UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 30, 2001 Commission File Number 0-23832
PSS WORLD MEDICAL, INC.
(Exact name of Registrant as specified in its charter)
FLORIDA 59-2280364
(State of incorporation) (I.R.S. Employer
Identification No.)
4345 Southpoint Boulevard
Jacksonville, Florida 32216
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 332-3000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value per share
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 the Form 10-K or any
amendment to this Form 10-K. |_|
The aggregate market value of common stock, par value $0.01 per share (the
"Common Stock") held by nonaffiliates, based upon the closing sales price,
was approximately $370,101,000 as of June 25, 2001. In the determination of
this amount, affiliates include all of the Company's officers, directors
and persons known to the Company to be beneficial owners of more than five
percent of the Company's Common Stock. This amount should not be deemed
conclusive for any other purpose. As of June 25, 2001, a total of
71,068,943 shares of the Company's Common Stock were outstanding.
Document Incorporated by Reference
The information called for by Part III is incorporated by reference to the
definitive Proxy Statement for the 2001 Annual Meeting of Stockholders of
the Registrant which will be filed with the Securities and Exchange
Commission not later than 120 days after March 30, 2001.
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TABLE OF CONTENTS
Page
ITEM
Information Regarding Forward-Looking Statements 3
Part I
1. Business..................................................................................... 4
2. Properties................................................................................... 23
3. Legal Proceedings............................................................................ 25
4. Submission of Matters to a Vote of Security Holders.......................................... 25
Part II
5. Market for the Registrant's Common Shares and Related Shareholder Matters.................... 26
6. Selected Financial Data...................................................................... 27
7. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 29
7A. Quantitative and Qualitative Disclosures About Market Risk................................... 41
8. Financial Statements and Supplementary Data.................................................. F-1
Part III
9. Changes in and disagreements with Accountants on Accounting and Financial Disclosure......... 42
10. Directors and Executive Officers of the Registrant........................................... 42
11. Executive Compensation....................................................................... 42
12. Security Ownership of Certain Beneficial Owners and Management............................... 42
13. Certain Relationships and Related Transactions............................................... 42
Part IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................. 43
Signatures................................................................................... 45
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PART I
CAUTIONARY STATEMENTS
Forward Looking Statements
This Form 10-K includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). All statements regarding the Company's and its subsidiaries'
(including subsidiaries that are limited liability companies and limited
partnerships) expected future financial position, results of operations, cash
flows, funds from operations, dividends and dividend plans, financing plans,
business strategy, budgets, projected costs, capital expenditures, competitive
positions, growth opportunities, plans and objectives of management for future
operations and statements that include words such as "anticipate," "believe,"
"plan," "estimate," "expect," "intend," "may," "could," and other similar
expressions are forward-looking statements. Such forward-looking statements are
inherently uncertain, and stockholders must recognize that actual results may
differ from the Company's expectations.
Actual future results and trends for the Company may differ materially depending
on a variety of factors discussed in this Form 10-K and elsewhere in the
Company's filings with the Securities and Exchange Commission (the
"Commission"). Factors that may affect the plans or results of the Company
include, without limitation, those listed in this document under the heading
"Risk Factors," and (a) the ability of the Company to successfully implement its
business plan; (b) the availability of sufficient capital to finance the
Company's business plans on terms satisfactory to the Company; (c) competitive
factors; (d) the ability of the Company to adequately defend or reach a
settlement of outstanding litigations and investigations involving the Company
or its management; (d) changes in labor, equipment and capital costs; (e)
changes in regulations affecting the Company's business; (f) future acquisitions
or strategic partnerships; and (g) general business and economic conditions.
Many of these factors are outside the control of the Company and its management.
The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which are made pursuant to the private Securities
Litigation Reform Act of 1995 and, as such, speak only as of the date made. The
Company undertakes no duty to update such forward-looking statements.
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Item 1. Business
GENERAL
PSS World Medical, Inc., a Florida Corporation (the "Company", "PSS World
Medical", or "PSS"), is a specialty marketer and distributor of medical
products to physicians, alternate-site imaging centers, long-term care
providers, home care providers, and hospitals through 99 service centers to
customers in all 50 states. Since its inception in 1983, the Company,
through strategic acquisitions and internal growth, has become a leader in
three market segments it serves. The Company's strategic advantages include
a focused and differentiated approach to customer service, a consultative
sales force, unique arrangements with product manufacturers, innovative
systems, and a culture of performance.
The Company's Physician Sales & Service division is a leading distributor
of medical supplies, equipment and pharmaceuticals to office-based
physicians in the United States based on revenues, number of
physician-office customers, number and quality of sales representatives,
and exclusively distributed products. Physician Sales & Service currently
operates 49 medical supply distribution service centers with approximately
719 sales representatives ("Physician Supply Business") serving physician
offices in all 50 states. The Physician Supply Business' primary market is
office-based physicians throughout the United States.
The Company's subsidiary Diagnostic Imaging, Inc. ("DI") is a leading
distributor of medical diagnostic imaging supplies, chemicals, equipment,
and service to the acute care and alternate-care markets in the United
States based on revenues, number of service specialists, and number of
sales representatives. DI currently operates 34 imaging distribution
service centers with approximately 850 service specialists and 210 sales
representatives ("Imaging Business") serving customer sites in 42 states.
The Imaging Business' primary markets are acute-care hospitals, imaging
centers, and private practice physicians, veterinarians and chiropractors.
The Company's subsidiary Gulf South Medical Supply, Inc. ("GSMS" or "Gulf
South") is a leading national distributor of medical supplies and related
products to the long-term care industry in the United States based on
revenues and number of sales representatives. GSMS currently operates 14
distribution service centers with approximately 119 sales representatives
("Long-Term Care Business") serving long-term care accounts in all 50
states. The Long-Term Care Business' primary market is comprised of a large
number of independent operators, small to mid-sized local and regional
chains, and several national chains.
As of March 30, 2001, the Company's subsidiary WorldMed International, Inc.
("WorldMed") operated two European service centers ("International
Business") distributing medical products to the physician office and
hospital markets in Belgium and Germany. Subsequent to the fiscal year-end,
the Company sold its European operations.
COMPANY STRATEGY
The Company's objective is to be the leading distributor and marketer of
medical products and services to select niche medical markets in the United
States, measured by customer satisfaction and organizational profitability.
During fiscal years 1997 to 2000, the Company grew rapidly through mergers
and acquisitions. During the most recent two fiscal quarters, the Company
has focused on stabilizing growth and maximizing its core strengths. The
key components of the Company's strategy to achieve its objectives are to
continue to:
Expand Sales and Operating Margins. The Company continues to pursue several
initiatives to enhance its sales and gross margins. The Company's objective
in the next 24 to 36 months is to convert its sales force from a
demonstration to an application force with customer tailored solutions. The
Company is focusing its efforts on higher-margin products and accounts,
penetration of existing and former customer accounts, and on sales of
diagnostic equipment, often on an exclusive or semi-exclusive basis, that
involve ongoing sales of higher-margin reagents and/or higher margin
service contracts. Examples of recent sales and gross margin initiatives
include the following:
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o SRx rollout in the Physician Supply Business. SRx is an automated
marketing program tailored to physician specialties, combining disease
states, pharmaceutical therapeutics, diagnostic tests, and
reimbursement. This program provides our Physician Business sales
representatives with the opportunity to partner with physicians to
increase their revenues and profits while improving patient care. We
have also found the program to be a successful "reach" strategy as
evidenced by the signing of over 3,000 new customers. Additionally,
successful use of the SRx program by our salesforce has initially
produced 14-15% growth in revenues and gross profit dollars in our
selected Family Practice pilot group.
o Long-Term Care Business ANSWERS Program. ANSWERS is the Long-Term Care
business best-practice marketing program, which aligns the best
practices of nursing homes with the most efficient distribution
activities, producing savings for both customers and distributors. The
ANSWERS program was rolled-out in April at Gulf South's national sales
meeting. In addition to reducing distribution cost by encouraging more
efficient buying patterns, ANSWERS provides real opportunities for
category-leading branded product vendors to increase volumes and for
customers to purchase top products at reduced pricing. These
market-leading branded products promote the best quality patient care,
resulting in improved outcomes at a faster pace, thus helping customers
improve profitability.
o Reorganization of Imaging Business into Strategic Business Units. The
Imaging Business has completed the reorganization of its sales force
into six distinct business units focusing on Commodities, Women's
Health, Surgical, Imaging, Technical Service, and Telesales. The six
strategic business units are designed to leverage the Imaging Business'
core competencies, align capabilities and resources, implement new
sales initiatives with lower selling costs, and increase focus on
higher margin business.
