UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1997
[ ] 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
OWENS & MINOR, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-01701843
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4800 Cox Road, Glen Allen, Virginia 23060
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 747-9794
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $2 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
10 7/8% Senior Subordinated Notes due 2006 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates (based
upon the closing sales price) was approximately $485,161,882 as of March 3,
1998. In determining this figure, the Company has assumed that all of its
officers, directors and persons known to the Company to be the beneficial owners
of more than five percent of the Company's Common Stock are affiliates. Such
assumption shall not be deemed conclusive for any other purpose.
The number of shares of the Company's Common Stock outstanding as of March
3, 1998 was 32,392,391 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Owens & Minor, Inc. definitive Proxy Statement for the 1998
Annual Meeting of Shareholders (the 1998 Proxy Statement) are incorporated by
reference into Part III of this Form 10-K. With the exception of the specific
information referred to in Items 10, 11 and 12 hereof with respect to the 1998
Proxy Statement, the 1998 Proxy Statement is not deemed to be filed as a part of
this report.
TABLE OF CONTENTS
and
CROSS REFERENCE SHEET
Page Number(s)
--------------
Form Proxy
10-K Statement
----- ---------
PART I
Item 1 Business 2 - 9
Item 2 Properties 9
Item 3 Legal Proceedings 10
Item 4 Submission of Matters to a
Vote of Security Holders 10
PART II
Item 5 Market for Registrant's Common
Equity and Related Stockholder
Matters 14
Item 6 Selected Financial Data 15
Item 7 Management's Discussion and
Analysis of Financial
Condition and Results
of Operations 16 - 21
Item 8 Financial Statements and
Supplementary Data 22 - 46
Item 9 Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure 47
PART III
* Item 10 Directors and Executive Officers
of the Registrant 47 5 - 8
* Item 11 Executive Compensation 47 18 - 20, 24
* Item 12 Security Ownership of Certain
Beneficial Owners and
Management 47 16 - 17
Item 13 Certain Relationships and
Related Transactions 47
PART IV
Item 14 Exhibits, Financial Statement
Schedules, and Reports on
Form 8-K 48
* Information related to this item is hereby incorporated by
reference to the 1998 Proxy Statement.
OWENS & MINOR, INC.
PART I
Item 1. Business
Company Overview
Owens and Minor, Inc. and subsidiaries (the Company or O&M) is one of the two
largest distributors of medical and surgical supplies in the United States. The
Company stocks and distributes approximately 140,000 finished medical and
surgical products produced by approximately 2,400 suppliers to approximately
4,000 customers from 45 distribution centers nationwide. The Company's customers
are primarily acute care hospitals and hospital-based systems, which account for
more than 90% of the Company's net sales, and also include alternate care
facilities such as clinics, surgery centers, rehabilitation facilities, nursing
homes, physicians' offices and home healthcare. The majority of the Company's
sales consist of dressings, endoscopic products, intravenous products,
disposable gloves, needles and syringes, sterile procedure trays, surgical
products and gowns, urological products and wound closure products. The Company
was incorporated in Virginia on December 7, 1926 as a successor to a partnership
founded in Richmond, Virginia in 1882.
The Company has significantly expanded its national presence over the last five
years. This expansion resulted from both internal growth and acquisitions,
including the May 1994 acquisition of Stuart Medical, Inc. (Stuart), then the
third largest distributor of medical and surgical supplies in the United States
with 1993 net sales of approximately $890.5 million. Since 1992, the Company has
grown from 29 medical distribution centers serving 37 states to 45 distribution
centers serving 50 states and the District of Columbia.
The Company is committed to providing its customers and suppliers with the most
responsive, efficient and cost effective distribution system for the delivery of
medical and surgical products and services. To meet this commitment, the Company
has implemented the following strategy: (i) maintain the highest quality of
service; (ii) provide its customers with information management services and
cost containment solutions to their inventory management needs; and (iii)
provide value-added services to major healthcare networks and suppliers.
Industry Overview
Distributors of medical and surgical supplies provide a wide variety of medical
and surgical products to healthcare providers, including hospitals and
hospital-based systems, integrated healthcare networks (IHNs) and alternate care
providers. In recent years, the medical/surgical supply distribution industry
has grown due to the rising consumption of medical supplies. The increase in
consumption has been the result of an aging population and emerging medical
technology resulting in new healthcare procedures and products. This increasing
reliance is driven by customers seeking to take advantage of cost savings
achievable through the use of distributors. The healthcare industry has also
been characterized by the consolidation of healthcare providers into larger and
more sophisticated entities that are increasingly seeking lower procurement
costs and incremental services through a broad distribution network capable of
supplying their inventory management needs. In recent years, major acute care
hospitals have become hospital consolidators, aligning with or acquiring any
number of outpatient and long-term care facilities to form integrated healthcare
networks, or IHNs. As a whole, these IHNs provide a full continuum of inpatient,
outpatient and long-term care. As a result, these hospital consolidators are
looking for partners to fulfill the distinct order management and distribution
needs for their entire network.
The traditional role of a distributor involves warehousing and delivering
medical and surgical supplies to a customer's loading dock. Increasingly,
distributors have assumed the additional roles of assisting their partners to
operate as a more unified network and as asset managers. The quality of
information generated by a national distributor, in terms of its ability to
discern utilization patterns across a broad spectrum of products, customers and
locations, is more useful to both suppliers and customers than that of smaller
distributors. Larger distributors are offering a wide array of customized asset
management services, including enhanced inventory management services that
provide a continuous inventory replenishment process (CRP), asset management
consulting and stockless and just-in-time inventory programs. These services
have been built upon the large distributors' capabilities to develop and manage
large databases of information with the flexibility to interact with various
customer needs.
Customers
The Company currently markets its distribution services to several types of
healthcare providers, including hospitals, IHNs and alternate care providers.
O&M contracts with these providers directly and through national healthcare
networks (Networks) and group purchasing organizations (GPOs).
National Healthcare Networks and Group Purchasing Organizations. Networks and
GPOs are entities that act on behalf of a group of healthcare providers to
obtain pricing and other benefits that the individual members may not be able to
obtain. Hospitals, physicians and other types of healthcare providers have
joined Networks and GPOs to obtain services from medical/surgical supply
distributors ranging from discounted product pricing to logistical and clinical
support in exchange for a fee. Networks and GPOs negotiate directly with both
medical and surgical product suppliers and distributors on behalf of their
members, establishing exclusive or multi-supplier relationships.
Because the combined purchasing volumes of their member institutions are very
large, Networks and GPOs have the buying power to negotiate price discounts for
the most commonly used medical and surgical products and for logistical
services. Accordingly, O&M believes that successful relationships with Networks
and GPOs are central to the Company's ability to maintain market share. Sales to
the Company's top five Network or GPO customers represented approximately 78% of
its net sales in 1997.
Networks and GPOs do not issue purchase orders or collect funds on behalf of
their members and they cannot ensure that members will purchase their supplies
from a given supplier. However, the buying power of Networks and GPOs is such
that they are able to negotiate price discounts without having to guarantee
minimum purchasing volumes. Members may belong to more than one Network or GPO,
and they are also free to negotiate directly with distributors and suppliers. As
a result, healthcare providers often select the best pricing and other benefits
from among those offered through several Networks and GPOs. Most Networks and
GPOs do not compel members to use O&M when it is the Network's or the GPO's
primary distributor. O&M believes that, in such circumstances, the incentives
for Network or GPO members to buy supplies through the Network's or GPO's
contract with the Company are strong, and that these contracts yield significant
sales volumes. The Company plans to continue to maintain and strengthen its
relationships with selected Networks and GPOs as a means of securing its leading
market position. Since 1985, the Company has been a distributor for VHA Inc.,
one of the largest provider networks for not-for-profit hospitals, representing
over 1,500 healthcare organizations. Sales to members of VHA Inc. represented
approximately 40% of the Company's net sales in 1997.
Integrated Healthcare Networks. An IHN is an organization which is composed of
several healthcare facilities that jointly offer a variety of healthcare
services in a given market. These providers may be individual not-for-profit or
investor-owned entities that are joined by a formal business arrangement, or
they may all be part of the same legal entity. An IHN is distinguished by the
fact that it is typically a network of different types of healthcare providers
that are strategically located within a defined service area and seeks to offer
a broad spectrum of healthcare services and comprehensive geographic coverage to
a particular local market. Although an IHN may include alternate care
facilities, hospitals are usually the key component of any IHN.
O&M believes that IHNs have become increasingly important because of their
expanding role in healthcare delivery and cost containment and their reliance
upon the hospital, O&M's traditional customer, as a key component of their
organizations. Individual healthcare providers within a multiple-entity IHN may
be able to contract individually for distribution services; however, O&M
believes that the providers' shared economic interests create strong incentives
for participation in distribution contracts which are established at the system
level. Additionally, single-entity IHNs are usually committed to using the
primary distributor designated at the corporate level because they are all part
of the same legal entity. Because IHNs frequently rely on cost containment as a
competitive advantage, IHNs have become an important source of demand for O&M's
enhanced inventory management and other value-added services.
Since 1994, the Company has been the primary distributor for Columbia/HCA
Healthcare Corporation (Columbia/HCA), an investor-owned system of hospitals and
alternate care facilities. The Company provides distribution and other inventory
management services to Columbia/HCA hospitals and alternate care facilities.
Columbia/HCA is the Company's largest IHN customer, owning over 300 hospitals
and over 600 alternate care providers throughout the United States. Net sales to
Columbia/HCA represented approximately 11% of the Company's net sales in 1997.
Columbia/HCA has announced a reorganization plan which includes a divestiture of
certain assets to third parties and spin-off of certain other assets. Under
certain circumstances, the Company would have the opportunity to maintain its
customer partnership with the divested businesses; however, the Company is
unable to estimate the effect of this anticipated reorganization upon its
results of operations.
Individual Providers. In addition to contracting with healthcare providers at
the IHN level and indirectly through Networks and GPOs, O&M contracts directly
with healthcare providers. In 1997, not-for-profit hospitals represented a
majority of these facilities.
Contracts and Pricing
Industry practice is for healthcare providers to negotiate product pricing
directly with suppliers and then negotiate distribution pricing terms with
distributors. Contracts in the medical and surgical supply distribution industry
establish the price at which products will be distributed, but generally do not
require minimum purchase volumes by customers and are terminable by the customer
upon short notice. Accordingly, most of the Company's contracts with customers
do not guarantee minimum sales volumes.
The majority of the Company's contracts compensate the Company on a fixed
cost-plus percentage basis under which a negotiated percentage distributor fee
is added to the product cost agreed to by the customer and the supplier. The
Company also sells products on a variable cost-plus percentage basis that varies
according to the services rendered, the dollar volume of purchases and the
percentage of the institution's total purchase volume that is directed to the
Company. Under this type of pricing, as the Company's sales to an institution
grow, the cost-plus pricing charged to the customer decreases. Additionally, the
Company has contracts that charge incremental fees for additional distribution
and enhanced inventory management services, such as frequent deliveries and
distribution of products in small units of measure. Although the Company's
marketing and sales personnel based in the distribution centers negotiate local
contracts and pricing levels with customers, management has established minimum
pricing levels and a contract review process.
Services
The Company's core competency is the timely and accurate delivery of bulk
medical and surgical supplies at a low cost. In addition to these core
distribution services, the Company offers flexible delivery alternatives
supported by inventory management services to meet the varying needs of its
customers.
The Company's information technology (IT) systems enable the Company to offer
its customers the following services to minimize their inventory holding
requirements:
o PANDAC(R). The PANDAC(R) wound closure management system provides
customers with an accurate evaluation of their current wound closure
inventories and usage levels in order to reduce costs for wound
closure products. The Company guarantees that PANDAC(R) will generate
a minimum of 5% savings in total wound closure inventory expenditures
during its first year of use.
o CostTrack. CostTrack is an activity-based costing and pricing model
that allows management to identify the cost-drivers in specific
distribution activities, giving customers the information they need to
make decisions about the distribution services they require. CostTrack
is also used to price value-added services accurately.
o Focus on Consolidation, Utilization & Standardization (FOCUS). The
FOCUS program drives standardization and consolidation that increases
the volume of purchases from our most efficient suppliers and provides
operational benefit for customers.
o Decision Support System (DSS). DSS enables the Company to customize
and analyze information for its customers so that they can make
better, well-supported business decisions. Through distribution
activities, the Company collects and stores a wealth of information
about customers' product usage, ordering patterns and contractual
agreements with suppliers. This leading-edge technology enables
comparisons of information about product usage, ordering and pricing
for each of the facilities within an integrated healthcare network.
With this information in hand, a customer can standardize all
facilities on the right products at the lowest cost.
Information Technology
O&M makes major investments each year in IT to improve operational efficiency,
enhance business decision making, and support supply-chain management
initiatives with customers and suppliers.
Electronic Data Interchange (EDI) is an integral part the Company's IT and
business strategy, and the Company is at the forefront in using electronic
commerce technologies with customers and suppliers for efficient purchasing,
invoicing, funds transfer, and contract pricing. Computer-to-computer transfer
of data through EDI significantly reduces the paperwork and manual effort
required to process business transactions and is a key contributor to the
Company's operational efficiency. With the rapid evolution of the Internet, the
Company is responding in 1998 with the introduction of an electronic product
catalog and an Internet-based direct ordering system for use by customers.
A highlight of 1997 was the introduction of the Company's data warehousing and
DSS. This national award winning system gives users throughout the Company the
ability to access a repository of business data for ad hoc reporting and
analysis. Selected customers are also using the DSS information to make cost
saving decisions related to product standardization and utilization. In 1998,
the DSS capabilities will be made available to customers and suppliers.
Currently, the majority of the Company's computing needs are met by traditional
mainframe-based software applications. A new inventory forecasting system
implemented during 1996 was the Company's first client/server application and
the Company continues to enhance this inventory forecasting system. In 1998, O&M
will be undertaking a major initiative to implement a new client/server
warehouse management system in all operating Divisions. This new system will
enable the Company to standardize warehousing business practices across the
country as well as to continue to promote operational efficiency.
