (12,343) (8,064) -
BALANCE DECEMBER 31, 1994 30,764 $61,528 $ 1,207 $78,441 $141,176
A 3-for-2 stock split was distributed on June 8, 1994 to shareholders
of record as of May 24, 1994. All applicable share and per common share
information has been restated to reflect this transaction.
The Company has a shareholder rights agreement under which 8/27ths of
a Right is attendant to each outstanding share of common stock of the
Company. Each full Right entitles the registered holder to purchase from
the Company one one-hundredth of a share of Series A Participating
Cumulative Preferred Stock (the "Series A Preferred Stock"), at an
exercise price of $75 (the "Purchase Price"). The Rights will become
exercisable, if not earlier redeemed, only if a person or group
acquires 20% or more of the outstanding shares of the common stock or
announces a tender offer, the consummation of which would result in
ownership by a person or group of 20% or more of such outstanding
shares. Each holder of a Right, upon the occurrence of certain events,
will become entitled to receive, upon exercise and payment of the
Purchase Price, Series A Preferred Stock (or in certain circumstances,
cash, property or other securities of the Company or a potential
acquirer) having a value equal to twice the amount of the Purchase
Price. The Rights will expire on May 10, 2004, if not earlier redeemed.
NOTE 10 - STOCK OPTION PLANS
Under the terms of the Company's stock option plans, 3,347 shares of
common stock have been reserved for future issuance at December 31,
1994. Options may be designated as either Incentive Stock Options (ISO)
or non-qualified stock options. Options granted under the plans have an
exercise price equal to the fair market value of the stock on the date
of grant and can be exercised up to ten years from date of grant. As of
December 31, 1994, there were 1,742 non-qualified and no ISO stock
options issued and outstanding under the plans.
The changes in shares under outstanding options for each of the years
in the three year period ended December 31, 1994 are as follows:
SHARES GRANT PRICE
YEAR ENDED DECEMBER 31, 1994
OUTSTANDING AT BEGINNING OF YEAR 1,031 $ 3.55- 9.83
GRANTED 953 14.92-16.50
EXERCISED (227) 3.55- 9.83
EXPIRED/CANCELLED (15) 8.33-15.42
OUTSTANDING AT END OF YEAR 1,742 $ 3.55-16.50
EXERCISABLE 545
SHARES AVAILABLE FOR ADDITIONAL GRANTS 1,605
Year ended December 31, 1993
Outstanding at beginning of year 855 $ 3.53-9.33
Granted 425 8.59-9.83
Exercised (181) 3.53-9.33
Expired/cancelled (68) 3.55-9.33
Outstanding at end of year 1,031 $ 3.55-9.83
Exercisable 443
Shares available for additional grants 2,545
Year ended December 31, 1992
Outstanding at beginning of year 856 $ 2.37-9.33
Granted 235 8.00-8.72
Exercised (207) 2.37-5.59
Expired/cancelled (29) 3.74-9.33
Outstanding at end of year 855 $ 3.53-9.33
Exercisable 499
Shares available for additional grants 426
Stock Appreciation Rights (SARs) may be granted in conjunction with
any option granted under the plans, and to the extent either is
exercised, the other is cancelled. SARs are payable in cash, common
stock or a combination of both, equal to the appreciation of the
underlying shares from the date of grant to date of exercise, and may be
exercised from one up to ten years from date of grant. As of December
31, 1994, there were no SARs issued and outstanding.
NOTE 11 - INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No.
109, ACCOUNTING FOR INCOME TAXES, as of January 1, 1993. The cumulative
effect of this change in accounting for income taxes was a favorable
adjustment of $706 and is reported separately in the Consolidated
Statements of Income for the year ended December 1993. Prior years'
financial statements have not been restated to apply the provisions of
Statement 109.