With respect to operating margins, the Company's objectives are to redesign
for greater efficiency all areas of the business that do not interface with
the customer or negatively impact customer satisfaction. The Company will
seek to leverage infrastructure as well as develop new capabilities and
core competencies. Examples of recent initiatives include:
o Supply Chain Management. The Company is systematically reinventing its
supply chain with leading edge technology while better leveraging
existing Enterprise Resource Planning ("ERP") systems. This initiative
improves identification of demand signals that will offer our vendor
partners the ability to better plan production schedules and reduce
finished goods. The program is designed to provide the Company with
greater scale in the ordering process, resulting in lower
administrative costs associated with centralized purchasing and
elimination of rebates, as well as shared savings with vendors due to
greater order efficiency. The Company's goal is to reduce supply chain
costs by $20 million in the next 24-36 months.
o Centralized Sourcing. In combination with supply chain initiatives, the
Company established a centralized sourcing unit in April.
Centralized negotiating and purchasing of indirect spend, defined as
non-inventory and salary costs, is expected to reduce costs with
minimal operations impact on the Company and its subsidiaries. The
Company has identified $150 to $200 million of indirect spend with a
goal of saving $10 million in the next 24-36 months.
o Optimized Distribution Model with Customer Satisfaction a Top
Priority. The Company has engaged a third party consultant to assist
it in developing the Company's long-range strategic plan, including
distribution rationalization. As an integral part of this process, the
Company has begun surveying and interviewing thousands of customers
from all three business segments to ensure that the Company continues
to meet and exceed their expectations while optimizing our
distribution model. Progress is expected to be made gradually over the
next 24 to 36 months.
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o Utilize Sophisticated Information Systems. The Company has aggressively
improved its technology base with the role out of its myPSS.com,
myDIonline.com, and GSOnline. The Company believes these sites are the
most robust sites in operation for their customers and serve as a
platform for supply chain initiatives that leverage the Company's ERP
systems. These systems will serve the Company's objective to increase
revenues and customers while leveraging infrastructure and reducing
operating costs.
Offer a Broad Product Line Emphasizing Exclusive Products. The Company
seeks to meet all of the medical products needs of office-based physicians,
providers of imaging services and providers of long-term care services. The
Company currently stocks over 56,000 medical products in its Physician
Supply Business, over 8,000 imaging products in its Imaging Business, and
over 20,000 medical products in its Long-Term Care Business. The Company
also seeks to establish exclusive distribution and marketing arrangements
for selected products. In the United States, PSS currently has exclusive or
semi-exclusive marketing arrangements for certain products with Abbott
Laboratories, Biosound, Candela Corporation, Philips Medical Systems,
Roche, Siemens AG, Trex Medical Corporation, and other leading
manufacturers. The Company believes that its sophisticated selling efforts,
highly trained sales force, and large customer base provide manufacturers
with a unique sales channel through which to distribute new and existing
products and technology that require consultative selling.
INDUSTRY
According to industry estimates, the United States medical supply and
equipment segment of the health care industry represents approximately a
$43 billion market comprised of distribution of medical products to
hospitals, home health care agencies, imaging centers, physician offices,
dental offices, and long-term care facilities. The Company's primary focus
is the distribution of medical products to physician offices, providers of
imaging services, and long-term care facilities. Approximately 60% of
products in this market come through the distributor channel, representing
an approximately $25 billion market potential for the Company.
Revenues of the medical products distribution industry are estimated to be
growing as a result of a growing and aging population, increased health
care awareness, proliferation of medical technology and testing, and
expanding third-party insurance coverage. In addition, the physician market
continues to benefit from the shift of procedures and diagnostic testing
from hospitals to alternate sites, particularly physician offices, despite
a migration of significantly lower hospital medical product pricing into
the physician office market. Also as the cosmetic surgery and elective
market continues to grow, physicians are increasingly performing more
procedures in-office.
The health care industry is subject to extensive government regulation,
licensure, and operating procedures. National health care reform has been
the subject of a number of legislative initiatives by Congress.
Additionally, government and private insurance programs fund the cost of a
significant portion of medical care in the United States. In recent years,
government-imposed limits on reimbursement of hospitals, long-term care
facilities, and other health care providers have affected spending budgets
in certain markets within the medical products industry. In 1997, the
Balanced Budget Act passed by Congress made radical changes to
reimbursements for nursing homes and home care providers. The industry has
struggled with these changes and the ability of providers, distributors and
manufacturers to adapt to the changes is not yet determined. These changes
also affect some distributors who directly bill the government for these
providers. The industry estimates that approximately 11% of Long-Term Care
facilities have filed for bankruptcy protection. Over 100 of the Company's
customers filed for bankruptcy in the last two years.
Over the past few years, the health care industry has undergone significant
consolidation. Physician provider groups, long-term care facilities, and
other alternate-site providers, along with hospitals, continue to
consolidate, creating new and larger customers. However, the majority of
the market serviced by the Company remains small customers, with no single
customer exceeding 10% of the consolidated Company's revenues. However, the
Long-Term Care Business depends on a limited number of large customers for
a significant portion of its net sales, and approximately 35% of Long-Term
Care Business' revenues for the twelve months ended March 30, 2001
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represented sales to its top five customers. One of these top five
customers is currently in Chapter 11 bankruptcy reorganization, and sales
to this customer represents approximately 9% of Long-Term Care Business
revenues, and less than 2% of the Company's consolidated sales, for the
year ended March 30, 2001. Growth in the Long-Term Care Business, as well
as consolidation of the health care industry, may increase the Company's
dependence on large customers.
SALES, SERVICE, DISTRIBUTION
The Company has built its relationships largely through its strong customer
service and sales force. The sales force must complete extensive training
before meeting with customers in order to provide a more value-added
consultative sales approach that focuses on fulfilling the needs of the
customer.
PHYSICIAN SUPPLY BUSINESS
The Physician Supply Business currently maintains a highly decentralized
distribution network of 49 service centers operating approximately 530
delivery vans servicing customers throughout the United States. This
distribution network, along with the Company's customer internet site,
myPSS.com, and its sales force automation tool "ICONWebSM", has enabled the
Physician Supply Business to provide customer specific services with local
market variations.
With its 719 sales representatives, the Physician Supply Business
distributes medical supplies and equipment to physicians in over 100,000
office sites nationally. Generally, each sales representative is
responsible for calling on approximately 125 physician offices, with a
minimum goal of visiting each office once every one to two weeks.
IMAGING BUSINESS
The Imaging Business operates as a local market national distributor
providing over 8,000 types of medical imaging supplies, chemicals, and
equipment to the acute-care and alternate-care markets. Since its inception
in November 1996, DI has successfully integrated 46 acquisitions with a
common ERP system to construct a nationwide distribution and service
channel with 30 full service branches, 4 service centers, 210 sales
representatives and 850 service specialists reaching over 24,000 customer
sites in 42 states. Each full service branch is capable of providing a
broad array of imaging products including consumables, imaging equipment,
and equipment service. The Company uses it own fleet of delivery vehicles
to provide scheduled point-of-use and just-in-time deliveries tailored to
the unique service and maintenance needs of imaging customers.