The Company is well on its way to ensuring that its systems are date compliant
for the next millennium. Work is under way to either replace, repair or retire
computer hardware, system software, and business applications as needed to
ensure Year 2000 compliance. The Company is also working closely with customers
and suppliers to ensure that they have developed plans to address the Year 2000
issue. The Company expects that its Year 2000 remediation efforts will be
substantially complete by the end of the first quarter of 1999.
Sales and Marketing
The Company's sales and marketing force is organized on a decentralized basis in
order to provide individualized services to customers by giving the local sales
force at each distribution center the discretion to respond to customers' needs
quickly and efficiently. The sales and marketing force, which is divided into
three tiers, consists of approximately 240 locally based sales personnel. In
order to ensure that all of the Company's customers receive high levels of
customer service, each tier of the sales force is dedicated to specific
functions, including: developing relationships with large hospitals, IHN
customers and alternate site customers; targeting increased penetration of
existing accounts; and providing daily support services. Corporate personnel and
IT employees work closely with the local sales force to support the marketing of
O&M's inventory management capabilities and the strengthening of customer
relationships.
All division sales and marketing personnel receive performance based
compensation aligned with customer satisfaction and O&M's expectations. In
addition, the Company, with the support of its suppliers, emphasizes quality and
IT in comprehensive training programs for its sales and marketing force to
sharpen customer service skills. In order to respond rapidly to their customers'
needs, all marketing and sales personnel are equipped with laptop computers that
provide access to (i) order, inventory and payment status, (ii) customized
reporting and data analysis and (iii) computer programs, such as CostTrack and
PANDAC(R).
Suppliers
The Company is the only national distributor that does not manufacture or sell
products under its own label, and believes that this independence has enabled it
to develop strong and mutually beneficial relationships with its suppliers. The
Company believes that its size, strong, long-standing relationships and
independence enable it to obtain attractive terms and incentives from suppliers.
These terms and incentives contribute significantly to the Company's gross
margin.
The Company has long-standing relationships with virtually all major suppliers
of medical and surgical supplies. Approximately 20% of the Company's net sales
in 1997 were sales of Johnson & Johnson Hospital Services, Inc. products.
Asset Management
Inventory
Due to the Company's significant investment in inventory to meet the rapid
delivery requirements of its customers, efficient asset management is essential
to the Company's profitability. O&M maintains inventories of approximately
140,000 finished medical and surgical products produced or distributed by
approximately 2,400 suppliers. The significant and ongoing healthcare product
and procedural changes challenge distributors and healthcare providers to create
more efficient inventory management systems.
The Company has responded to these ongoing changes by developing IT and
improving warehousing techniques, including the use of radio-frequency hand-held
computers and bar-coded labels that identify location, routing and inventory
picking and replacement, which allow the Company to monitor inventory throughout
its distribution systems. The Company has implemented additional programs to
manage inventory including a client/server based inventory forecasting system,
warehouse slotting and reconfiguration techniques, CRP and FOCUS. The
forecasting system uses historical information to analyze current and historic
trends to reduce the cost of carrying unnecessary inventory and to increase
inventory turnover. CRP, which utilizes computer-to-computer interfaces, allows
suppliers to monitor daily sales and inventory levels so that they can
automatically and accurately replenish the Company's inventory. The FOCUS
program is the Company's product standardization and consolidation initiative.
By increasing the volume of purchases from our most efficient suppliers, the
Company reduces operational costs for its customers, its suppliers and itself.
To qualify as a FOCUS partner, the Company requires participating suppliers to
satisfy minimum requirements, such as automated purchasing, exceeding minimum
fill rates and offering a flexible returned goods policy.
Accounts Receivable
The Company's credit practices are consistent with those of other
medical/surgical distributors. The Company actively manages its accounts
receivable to minimize credit risk and does not believe that credit risk
associated with accounts receivable poses a significant risk to its results from
operations.
Distribution
The Company employs a decentralized approach to sales and customer service,
operating 45 distribution centers throughout the United States. The Company's
distribution centers currently provide products and services to customers in 50
states and the District of Columbia. The range of products and customer and
administrative services provided by a particular distribution facility are
determined by the characteristics of the market it serves. Most distribution
centers are managed as separate profit centers. Most functions, including
purchasing, customer service, warehousing, sales, delivery and basic financial
tasks, are conducted at the distribution center and are supported by corporate
personnel. Although the Company continues to seek opportunities to reduce costs,
it still supports the belief that the decentralized nature of its distribution
system provides customers with flexible and individualized service and
contributes to overall cost reductions.
The Company delivers most medical and surgical supplies with a leased fleet of
trucks. Parcel services are used to transport all other medical and surgical
supplies. Distribution centers generally service hospitals and other customers
within a 100 to 150 mile radius. The frequency of deliveries from distribution
centers to principal accounts varies by customer account.
Competition
The medical/surgical supply distribution industry in the United States is highly
competitive and consists of three major nationwide distributors, the Company,
Allegiance Corporation and McKesson Corp., which acquired General Medical
Corporation in February 1997. The industry also includes Bergen Brunswig Corp.,
a smaller national distributor, and a number of regional and local distributors.
Competition within the medical/surgical supply distribution industry exists with
respect to total delivered product cost, product availability, the ability to
fill and invoice orders accurately, delivery time, efficient computer
communication capabilities, services provided, breadth of product line,
inventory management including the benefits of information technology and the
ability to meet special requirements of customers.
The Company believes its decentralized approach to distribution offers it a
unique competitive advantage. Not only can the Company compete with large
national distributors with its economies of scale, but also with its
decentralized distribution process, the Company offers a higher level of
customer service by being located near the customer thus allowing the Company to
effectively compete with the smaller local distributors.
Regulation
The medical/surgical supply distribution industry is subject to regulation by
federal, state and local government agencies. Each of the Company's distribution
centers is licensed to distribute medical and surgical supply products as well
as certain pharmaceutical and related products. The Company must comply with
regulations, including operating and security standards for each of its
distribution centers, of the Food and Drug Administration, the Drug Enforcement
Agency, the Occupational Safety and Health Administration, state boards of
pharmacy and, in certain areas, state boards of health. The Company believes
that it is in material compliance with all statutes and regulations applicable
to distributors of medical and surgical supply products and pharmaceutical and
related products, as well as other general employee health and safety laws and
regulations.
The current government focuses on healthcare reform and the escalating cost of
medical care has increased pressures on all participants in the healthcare
industry to reduce the costs of products and services. The Company does not
believe that the continuation of these trends will have a significant effect on
the Company's results of operations or financial condition.
Employees
As of December 31, 1997, the Company employed approximately 3,000 full and
approximately 90 part-time employees. Approximately 35 employees are currently
covered by a collective bargaining agreement at one of the Company's
distribution centers. The Company believes that its relations with its employees
are good.
O&M believes that on-going employee training is critical to employee
performance. The Company emphasizes quality and technology in training programs
designed to increase employee efficiency by sharpening overall customer service
skills and by focusing on functional best practices.
Item 2. Properties
The corporate headquarters of the Company is located in western Henrico County,
in a suburb of Richmond, Virginia, in leased facilities. The Company owns two
undeveloped parcels of land, which are adjacent to the Company's corporate
headquarters. In 1997, the Company sold an office/warehouse facility in Sanford,
Florida.
The Company leases offices and warehouses for its 45 distribution centers in 43
cities throughout the United States. In 1997, the Company opened one new
distribution center, relocated one distribution center, and expanded one
distribution center. Three distribution centers were consolidated into existing
locations. In 1998, expansions or reductions are planned for four to five
facilities to meet current and anticipated business needs. The Company does not
expect to close any facilities during 1998.
The Company continuously evaluates the efficiency of its distribution system.
The Company believes that its facilities are adequate to carry on its business
as currently conducted. All of the Company's distribution centers are leased
from unaffiliated third parties. A number of the leases related to the above
properties are scheduled to terminate within the next several years. The Company
believes that, if necessary, it could find facilities to replace these leased
premises without suffering a material adverse effect on its business.
Item 3. Legal Proceedings
Information related to this item is in Part II, Item 8, Notes to Consolidated
Financial Statements, Note 14 - Legal Proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
Executive and Other Officers of the Registrant
Identification of Executive and Other Officers
Following are the names and ages, as of December 31, 1997, of the executive and
other officers of Owens & Minor, Inc., their positions and summaries of their
backgrounds and business experience. Olwen B. Cape, a new officer, was elected
by unanimous consent of the Board of Directors effective June 9, 1997. Also,
Mark R. Gordon and Jack M. Clark, both new officers, were elected at the Board
of Directors meeting on October 27, 1997. All of the other officers, including
new officers, Gloria M. Farrow and F. Lee Marston, were elected at the annual
meeting of the Board of Directors held on April 29, 1997. All officers have been
elected to serve until the 1998 Annual Meeting of the Board of Directors, or
such time as their successors are elected.
G. Gilmer Minor, III, age 57, has been employed by the Company since 1963 and
has served as President since 1981 and Chief Executive Officer since 1984. In
May 1994, he was elected Chairman of the Board. Mr. Minor also serves as a
member of the Boards of Directors of Crestar Financial Corporation and Richfood
Holdings, Inc.
Craig R. Smith, age 46, has been employed by the Company since 1989. From 1990
to 1992, Mr. Smith served as Group Vice President for the western region. In
January 1993, Mr. Smith assumed the responsibilities of Senior Vice President,
Distribution. Later in 1993, Mr. Smith assumed the new role of Senior Vice
President, Distribution and Information Systems, and in 1994, he was elected
Executive Vice President, Distribution and Information Systems. In
February 1995, Mr. Smith was promoted to Chief Operating Officer.
Henry A. Berling, age 55, has been employed by the Company since 1966.
Mr. Berling was employed by the Company in the Medical/Surgical Division
and was elected Vice President in 1981 and Senior Vice President, Sales and
Marketing, in 1987. In 1989, he was elected Senior Vice President and Chief
Operating Officer. In 1991, Mr. Berling assumed a new role as Senior Vice
President, Sales and Distribution. In 1992, Mr. Berling assumed the role of
Senior Vice President, Sales and Marketing and in 1994, he was elected
Executive Vice President, Sales and Customer Development. In May 1995, Mr.
Berling was elected Executive Vice President, Partnership Development. In
August 1996, Mr. Berling assumed an additional role and became Executive Vice
President, Partnership Development and Chief Sales Officer. In 1998, his
title was changed to Executive Vice President, Partnership Development.
Mr. Berling has been a member of the Board of Directors since January 1998.
Drew St. J. Carneal, age 59, has been employed by the Company since 1989
when he joined the Company as Vice President and Corporate Counsel. In
1989, he was elected Secretary, and in March 1990, Senior Vice President,
Corporate Counsel and Secretary. In May 1995, the title Corporate Counsel was
changed to General Counsel.
Jack M. Clark, age 47, joined the Company in November 1997 as Senior Vice
President, Sales and Marketing. Prior to joining the Company, Mr. Clark was
employed by Campbell Soup Company from 1996 to 1997, serving as Vice President,
U.S. Sales and Marketing. From 1982 to 1996, he was employed by Coca-Cola USA
where his last position was Area Vice President.
Gloria M. Farrow, age 50, joined the Company in April 1997 as Senior Vice
President and Managing Director, Human Resources. Prior to joining the Company,
Ms. Farrow was employed by Allstate Insurance Company from 1973 to 1996 in
various positions including Assistant Vice President, Corporate Human Resources.
Mark R. Gordon, age 44, joined the Company in November 1997 as Senior Vice
President, Strategic Planning and Business Development. Prior to joining the
Company, Mr. Gordon was employed by The Proctor & Gamble Company from 1979 to
1997, serving in various positions including Vice President-Latin America and
Corporate Officer.
James L. Grigg, age 50, joined the Company in June 1996 as Senior Vice
President, Product. In August 1996, Mr. Grigg assumed an additional role and
became Senior Vice President, Supply Chain Management. Prior to joining the
Company, Mr. Grigg was employed by FoxMeyer Health Corp. from November 1992 to
May 1996 serving as Vice President, Trade Relations and Product Management.
F. Lee Marston, age 44, joined the Company in April 1997 as Senior Vice
President, Chief Information Officer. Prior to joining the Company, Mr. Marston
was President of The Logistics Technology Group, a company he founded, from 1996
to 1997. From 1993 to 1996 he directed the logistics information systems
practice of the Progress Group, a logistical consulting firm. From 1992 to 1993,
Mr. Marston was Director of Distribution for the Baptist Sunday School Board.
Ann Greer Rector, age 40, joined the Company in August 1995 as Vice President
and Controller. In August 1996, Ms. Rector was promoted to Senior Vice President
and Chief Financial Officer. Prior to joining the Company, Ms. Rector was
employed by USAir Group, Inc. from 1983 to 1995 serving in various financial
positions, including Vice President and Controller from 1992 through July 1995.
Thomas J. Sherry, age 49, has been employed by the Company and Stuart Medical
Inc., which was acquired by the Company, for 21 years. With the Company's
acquisition of Stuart Medical Inc. in 1994, he became Vice President, Sales
and Marketing. In August 1996, Mr. Sherry was promoted to Senior Vice
President, Customer Care. In November 1997, Mr. Sherry assumed the position of
Group Vice President, West. From 1976 to 1994, Mr. Sherry had been employed
by Stuart Medical Inc., serving in various sales and management positions
and most recently, Executive Vice President.
Richard F. Bozard, age 50, has been employed by the Company since 1988, serving
as Director of Credit until 1991, when he was elected Vice President and
Treasurer.
Olwen B. Cape, age 47, joined the Company in June 1997 as Vice President and
Controller. Prior to joining the Company, Ms. Cape was employed by Bausch & Lomb
Incorporated from 1990 to 1997 serving in various financial positions, including
Director, Business Analysis & Planning.
Charles C. Colpo, age 40, has been employed by the Company since 1981 when he
joined the Company as Manager, Internal Audit. In April 1984, Mr. Colpo was
promoted to Division Vice President (DVP) and served as DVP for three
divisions from 1984 to 1994. In 1994, he served as Director, Business Process
Redesign. In 1995, Mr. Colpo was promoted to Vice President, Inventory
Management. In August 1996, Mr. Colpo became Vice President, Supply Chain
Process.