The provision for income taxes for continuing operations consists of
the following:
Year ended December 31, 1994 1993 1992
Current tax provision
Federal $ 6,663 $10,405 $ 9,386
State 1,635 2,123 2,262
Total current provision 8,298 12,528 11,648
Deferred tax benefit
Federal (1,816) (555) (916)
State (404) (73) (227)
Total deferred benefit (2,220) (628) (1,143)
Provision for income taxes $ 6,078 $11,900 $10,505
A reconciliation of the Federal statutory rate to the Company's
effective income tax rate for continuing operations follows:
Year ended December 31, 1994 1993 1992
Federal statutory rate 35.0% 35.0% 34.0%
Increases (reductions) in the rate resulting from:
State income taxes, net of Federal income tax
benefit 4.6 4.4 5.1
Nondeductible goodwill 2.8 .5 .5
Other, net 1.0 (.8) .9
Effective rate 43.4% 39.1% 40.5%
The components of deferred income tax benefit for continuing operations
for the year ended December 31, 1992 are as follows:
Year ended December 31, 1992
Inventories $ 135
Depreciation (225)
Employee benefit plans 611
Allowance for doubtful accounts 303
Real estate sale/leaseback (88)
Reserve for property and equipment (126)
Other, net 533
Total deferred benefit $1,143
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1994 and 1993 are presented below:
1994 1993
Deferred tax assets:
Allowance for doubtful accounts $ 2,115 $ 2,702
Accrued liabilities not deductible until paid 10,912 1,998
Employee benefit plans 4,195 3,038
Leased assets - 3,512
Merchandise inventories 1,190 -
Nonrecurring restructuring expenses 5,011 -
Other 3,606 1,641
Total deferred tax assets 27,029 12,891
Deferred tax liabilities:
Property and equipment 48 4,484
Merchandise inventories - 920
Leased assets 165 -
Other 1,097 1,352
Total deferred tax liabilities 1,310 6,756
Net deferred tax asset (included in other current assets
and other assets) $25,719 $ 6,135
Management has determined, based on the Company's carryback
availability, history of earnings and its expectation of earnings in
future years, that it is more likely than not that all of the deferred
tax assets will be realized. Therefore, the Company has not recognized a
valuation allowance for the gross deferred tax asset recorded in the
accompanying Consolidated Balance Sheets.
Cash payments for income taxes, including taxes on discontinued
operations, for 1994, 1993 and 1992 were $8,164, $12,153 and $21,672,
respectively.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
The Company has entered into noncancelable agreements to lease
certain office and warehouse facilities and to manage the operations of
its mainframe computer system with remaining terms ranging from one to
twelve years. Certain leases include renewal options, generally for five
year increments. At December 31, 1994, future minimum annual payments
under noncancelable agreements with original terms in excess of one year
are as follows:
Operating Mainframe
Leases Operations Total
1995 $18,981 $15,740 $34,721
1996 13,801 4,300 18,101
1997 11,723 - 11,723
1998 10,079 - 10,079
1999 7,219 - 7,219
Later years 16,976 - 16,976
Total minimum payments $78,779 $20,040 $98,819
Minimum lease payments have not been reduced by minimum sublease
rentals aggregating $2,609 due in the future under noncancelable
subleases.
Rent expense for continuing operations for the years ended December
31, 1994, 1993 and 1992 was $21,264, $12,857 and $11,329, respectively.
The Company sold transportation equipment with a net book value of
approximately $407 in a sale/leaseback agreement in 1994. The gain
realized in the sale transaction totaling $1,328 has been deferred and
is being credited to income as a rent expense adjustment over the lease
terms.
The Company has limited concentrations of credit risk with respect to
financial instruments. Temporary cash investments are placed with high
credit quality institutions and concentrations within accounts and notes
receivable are limited due to their geographic dispersion. Additionally,
no single customer accounted for 10% or more of the Company's net sales
during 1994, except for sales under contract to member hospitals of the
VHA, which amounted to $960,000 or 40% of the Company's net sales.
NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents the summarized quarterly financial data
for 1994, 1993 and 1992, after restatement for a 3-for-2 stock split
distributed on June 8, 1994, to shareholders of record as of May 24,
1994:
1994
QUARTER 1ST 2ND 3RD 4TH
Net sales $ 390,794 $581,763 $ 693,004 $ 730,242
Gross margin 39,126 56,809 66,234 70,175
Net income (loss) 4,756 (5,125) 1,486 6,802
Net income (loss) per common share $ .15 $ (.19) $ .01 $ .18
1993
Quarter 1st 2nd 3rd 4th
Net sales $ 317,812 $ 341,221 $ 361,959 $ 375,979
Gross margin 33,634 35,654 38,151 39,872
Income from continuing operations 3,826 4,265 4,790 5,636
Gain on disposals, net of other provisions and taxes - - - 911
Cumulative effect of change in accounting principle 706 - - -
Net income $ 4,532 $ 4,265 $ 4,790 $ 6,547
Net income per common share:
Continuing operations $ .13 $ .14 $ .15 $ .18
Discontinued operations - - - .03
Cumulative effect of change in accounting principle .02 - - -
Net income per common share $ .15 $ .14 $ .15 $ .21
1992
Quarter 1st 2nd 3rd 4th
Net sales $282,481 $289,705 $300,018 $305,094
Gross margin 28,514 29,778 31,450 34,558
Income from continuing operations 3,085 3,613 3,952 4,785
Discontinued operations:
Income (loss) from discontinued operations, net of
taxes 123 (46) - -
Gain (loss) on disposals, net of other provisions
and taxes 9,933 (3,080) - (1,243)
Cumulative effect of change in accounting principle (730) - - -
Net income $ 12,411 $ 487 $ 3,952 $ 3,542
Net income (loss) per common share:
Continuing operations $ .11 $ .12 $ .13 $ .16
Discontinued operations .34 (.10) - (.04)
Cumulative effect of change in accounting principle (.03) - - -
Net income per common share $ .42 $ .02 $ .13 $ .12
INDEPENDENT AUDITORS' REPORT
(KPMG PEAT MARWICK LLP LOGO)
CERTIFIED PUBLIC ACCOUNTANTS
Suite 1900
1021 East Cary Street
Richmond, VA 23219-4023
The Board of Directors and Shareholders
Owens & Minor, Inc.:
We have audited the accompanying consolidated balance sheets of
Owens & Minor, Inc. and subsidiaries as of December 31, 1994 and 1993,
and the related consolidated statements of income and cash flows for
each of the years in the three-year period ended December 31, 1994.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Owens & Minor, Inc. and subsidiaries as of December 31, 1994 and
1993, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1994, in
conformity with generally accepted accounting principles.
February 3, 1995
(SIGNATURE OF KPMG PEAT MARWICK LLP)
Member Firm of
Klynveld Peat Marwick Goerdeler
MARKET AND DIVIDEND INFORMATION
Owens & Minor, Inc.'s common stock trades on the New York Stock Exchange
under the symbol, OMI. The following table, which reflects the 3-for-2 stock
split distributed on June 8, 1994, to shareholders of record as of May 24,
1994, indicates the range of high and low sales prices per share of the
Company's common shares as reported on the New York Stock Exchange and the
quarterly cash dividends paid by the Company:
Year 1994
Quarter 1st 2nd 3rd 4th
Market Price
High $18.13 $17.13 $16.75 $16.75
Low $14.63 $14.13 $13.25 $13.63
Dividends per share $ .035 $ .045 $ .045 $ .045
Year 1993
Quarter 1st 2nd 3rd 4th
Market Price
High $11.59 $14.00 $15.50 $15.59
Low $ 8.42 $ 8.42 $12.17 $12.00
Dividends per share $ .035 $ .035 $ .035 $ .035
Year 1992
Quarter 1st 2nd 3rd 4th
Market Price
High $ 9.67 $ 8.33 $ 8.89 $10.11
Low $ 7.50 $ 7.33 $ 7.55 $ 7.89
Dividends per share $ .023 $ .029 $ .029 $ .029
At December 31, 1994, there were approximately 12,000 shareholders.