LONG-TERM CARE BUSINESS
The Long-Term Care Business currently operates 14 full-service regional
distribution centers. Coupled with a team of approximately 119 sales
representatives and GSOnline, the Company's automated customer Internet
platform, the Long-Term Care Business is able to provide consistent and
reliable service to customers ranging from independent nursing homes to
large national chains, as well as providers of home health care and
subacute, rehabilitation, and transitional care. Currently, the Long-Term
Care Business provides service to approximately 14,000 long-term care
accounts nationally and offers a product line consisting of over 20,000
products.
In addition to distribution of medical and related products, the Company's
Long-Term Care Business provides customers with support services developed
to meet their needs. These services include: (i) incentives and discounts
to align best practice purchasing activities with efficient distribution
activities, (ii) usage reports designed to help customers manage supply
requirements, prepare forecasts and track multifacility purchases; (iii)
inventory control processes that enable the customer to order products on a
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just-in-time basis and monitor patient's utilization of products for
Medicaid and Medicare reimbursement; and (iv) customized services including
customized invoices, bar code labels, and customized order guides.
INTERNATIONAL BUSINESS
As of March 30, 2001, the International Business operated two European
service centers located in Belgium and Germany, employing approximately 20
sales representatives and 90 total employees. Subsequent to fiscal
year-end, the Company sold its European operations.
PRODUCTS
The Company is required to carry a significant investment in inventory to
meet the rapid delivery requirements of its customers. During the year
ended March 30, 2001, one imaging business vendor accounted for more than
10% of the Company's consolidated inventory purchases. The Company's
ability to maintain good relations with its vendors will affect the
profitability of the business.
Physician Supply Business
The Physician Supply Business distributes medical over 56,000 types of
products consisting of medical supplies, diagnostic equipment, and
pharmaceuticals. The following is a discussion of the types of medical
products offered by the Physician Supply Business.
Medical Supplies. The Physician Supply Business sells a broad range of
medical supplies, including various types and sizes of paper goods, needles
and syringes, gauze and wound dressings, surgical instruments, sutures,
latex gloves, orthopedic soft goods and casting products, wood tongue
blades and applicators, sterilization and intravenous solutions, specimen
containers, diagnostic equipment reagents, and diagnostic rapid test kits
for pregnancy, strep, mononucleosis, chlamydia, and H-Pylori.
Medical Equipment. The Physician Supply Business equipment lines include
blood chemistry analyzers, automated cell and differential counters,
immunoassay analyzers, bone densitometers, exam tables and furniture,
electrocardiograph monitors and defibrillators, cardiac stress systems,
cardiac and OB/GYN ultrasound, holter monitors, flexible sigmoidoscopy
scopes, hyfracators, laser and endoscopy surgical units, autoclaves,
spirometers, pulse oximeters, tympanometers, and microscopes. Demand for
diagnostic equipment has been increasing, reflecting in part,
technological advances that enable increasingly sophisticated diagnostic
tests to be performed in the physician's office. Sales of diagnostic
equipment, while generally lower in gross margin than supplies, normally
entail the ongoing reordering of disposable diagnostic reagents that
generally yield higher margins.
Pharmaceuticals. The Company's pharmaceutical sales include vaccines,
injectables, and ointments.
IMAGING BUSINESS
The Imaging Business distributes a broad range of approximately 8,000
consumable SKU's and 25 various equipment product lines. In addition, the
Company employs approximately 850 service specialists who provide equipment
maintenance and repair.
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Imaging Supplies. Imaging supplies are primarily the supplies and
accessories used each time a diagnostic image such as a chest x-ray, CT or
mammogram is created. The Company's product portfolio includes x-ray film,
processing chemicals, contrast agents, barium, filing and mailing products,
film viewing devices, darkroom products, protective materials, and other
miscellaneous imaging accessories.
Imaging Equipment. The Imaging Business equipment lines include processors,
wet and dry laser cameras, automated film handling equipment, radiographic
equipment, radiographic and fluoroscopic equipment ("R&F"), digital R&F,
electrophysiology equipment, mammography systems, bone densitometry,
C-Arms, digital upgrades, computed tomography scanners ("CT"), cardiac cath
labs, vascular labs, magnetic resonance imaging ("MRI") equipment, picture
archiving and communication systems ("PACS"), computed radiography
equipment, and urology systems.
Imaging Service Specialists. Through approximately 850 service specialists,
the Imaging Business currently provides on-site preventive maintenance,
emergency service, and parts for all of the above-mentioned imaging
equipment sold.
LONG-TERM CARE BUSINESS
The Long-Term Care Business offers over 20,000 medical and related products
consisting largely of name brand items including medical supplies,
incontinent supplies, personal care items, enteral feeding supplies,
medical instruments, and respiratory and ostomy supplies.
Medical Supplies. Medical supplies consist of wound care supplies, needles
and syringes, gauze, sutures, various types of exam gloves, urological
supplies, and blood and urine testing supplies and test kits.
Incontinent Supplies and Personal Care Items. These items include adult
diapers and underpads, as well as soaps and shampoos, personal hygiene
items, various paper products and bedside utensils.
Enteral Feeding Supplies. Enteral feeding supplies include nutritional
supplements, pump sets, and intravenous tubing and solutions.
Other. Other items offered by the Company include medical instruments,
oxygen supplies, trach and suction supplies, and over-the-counter
pharmaceuticals.
INTERNATIONAL BUSINESS
The International Business distributed medical supplies, equipment and
pharmaceuticals similar to those provided by the Physician Supply Business
through two service centers to acute and alternate care sites in Belgium
and Germany. Subsequent to year-end, the Company sold its European
operations.
RECRUITMENT AND DEVELOPMENT
The Company believes its sales force and leaders are its most valuable
assets. Accordingly, the Company invests significant resources in
recruiting, training and developing these associates. Over the past ten
years, the Company has refined its recruitment practices and development
procedures for its businesses. The Company's comprehensive program includes
the following:
Recruitment. The Company has developed a recruitment program to help
provide it with a source of mobile and committed sales representatives. The
Company believes that it is a leader in its industry in recruiting sales
representatives on college and university campuses. The Company's
recruiters use state-of-the-art marketing materials to attract candidates
who demonstrate superior sales aptitude.
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Initial Development. Each sales trainee is initially introduced to the
Company through an on-line Orientation Program. The program is a
self-paced, web-based program which educates the new trainee on the
business of each division, the officers of the Company, and the
expectations of the trainee. Under the supervision of local leaders and
regional specialists, training consists of a combination of self-study,
individual instruction and interaction with customers and regional
specialists. Such training includes 16 one-week courses providing
instruction on products, procedures, and selling skills. During this
development program, the trainee attends the Center for Career Development
for additional training. The Company believes that the level of its
expenditures in developing new sales representatives and its ability to
place new sales representatives quickly in a new region is unique within
the industry. The new sales graduate is placed on a salary-to-commission
conversion program.
Operations Management. The Company's development program for its operations
leadership trainees consists of approximately 12 months of intensive
training and development. After recruitment, the operations management
trainee is transferred to several service centers and is given various and
gradually increasing levels of responsibility.
Technical Service Specialists. The Imaging Business has implemented an
intensive service training schedule in which the vast majority of its 850
service specialists will be participating in some manner in the upcoming
fiscal year. The Company recently constructed its own state-of-the-art
5,000 square foot Diagnostic Imaging training center where it provides
classes on all aspects of the imaging business including film handling
equipment, basic x-ray, basic imaging, and mammography equipment. The
curriculum also includes the Kodak ImageWatch training. The training center
will soon be expanding into 8,000 additional square feet. During fiscal
2001, the Company trained over 150 service specialists in the Center for
Career Development classes on customer skills and communications. In
addition, a large number of service specialists will attend classes
provided by various equipment manufacturers.
Continued Sales Development. The Company recently developed an advanced
sales development program for experienced successful sales representatives
designed to improve effectiveness, performance, and extend the value
proposition provided to the customer. This new class is an extension of
several programs in place to train experienced sales representatives on new
technology and new products. The Company also provides several programs to
continue development of its sales and leadership organization. The programs
provided by the Center for Career Development include a leadership program
for senior sales representatives, a general leaders program for first-year
leaders that emphasizes creativity and innovation, and a senior leadership
development program.