Hugh F. Gouldthorpe, Jr., age 58, has been employed by the Company since 1986
when he joined the Company as Director of Hospital Sales for the Wholesale Drug
Division. In 1987, Mr. Gouldthorpe was promoted to Vice President and in 1989,
he was promoted to Vice President, General Manager, Wholesale Drug Division. In
1991, he was elected Vice President, Corporate Communications and in 1993, Vice
President, Quality and Communications.
Wayne B. Luck, age 41, has been employed by the Company since 1992. In 1992, he
served as Manager of Electronic Data Interchange (EDI) and Distribution Systems
and subsequently Manager, Applications and Director, Application Services. In
1995, he was elected Vice President, Information Technology.
Bruce J. MacAllister, age 46, has been employed by the Company since 1993 when
he joined the Company as Division Vice President. In 1995, he was elected Group
Vice President, Southern and Western Regions. In 1997, he assumed the position
of Group Vice President, East. Prior to joining the Company, Mr. MacAllister was
employed by Proctor & Gamble in a variety of sales and marketing positions.
Michael L. Roane, age 42, has been employed by the Company since 1992
when he joined the Company as Vice President, Human Resources.
Hue Thomas, III, age 58, has been employed by the Company since 1970. In 1984,
Mr. Thomas served as Assistant General Manager, Medical/Surgical Division.
In 1985, he served as Assistant Corporate Vice President, and in 1987 he was
elected Vice President. In 1989, he was elected Vice President, General
Manager, Medical/Surgical Division. In 1991, he was elected Vice
President, Corporate Relations.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Owens & Minor, Inc.'s common stock trades on the New York Stock Exchange under
the symbol OMI. The following table indicates the range of high and low sales
prices per share of the Company's common stock as reported on the New York Stock
Exchange and the quarterly cash dividends paid by the Company:
1997
Quarter 1st 2nd 3rd 4th
- ------------------------------------------------------------------------------------------------------------------------
Market Price:
High $ 11.38 $ 16.25 $ 15.38 $ 14.88
Low $ 9.75 $ 10.75 $ 12.63 $ 13.13
Dividends per share $ 0.045 $ 0.045 $ 0.045 $ 0.045
- ------------------------------------------------------------------------------------------------------------------------
1996
Quarter 1st 2nd 3rd 4th
- ------------------------------------------------------------------------------------------------------------------------
Market Price:
High $ 12.75 $ 14.38 $ 11.75 $ 10.88
Low $ 11.25 $ 11.63 $ 9.25 $ 9.25
Dividends per share $ 0.045 $ 0.045 $ 0.045 $ 0.045
- ------------------------------------------------------------------------------------------------------------------------
1995
Quarter 1st 2nd 3rd 4th
- ------------------------------------------------------------------------------------------------------------------------
Market Price:
High $ 14.88 $ 14.13 $ 14.75 $ 13.38
Low $ 12.25 $ 11.63 $ 12.13 $ 11.63
Dividends per share $ 0.045 $ 0.045 $ 0.045 $ 0.045
- ------------------------------------------------------------------------------------------------------------------------
As of December 31, 1997, there were approximately 16,100 common shareholders.
Item 6. Selected Financial Data (1)
(in thousands, except ratios and per share data)
For the year ended December 31, 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
Net sales $ 3,116,798 $3,019,003 $2,976,486 $2,395,803 $1,396,971
Income (loss) from continuing operations
before discontinued operations and
cumulative effect of change in
accounting principle (2) $ 24,320 12,965 (11,308) 7,919 18,517
Net income (loss) $ 24,320 12,965 (11,308) 7,919 20,134
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) per common share from
continuing operations before discontinued
operations and cumulative effect of change $ 0.60 $ 0.25 $ (0.53) $ 0.15 $ 0.62
in accounting principle - basic (2)
Net income (loss) per common share - basic $ 0.60 $ 0.25 $ (0.53) $ 0.15 $ 0.67
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) per common share from
continuing operations before discontinued
operations and cumulative effect of change $ 0.60 $ 0.25 $ (0.53) $ 0.15 $ 0.60
in accounting principle - diluted (2)
Net income (loss) per common share - diluted $ 0.60 $ 0.25 $ (0.53) $ 0.15 $ 0.65
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ 0.18 $ 0.18 $ 0.18 $ 0.17 $ 0.14
At December 31,
Working capital $ 233,789 $ 192,990 $ 331,663 $ 281,788 $ 139,091
Total assets $ 712,563 679,501 857,803 868,560 334,322
Long-term debt $ 182,550 167,549 323,308 248,427 50,768
Capitalization ratio (3) 53.0% 54.8% 61.9% 49.2% 27.1%
Shareholders' equity $ 259,301 242,400 235,271 256,176 136,943
Book value per common share $ 4.48 $ 3.99 $ 3.90 $ 4.59 $ 4.50
- -----------------------------------------------------------------------------------------------------------------------------------
Selected Ratios of Continuing Operations:
Gross margin as a percent of net sales 10.2% 9.9% 9.0% 9.7% 10.5%
Selling, general and administrative expenses
as a percent of net sales 7.5% 7.7% 7.6% 6.9% 7.7%
Average receivable days sales outstanding (3) 33.4 36.1 37.7 35.9 34.2
Average inventory turnover 9.9 8.9 8.3 8.8 11.5
Return on average total equity 9.7% 5.4% (4.6%) 3.7% 14.6%
Current ratio 1.9 1.7 2.1 1.8 2.0
- -----------------------------------------------------------------------------------------------------------------------------------
- ----------------------
(1) In 1994, the Company acquired Stuart Medical, Inc. and Emery Medical Supply
Inc. In 1993, the Company merged with Lyons Physician Supply and acquired
A. Kuhlman & Co. These business combinations were accounted for as
purchases, with the exception of Lyons Physician Supply, which was
accounted for as a pooling of interests. In 1993, the Company decreased its
loss provision for discontinued operations by $0.9 million.
(2) The Company incurred $16.7 and $29.6 million in 1995 and 1994,
respectively, or $0.33 and $0.57, respectively, per common share (basic and
diluted), of nonrecurring restructuring expenses related to its
restructuring plans developed in conjunction with its combination with
Stuart Medical, Inc. See further discussion in Note 3 to Consolidated
Financial Statements.
(3) Excludes impact of off balance sheet receivables securitization agreement.
See further discussion in Note 7 to Consolidated Financial Statements.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General Owens and Minor, Inc. and subsidiaries (the Company) is one of the two
largest distributors of medical and surgical supplies in the United States. The
Company distributes approximately 140,000 finished medical and surgical products
produced by approximately 2,400 suppliers to more than 4,000 customers from 45
distribution centers nationwide. The Company's customers are primarily acute
care hospitals and hospital-based systems, which account for more than 90% of
the Company's net sales, and also include alternate care facilities such as
nursing homes, clinics, surgery centers, rehabilitation facilities, physicians'
offices and home healthcare. As a leader in the industry, the Company serves a
number of customers who comprise a significant percentage of the Company's
sales. These customers include major buying groups that represent independently
owned member hospitals, and large integrated healthcare networks. The majority
of the Company's sales consist of dressings, endoscopic products, intravenous
products, disposable gloves, needles and syringes, sterile procedure trays,
surgical products and gowns, urological products and wound closure products.
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 that medical and surgical services are
delivered to patients.
In 1997, the Company's net income was $24.3 million, or $0.60 per basic and
diluted common share, compared with $13.0 million, or $0.25 per basic and
diluted common share, in 1996. This improvement in net income was the result of
increased sales to both new and existing customers, and the continued success of
the Company's initiatives to improve gross margins and to reduce selling,
general and administrative (SG&A) expenses through greater productivity.
Gross margin initiatives included reductions in the number of products
distributed by the Company through continued implementation of the FOCUS (Focus
on Consolidation, Utilization & Standardization) program, which promotes product
and supplier standardization to create a more efficient purchasing and
distribution system. In 1997, the Company also continued to build upon the
success of CostTrack, an activity-based costing and pricing model that enables
customers to effectively manage the costs of the services that they purchase
from the Company. As a result of these and other initiatives, gross margin as a
percentage of net sales increased to 10.5% in the fourth quarter of 1997, from
10.0% in the fourth quarter of 1996, and to 10.2% for the year ended December
31, 1997, compared to 9.9% in 1996.
SG&A expenses were reduced through improved efficiency in internal
processes, including the expanded use of electronic data interchange (EDI) with
both customers and suppliers to reduce manual processing efforts. SG&A expenses
fell to 7.5% of net sales for 1997, compared to 7.7% in 1996; for the fourth
quarter, SG&A expenses were 7.7% of sales, compared to 7.5% in 1996. The fourth
quarter increase included approximately $1.0 million of costs incurred in
connection with the Company's development of solutions to enable system
processing in the Year 2000 and beyond.
Results of Operations The following table presents the Company's consolidated
statements of operations on a percentage of net sales basis:
Year ended December 31, 1997 1996 1995
---------- --------- --------
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 89.8 90.1 91.0
---------- -------- ---------
Gross margin 10.2 9.9 9.0
---------- -------- ---------
Selling, general and
administrative expenses 7.5 7.7 7.6
Depreciation and
amortization 0.6 0.5 0.5
Interest expense, net 0.5 0.7 0.9
Discount on accounts
receivable securitization 0.2 0.2 -
Nonrecurring restructuring
expenses - - 0.6
---------- -------- ---------
Total expenses 8.8 9.1 9.6
---------- -------- ---------
Income (loss) before
income taxes 1.4 0.8 (0.6)
Income tax provision (benefit) 0.6 0.4 (0.2)
========== ======== =========
Net income (loss) 0.8% 0.4% (0.4)%
========== ======== =========
Results of Operations -- 1997 Compared to 1996
Net sales Net sales increased 3.2% to $3.12 billion for the year ended December
31, 1997, from $3.02 billion for the year ended December 31, 1996, and increased
6.8% to $805 million for the fourth quarter of 1997 from $754 million for the
fourth quarter of 1996. The increase in sales was a result of sales to new
customers and increased penetration of existing accounts. The Company continued
to emphasize initiatives to increase profitable sales, increasing overall
profitability. This strategy resulted in modest sales growth of 0.3% in the
first half of 1997 compared to the first half of 1996 and improved growth of
6.2% in the second half of 1997 compared to the second half of 1996. The Company
will continue this commitment to profitable sales growth and has entered into
several new agreements in 1997 that will provide opportunities for such future
growth, although such growth cannot be assured.
In addition to developing new customer relationships, the Company has
remained committed to continuing its service to established customers. In August
1997 the Company entered into a new three-year contract with VHA Inc. (VHA) to
provide distribution services to VHA's member hospitals and primary care
facilities. Under this contract, the Company will continue to distribute medical
and surgical supplies and pursue growth opportunities with VHA's member
hospitals and primary care facilities. Net sales to member hospitals under
contract with VHA totaled approximately $1.25 billion in 1997 and $1.22 billion
in 1996, approximately 40% and 41%, respectively, of the Company's total net
sales.
For the years ended December 31, 1997 and 1996, sales to Columbia/HCA
Healthcare Corporation (Columbia/HCA) totaled $356 million and $321 million,
respectively, or approximately 11% in each year of the Company's total net
sales. Columbia/HCA has announced a reorganization plan which includes a
divestiture of certain assets to third parties and spin-off of certain other
assets. Under certain circumstances, the Company would have the opportunity to
maintain its customer partnership with the divested businesses; however the
Company is unable to estimate the effect of this anticipated reorganization upon
its results of operations.
Gross margin Gross margin as a percentage of net sales increased to 10.2% for
the year ended December 31, 1997, from 9.9% for the year ended December 31,
1996, and increased to 10.5% for the fourth quarter in 1997, from 10.0% for the
fourth quarter in 1996. This increase has been the result of the Company's
supply chain initiatives to improve the management and the purchasing of
inventory. These initiatives included the FOCUS program and the benefits from
participating in certain inventory purchasing opportunities, which result from
the Company's market position and the volume of business that the Company
conducts with its key suppliers. These increases were offset by a $1.5 million
increase in the annual LIFO (last-in, first-out) provision in 1997 compared to
1996. The lower charge in 1996 resulted from reductions in inventory levels and
modest inflation.
Selling, general and administrative expenses SG&A expenses as a percentage of
net sales decreased to 7.5% for the year ended December 31, 1997, from 7.7% for
the year ended December 31, 1996, and increased to 7.7% for the fourth quarter
in 1997, from 7.5% for the fourth quarter in 1996. The improvement for the year
was a result of many cost-saving initiatives, including the reduction of more
than 100 full-time equivalent (FTE) employees since December 31, 1996, and the
more cost effective utilization of computer resources, including more extensive
use of EDI in transactions with customers and suppliers. The Company has
improved its efficient distribution infrastructure through more effective
management of truck leasing contracts and implementation of more technologically
advanced warehousing systems at selected distribution centers. The positive
results of these initiatives were partially offset in the fourth quarter with
approximately $1.0 million of expenses associated with the Company's development
of solutions to enable computer system processing in the Year 2000 and beyond.
Depreciation and amortization Depreciation and amortization increased by 9.7% in
1997 compared to 1996. This increase was due primarily to the Company's
continued investment in information technology. The Company anticipates similar
increases in depreciation and amortization in 1998 associated with additional
capital investment in technology, including capital spending for system upgrades
to remediate Year 2000 issues.
Interest expense, net Financing costs, net of finance charge income of $3.1
million and $4.7 million in 1997 and 1996, respectively, decreased to $22.3
million in 1997 from $25.5 million in 1996. (Finance charge income represents
payments from customers for past due balances on their accounts.) Outstanding
financing, excluding the impact of the off balance sheet accounts receivable
securitization (Outstanding Financing), decreased slightly to $292.6 million at
December 31, 1997, from $293.5 million at December 31, 1996. Working capital and
Outstanding Financing were at lower levels for most of the year, resulting in
lower financing costs. The decline in average working capital requirements
resulted from improved inventory management, including reduction in the numbers
of both stock-keeping units and suppliers, and strengthening accounts receivable
collection procedures, including automating the cash application function
through the utilization of EDI. Interest expense was lower in 1997 than in 1996
as a result of lower average borrowings and lower interest rates on variable
rate debt as market interest rates declined. This was offset by lower finance
charge income which resulted from improved collections of accounts receivable.