Continued Operations Development. The Company has begun to develop programs
for customer service, warehouse, driver, purchasing and other field
operation staff for job specific expertise needed in the areas of
regulatory compliance, sexual harassment, equal opportunity and other human
resource topics. The Company is migrating more of its training and
education programs online.
On March 30, 2001, the Company had 1,068 sales representatives, 850 imaging
service specialists, and approximately 4,800 total associates. The Company
considers its employee relations to be good.
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INFORMATION SYSTEMS
PSS WORLD MEDICAL, INC.
Web Base eCommerce Digital Marketplace Application Development
The Company launched two new sites in fiscal 2001. myPSS.com was launched
in December of 2000, followed by myDIonline.com in late March of 2001. The
sites feature full product catalogs for each division, as well as real-time
inventory availability, account and billing information, and multi-site
purchasing control tools. The sites are the result of over 18 months of
research and development. These new sites round out PSS World Medical's
eBusiness offerings complimenting the GSOnline site, which has been in
place for over 3 years in the Gulf South division.
Supply Chain Application Development
In the past year, PSS World Medical has purchased supply chain applications
from i2 Technologies. These modules are currently being implemented within
the Businesses in fiscal 2002.
Strategic ERP Systems Development
PSS World Medical has successfully completed its JD Edwards system
conversion within the Imaging Business. The Physician Supply Business
completed its JD Edwards One World rollout to seven branches in the
Southern Region this past year. The remaining branches in the Southern
Region as well as other regions are being targeted for conversion in fiscal
2002 and 2003. The Company is integrating its supply chain solution with
the JD Edwards OneWorld system, which may delay the rollout but is expected
to facilitate a shorter completion date.
PHYSICIAN SUPPLY BUSINESS
Sales Force Automation / Internet Automation
ICONwebSM is a sales force automation tool that allows the Physician Supply
Business sales representatives to access critical customer information and
place orders from any location using a standard laptop computer system.
ICONwebSM provides the sales representatives with customer pricing,
contracts, backorders, inventory levels, account status and instant
ordering. ICONwebSM has increased time available for selling, decreased
operating expenses in the service centers, and enhanced the Company's
ability to provide same-day delivery to customers.
ICONwebSM accounts for over 60% of the Physician Supply Business' orders
that are processed on a monthly basis. The system has allowed the Physician
Supply Business to cut its internal customer service staff in half over the
past seven years and processes approximately $450 million of annualized
revenue through the Internet.
IMAGING BUSINESS
ERP Systems
The Imaging Business completed the JD Edwards World ERP system rollout that
was started in October of 1997. The Imaging Business maintains this
centralized system with rollover capability to an offsite facility in the
event the current system is unavailable. The current system runs on the
AS/400 model 740 using several software packages. JD Edwards supports the
core business functions such as accounts payable, accounts receivable,
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general ledger, and distribution. MDSI supports the service component of
the business, and there are several add-in components such as RF-Smart
(warehouse-management), and Quadrant (faxing from the AS400).
LONG-TERM CARE BUSINESS
ERP Systems
Gulf South maintains a centralized computing environment that allows for
real time data updates and access by remote branch locations via a wide
area network. The Gulf South distribution system was designed and developed
in-house, specifically for the medical supply distribution industry. This
distribution system is connected to the PSS World Medical general ledger
and accounts payable system. Once the new PSS distribution system is
implemented at all Physician Supply Business branches, the existing Gulf
South distribution system will be replaced by the JD Edwards OneWorld
system.
eCommerce / Digital Marketplace Development
Gulf South has developed an Internet based sales force automation
application ("RepNet") and a customer on-line ordering application
(GSOnline). RepNet provides the Gulf South sales force with immediate
access to customer account data and historical purchasing activity, product
and inventory data, and remote sales quotes and sales order entry
capabilities. This system has greatly improved the amount of information
available to the mobile sales force and increased the level of service
provided to customers. GSOnline is an Internet based order entry and
historical reporting application developed specifically for the Gulf South
customer. Through GSOnline, a customer can access their specific account
pricing and product formularies, inquire on product availability, place and
view order status, and perform history reporting.
Customer Systems
In addition, Gulf South offers its customers Accuscan, a barcode based
inventory control and ancillary billing software package designed
specifically for the long-term care and home health industries. Accuscan
allows a customer to maintain a real time inventory count and order
products on a just-in-time basis, as well as a method to monitor patients'
utilization of products.
The effectiveness of Internet access to improve efficiencies of
distribution in the health care industry is being tested and developed by
current and new participants of the health care industry. Approximately
$480,000 a day of long-term care sales are currently being processed
through GSOnline by the Long-Term Care Business with approximately 34% of
all of its sales processed through e-Commerce.
PURCHASING AND VENDOR RELATIONSHIPS
The Company has initiated a new sourcing department to provide centralized
procurement of indirect products such as office and warehouse supplies,
travel and entertainment, delivery vehicles, insurance and other
non-inventory. The Company expects significant savings from the
consolidation and leveraging of its indirect product purchasing.
The Company seeks to purchase the medical supplies and equipment it
distributes at the lowest possible price through volume discounts, rebates
and product line consolidation. The Company's materials management group
negotiates all of its contract terms with vendors. Today, individual orders
are placed by the Company's purchasing agents located at the Company's
service centers, who are responsible for purchasing and maintaining the
inventory. Supplies and equipment are delivered directly from vendors to
the service centers. The Company is currently centralizing and automating
purchasing at its Imaging division.
The Company aggressively pursues the opportunity to market and sell medical
equipment and supplies on an exclusive basis. Manufacturers of medical
diagnostic equipment and supplies typically offer distribution rights only
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to a selected group of distributors and are increasingly seeking to reduce
the number of distributors selling their products to end users in an effort
to reduce the cost associated with marketing and field support. The Company
has been successful in assisting manufacturers in their development and
marketing plans and in obtaining the exclusive right to sell certain
products. The Company believes that its ability to capture such
distribution rights represents a significant barrier to the entry of
competitors.
Vendor relationships are an integral part of the Company's businesses.
Marketing and sales support, performance incentives, product literature,
samples, demonstration units, training, marketing intelligence, distributor
discounts and rebates, and new products are strategic to the Company's
future success.
In the Imaging Business, prices of consumable imaging products, primarily
film and film related products, are influenced significantly by
manufacturers through distributor discounts and rebates. These
distributor/manufacturer relationships affect the profitability of the
Company's Imaging Business. Additionally, the development of new technology
may change the manner in which diagnostic imaging services are provided. In
the event of such technological changes, the Company's ability to obtain
distribution agreements or develop vendor relationships to distribute such
new technology will impact the Company's operations.
COMPETITION
The Company operates in a highly competitive environment. The Company's
principal competitors are the few multimarket medical distributors that are
full-line, full-service medical supply companies, most of which are
national in scope, and manufacturers that sell their products both to
distributors and/or directly to users, including office-based physicians
and hospitals. The national, multi-market medical distributors and
manufacturers have sales representatives competing directly with the
Company, are substantially larger in size, and have substantially greater
financial resources than the Company. There are also numerous local dealers
and mail order firms that distribute medical supplies and equipment within
the same market as the Company. Most local dealers are privately owned and
operate with limited product lines. There are several mail order firms that
distribute medical supplies on a national or regional basis.
REGULATORY MATTERS
General
Federal, state, and local governments extensively regulate the provision of
medical devices and over-the-counter pharmaceutical products, as well as
the distribution of prescription pharmaceutical products. Applicable
Federal and state statutes and regulations require the Company to meet
various standards relating to, among other things, licensure, personnel,
maintenance of proper records, equipment and quality assurance programs.