The Company will continue to take action to reduce financing costs through its
working capital reduction initiatives and management of interest rates, although
the future results of these initiatives cannot be assured.
Income taxes The Company had an income tax provision of $17.6 million in 1997,
an effective tax rate of 42.0%, compared with $10.1 million in 1996, an
effective tax rate of 43.9%. The decline in the effective tax rate is due to
increased income before taxes reducing the impact of nondeductible goodwill
amortization.
Net income Net income increased $11.4 million or 87.6% in 1997 compared to 1996.
The increase was primarily due to the initiatives previously discussed related
to sales, gross margin, SG&A expenses and financing costs. Although the trend
has been favorable and the Company continues to pursue these and other
initiatives, the future impact on net income cannot be assured.
Results of Operations -- 1996 Compared to 1995
Net sales Net sales increased 1.4% to $3.02 billion in 1996 from $2.98 billion
in 1995. The Company's anticipated moderate sales growth for 1996 was primarily
a result of price increases implemented in December 1995 and the first quarter
of 1996. As a result of the price increases, the Company lost a portion of its
customer base; however, the Company was able to offset these losses by obtaining
new accounts and further penetrating existing accounts.
Gross margin Gross margin as a percentage of net sales increased to 9.9% in 1996
from 9.0% in 1995. The increase was the result of several margin enhancement
initiatives. These included the implementation of the price increase, the
standardization of suppliers and products and the increased utilization of
CostTrack. Gross margin was also favorably impacted by a $2.8 million decline in
the annual LIFO provision. This decline was due to reduced inventory levels and
moderate inflation rates.
Selling, general and administrative expenses For the year, SG&A expenses as a
percentage of net sales increased to 7.7% from 7.6% in 1995. However, SG&A
expenses decreased $4.6 million to 7.5% of net sales in the fourth quarter of
1996 from 8.2% in the fourth quarter of 1995. The SG&A expense decline in the
fourth quarter was a result of many cost-saving initiatives including the
reduction of approximately 400 FTE employees since March 31, 1996; the reduction
in the cost of employee retirement plans of approximately $2.0 million annually;
the more cost effective utilization of computer resources; the completion of 22
warehouse reconfigurations in 1995; the implementation of improved inventory
management systems in a majority of the Company's facilities; the continued
automation of administrative functions through the utilization of EDI; and the
refocus on best practices within the Company. The increase for the year in SG&A
expenses as a percentage of net sales was primarily a result of increased
personnel costs incurred in connection with the implementation in 1995 of new
contracts providing for enhanced service levels and services not previously
provided by the Company, system conversions and reconfiguring warehouse systems.
Depreciation and amortization Depreciation and amortization increased by 4.4% in
1996 compared to 1995. This increase was due primarily to the Company's
continued investment in improved information technology. The Company has been
migrating to a distributed computing environment employing client-server
technology when cost beneficial.
Interest expense, net Financing costs, net of finance charge income of $4.7
million and $3.8 million in 1996 and 1995, respectively, decreased to $25.5
million in 1996 from $26.2 million in 1995. Financing costs, net of finance
charge income of $1.1 million and $1.2 million in the fourth quarter of 1996 and
1995, respectively, decreased to $5.9 million in 1996 from $7.9 million in 1995.
The decline in financing costs was a result of the Company's ability to reduce
working capital requirements by substantially completing the implementation of
its client-server-based inventory forecasting system and strengthening its
accounts receivable collection procedures. Due to the reduction in working
capital requirements, the Company reduced outstanding financing by approximately
$89.1 million during the year. During 1996, the Company completed a refinancing
plan that, in addition to its improved financial performance, reduced the
effective rate of its outstanding financing.
Income taxes The Company had an income tax provision of $10.1 million in 1996,
an effective tax rate of 43.9%, compared with an income tax benefit of $5.1
million in 1995.
Net income Net income increased $24.3 million in 1996 compared to 1995.
Excluding nonrecurring restructuring expenses net of taxes, net income increased
$14.0 million in 1996 compared to 1995. The increase was primarily due to the
initiatives previously discussed related to gross margin, SG&A expenses and
financing costs.
Financial Condition, Liquidity and Capital Resources
Liquidity The Company's liquidity improved during 1997 in comparison to 1996.
Outstanding Financing was approximately $1.0 million lower at December 31, 1997
compared to December 31, 1996. For the first three quarters of 1997, Outstanding
Financing was significantly below 1996 levels as a result of increased earnings
and reduced working capital requirements. During the fourth quarter, increased
sales, resulting in higher receivable levels at year-end, as well as inventory
purchasing opportunities, resulted in increased financing needs.
In September 1997, the Company renegotiated the terms of its Revolving
Credit Facility which resulted in more favorable pricing of the debt. The
renegotiated Revolving Credit Facility expires in May 2001 with interest based
on, at the Company's discretion, the London Interbank Offered Rate (LIBOR) or
the Prime Rate. In October 1997, the Company's Receivables Financing Facility
was modified to improve the pricing and reduce the term of the agreement from
May 1999 to October 1998. The remaining terms of the Receivables Financing
Facility are substantially the same as those in the agreement entered into in
December 1995 and modified in May 1996.
At December 31, 1997, the Company had approximately $192.5 million of
unused credit under its Revolving Credit Facility and $29.0 million under its
Receivables Financing Facility. The Company manages its interest rate exposure
through the use of interest rate swaps and believes that interest rate
fluctuations will not significantly affect operating results.
In May 1996, the Company completed a plan which included refinancing its
$425.0 million Revolving Credit Facility by issuing $150.0 million of 10.875%
Senior Subordinated 10-year notes, increasing its Receivables Financing Facility
to $150.0 million from $75.0 million and entering into a new $225.0 million
Revolving Credit Facility.
The Company expects that its available financing will be sufficient to fund
its working capital needs and long-term strategic growth plans, although this
cannot be assured.
Working Capital Management In 1997, the Company made improvements in working
capital management. Inventory turnover for the year increased to 9.9 times in
1997 from 8.9 times in 1996. This improvement was driven by the Company's
program of standardization of products and suppliers, which reduced the number
of items from multiple manufacturers distributed by the Company. The Company
reduced the number of stock-keeping units to approximately 140,000 from 250,000
and also reduced the number of suppliers with which it conducts business from
approximately 3,000 to 2,400. The Company also reduced accounts receivable days
sales outstanding (excluding the impact of the Receivables Financing Facility)
to 33.4 days in 1997 from 36.1 days in 1996. This reduction was achieved through
automation of the cash application function as well as strengthening the
Company's methods of monitoring and enforcing contract payment terms and basing
a portion of its sales force incentives on reducing days sales outstanding.
Capital Expenditures Capital expenditures were approximately $12.0 million in
1997, of which approximately $7.8 million was for computer systems, compared to
approximately $13.2 million in 1996, of which approximately $10.4 million was
for computer systems. Each year the Company makes major investments in
information technology to improve operational efficiency, enhance business
decision-making and support supply chain management initiatives with customers
and suppliers. These capital expenditures are expected to be funded through cash
flow from operations.
Recent Accounting Pronouncements In June 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 131, Disclosures about Segments of an Enterprise and Related Information.
SFAS No. 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. This statement
also establishes standards for related disclosures about products and services,
geographic areas and major customers. This standard is effective for fiscal
years beginning after December 15, 1997.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes standards
for reporting and presentation of comprehensive income and its
components in a full set of general-purpose financial statements. This
standard is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
Management believes that the effect on the Company of adoption of these
standards will be limited to changes in financial statement presentation and
disclosure.
Forward-Looking Statements Certain statements in this discussion constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, including, but not limited to, general economic and business
conditions, competition, changing trends in customer profiles and changes in
government regulations. Although the Company believes that 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.
Readiness for Year 2000 The Company is dependent upon computer-based systems to
conduct its business with both customers and suppliers. During 1997, the Company
completed a comprehensive review of these systems to identify those that could
be affected by the Year 2000 issue, and has developed a strategy for
remediation. This strategy includes retirement of outdated software and
replacement or repair of the remaining software. The Company is also working
closely with both customers and suppliers to ensure that they have developed
plans to address the Year 2000 issue. The Company expects that its Year 2000
remediation efforts will be substantially complete by the end of the first
quarter of 1999. The Company estimates that expenses for the Year 2000
initiative will total approximately $6.0 million, of which $2.1 million was
incurred in 1997. Capital spending over the next two years will also include
approximately $3.4 million related to this initiative.
Item 8. Financial Statements and Supplementary Data
Owens & Minor, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
Net sales $ 3,116,798 $ 3,019,003 $ 2,976,486
Cost of goods sold 2,800,044 2,720,613 2,708,668
- ---------------------------------------------------------------------------------------------------------------------------------
Gross margin 316,754 298,390 267,818
- ---------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 234,872 233,704 225,897
Depreciation and amortization 17,664 16,098 15,416
Interest expense, net 15,703 18,954 25,538
Discount on accounts receivable securitization 6,584 6,521 641
Nonrecurring restructuring expenses - - 16,734
- ---------------------------------------------------------------------------------------------------------------------------------
Total expenses 274,823 275,277 284,226
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 41,931 23,113 (16,408)
Income tax provision (benefit) 17,611 10,148 (5,100)
- ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) 24,320 12,965 (11,308)
Dividends on preferred stock 5,175 5,175 5,175
- ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) attributable to common stock $ 19,145 $ 7,790 $ (16,483)
- ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share - basic $ 0.60 $ 0.25 $ (0.53)
- ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share - diluted $ 0.60 $ 0.25 $ (0.53)
- ---------------------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ 0.18 $ 0.18 $ 0.18
- ---------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Owens & Minor, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31, 1997 1996
--------------- ---------------
Assets
Current assets
Cash and cash equivalents $ 583 $ 743
Accounts and notes receivable, net of allowance of $6,312 and $6,495 187,878 147,243
Merchandise inventories 285,529 281,839
Other current assets 25,274 25,675
--------------- ---------------
Total current assets 499,264 455,500
Property and equipment, net 26,628 29,231
Goodwill, net 162,821 167,366
Other assets, net 23,850 27,404
--------------- ---------------
Total assets $ 712,563 $ 679,501
=============== ===============
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 224,072 $ 224,037
Accrued payroll and related liabilities 7,840 5,001
Other accrued liabilities 33,563 33,472
--------------- ---------------
Total current liabilities 265,475 262,510
Long-term debt 182,550 167,549
Accrued pension and retirement plans 5,237 7,042
--------------- ---------------
Total liabilities 453,262 437,101
--------------- ---------------
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 and outstanding - 1,150 shares 115,000 115,000
Common stock, par value $2 per share; authorized-200,000 shares;
issued and outstanding - 32,213 shares and 31,907 shares 64,426 63,814
Paid-in capital 8,005 5,086
Retained earnings 71,870 58,500
--------------- ---------------
Total shareholders' equity 259,301 242,400
--------------- ---------------
Commitments and contingencies
Total liabilities and shareholders' equity $ 712,563 $ 679,501
=============== ===============
See accompanying notes to consolidated financial statements.
Owens & Minor, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended December 31, 1997 1996 1995
--------------- ----------------- -----------------
Operating activities
Net income (loss) $ 24,320 $ 12,965 $ (11,308)
Adjustments to reconcile net income (loss) to cash provided
by (used for) operating activities
Depreciation and amortization 17,664 16,098 15,416
Provision for losses on accounts and notes receivable 268 838 827
Provision for LIFO reserve 2,414 908 3,700
Changes in operating assets and liabilities:
Accounts and notes receivable (40,903) 117,157 24,175
Merchandise inventories (6,104) 43,633 (6,229)
Accounts payable 4,714 (9,670) (17,107)
Net change in other current assets and current liabilities 4,611 5,025 (18,753)
Other, net 1,038 1,178 (2,151)
--------------- ----------------- -----------------
Cash provided by (used for) operating activities 8,022 188,132 (11,430)
--------------- ----------------- -----------------
Investing activities
Additions to property and equipment (7,495) (6,242) (13,876)
Additions to computer software (4,472) (6,985) (7,396)
Proceeds from sale of property and equipment 1,851 6,865 3,597
--------------- ----------------- -----------------
Cash used for investing activities (10,116) (6,362) (17,675)
--------------- ----------------- -----------------
Financing activities
Additions to long-term debt 26,026 150,000 77,970
Reductions of long-term debt (11,049) (314,877) (242)
Other short-term financing, net (4,679) (7,341) (38,723)
Cash dividends paid (10,950) (10,868) (10,730)
Proceeds from exercise of stock options 2,586 1,844 532
--------------- ----------------- -----------------
Cash provided by (used for) financing activities 1,934 (181,242) 28,807
--------------- ----------------- -----------------
Net increase (decrease) in cash and cash equivalents (160) 528 (298)
Cash and cash equivalents at beginning of year 743 215 513
--------------- ----------------- -----------------
Cash and cash equivalents at end of year $ 583 $ 743 $ 215
=============== ================= =================
See accompanying notes to consolidated financial statements.
Owens & Minor, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands, except per share data)
Preferred Common
Shares Preferred Shares Common Paid-in Retained
Outstanding Stock Outstanding Stock Capital Earnings
------------ ------------ ------------- ------------ ------------ -----------
Balance December 31, 1994 1,150 $115,000 30,764 $61,528 $1,207 $78,441
Net loss - - - - - (11,308)
Common stock cash dividends (1) - - - - - (5,555)
Preferred stock cash dividends (1) - - - - - (5,175)
Exercise of stock options - - 64 128 404 -
Common stock issued for
incentive plan - - 34 68 416 -
Other - - - - 117 -
------------ ------------ ------------- ------------ ------------ -------------
Balance December 31, 1995 1,150 115,000 30,862 61,724 2,144 56,403
Net income - - - - - 12,965
Common stock cash dividends (1) - - - - - (5,693)
Preferred stock cash dividends (1) - - - - - (5,175)
Exercise of stock options - - 206 412 1,432 -
Convertible debt conversion - - 867 1,734 1,766 -
Other - <28> <56> <256> -
------------ ------------ ------------- ------------ ------------ -------------
Balance December 31, 1996 1,150 115,000 31,907 63,814 5,086 58,500
Net income - - - - - 24,320
Common stock cash dividends (1) - - - - - (5,775)
Preferred stock cash dividends (1) - - - - - (5,175)
Exercise of stock options - - 303 606 2,059 -
Other - - 3 6 860 -
------------ ------------ ------------- ------------ ------------ -------------
Balance December 31, 1997 1,150 $115,000 32,213 $64,426 $8,005 $ 71,870
============ ============ ============= ============ ============ =============
(1) Cash dividends were $0.18 per common share and $4.50 per preferred share for
the years 1997, 1996 and 1995.