The Company believes it substantially complies with applicable Federal and
state laws. However, if a state or the Federal government finds that the
Company has not complied with these laws, then the Company could be
required to change its way of operating, and this could have a negative
impact on the Company. The Company believes that the health care services
industry will continue to be subject to extensive regulation at the
Federal, state, and local levels. The Company cannot predict the scope and
effect of future regulation and enforcement on its business and cannot
predict whether health care reform will require the Company to change its
operations or whether such reform will have a negative impact on the
Company.
The Food, Drug and Cosmetic Act, Prescription Drug Marketing Act, Safe
Medical Devices Act, Controlled Substances Act and State Regulation
The Company's business is subject to regulation under the Federal Food,
Drug, and Cosmetic Act, the Prescription Drug Marketing Act of 1987, the
Safe Medical Devices Act of 1990, the Controlled Substances Act, and state
laws applicable to the manufacture and distribution of medical devices and
-13-
over-the-counter pharmaceutical products, as well as the distribution of
prescription pharmaceutical products. In addition, the Company is subject
to regulations issued by the Food and Drug Administration, the Drug
Enforcement Administration and comparable state agencies.
The Federal Food, Drug, and Cosmetic Act generally regulates the
manufacture of drug and medical devices shipped in interstate commerce,
including such matters as labeling, packaging, storage and handling of such
products. The Prescription Drug Marketing Act of 1987, which amended the
Federal Food, Drug and Cosmetic Act, establishes certain requirements
applicable to the wholesale distribution of prescription drugs, including
the requirement that wholesale drug distributors be registered with the
Secretary of Health and Human Services or be licensed in each state in
which they conduct business in accordance with federally established
guidelines on storage, handling, and records maintenance. The Safe Medical
Devices Act of 1990 imposes certain reporting requirements on distributors
in the event of an incident involving serious illness, injury or death
caused by a medical device. Under the Controlled Substances Act, the
Company, as a distributor of controlled substances, is required to obtain
annually a registration from the United States Attorney General in
accordance with specified rules and regulations and is subject to
inspection by the Drug Enforcement Administration acting on behalf of the
United States Attorney General. The Company is also required to maintain
licenses and permits for the distribution of pharmaceutical products and
medical devices under the laws of the states in which it operates.
The Anti-Kickback Statute
Under Medicare, Medicaid, and other government-funded health care programs
such as the CHAMPUS program, Federal and state governments enforce a
Federal law called the Anti-Kickback Statute. The Anti-Kickback Statute
prohibits any person from offering or paying any type of benefit to another
person in exchange for the referral of items or services covered by
Medicare, Medicaid or other federally-subsidized program. Remuneration
prohibited by the Anti-Kickback Statute includes the payment or transfer of
anything of value. Many states also have similar anti-kickback statutes.
The Anti-Kickback Statute is a broad law, and courts have not been
consistent in their interpretations of it. Courts have stated that, under
certain circumstances, the Anti-Kickback Statute is violated when just one
purpose, as opposed to the primary purpose, of a payment is to induce
referrals. To clarify what acts or arrangements will not be subject to
prosecution by the Department of Justice, the Department of Health and
Human Services ("DHHS") adopted a set of safe harbor regulations and has
proposed additional safe harbor regulations. DHHS continues to publish
clarifications to these safe harbors. If an arrangement does not meet all
of the requirements of a safe harbor, it does not mean that the arrangement
is necessarily illegal or will be prosecuted under the Anti-Kickback
Statute.
An arrangement must meet a number of specific requirements in order to
enjoy the benefits of the applicable safe harbor. Meeting the requirements
of a safe harbor will protect an arrangement from enforcement action by the
government. The Company seeks to satisfy as many safe harbor requirements
as possible when it is structuring its business arrangements. The types of
arrangements covered by safe harbors that are not subject to enforcement
actions by the government include, but are not limited to, certain
investments in companies whose stock is traded on a national exchange,
certain small company investments in which physician ownership is limited,
rental of space, rental of equipment, personal services contracts,
management contracts, sales of physician practices, physician referral
services, warranties, discounts, payments to employees, and group
purchasing organizations. Despite the Company's efforts to meet safe harbor
requirements whenever possible and otherwise comply with the Anti-Kickback
Statute, a government agency might take a position contrary to the
interpretations made by the Company or may require the Company to change
its practices. If an agency were to take such a position, it could
adversely affect the Company.
The Health Insurance Portability and Accountability Act of 1996
In an effort to combat health care fraud, Congress included several
anti-fraud measures in the Health Insurance Portability and Accountability
Act of 1996 ("HIPAA"). Among other things, HIPAA broadened the scope of
certain fraud and abuse laws, extended criminal penalties for Medicare and
Medicaid fraud to other Federal health care programs, and expanded the
authority of the Office of Inspector General to exclude persons and
-14-
entities from participating in the Medicare and Medicaid programs. HIPAA
also extended the Medicare and Medicaid civil monetary penalty provisions
to other Federal health care programs, increased the amounts of civil
monetary penalties, and established a criminal health care fraud statute.
Federal health care offenses under HIPAA include health care fraud and
making false statements relating to health care matters. Under HIPAA, among
other things, any person or entity that knowingly and willfully defrauds or
attempts to defraud a health care benefit program is subject to a fine,
imprisonment, or both. Also under HIPAA, any person or entity which
knowingly and willfully falsifies, conceals or covers up a material fact or
makes any materially false or fraudulent statements in connection with the
delivery of or payment for health care services by a health care benefit
plan is subject to a fine, imprisonment, or both.
The Company seeks to satisfy HIPAA when it is structuring its business
arrangements. However, a government agency might take a position contrary
to the interpretations made by the Company or may require the Company to
change its practices. If an agency were to take such a position, it could
adversely affect the Company.
Other Laws
The Company is also subject to various Federal, state and local laws,
regulations and recommendations, both in the United States and abroad,
relating to safe working conditions and the use and disposal of hazardous
or potentially hazardous substances. The Company's environmental policies
mandate compliance with all applicable regulatory requirements concerning
environmental quality and contemplate, among other things, appropriate
capital expenditures for environmental protection. In
addition, U.S. and international import and export laws and regulations
require that the Company abide by certain standards relating to the
importation and exportation of finished goods, raw materials and supplies.
The Company was also subject to regulation in the European countries where
its International Business markets its products. Many of the laws and
regulations applicable in such countries are similar to those described
above. The national health or social security organizations of certain
countries require the products distributed by the Company to be qualified
before they can be marketed in those countries.
Health Care Legislation
Federal, state and foreign laws and regulations regarding the sale and
distribution of medical supplies, equipment and devices by the Company are
subject to change. The Company cannot predict what impact, if any, such
changes might have on its business. Any new legislation or regulations, or
new interpretations of existing statutes and regulations, governing the
manner in which the Company provides services could have a material impact
on the Company and could adversely affect its profitability.
The laws and regulations described above apply not only to the Company, but
also to the manufacturers that supply the products distributed by the
Company as well as the Company's customers. For instance, medical product
and device manufacturers are subject under the Food, Drug, and Cosmetic Act
to design and manufacturing standards imposed, as well as registration and
reporting requirements regarding their facilities and products. Failure of
a manufacturer to comply with these requirements could result in recalls,
seizures, manufacturing suspensions or other interruptions in the
production, supply and sale of its products. Such interruptions may result
in a material adverse impact on the Company's business. In addition, the
Company's physician and other health care customers are subject to
significant Federal and state regulation. There can be no assurance that
-15-
such interruptions in medical product supplies or changing regulations
governing health care providers will not have a material adverse impact on
the Company's business.
RISK FACTORS
Our net sales and operating results may fluctuate quarterly and may be below
analysts' and investors' expectations in any particular quarter.
Our net sales and operating results may fluctuate quarterly as a result of many
factors, including:
o fluctuating demand for our products and services;
o the introduction of new products and services by us and our
competitors;
o acquisitions or investments;
o changes in manufacturers' prices or pricing policies;
o changes in the level of operating expenses;
o changes in estimates used by management;
o product supply shortages;
o product recalls by manufacturers;
o inventory adjustments;
o changes in product mix;
o general competitive and economic conditions; and
o change in accounting principles.