See accompanying notes to consolidated financial statements.
Owens & Minor, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation Owens & Minor, Inc. is one of the two largest distributors
of medical and surgical supplies in the United States. The consolidated
financial statements include the accounts of Owens & Minor, Inc. and its wholly
owned subsidiaries (the Company). All significant intercompany accounts and
transactions have been eliminated. The preparation of the consolidated financial
statements in accordance with generally accepted accounting principles requires
management assumptions and estimates that affect amounts reported. Actual
results may differ from these estimates.
Cash and Cash Equivalents Cash and cash equivalents include cash and marketable
securities with an original maturity or maturity at acquisition of three months
or less. Cash and cash equivalents are stated at cost, which approximates market
value.
Merchandise Inventories The Company's merchandise inventories are valued on a
last-in, first-out (LIFO) basis.
Property and Equipment Property and equipment are stated at cost or, if acquired
under capital leases, at the lower of the present value of minimum lease
payments or fair market value at the inception of the lease. Normal maintenance
and repairs are expensed as incurred, and renovations and betterments are
capitalized. Depreciation and amortization are provided for financial reporting
purposes on the straight-line method over the estimated useful lives of the
assets or, for capital leases and leasehold improvements, over the terms of the
lease, if shorter. In general, the estimated useful lives for computing
depreciation and amortization are: 40 years for buildings and improvements; 4 to
8 years for warehouse equipment; and 3 to 8 years for computer, office and other
equipment. Straight-line and accelerated methods of depreciation are used for
income tax purposes.
Goodwill Goodwill is amortized on a straight-line basis over 40 years from the
dates of acquisition. As of December 31, 1997 and 1996, goodwill was $181.1
million and the related accumulated amortization was $18.3 million and $13.7
million, respectively. Based upon management's assessment of future cash flows
of acquired businesses, the carrying value of goodwill at December 31, 1997 has
not been impaired. The carrying value of goodwill could be impacted if estimated
future cash flows are not achieved.
Computer Software The Company's computer software expenditures are applicable to
software developed or purchased for internal use. Certain software development
costs are capitalized when incurred and only after technological feasibility has
been established. Technological feasibility is determined based upon completion
of a detailed program design, or, if such is not pursued, then a product design
and a working model. Amortization of all capitalized software costs begins after
the software is available for use in the Company's operations and is computed on
a product-by-product basis over the estimated economic life of the product from
3 to 5 years. Computer software costs are included in other assets, net in the
Consolidated Balance Sheets. Unamortized software at December 31, 1997 and 1996
was $11.0 million and $11.1 million, respectively. Depreciation and amortization
expense includes $4.6 million, $2.8 million and $2.2 million of software
amortization for the years ended December 31, 1997, 1996 and 1995, respectively.
Revenue Recognition Revenue from product sales is generally recognized at the
time the product is shipped. Service revenue is recognized over the contractual
period as the services are performed.
Stock-Based Compensation The Company uses the intrinsic value method of
Accounting Principles Board Opinion No. 25 to account for stock-based
compensation. This method requires compensation expense to be recognized for the
excess of the quoted market price of the stock at the grant date or the
measurement date over the amount an employee must pay to acquire the stock. The
disclosure requirements of Statement of Financial Accounting Standards (SFAS)
No. 123 are included in Note 8 to Consolidated Financial Statements.
Net Income (Loss) per Common Share In 1997, the Financial Accounting
Standards Board issued SFAS No. 128, Earnings per Share. Earnings per share
amounts for all periods have been restated to conform to SFAS No. 128
requirements.
Derivative Financial Instruments The Company enters into interest rate swaps and
caps as part of its interest rate risk management strategy. These instruments
are designated as hedges of interest-bearing liabilities and off balance sheet
financing. Net payments or receipts are accrued as interest payable or
receivable and as interest expense or income. Fees related to these instruments
are amortized over the life of the instrument. If the outstanding balance of the
underlying liability were to drop below the notional amount of the swap or cap,
the excess portion of the swap or cap would be marked to market, and the
resulting gain or loss included in net income.
Note 2 - Business Acquisitions
In May 1994, Owens & Minor, Inc. acquired all of the capital stock of Stuart
Medical, Inc. (Stuart), a distributor of medical and surgical supplies. As part
of the Stuart acquisition, the Company initiated a plan to close certain
facilities and terminate certain employees of the former Stuart operations. The
costs of this plan were included as a liability assumed from the acquisition and
included in the allocation of the purchase price. During 1995, the Company
incurred substantially all of the costs of exiting the former Stuart operations
and charged approximately $6.5 million against established acquisition
liabilities.
Note 3 - Nonrecurring Restructuring Expenses
During 1995, the Company incurred $16.7 million of nonrecurring restructuring
expenses related to two restructuring plans. Under the first plan, the Company
incurred $13.2 million of nonrecurring restructuring expenses in connection with
the Stuart acquisition and the Company's related decision to contract out the
management and operation of its mainframe computer system. These expenses were
comprised primarily of duplicate facility costs (approximately $9.3 million),
including the costs of maintaining duplicate personnel and duplicate locations
and the costs of converting Stuart divisions to the Company's systems and
processes; costs associated with redesigning and implementing processes and
systems that optimize warehouse resources and revising existing processes and
systems to utilize the most efficient practices of both companies to increase
efficiencies within the combined company (approximately $3.9 million), including
the development of both a client/server strategy and the requirements for
forecasting and warehouse management systems, both necessary to accommodate the
needs of the combined companies.
Under the second plan, which was implemented in December 1995, the Company
incurred $3.5 million of nonrecurring restructuring expenses in connection with
the closing of two distribution centers and the downsizing of five distribution
centers. These expenses were comprised primarily of costs associated with a
reduction in the number of employees (approximately $1.7 million), the
write-down of non-cash assets (approximately $0.9 million) and other related
exit costs (approximately $0.9 million).
During 1996, the Company substantially completed both restructuring plans and
charged approximately $3.0 million against the established accrued liabilities.
Note 4 - Merchandise Inventories
The Company's merchandise inventories are valued on a LIFO basis. If LIFO
inventories had been valued on a current cost or first-in, first-out (FIFO)
basis, they would have been greater by $25.3 million and $22.9 million as of
December 31, 1997 and 1996, respectively. In 1995, the Company recorded a $2.0
million provision for specifically identified slow-moving inventory. During
1996, inventory quantities were reduced. This reduction resulted in a
liquidation of LIFO inventory carried at lower costs prevailing in prior years
as compared with the cost of 1996 purchases, the effect of which increased net
income by approximately $1.2 million or $0.04 per basic common share.
Note 5 - Property and Equipment
The Company's investment in property and equipment consists of the following:
(In thousands)
December 31, 1997 1996
--------- ----------
Warehouse equipment $ 23,477 $ 22,824
Computer equipment 22,729 19,657
Office and other equipment 11,198 10,710
Land and buildings 1,503 2,966
Leasehold improvements 9,221 8,316
------------- ----------
68,128 64,473
Accumulated depreciation and amortization (41,500) (35,242)
------------- -----------
Property and equipment, net
$ 26,628 $ 29,231
============= =============
Depreciation and amortization expense for property and equipment in 1997,
1996 and 1995 was $8.5 million, $8.7 million and $8.5 million, respectively.
Note 6 - Accounts Payable
Accounts payable balances were $224.1 million and $224.0 million as of December
31, 1997 and 1996, respectively, of which $187.8 million and $183.0 million,
respectively, were trade accounts payable and $36.3 million and $41.0 million,
respectively, were drafts payable. Drafts payable are checks written in excess
of bank balances to be funded upon clearing the bank.
Note 7 - Long-Term Debt and Off Balance Sheet Financing The Company's long-term
debt consists of the following:
(In thousands)
December 31, 1997 1996
-------------------------------- -----------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------------- -------------- -------------- --------------
10.875% Senior Subordinated Notes, mature
June 2006 $150,000 $168,750 $150,000 $159,000
Revolving Credit Facility with interest based on
London Interbank Offered Rate (LIBOR) or
Prime Rate, expires May 2001, credit limit of
$225,000 32,550 32,550 6,500 6,500
$11.5 million, 0% Subordinated Note, matured
May 1997 effective interest rate 10.4% - - 11,049 11,258
-------------- -------------- -------------- --------------
Long-term debt $182,550 $201,300 $167,549 $176,758
============== ============== ============== ==============
In May 1996, the Company refinanced its existing $425.0 million Revolving Credit
Facility by issuing $150.0 million of 10.875% Senior Subordinated 10-year notes
(Notes), increasing its Receivables Financing Facility to $150.0 million from
$75.0 million and entering into a new $225.0 million Revolving Credit Facility.
In September 1997, the Company renegotiated the terms of its Revolving Credit
Facility which resulted in more favorable pricing of the debt.
The Notes were issued on May 29, 1996, and mature on June 1, 2006. Interest on
the Notes is payable semi-annually on June 1 and December 1. The Notes are
redeemable, after June 1, 2001, at the Company's option, subject to certain
restrictions. The Notes are unconditionally guaranteed on a joint and several
basis by all direct and indirect subsidiaries of the Company, other than O&M
Funding Corp. (OMF).
The Revolving Credit Facility expires in May 2001 with interest based on, at the
Company's discretion, LIBOR or the Prime Rate. The Company is charged a
commitment fee of between 0.15% and 0.25%, depending upon the Company's
capitalization ratio, on the unused portion of the Revolving Credit Facility.
The terms of the Revolving Credit Facility limit the amount of indebtedness that
the Company may incur, require the Company to maintain certain levels of
tangible net worth, current ratio, leverage ratio and fixed charge coverage, and
restrict the ability of the Company to materially alter the character of the
business through consolidation, merger or purchase or sale of assets. At
December 31, 1997, the Company was in compliance with these covenants.
Net interest expense includes finance charge income of $3.1 million, $4.7
million and $3.8 million in 1997, 1996 and 1995, respectively. Finance charge
income represents payments from customers for past due balances on their
accounts. Cash payments for interest during 1997, 1996 and 1995 were $18.3
million, $22.1 million and $29.0 million, respectively.
The estimated fair value of long-term debt is based on the borrowing rates
currently available to the Company for loans with similar terms and average
maturities.
The annual maturities of long-term debt for the five years subsequent to
December 31, 1997 are as follows: $0 in 1998, 1999 and 2000, $32.6 million in
2001 and $0 in 2002. At December 31, 1996, the 0% Subordinated Note was
classified as long-term due to the Company's intent and ability to refinance the
note through its Revolving Credit Facility.
Off Balance Sheet Financing In May 1996, the Company modified its existing $75.0
million Receivables Financing Facility to increase the borrowing limit. Pursuant
to the agreement, OMF is entitled to transfer, without recourse, certain of the
Company's trade receivables and to receive up to $150.0 million from an
unrelated third party purchaser at a cost of funds at commercial paper rates
plus a charge for administrative and credit support services. In October 1997,
the Receivables Financing Facility was modified to improve the pricing and
reduce the term of the agreement to October 1998. The remaining terms of the
Receivables Financing Facility are substantially the same as those in the
agreement entered into in December 1995 and modified in May 1996. At December
31, 1997 and 1996, the Company had received $110.0 million and $126.0 million,
respectively, under the agreement. To continue use of the Receivables Financing
Facility, the Company is required to be in compliance with the covenants of the
Revolving Credit Facility.
The Company manages its interest rate risk, primarily through the use of
interest rate swap and cap agreements. The Company's interest rate swap
agreements as of December 31, 1997 and 1996 included $100.0 million notional
amounts which effectively converted a portion of the Company's fixed rate
financing instruments to variable rates. Under these swap agreements, expiring
in May 2006, the Company pays the counterparties a variable rate based on the
six-month LIBOR and the counterparties pay the Company a fixed interest rate
ranging from 7.27% to 7.32%. At the option of the counterparties, these swaps
can be terminated in 2001. The Company also had $50.0 million and $90.0 million
as of December 31, 1997 and 1996, respectively, notional amounts of interest
rate swaps which effectively converted a portion of the Company's variable rate
financing instruments to fixed rate instruments. Under these swap agreements,
which expire in 1998, the Company pays the counterparties a fixed rate ranging
from 7.41% to 7.72% and the counterparties pay the Company a variable rate based
on either the three-month or six-month LIBOR.
The payments received or disbursed related to the interest rate swaps are
included in interest expense, net. Based on estimates of the prices obtained
from a dealer, the Company had an unrealized gain of approximately $2.7 million
and $0.7 million at December 31, 1997 and 1996, respectively, for the fixed to
variable rate swaps and an unrealized loss of approximately $0.2 million and
$1.5 million at December 31, 1997 and 1996, respectively, for the variable to
fixed rate swaps.
The Company is exposed to certain losses in the event of nonperformance by the
counterparties to these swap agreements. However, the Company's exposure is not
material and, since the counterparties are investment grade financial
institutions, nonperformance is not anticipated.
Note 8 - Stock-Based Compensation
The Company maintains stock based compensation plans (Plans) which provide for
the granting of stock options, stock appreciation rights (SARs) and common
stock. The Plans are administered by the Compensation and Benefits Committee of
the Board of Directors and allow the Company to award or grant to officers,
directors and employees incentive, non-qualified and deferred compensation stock
options, SARs and restricted and unrestricted stock.
Approximately three million common shares were originally available for issuance
under the Plans. The restricted stock and stock options awarded under the Plans
generally vest over three years and the stock options expire ten years from the
date of grant. The options are granted at a price which equals fair market value
at the date of grant. At December 31, 1997, there were no SARs outstanding.
In 1997, the Company adopted a Management Equity Ownership Program. This program
requires each of the Company's officers to own the Company's common stock at
specified levels, which gradually increase over five years. Officers who meet
specified ownership goals in a given year are awarded restricted stock under the
provisions of the Plans.
The following table summarizes the activity and terms of outstanding options at
December 31, 1997, and for the years in the three-year period then ended:
(In thousands, except per share data)
1997 1996 1995
--------------------------- --------------------------- ---------------------------
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------- ------------- ------------- ------------- ------------- -------------
Options outstanding beginning of year 1,922 $13.06 1,745 $12.41 1,742 $12.36
Granted 523 12.73 629 13.38 221 13.17
Exercised (303) 13.41 (206) 8.95 (64) 8.31
Expired/cancelled (202) 14.58 (246) 12.67 (154) 14.59
------------- ============= ------------- ============= ------------- =============
Outstanding at end of year 1,940 $13.50 1,922 $13.06 1,745 $12.41
============= ============= ============= ============= ============= =============
Exercisable options at end of year 1,123 $13.87 1,053 $12.40 978 $11.19
============= ============= ============= ============= ============= =============
At December 31, 1997, the following option groups were outstanding:
Outstanding Exercisable
------------------------------------------------- ------------------------------------------------
Weighted Weighted
Average Average
Weighted Remaining Weighted Remaining
Number of Average Contractual Number of Average Contractual
Range of Exercise Options Exercise Life Options Exercise Life
Prices (000's) Price (Years) (000's) Price (Years)
- ------------------------- --------- --------- ----------- --------- --------- ----------
$8.50-12.50 211 $9.23 3.3 170 $8.99 1.9
$12.51-16.50 1,729 $14.02 7.5 953 $14.74 6.4
--------- ========= =========== --------- ========== ===========
1,940 $13.50 7.1 1,123 $13.87 5.8
========= ========= =========== ========= ========== ===========
Using the intrinsic value method, the Company's 1997, 1996 and 1995 net income
(loss) includes stock-based compensation expense (net of tax benefit) of
approximately $67 thousand, $50 thousand and $0, respectively. The weighted
average fair value of options granted in 1997, 1996 and 1995 was $3.77, $3.90
and $3.80 per option, respectively. Had the Company included in stock-based
compensation expense the fair value at grant date of stock option awards granted
in 1997, 1996 and 1995, net income (loss) would have been $23.2 million or $0.56
per basic common share, $12.3 million or $0.23 per basic common share and
$(11.5) million or $(0.54) per basic common share for the years ended December
31, 1997, 1996 and 1995, respectively. The fair value of each option is
estimated on the date of grant using the Black-Scholes option pricing model with
the following assumptions used for grants: dividend yield of 1.2%-1.7% in 1997,
1.8% in 1996 and 1995; expected volatility of 24.6%-41.0% in 1997, 32.0% in 1996
and 1995; risk-free interest rate of 5.6% in 1997 and 6.3% in 1996 and 1995; and
expected lives of 2.1-5.1 years in 1997 and 4.0 years in 1996 and 1995.
Note 9 - Retirement Plans
Pension and Retirement Plans The Company has a noncontributory pension plan
covering substantially all employees who had earned benefits as of December 31,
1996. At December 31, 1996, substantially all of the benefits of employees under
this plan were frozen, with all participants becoming fully vested. The changes
in this plan resulted in a 1996 curtailment gain of approximately $2.0 million,
which is recorded in selling, general and administrative expenses in the
Company's Consolidated Statements of Operations. The Company expects to continue
to fund the plan based on federal law requirements and amounts deductible for
income tax purposes, until such time as plan assets equal plan liabilities. As
of December 31, 1997, plan assets consist primarily of equity securities,
including 34 thousand shares 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:
(In thousands)
Pension Plan Retirement Plan
----------------------------------- ------------------------------------
December 31, 1997 1996 1997 1996
---------------- ---------------- ---------------- ----------------
Actuarial present value of benefit obligations:
Accumulated benefit obligations:
Vested $ (20,177) $ (18,166) $ (1,347) $ (1,386)
Non-vested (210) - (1,633) (1,234)
---------------- ---------------- ---------------- ----------------
Total accumulated benefit obligations (20,387) (18,166) (2,980) (2,620)
Additional amounts related to projected salary increases
(284) (158) (2,098) (2,397)
---------------- ---------------- ---------------- ----------------
Projected benefit obligations for service rendered to
date (20,671) (18,324) (5,078) (5,017)
Plan assets at fair market value 22,121 16,950 - -
---------------- ---------------- ---------------- ----------------
Plan assets over (under) projected benefit obligations
1,450 (1,374) (5,078) (5,017)
Unrecognized net loss (gain) from past experience
(502) - 1,301 1,839
Unrecognized prior benefit - - (221) (237)
Unrecognized net obligation being recognized over 17
years - - 205 246
---------------- ---------------- ---------------- ----------------
Accrued pension asset (liability) $ 948 $ (1,374) $ (3,793) $ (3,169)
================ ================ ================ ================
The components of net periodic pension cost for both plans are as follows:
(In thousands)
Year ended December 31, 1997 1996 1995
---- ---- ----
Service cost-benefits earned during the year $ 568 $ 2,598 $ 1,865
Interest cost on projected benefit obligations 1,715 1,714 1,425
Actual return on plan assets (3,393) (1,566) (2,521)
Curtailment gain - (1,988) -
Net amortization and deferral 2,077 422 1,470
----- ------ -----
Net periodic pension cost $ 967 $ 1,180 $ 2,239
======= ======= =======
The weighted average discount rate, rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligations and the expected long-term rate of return on plan assets were
assumed to be 7.0%, 5.5% and 8.5%, respectively, in 1997 and 7.5%, 5.5% and
8.5%, respectively, in 1996.
Other Retirement Benefits The Company substantially terminated its
postretirement medical plan in 1996. The termination resulted in a reduction in
the Company's accumulated postretirement benefit obligation of approximately
$1.6 million which will be recognized in income over the lives of the remaining
participants in the plan (approximately 13 years).
The following table sets forth the plan's financial status and the amount
recognized in the Company's Consolidated Balance Sheets:
(In thousands)
December 31, 1997 1996
---- ----
Accumulated postretirement benefit obligation:
Retirees $(361) $(376)
Fully eligible active plan participants (595) (556)
----- -----
Accumulated postretirement benefit obligation (956) (932)
Unrecognized prior service benefit (1,436) (1,567)
------- -------
Accrued postretirement benefit liability $(2,392) $(2,499)
======= ========
The components of net periodic postretirement benefit cost are as follows:
(In thousands)
Year ended December 31, 1997 1996 1995
---- ---- ----
Service cost-benefits earned during the year $ - $ 308 $ 275
Interest cost on accumulated postretirement benefit obligation 65 177 152
Net amortization (131) (78) (120)
--------- ------- ------
Net periodic postretirement cost (benefit) $ (66) $ 407 $ 307
========= ======= ======
For measurement purposes, a 10.0% annual rate of increase in the per capita cost
of covered healthcare benefits was assumed for 1997; the rate was assumed to
decrease gradually to 6.0% for the year 2001 and remain at that level
thereafter. The healthcare cost trend rate assumption does not have a
significant effect on the amounts reported. The weighted average discount rate
used in determining the accumulated postretirement benefit obligation was 7.0%
and 7.5% for 1997 and 1996, respectively.
The Company maintains a voluntary Savings and Protection Plan covering
substantially all full-time employees who have completed six months of service
and have attained age 18. The Company matches a certain percentage of each
employee's contribution. Effective January 1, 1997, the Company enhanced this
plan to provide for a minimum contribution by the Company to the plan for all
eligible employees of 1% of their salary. This contribution can be increased at
the Company's discretion. The Company incurred approximately $2.6 million, $1.0
million and $1.1 million in 1997, 1996 and 1995, respectively, of expenses
related to this plan.
Note 10 - Income Taxes
The income tax provision (benefit) consists of the following:
(In thousands)
Year ended December 31, 1997 1996 1995
--------------- -------------- ----------------
Current tax provision (benefit):
Federal $ 14,484 $ 6,186 $ (13,009)
State 3,130 1,556 (172)
--------------- -------------- ----------------
Total current provision (benefit) 17,614 7,742 (13,181)
Deferred tax provision (benefit):
Federal (2) 1,923 7,731
State (1) 483 350
--------------- -------------- ----------------
Total deferred provision (benefit) (3) 2,406 8,081
--------------- -------------- ----------------
Total income tax provision (benefit) $ 17,611 $ 10,148 $ (5,100)
=============== ============== ================
A reconciliation of the federal statutory rate to the Company's effective income
tax rate is shown below:
Year ended December 31, 1997 1996 1995
----------- ----------- -----------
Federal statutory rate 35.0% 35.0% (34.0)%
Increases (reductions) in the rate resulting from:
State income taxes, net of federal income tax impact 4.9 5.0 (3.3)
Nondeductible goodwill amortization 3.7 7.5 9.5
Nontaxable income (2.6) (4.6) (4.5)
Other, net 1.0 1.0 1.2
----------- ----------- -------------
Effective rate 42.0% 43.9% (31.1)%
=========== =========== =============
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
(In thousands)
Year ended December 31, 1997 1996
---- ----
Deferred tax assets:
Allowance for doubtful accounts $2,525 $3,053
Accrued liabilities not currently deductible 7,044 7,597
Employee benefit plans 3,377 3,636
Merchandise inventories 4,169 2,613
Nonrecurring restructuring expenses - 420
Tax loss carryforward, net 1,238 1,665
Other 839 847
-------- -------
Total deferred tax assets 19,192 19,831
------ ------
Deferred tax liabilities:
Property and equipment 1,557 1,437
Computer software 1,252 1,869
Other 1,148 1,293
------- -------
Total deferred tax liabilities 3,957 4,599
------- -------
Net deferred tax asset (included
in other current assets and
other assets, net) $15,235 $15,232
======= =======
At December 31, 1997 and 1996, the Company had a $0.10 million and $0.35 million
valuation allowance, respectively, for state net operating losses. Based on the
level of historical taxable income and projections of future taxable income over
the periods in which the deferred tax assets are deductible, management believes
it is more likely than not that the Company will realize the benefits of these
deductible differences, net of existing valuation allowances.
Cash payments for income taxes for 1997, 1996 and 1995 were $18.6 million, $8.0
million and $6.1 million, respectively.
Note 11 - Net Income (Loss) per Common Share
The following sets forth the computation of basic and diluted net income (loss)
per common share:
(In thousands, except per share data)
1997 1996 1995
Numerator:
Net income (loss) $ 24,320 $ 12,965 $ (11,308)
Preferred stock dividends 5,175 5,175 5,175
------------- ------------- ------------
Numerator for basic net income (loss) per common share - net
income (loss) available to common shareholders 19,145 7,790 (16,483)
Effect of dilutive securities - interest on convertible debt - 51 -
------------- ------------- ------------
Numerator for diluted net income (loss) per common share - net income (loss)
available to common shareholders after
assumed conversions $ 19,145 $ 7,841 $ (16,483)
============= ============= ============
Denominator:
Denominator for basic net income (loss) per common
share - weighted average shares 32,048 31,707 30,820
------------- ------------- ------------
Effect of dilutive securities:
Employee stock options 74 78 -
Interest on convertible debt - 21 -
Other 7 3 -
------------- ------------- ------------
Denominator for diluted net income (loss) per common share - adjusted weighted
average shares and assumed
conversions 32,129 31,809 30,820
============= ============= ============
Net income (loss) per common share - basic $0.60 $0.25 $(0.53)
Net income (loss) per common share - diluted $0.60 $0.25 $(0.53)
Note 12 - Shareholders' Equity
On May 10, 1994, the Company issued 1.15 million shares of Series B preferred
stock in connection with the Stuart acquisition. 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 and is convertible into
approximately 6.1 shares of common stock at the shareholder's option. As of
April 1997, the preferred stock was redeemable by the Company at a price of $100
subject to certain restrictions.
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 April 30, 2004, if not earlier
redeemed.
Note 13 - Commitments and Contingencies
The Company has a commitment through December 2001 to outsource the management
and operation of its mainframe computer. This commitment is cancellable at any
time on 180 days prior notice and a minimum payment of $8.8 million. The Company
also has entered into noncancellable agreements to lease certain office and
warehouse facilities with remaining terms ranging from one to 10 years. Certain
leases include renewal options, generally for five-year increments. At December
31, 1997, future minimum annual payments under noncancellable operating lease
agreements with original terms in excess of one year are as follows:
(In thousands)
Total
-------
1998 $20,181
1999 17,168
2000 13,190
2001 10,331
2002 7,929
Later years 21,318
------
Total minimum payments $90,117
=======
Minimum lease payments have not been reduced by minimum sublease rentals
aggregating $0.8 million due in the future under noncancellable subleases.
Rent expense for all operating leases for the years ended December 31, 1997,
1996 and 1995 was $26.3 million, $25.6 million and $27.0 million,
respectively.
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.
In 1997, 1996 and 1995, net sales to Columbia/HCA Healthcare Corporation totaled
$356 million, $321 million and $249 million, or approximately 11%, 11% and 8%,
respectively, of the Company's net sales. In 1997, net sales to member hospitals
of Premier Inc. totaled $386 million, or approximately 12% of the Company's net
sales. Net sales to member hospitals under contract with VHA Inc. totaled $1.3
billion in 1997, $1.2 billion in 1996 and 1995, approximately 40%, 41% and 40%,
respectively, of the Company's net sales. As members of a national healthcare
network, VHA Inc. hospitals have incentive to purchase from their primary
selected distributor; however, they operate independently and are free to
negotiate directly with distributors and manufacturers.
Note 14 - Legal Proceedings
As of January 30, 1998, Stuart is named as a defendant along with product
manufacturers, distributors, healthcare providers, trade associations and others
in approximately 136 lawsuits, filed in various federal and state courts (the
Cases). The Cases represent the claims of approximately 145 plaintiffs claiming
personal injuries and approximately 73 spouses asserting claims for loss of
consortium. The Cases seek damages for personal injuries allegedly attributable
to spinal fixation devices. The great majority of the Cases seek compensatory
and punitive damages in unspecified amounts.