In addition, a substantial portion of our net sales in each quarter that may be
impacted by the above factors result from orders recorded in such quarter and,
in particular, toward the end of such quarter. Accordingly, we believe that
period-to-period comparisons of our operating results should not be relied upon
as an indication of future performance. It is possible that in certain future
periods our operating results may be below analysts' and investors'
expectations. This could materially and adversely affect the trading price of
our common stock.
As discussed in Note 17, Quarterly Results of Operations (Unaudited), to the
accompanying consolidated financial statements, the Company recently restated
its previously issued consolidated financial statements for the June 30,
September 30, and December 29, 2000 fiscal quarters. While the Company does not
believe it will be required to make any additional restatements, it cannot
provide an assurances that this is not the case.
Pricing and customer credit quality pressures due to reduced spending budgets by
health care providers may impair our revenues, the collectibility of our
accounts receivable and our earnings.
The cost of a significant portion of medical care in the United States is funded
by government and private insurance programs, such as Medicare, Medicaid, and
corporate health insurance plans. In recent years, government-imposed limits on
reimbursement of hospitals and other health care providers have significantly
impacted spending budgets in certain markets within the medical-products
industry. In particular, recent changes in the Medicare program have limited
payments to providers in the long-term care industry, the principal customers of
our Gulf South subsidiary. For cost-reporting periods beginning on or after July
1, 1998, Medicare's prospective payment system was applied to the long-term care
industry. This prospective payment system limits government payments to
long-term care providers to federally established cost levels. Prior to this
time, the long-term care facilities were reimbursed by the Medicare program
pursuant to a cost-based reimbursement system. This shift was designed to
encourage greater provider efficiency and to help stem the growth in
reimbursement relating to the care of long-term care patients. Under the
prospective payment system, the customers of our Gulf South subsidiary are now
receiving revenues that are substantially less than they received under
cost-based reimbursement. In addition, private third-party reimbursement plans
are also developing increasingly sophisticated methods of controlling health
care costs. Over 10 of our Gulf South customers, including several of our
largest customers, have declared bankruptcy due to the significant reductions in
their revenues. Therefore, particularly with respect to our Gulf South
customers, we cannot assure you that the purchase of our medical products will
not be limited or reduced or that we will be able to collect our receivables in
a timely manner, if at all. This may adversely affect our accounts receivable
and future sales, earnings and results of operations.
-16-
Our business is dependent upon sophisticated data processing systems which may
impair our business operations if they fail to operate properly or as we
anticipate.
The success of our business relies on our ability to (i) obtain, process,
analyze and manage data and (ii) maintain and upgrade our data processing
capabilities.
We rely on this capability because:
o we typically receive rebates from manufacturers when we sell
certain products for our Businesses and need sophisticated
systems to track and apply for such rebates;
o we must convert data and information systems after acquisitions;
o we must receive and process customer orders quickly;
o we must ship orders on a timely basis;
o we must manage the billing and collections, for over 120,000
customers;
o we must manage the purchasing and distribution of over 70,000
inventory items from 99 distribution centers;
o we are processing approximately $500 million of our revenues
through the Internet.
Our business, financial conditions and results of operations may be materially
adversely affected if, among other things:
o our data processing capabilities are interrupted or fail for any
extended length of time;
o we fail to upgrade our data services;
o our data processing system is unable to support our expanded
business; or
o we lose or are unable to store data.
Our strategy for growth may not result in additional revenue or operating income
and may have an adverse effect on working capital and earnings.
A key component of our growth strategy is to increase sales to both existing and
new customers, including large chains, independent operators and provider
groups. We intend to accomplish this by:
o expanding our e-commerce initiatives and development;
o developing focused marketing and distribution programs;
o hiring additional direct sales or other personnel; and
o increasing our national sales efforts.
We cannot assure you that these efforts will result in additional revenues or
operating income.
As we continue to increase our sales to large chains and consolidating provider
groups, we may face competitive pricing pressures.
We are expanding our business with large chains and consolidating provider
groups, especially in the long-term care market. This may result in competitive
pricing pressures. Our gross margins on these large group chains are 300 to 600
basis points lower than average due to:
o additional negotiating leverage of large chains;
o vendor agreements containing volume discounts;
o customer volume specifications; and
o service specifications.
-17-
We depend heavily on our exclusive and semi-exclusive distributorship
agreements, the loss of any of which could reduce our revenues and earnings.
We distribute over 45,000 medical products manufactured by approximately 5,000
vendors. We rely on these vendors for the manufacture and supply of products.
During the 12-month period ended March 30, 2001, however, no vendor relationship
accounted for more than 10% of purchases, except for Eastman Kodak, which
accounted for approximately less than 15% of the Company's consolidated
inventory purchases.
One of our significant vendor contracts is with Abbott Laboratories. Abbott may
terminate the contract if we do not meet certain sales levels. We have, in the
past, renegotiated such sales levels.
Our ability to maintain good relations with vendors affects our profitability.
Currently, PSS relies on vendors to provide:
o field sales representatives' technical and selling support;
o agreeable purchasing and delivery terms;
o sales performance incentives;
o financial support of sales and marketing programs; and
o promotional materials.
There can be no assurance that we will maintain good relations with our vendors.
Our Gulf South subsidiary depends on a limited number of large customers.
Consolidation among long-term care providers, including several national
hospital and drug wholesale distributors and health care manufacturers, may
result in a loss of large customers. Gulf South's business depends on a limited
number of large customers for a significant portion of its net sales. As is
customary in its industry, Gulf South does not have long-term contracts with its
customers and sells on a purchase order basis only. The loss of, or significant
declines in, the level of purchases by one or more of these large customers
would have a material adverse effect on our business and results of operations.
Gulf South has experienced failure to collect accounts receivable from its
largest customers, and continued adverse change in the financial condition of
any of these customers could have a material adverse effect upon our results of
operations or financial condition.
If we cannot integrate acquired companies with our business, our profitability
may be adversely affected.
Even though we may acquire additional companies in the future, we may be unable
to successfully integrate the acquired business and realize anticipated
economic, operational and other benefits in a timely manner. Integration of an
acquired business is especially difficult when we acquire a business in a market
in which we have limited or no expertise, or with a corporate culture different
from ours. If we are unable to successfully integrate acquired businesses:
o we may incur substantial costs and delays;
o we may experience other operational, technical or financial
problems;
o our management's attention and other resources may be diverted;
and
o our relationships with our key clients and employees may be
damaged.
Acquisitions may decrease our shareholders' percentage ownership in PSS and
require us to incur additional debt.
We may issue equity securities in future acquisitions that could be dilutive to
our shareholders. We also may incur additional debt and amortization expense
related to goodwill and other intangible assets in future acquisitions. This
additional debt and amortization expense may reduce significantly our
profitability and materially and adversely affect our business, financial
condition, and results of operations.
-18-
Our indebtedness may limit our ability to obtain additional financing in the
future and may limit our flexibility to react to industry or economic
conditions.
In October 1997, we issued $125.0 million of 8.5% Senior Subordinated Notes (the
"Notes") due 2007. The Notes are governed by an indenture between PSS, all of
our domestic subsidiaries and SunTrust Bank, Central Florida, as trustee. At
March 30, 2001, our consolidated long-term indebtedness was $125.0 million under
these Notes. For fiscal 2002, we are scheduled to pay approximately $10.7
million in principal and interest for our Notes and capitalized leases. In
addition, we have a Credit Facility with a syndicate of lenders for an
additional $120.0 million, of which $65.0 million is outstanding as of March 30,
2001. If we default under any of our indebtedness, then we are deemed to be in
default under the terms of the indenture and the credit agreement.