Prior to December 1992, Stuart distributed spinal fixation devices manufactured
by Sofamor SNC, a predecessor of Sofamor Danek Group, Inc. (Sofamor Danek).
Approximately one third of the claims involve plaintiffs implanted with spinal
fixation devices manufactured by Sofamor Danek. Such plaintiffs allege that
Stuart is liable to them under applicable products liability law for injuries
caused by such devices distributed and sold by Stuart. In addition, such
plaintiffs allege that Stuart distributed and sold the spinal fixation devices
through deceptive and misleading means and in violation of applicable law. In
the remaining Cases, plaintiffs seek to hold Stuart liable for injuries caused
by other manufacturers' devices that were neither distributed nor sold by
Stuart. Such plaintiffs allege that Stuart engaged in a civil conspiracy and
concerted action with manufacturers, distributors and others to promote the sale
of spinal fixation devices through deceptive and misleading means and in
violation of applicable law. Stuart never manufactured any spinal fixation
devices. The Company believes that affirmative defenses are available to Stuart.
All Cases filed against Stuart have been, and will continue to be, vigorously
defended.
A majority of the Cases have been transferred to, and consolidated for pretrial
proceedings, in the Eastern District of Pennsylvania in Philadelphia under the
style MDL Docket No. 1014: In re Orthopedic Bone Screw Products Liability
Litigation. Discovery proceedings, including the taking of depositions have been
ongoing in certain of the Cases, and, in a number of Cases, discovery has been
completed and these Cases have been remanded back for trial to those
jurisdictions where they were originally filed. The Company is unable at this
time to determine with certainty whether or not Stuart may be held liable.
Based upon management's analysis of indemnification agreements between Stuart
and Sofamor Danek, the manufacturer of the devices distributed by Stuart, the
Company believes that Stuart is entitled to indemnification by Sofamor Danek at
least with respect to claims brought by plaintiffs implanted with devices
manufactured by Sofamor Danek. Such Cases are being defended by Stuart's
insurance carriers. Regarding those Cases filed by plaintiffs implanted with
other manufacturers' devices, one of Stuart's primary insurance carriers has
notified a representative of the former shareholders of Stuart that it will
withdraw its provision of defense of such Cases and another one of Stuart's
primary insurance carriers has notified a representative of the former
shareholders of Stuart that it has declined to provide a defense for such Cases,
in both instances asserting that such Cases involve only conspiracy and
concerted action claims. The former shareholders of Stuart are contesting the
insurance companies' withdrawal and declination of the defense of such Cases.
The Company and Stuart are also contractually entitled to indemnification by the
former shareholders of Stuart for any liabilities and related expenses incurred
by the Company or Stuart in connection with the foregoing litigation. The
Company believes that Stuart's available insurance coverage together with the
indemnification rights discussed above are adequate to cover any losses should
they occur, and accordingly has accrued no liability therefor. Except as set
forth above, the Company is not aware of any uncertainty as to the availability
and adequacy of such insurance or indemnification, although there can be no
assurance that Sofamor Danek and the former shareholders will have sufficient
financial resources in the future to meet such obligations.
In addition, as of February 16, 1998, 30 individual lawsuits seeking monetary
damages, in most cases of an unspecified amount, have been filed by multiple
plaintiffs in federal and state courts against the Company, manufacturers, and
other distributors and sellers of natural rubber latex products. These lawsuits
allege injuries ranging from dermatitis and allergic reactions to anaphylactic
shock arising from the use of latex products, principally medical gloves. The
Company may be named as a defendant in additional similar cases in the future.
In the course of its medical supply business, the Company has distributed latex
products, including medical gloves, but it does not, nor has it ever,
manufactured any latex products. The defense costs of these lawsuits are being
paid by the Company's insurers and the Company believes at this time that any
potential liability and future defense costs will also be covered by its
insurance, subject to policy limits and insurer solvency. Since all of these
cases are in early stages of trial preparation, the likelihood of an unfavorable
outcome for the Company or the amount or range of potential loss with respect to
any of these matters cannot be reasonably determined at this time.
The Company is party to a lawsuit claiming failure to meet certain contractual
obligations involving a distribution agreement. The plaintiff is seeking $3.3
million in compensatory damages, and the Company has, in turn, filed a
counterclaim alleging breach of contract. At this time, management believes that
the final outcome of this lawsuit will not materially affect the Company's
financial condition or results of operations.
The Company is party to various other legal actions that are ordinary and
incidental to its business. While the outcome of legal actions cannot be
predicted with certainty, management believes the outcome of these proceedings
will not have a material adverse effect on the Company's financial condition or
results of operations.
Note 15 - Condensed Consolidating Financial Information
The following table presents condensed consolidating financial information for:
Owens & Minor, Inc.; on a combined basis, the guarantors of Owens & Minor,
Inc.'s Notes (all of the wholly owned subsidiaries of Owens & Minor, Inc. except
for OMF); and OMF, Owens & Minor, Inc.'s only non-guarantor subsidiary of the
Notes. Separate financial statements of the guarantor subsidiaries are not
presented because the guarantors are jointly, severally and unconditionally
liable under the guarantees and the Company believes the condensed consolidating
financial statements are more meaningful in understanding the financial position
of the guarantor subsidiaries.
Condensed Consolidating Financial Statements (1)
(In thousands)
As of and for the year ended Owens & Guarantor
December 31, 1997 Minor, Inc. Subsidiaries OMF Eliminations Consolidated
- --------------------------------------------------------------------------------------------------------------------------------
Statements of Operations
Net sales $ - $3,116,798 $ - $ - $3,116,798
Cost of goods sold - 2,800,044 - - 2,800,044
- ---------------------------------------------------------------------------------------------------------------------------------
Gross margin - 316,754 - - 316,754
- ---------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses - 234,721 151 - 234,872
Depreciation and amortization - 17,664 - - 17,664
Interest expense, net 18,422 (2,707) (12) - 15,703
Intercompany interest expense, net (15,669) 27,371 (10,421) (1,281) -
Discount on accounts receivable securitization - 10 6,574 - 6,584
- ---------------------------------------------------------------------------------------------------------------------------------
Total expenses 2,753 277,059 (3,708) (1,281) 274,823
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (2,753) 39,695 3,708 1,281 41,931
Income tax provision (benefit) (1,129) 16,685 1,517 538 17,611
- ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (1,624) $ 23,010 $ 2,191 $ 743 $ 24,320
Dividends on preferred stock $ 5,175 $ - $ - $ - $ 5,175
- ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) attributable to common stock $ (6,799) $ 23,010 $ 2,191 $ 743 $ 19,145
=================================================================================================================================
Balance Sheets
Assets
Current assets
Cash and cash equivalents $ 505 $ 78 $ - $ - $ 583
Accounts and notes receivable, net - 100,336 87,542 - 187,878
Merchandise inventories - 285,529 - - 285,529
Intercompany advances, net 176,335 68,016 - (244,351) -
Other current assets - 25,274 - - 25,274
- ---------------------------------------------------------------------------------------------------------------------------------
Total current assets 176,840 479,233 87,542 (244,351) 499,264
Property and equipment, net - 26,628 - - 26,628
Goodwill, net - 162,821 - - 162,821
Intercompany investment in subsidiaries 299,858 15,001 - (314,859) -
Other assets, net 6,180 17,670 - - 23,850
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $ 482,878 $ 701,353 $ 87,542 $ (559,210) $ 712,563
=================================================================================================================================
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ - $ 224,072 $ - $ - $ 224,072
Accrued payroll and related liabilities - 7,840 - - 7,840
Intercompany advances, net - 176,335 68,759 (245,094) -
Other accrued liabilities 2,480 30,564 519 - 33,563
- ---------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,480 438,811 69,278 (245,094) 265,475
Long-term debt 182,550 - - - 182,550
Accrued pension and retirement plans - 5,237 - - 5,237
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities 185,030 444,048 69,278 (245,094) 453,262
- ---------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity
Preferred stock 115,000 - - - 115,000
Common stock 64,426 - - - 64,426
Paid-in capital 8,005 299,858 15,001 (314,859) 8,005
Retained earnings 110,417 (42,553) 3,263 743 71,870
- ---------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 297,848 257,305 18,264 (314,116) 259,301
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 482,878 $ 701,353 $ 87,542 $ (559,210) $ 712,563
=================================================================================================================================
(1) Certain amounts in the 1996 condensed consolidating financial statements
have been reclassified to conform to the 1997 presentation.
Condensed Consolidating Financial Statements (1)
(In thousands)
For the year ended Owens & Guarantor
December 31, 1997 Minor, Inc. Subsidiaries OMF Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------------------------
Statements of Cash Flows
Operating Activities
Net income (loss) $ (1,624) $ 23,010 $ 2,191 $ 743 $ 24,320
Adjustments to reconcile net income (loss) to cash
provided by operating activities
Depreciation and amortization - 17,664 - - 17,664
Provision for losses on accounts and notes receivable - 124 144 - 268
Provision for LIFO reserve - 2,414 - - 2,414
Changes in operating assets and liabilities
Accounts and notes receivable - (12,591) (28,312) - (40,903)
Merchandise inventories - (6,104) - - (6,104)
Accounts payable - 4,714 - - 4,714
Net change in other current assets
and current liabilities 147 4,667 (203) - 4,611
Other, net 1,411 158 212 (743) 1,038
- ----------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) operating activities (66) 34,056 (25,968) - 8,022
- ----------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Additions to property and equipment - (7,495) - - (7,495)
Additions to computer software - (4,472) - - (4,472)
Proceeds from sale of property and equipment - 1,851 - - 1,851
- ----------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) investing activities - (10,116) - - (10,116)
- ----------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Additions to long-term debt 26,026 - - - 26,026
Reductions of long-term debt - (11,049) - - (11,049)
Change in intercompany advances (17,596) (8,372) 25,968 - -
Other short-term financing, net - (4,679) - - (4,679)
Cash dividends paid (10,950) - - - (10,950)
Exercise of stock options 2,586 - - - 2,586
- ----------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities 66 (24,100) 25,968 - 1,934
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents - (160) - - (160)
Cash and cash equivalents at beginning of year 505 238 - - 743
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 505 $ 78 $ - $ - $ 583
==================================================================================================================================
(1) Certain amounts in the 1996 condensed consolidating financial statements
have been reclassified to conform to the 1997 presentation.
Condensed Consolidating Financial Statements (1)
(In thousands)
As of and for the year ended Owens & Guarantor
December 31, 1996 Minor, Inc. Subsidiaries OMF Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
Statements of Operations
Net sales $ - $3,019,003 $ - $ - $3,019,003
Cost of goods sold - 2,720,613 - - 2,720,613
- -----------------------------------------------------------------------------------------------------------------------------------
Gross margin - 298,390 - - 298,390
- -----------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses - 233,036 668 - 233,704
Depreciation and amortization - 16,098 - - 16,098
Interest expense, net 22,542 (3,588) - - 18,954
Intercompany interest expense, net (21,525) 30,046 (7,605) (916) -
Discount on accounts receivable securitization - 1,908 4,613 - 6,521
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses 1,017 277,500 (2,324) (916) 275,277
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (1,017) 20,890 2,324 916 23,113
Income tax provision (benefit) (407) 9,312 877 366 10,148
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (610) $ 11,578 $ 1,447 $ 550 $ 12,965
Dividends on preferred stock $ 5,175 $ - $ - $ - $ 5,175
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) attributable to common stock $ (5,785) $ 11,578 $ 1,447 $ 550 $ 7,790
===================================================================================================================================
Balance Sheets
Assets
Current assets
Cash and cash equivalents $ 505 $ 238 $ - $ - $ 743
Accounts and notes receivable, net - 87,869 59,374 - 147,243
Merchandise inventories - 281,839 - - 281,839
Intercompany advances, net 158,738 42,048 - (200,786) -
Other current assets - 25,675 - - 25,675
- -----------------------------------------------------------------------------------------------------------------------------------
Total current assets 159,243 437,669 59,374 (200,786) 455,500
Property and equipment, net - 29,231 - - 29,231
Goodwill, net - 167,366 - - 167,366
Intercompany investment in subsidiaries 299,858 15,001 - (314,859) -
Other assets, net 6,877 20,527 - - 27,404
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 465,978 $ 669,794 $ 59,374 $(515,645) $ 679,501
===================================================================================================================================
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ - $ 224,037 $ - $ - $ 224,037
Accrued payroll and related liabilities - 5,001 - - 5,001
Intercompany advances, net - 158,739 42,597 (201,336) -
Other accrued liabilities 2,588 30,162 722 - 33,472
- -----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,588 417,939 43,319 (201,336) 262,510
Long-term debt 156,500 11,049 - - 167,549
Accrued pension and retirement plans - 7,042 - - 7,042
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 159,088 436,030 43,319 (201,336) 437,101
- -----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity
Preferred stock 115,000 - - - 115,000
Common stock 63,814 - - - 63,814
Paid-in capital 5,086 299,858 15,001 (314,859) 5,086
Retained earnings 122,990 (66,094) 1,054 550 58,500
- -----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 306,890 233,764 16,055 (314,309) 242,400
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 465,978 $ 669,794 $ 59,374 $(515,645) $ 679,501
===================================================================================================================================
(1) Certain amounts in the 1996 condensed consolidating financial statements
have been reclassified to conform to the 1997 presentation.
Condensed Consolidating Financial Statements (1)
(In thousands)
For the year ended Owens & Guarantor
December 31, 1996 Minor, Inc. Subsidiaries OMF Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
Statements of Cash Flows
Operating Activities
Net income (loss) $ (610) $ 11,578 $ 1,447 $ 550 $ 12,965
Adjustments to reconcile net income (loss) to cash
provided by operating activities
Depreciation and amortization - 16,098 - - 16,098
Provision for losses on accounts and notes receivable - 190 648 - 838
Provision for LIFO reserve - 908 - - 908
Changes in operating assets and liabilities
Accounts and notes receivable - 150,013 (32,856) - 117,157
Merchandise inventories - 43,633 - - 43,633
Accounts payable - (9,670) - - (9,670)
Net change in other current assets
and current liabilities 582 4,230 213 - 5,025
Other, net 306 589 833 (550) 1,178
- ----------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) operating activities 278 217,569 (29,715) - 188,132
- ----------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Additions to property and equipment - (6,242) - - (6,242)
Additions to computer software - (6,985) - - (6,985)
Proceeds from sale of property and equipment - 6,865 - - 6,865
- ----------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) investing activities - (6,362) - - (6,362)
- ----------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Additions to long-term debt 150,000 - - - 150,000
Reductions of long-term debt (314,155) (722) - - (314,877)
Change in intercompany advances 173,201 (202,916) 29,715 - -
Other short-term financing, net - (7,341) - - (7,341)
Cash dividends paid (10,868) - - - (10,868)
Exercise of stock options 1,844 - - - 1,844
- ----------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities 22 (210,979) 29,715 - (181,242)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 300 228 - - 528
Cash and cash equivalents at beginning of year 205 10 - - 215
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 505 $ 238 $ - $ - $ 743
==================================================================================================================================
(1) Certain amounts in the 1996 condensed consolidating financial statements
have been reclassified to conform to the 1997 presentation.
Note 16 - Quarterly Financial Data (Unaudited)
The following table presents the summarized quarterly financial data for 1997
and 1996:
(In thousands, except per share data)
1997
-------------------------------------------------------------------------
Quarter 1st 2nd 3rd 4th
- ------- --------------- -------------- --------------- ---------------
Net sales $ 749,623 $ 776,722 $ 785,778 $ 804,675
Gross margin 75,102 78,041 78,881 84,730
Net income 4,994 5,770 6,478 7,078
Net income per common share - basic $ 0.12 $ 0.14 $ 0.16 $ 0.18
Net income per common share - diluted $ 0.12 $ 0.14 $ 0.16 $ 0.18
1996
-------------------------------------------------------------------------
Quarter 1st 2nd 3rd 4th
- ------- --------------- -------------- ------------- -------------
Net sales $ 771,312 $ 749,938 $ 744,146 $ 753,607
Gross margin 74,179 74,511 74,486 75,214
Net income 1,519 2,931 3,750 4,765
Net income per common share - basic $ 0.01 $ 0.05 $0.08 $ 0.11
Net income per common share - diluted $ 0.01 $ 0.05 $0.08 $ 0.11
Independent Auditors' Report
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, 1997 and 1996, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997.
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, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ KPMG
- -----------------------------
Richmond, Virginia
February 4, 1998
46
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no changes in or disagreements with accountants on accounting and
financial disclosures during the two-year period ended December 31, 1997.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required for this item is contained in Part I of this Form 10-K
and in the 1998 Proxy Statement under the headings "Nominees for Election to the
Board of Directors", "Members of Board of Directors Continuing in Office" and
"Series B Preferred Stock Director" on pages 5 through 8 and "Compliance with
Section 16(a) Reporting" on page 15, and is incorporated by reference herein.
Item 11. Executive Compensation
The information required under this item is contained in the 1998 Proxy
Statement under the heading "Director Compensation" on page 3, "Summary
Compensation Table" on pages 18 and 19, "Option Grants" on page 19, "1997 Option
Exercises and Year-End Option Values" on page 19 and "Retirement Plans" on pages
19 and 20, "Executive Severance Agreements" on page 24, and is incorporated by
reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this item is contained in the 1998 Proxy
Statement under the heading "Stock Ownership by Principal Shareholders and
Management" on pages 16 and 17 and is incorporated by reference herein.
Item 13. Certain Relationships and Related Transactions
None
47
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Page
Numbers
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements:
Independent Auditors' Report of
KPMG Peat Marwick LLP 46
Consolidated Statements of Operations
for the years ended December 31, 1997, 1996 and 1995 22
Consolidated Balance Sheets as of
December 31, 1997 and 1996 23
Consolidated Statements of Cash Flows for the
years ended December 31, 1997, 1996 and 1995 24
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1997, 1996 and 1995 25
Notes to Consolidated Financial Statements 26 - 45
2. Financial Statement Schedules:
Independent Auditors' Report of
KPMG Peat Marwick LLP 53
Schedule II - Valuation and Qualifying Accounts 54
All other schedules are omitted because the related information is
included in the Consolidated Financial Statements or notes thereto or because
they are not applicable.
3. Exhibits
(2) Agreement of Exchange dated December 22, 1993, as amended and restated on
March 31, 1994, by and among Stuart Medical, Inc., the Company and certain
shareholders of Stuart Medical, Inc. (incorporated herein by reference to the
Company's Proxy Statement/Prospectus dated April 6, 1994, Annex III)**
(3) (a) Amended and Restated Articles of Incorporation of the Company
(incorporated herein by reference to the Company's Annual Report on Form 10-K,
Exhibit 3(a), for the year ended December 31, 1994)
(b) Amended and Restated Bylaws of the Company
(4) (a) Indenture dated as of May 29, 1996 among the Company, as Issuer, Owens &
Minor Medical, Inc., National Medical Supply Corporation, Owens & Minor West,
Inc., Koley's Medical Supply, Inc., Lyons Physician Supply Company, A. Kuhlman &
Co., Stuart Medical, Inc., as Guarantors, and Crestar Bank, as Trustee
(incorporated herein by reference to the Company's Quarterly Report on Form
10-Q, Exhibit 4(a), for the quarter ended June 30, 1996)
(b) Amended and Restated Rights Agreement dated as of May 10, 1994
between the Company and Wachovia Bank of North Carolina, N.A., Rights Agent
(incorporated herein by reference to the Company's Quarterly Report on Form
10-Q, Exhibit 4, for the quarter ended June 30, 1995)
(c) Credit Agreement dated as of September 15, 1997 by and among the
Company, certain of its subsidiaries, the various banks and lending institutions
identified on the signature pages thereto, NationsBank, N.A., as agent, Bank of
America NT and SA and Crestar Bank, as co-agents, and NationsBank, N.A., as
administrative agent (incorporated herein by reference to the Company's
Quarterly Report on Form 10-Q, Exhibit 4, for the quarter ended September 30,
1997)
(10) (a) Owens & Minor, Inc. Annual Incentive Plan (incorporated herein by
reference to the Company's definitive Proxy Statement dated March 25, 1991)*
(b) Owens & Minor, Inc. Management Equity Ownership Program
(incorporated herein by reference to the Company's Quarterly Report on Form
10-Q, Exhibit 10(a), for the quarter ended September 30, 1997)*
(c) 1985 Stock Option Plan as amended on January 27, 1987 (incorporated
herein by reference to the Company's Annual Report on Form 10-K, Exhibit 10(f),
for the year ended December 31, 1987)*
(d) Owens & Minor, Inc. Pension Plan, as amended and restated effective
January 1, 1994 (Pension Plan) (incorporated herein by reference to the
Company's Annual Report on Form 10-K, Exhibit 10(c), for the year ended December
31, 1996)*
(e) Amendment No. 1 to Pension Plan (incorporated herein by reference
to the Company's Annual Report on Form 10-K, Exhibit 10(d), for the year ended
December 31, 1996)*
(f) Owens & Minor, Inc. Supplemental Executive Retirement Plan dated
July 1, 1991 (SERP) (incorporated herein by reference to the Company's Annual
Report on Form 10-K, Exhibit 10(i), for the year ended December 31, 1991)*
(g) First Amendment to SERP, effective July 30, 1996 (incorporated
herein by reference to the Company's Quarterly Report on Form 10-Q, Exhibit
10(e), for the quarter ended September 30, 1996)*
(h) Owens & Minor, Inc. Executive Severance Agreements (incorporated
herein by reference to the Company's Annual Report on Form 10-K, Exhibit 10(j),
for the year ended December 31, 1991)*
(i) Agreement dated May 1, 1991 by and between Owens & Minor, Inc. and
W. Frank Fife (incorporated herein by reference to the Company's Annual Report
on Form 10-K, Exhibit 10(m), for the year ended December 31, 1992)*
(j) Owens & Minor, Inc. 1993 Stock Option Plan (incorporated herein by
reference to the Company's Annual Report on Form 10-K, Exhibit 10(k), for the
year ended December 31, 1993)*
(k) Amended and Restated Owens & Minor, Inc. 1993 Directors'
Compensation Plan (Directors' Plan) (incorporated herein by reference to the
Company's Annual Report on Form 10-K, Exhibit 10(k), for the year ended December
31, 1996)*
(l) The forms of agreement with directors entered into pursuant to (i)
the Stock Option Program, (ii) the Deferred Fee Program and (iii) the Stock
Purchase Program of the Directors' Plan (incorporated herein by reference to the
Company's Quarterly Report on Form 10-Q, Exhibit (10), for the quarter ended
March 31, 1996)*
(m) Form of Enhanced Authorized Distribution Agency Agreement dated as
of August 20, 1997 between VHA, Inc. and Owens & Minor (incorporated herein by
reference to the Company's Quarterly Report on Form 10-Q, Exhibit 10(d), for the
quarter ended September 30, 1997)***
(n) Amended and Restated Purchase and Sale Agreement dated as of May
28, 1996 among Owens & Minor Medical, Inc., the Company and O&M Funding Corp.
(incorporated herein by reference to the Company's Quarterly Report on Form
10-Q, Exhibit 10(a), for the quarter ended June 30, 1996)
(o) Amended and Restated Receivables Purchase Agreement dated as of May
28, 1996 among O&M Funding Corp., Owens & Minor Medical, Inc., the Company,
Receivables Capital Corporation and Bank of America National Trust and Savings
Association, as Administrator (incorporated herein by reference to the Company's
Quarterly Report on Form 10-Q, Exhibit 10(b), for the quarter ended June 30,
1996)
(p) First Amendment dated as of October 17, 1997 to the Amended and
Restated Receivables Purchase Agreement among O&M Funding Corp., Owens & Minor
Medical, Inc., the Company, Receivables Capital Corporation and Bank of America
National Trust and Savings Association (incorporated herein by reference to the
Company's Quarterly Report on Form 10-Q, Exhibit 10(b), for the quarter ended
September 30, 1997)
(q) Amended and Restated Parallel Asset Purchase Agreement dated as of
May 28, 1996 among O&M Funding Corp., Owens & Minor Medical, Inc., the Company,
the Parallel Purchasers from time to time party thereto and Bank of America
National Trust and Savings Association, as Administrative Agent (incorporated
herein by reference to the Company's Quarterly Report on Form 10-Q, Exhibit
10(c), for the quarter ended June 30, 1996)
(r) First Amendment dated as of October 17, 1997 to the Amended and
Restated Parallel Asset Purchase Agreement among O&M Funding Corp., Owens &
Minor Medical, Inc., the Company, Parallel Purchasers and Bank of America
National Trust and Savings Association (incorporated herein by reference to the
Company's Quarterly Report on Form 10-Q, Exhibit 10(c), for the quarter ended
September 30, 1997)
(11) Calculation of Net Income (Loss) Per Common Share
Information related to this item is in Part II, Item 8, Notes to
Consolidated Financial Statements, Note 11 - Net Income (Loss) per
Common Share.
(21) Subsidiaries of Registrant
(23) Consent of KPMG Peat Marwick LLP, independent auditors
* A management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K.
** The schedules to this Agreement have been omitted pursuant to Item 601(b)(2)
of Regulation S-K. The Company hereby undertakes to file supplementally with the
Commission upon request a copy of the omitted schedules.
*** 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
There were no reports filed on Form 8-K during the fourth quarter of
1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By /s/ G. Gilmer Minor, III
------------------------
G. Gilmer Minor, III
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dated indicated:
/s/ G. Gilmer Minor, III /s/ James B. Farinholt, Jr.
- --------------------------------------- ---------------------------
G. Gilmer Minor, III James B. Farinholt, Jr.
Chairman, President and Chief Executive Director
Officer and Director (Principal Executive
Officer) /s/ C. G. Grefenstette
----------------------
C. G. Grefenstette
/s/ Ann Greer Rector Director
- ---------------------
Ann Greer Rector /s/ Vernard W. Henley
Senior Vice President and Chief ---------------------
Financial Officer (Principal Financial Vernard W. Henley
Officer) Director
/s/ Olwen B. Cape /s/ E. Morgan Massey
- ----------------- ---------------------
Olwen B. Cape E. Morgan Massey
Vice President and Controller (Principal Director
Accounting Officer)
/s/ Henry A. Berling /s/ James E. Rogers
- -------------------- --------------------
Henry A. Berling James E. Rogers
Executive Vice President, Director
Partnership Development and Director
/s/ Josiah Bunting, III /s/ James E. Ukrop
- ----------------------- -------------------
Josiah Bunting, III James E. Ukrop
Director Director
/s/ R. E. Cabell, Jr. /s/ Anne Marie Whittemore
- --------------------- --------------------------
R. E. Cabell, Jr. Anne Marie Whittemore
Director Director
Each of the above signatures is affixed as of March 23, 1998.
Independent Auditors' Report on
Financial Statement Schedule
The Board of Directors
Owens & Minor, Inc.:
Over date of February 4, 1998, we reported on the consolidated balance sheets
of Owens & Minor, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related financial
statement schedule included on page 54 of this annual report on Form 10-K. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement
schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
- ------------------------
KPMG Peat Marwick LLP
Richmond, Virginia
February 4, 1998
Schedule II
Owens & Minor, Inc. and Subsidiaries
Valuation and Qualifying Accounts
(In thousands)
Additions
Charged to
Balance at --------------------- Balance
Beginning Costs and Other at End
Year of Year Expenses Accounts* Deductions* of Year
---- ---------- --------- ----------- ----------- ----------
Allowance for doubtful accounts deducted
from accounts and notes receivable in
the Consolidated Balance Sheets
1997 $6,495 $ 268 $ - $ 451 $ 6,312
1996 6,010 838 - 353 6,495
1995 5,340 827 - 157 6,010
* Uncollectible accounts written off.
Form 10-K
Exhibit Index
Exhibit #
- ---------
3 (b) Amended and Restated Bylaws of the Company
21 Subsidiaries of Registrant
23 Consent of KPMG Peat Marwick LLP, independent auditors
27 Financial Data Schedule