The level of our indebtedness could:
o limit our ability to obtain additional financing in the future
for working capital;
o limit our ability to make capital expenditures;
o limit our acquisition activity;
o limit our flexibility in reacting to changes in the industry and
economic conditions in general; and
o adversely affect our liquidity because a substantial portion of
cash flow must be dedicated to debt service and will not be
available for other purposes.
We believe that our cash flow, together with available borrowings, is sufficient
to allow us to meet operating expenses and service our debt requirements in the
future. Our belief assumes, among other things, that we will successfully
implement our business strategy and that there will be no material adverse
developments in our business, liquidity, or capital requirements. However, if we
are unable to generate sufficient cash flow from operations to service our
indebtedness, we will be forced to adopt an alternative strategy that may
include the following options:
o reducing or delaying acquisitions and capital expenditures;
o selling assets;
o restructuring or refinancing our indebtedness; and
o seeking additional equity capital.
We may not meet our debt covenants.
As of March 30, 2001 we were not in compliance with certain covenants under the
Amended Credit Agreement. On May 24, 2001, the Company paid all outstanding
amounts and obligations due under the Amended Credit Agreement.
We face litigation and liability exposure for existing and potential claims.
The Company, through its Gulf South Medical Supply subsidiary, Physician Sales &
Service subsidiary and/or predecessor companies, has been named as one of many
defendants in latex glove product liability claims in various Federal and state
courts. The defendants are primarily distributors of certain brands of latex
gloves. Currently, state litigation exists in New Hampshire, Illinois,
Massachusetts and California, while Federal and/or Federal multi-district
litigation is present in Washington, Georgia, Indiana, New Hampshire,
Pennsylvania and Ohio. Defense costs are currently allocated by agreement
between a consortium of insurers on a pro rata basis for each case depending
upon policy years and alleged years of exposure. All of the insurance carriers
are defending subject to a reservation of rights. Ultimately, the manufacturers
from which the gloves were purchased may assume the defense and liability
obligations. The Company intends to vigorously defend the proceeding.
The Company has disputed the calculation of a supplemental premium charged by
CIGNA upon the termination by the Company of the health insurance program
administered by CIGNA. Subject to the execution of a definitive settlement
agreement, the Company has agreed in principle to settle the dispute for $2.85
million and has reserved such amount in an escrow account.
-19-
The Company and certain of its current officers and directors are named as
defendants in a purported securities class action lawsuit entitled Jack Hirsch
v. PSS World Medical, Inc., et al., Civil Action No. 3:98-cv-502-J-21TEM. The
action, which was filed on or about May 28, 1998, is pending in the United
States District Court for the Middle District of Florida, Jacksonville Division.
An amended complaint was filed on December 11, 1998. The plaintiff alleges, for
himself and for a purported class of similarly situated stockholders who
allegedly purchased the Company's stock between December 23, 1997 and May 8,
1998, that the defendants engaged in violations of certain provisions of the
Exchange Act, and Rule 10b-5 promulgated thereunder. The allegations are based
upon a decline in the Company's stock price following announcement by the
Company in May 1998 regarding the Gulf South Merger which resulted in earnings
below analyst's expectations. The plaintiff seeks indeterminate damages,
including costs and expenses. The Company filed a motion to dismiss the first
amended complaint on January 25, 1999. The court granted that motion without
prejudice by order dated February 9, 2000. Plaintiffs filed their second amended
complaint on March 15, 2000. The Company filed a motion to dismiss the second
amended complaint on May 1, 2000, which is pending. The Company believes that
the allegations contained in the complaint are without merit and intends to
defend vigorously against the claims. There can be no assurance that this
litigation will be ultimately resolved on terms that are favorable to the
Company.
Although the Company does not manufacture products, the distribution of medical
supplies and equipment entails inherent risks of product liability. The Company
maintains product liability insurance coverage. The Company is also a party to
various legal and administrative legal proceedings and claims arising in the
normal course of business. While any litigation contains an element of
uncertainty, management, after consultation with outside legal counsel, believes
that, other than as discussed above, the outcome of any proceedings or claims
which are pending or known to be threatened will not have a material adverse
effect on the Company's consolidated financial position, liquidity, or results
of operations.
We need to retain the services of senior management.
Our success depends largely on the efforts and abilities of our senior
management, particularly our President. The loss of the services of one or more
of such individuals may adversely affect our business. Because of our
decentralized operating structure, we are also dependent upon the operations and
sales managers for each of our service centers, and other key corporate
officers.
We need to hire and retain qualified sales representatives and service
specialists to continue our sales growth.
In our experience, our ability to retain existing customers and attract new
customers is dependent upon:
o hiring and developing new sales representatives;
o adding, through acquisitions, established sales representatives
whose existing customers become customers of PSS;
o retaining those sales representatives; and
o hiring and retaining skilled service specialists in a tight
market to maintain radiology and imaging equipment for our
Imaging Business.
An inability to adequately hire or retain sales representatives or service
specialists could limit our ability to expand our business and grow sales.
Due to relationships developed between PSS' sales representatives and their
customers, upon the departure of a sales representative, we face the risk of
losing the representative's customers. This is particularly a risk where the
representative goes to work as a sales representative for a competitor. We
generally require our sales representatives and service specialists to execute a
non-competition agreement as a condition of employment. We have not, however,
obtained these agreements from some of these employees. In addition, courts do
not always uphold the terms of non-competition agreements.
-20-
We may not be able to continue to compete successfully with other medical supply
companies.
The medical supply distribution market is very competitive. Our principal
competitors are the few full-line and full-service multi-market medical
distributors and direct manufacturers, most of which are national in scope. Many
of these national companies:
o have sales representatives competing directly with us;
o are substantially larger in size; and
o have substantially greater financial resources than we do.
We also compete with:
o local dealers;
o mail order firms.
Most local dealers are privately owned and operate within limited product lines.
Several of our mail order competitors distribute medical supplies on a national
or regional basis.
Continued consolidation within the health care industry may lead to increased
competition.
Consolidation within the health care industry has resulted in increased
competition by large national distributors and drug wholesalers. In response to
competitive pressures, we have lowered and may continue to lower selling prices
in order to maintain or increase our market share. These lower selling prices
have resulted and may continue to result in lower gross margins.
We could face additional competition because:
o many of our products can be readily obtained by competitors from
various suppliers;
o competitors could obtain exclusive rights to market a product to
our exclusion;
o national hospital, drug wholesale distributors and health care
manufacturers could begin focusing their efforts more directly on
the long-term care market;
o hospitals forming alliances with long-term care facilities to
create integrated health care networks may look to hospital
distributors and manufacturers to supply their long-term care
affiliates;
o as provider networks are created through consolidation among
physician provider groups, long-term care facilities and other
alternate site providers, purchasing decisions may shift to
people with whom we have no selling relationship; and
o we are increasingly focusing on national accounts where the
purchasing decision may not be made by our traditional customers.
Therefore, we cannot assure you:
o that we will be able to maintain our customer relationships in
such circumstances;
o that such provider consolidation will not result in reduced
operating margins; or
o that we will not face increased competition and significant
pricing pressure in the future.
The continued development and growth of digital radiology equipment may
adversely affect profits from our Imaging Business.
Recently, certain manufacturers have developed digital radiology equipment that
does not rely on film and film products. Film and film products constitute a
substantial percentage of the products distributed by our Imaging Business. We
cannot assure you that the introduction and proliferation of digital radiology
or other technological changes will not result in a material adverse change in
the Imaging Business. While we anticipate that we will distribute new imaging
technology, we cannot assure you that we will obtain distribution agreements or
-21-
develop vendor relationships to distribute such new technology. In addition, we
cannot assure that we would be able to distribute any such new technology
profitably.
We maintain a significant investment in product inventory which exposes us to
risks of product obsolescence or price decreases.
In order to provide prompt and complete service to our customers, we maintain a
significant investment in product inventory at our warehouse locations. Although
we closely monitor inventory exposure through inventory control procedures and
policies, we cannot assure you that:
o such procedures and policies will to be effective; or
o unforeseen product development or price changes will not occur.
In addition, we may assume inventory of distributors we acquire. This inventory
may include product lines or operating assets not normally carried or used by
us. These product lines or assets may:
o be difficult to sell; and
o result in our writing off any such unsold inventory or unused
assets in the future.
We cannot assure you that such risks will not adversely affect our business or
results of operations.
The expansion of the two-tiered pricing structure may place us at a competitive
disadvantage.
As a result of the Non-Profit Act of 1944, the medical-products industry is
subject to a two-tier pricing structure. Under this structure, certain
institutions, originally limited to non-profit hospitals, can obtain more
favorable prices for medical products than PSS. The two-tiered pricing structure
continues to expand as many large integrated health care providers and others
with significant purchasing power demand more favorable pricing terms. Although
we are seeking to obtain similar terms from our manufacturers, we cannot assure
you that we can obtain such terms. Such a pricing structure, should it persist,
may place us at a competitive disadvantage.
Our Articles of Incorporation, Bylaws, Rights Agreement and Florida law may
inhibit a takeover of PSS.
Our Articles of Incorporation and Bylaws and Florida law contain provisions that
may delay, deter or inhibit a future acquisition. This could occur even if our
shareholders are offered an attractive value for their shares or if a
substantial number or even a majority of our shareholders believe the takeover
is in their best interest. These provisions are intended to encourage any person
interested in acquiring us to negotiate with and obtain the approval of our
Board of Directors in connection with the transaction.
Provisions that could delay, deter or inhibit offers include the following:
o a staggered Board of Directors;
o the Affiliated Transaction Statute; and
o the Control-Share Acquisition Statute.
In addition, the rights of holders of our common stock will be subject to, and
may be adversely affected by, the rights of the holders of our preferred stock
that may be issued in the future and that may be senior to the rights of holders
of our common stock. On April 20, 1998, our Board of Directors approved a
Shareholder Protection Rights Agreement which provides for one preferred stock
purchase right in respect of each share of our common stock. These rights become
exercisable upon a person or group of affiliated persons acquiring 15% or more
of our then-outstanding common stock by all persons other than an existing 15%
shareholder. This Rights Agreement also could discourage bids for your shares of
common stock at a premium and could have a material adverse effect on the market
price of your shares.
-22-
Item 2. Properties
At March 30, 2001, the Company maintained 99 service centers providing
service to 50 states throughout the United States, as well as Belgium and
Germany. All locations are leased by the Company with the exception of the
Imaging Business service centers located in Syracuse, New York, and
Dallas, Texas, as well as the International Business service center
located in Leuven, Belgium, which was sold in May 2001. The following
table identifies the locations of the Company's service centers and the
areas that they serve.
PHYSICIAN SUPPLY BUSINESS
Service Center Location States Serviced Service Center Location States Serviced
------------------------ ---------------------- ------------------------ ---------------------
Atlanta, GA AL, GA Memphis, TN AR, MO, MS, TN
Baltimore, MD MD, PA, VA Minneapolis, MN MN, ND, SD, WI
Birmingham, AL AL, MS New Orleans, LA AL, FL, LA, MS
Charlotte, NC NC, SC, TN, VA Norfolk, VA NC, VA
Chattanooga, TN AL, GA, TN Omaha, NE IA, NE, KS,
Chicago, IL IA, IL, IN, MI, WI Orlando, FL FL
Cincinnati, OH IN, IL, KY, OH, WV Phoenix, AZ AZ, NV
Cleveland, OH IN, MI, NH, OH, VA, WA Pittsburgh, PA MD, NY, OH, PA, WV
Columbia, SC GA, SC Portland, OR CA, OR, WA
Dallas, TX AR, LA, OK, TX Raleigh, NC NC, SC, VA
Deerfield Beach, FL FL Richmond, VA VA
Denver, CO CO, NM, WY Roanoke, VA KY, VA, WV
Honolulu, HI HI, Guam, Saipan, Rochester, NY NY, PA
American Samoa, Western
Samoa
Houston, TX LA, TX Salt Lake City, UT ID, MT, NV, UT, WY
Jackson, MS MS, LA San Antonio, TX TX
Jacksonville, FL FL, GA, SC San Diego, CA AZ, CA
Kansas City, KS MO San Francisco, CA CA, NV
Knoxville, TN KY, NC,IL, TN, VA Seattle, WA AK, WA
Lafayette, LA AL, GA, LA, TN, TX St. Louis, MO AR, IL, MO
Little Rock, AR AR, MO, TX St. Petersburg, FL FL
Long Island, NY NY Tallahassee, FL AL, FL, GA
Los Angeles, CA (North) CA Tulsa, OK AR, KS, MD, OK
Los Angeles, CA (South) CA Union, NJ DE, MD, NJ, NY, PA
Louisville, KY IN, IL, KY, OH Wareham, MA CT, MA, ME, NH, RI, VT
Lubbock, TX AZ, CO, NM, OK, TX
-23-
IMAGING BUSINESS
Service Center Location States Serviced Service Center Location States Serviced
------------------------ ---------------------- ------------------------ ---------------------
Albany, NY CT, MA, NJ, NY, VT, Lynnwood, WA AK, ID, MT, OR, WA
Albuquerque, NM AZ, CO, NM, TX Machesney Park, IL IA, IL, WI
Atlanta, GA GA, SC Memphis, TN AR, MS, TN
Apopka, FL AL, FL, GA, NC, SC, VA Miro Loma, CA AZ, CA, NV
Birmingham, AL AL, FL, MS New Orleans, LA AL, FL, LA, MS, TN
Charlotte, NC NC, SC Phoenix, AZ (2) AZ
Clinton Township, MI MI, OH Pompano Beach, FL FL
Columbia, SC SC, NC Raleigh, NC NC
Dallas, TX AR, LA, OK, TX Roanoke, VA NC, TN, VA, WV
Del City, OK KS, OK Rochester, NY OH, NY, PA
Delran, NJ MD, NJ, NY, PA, VA, Salt Lake City, UT ID, NV, UT, WY
Fresno, CA CA San Antonio, TX TX
Houston, TX TX San Leandro, CA CA, NV, OR, WA
Indianapolis, IN IN, KY Schofield, WI IA, MI, MN, WI
Jacksonville, FL FL, GA St. Louis, MO IL, KY, MO
Knoxville, TN GA, KY, TN Syracuse, NY NY, PA
Las Vegas, NV NV, UT Tampa, FL FL
LONG-TERM CARE BUSINESS
Service Center Location States Serviced Service Center Location States Serviced
------------------------ ---------------------- ------------------------ ---------------------
Atlanta, GA AL, GA, SC, TN Madison, WI IA, MD, MN, NE, WI
Columbus, OH IN, OH, PA, WV Manchester, NH ME, NH, RI
Dallas, TX KS, LA, NM, OK, TX Orlando, FL FL, GA
Denver, CO CO, WY Omaha, NE IA, KS, MO, NE, ND, SD
Harrisburg, PA NJ, NY, OH, PA, VA, WV Raleigh, NC NC, SC, VA, WV
Jackson, MS AL, LA, MS, TN Sacramento, CA CA, OR, WA
Los Angeles, CA CA, NV San Antonio, TX LA, NM, TX
INTERNATIONAL BUSINESS (a)
Service Center Location States Serviced Service Center Location States Serviced
- ------------------------ ---------------------- ------------------------ ---------------------
Leuven, Belgium Belgium Dulmen, Germany Germany
(a) The Company sold its European operations subsequent to year-end.
In the aggregate, the Company's service centers consist of approximately 3
million square feet, of which all is leased, with the exception of the
Imaging Business locations in Syracuse, New York, and Dallas, Texas, as
well as the International Business location in Leuven, Belgium. The lease
agreements have expiration dates ranging from May 10, 2001 to December 31,
2006. The Company's service centers range in size from approximately 1,000
square feet to 90,500 square feet.
The corporate offices of PSS consist of approximately 91,000 square feet of
leased office space located at 4345 Southpoint Boulevard, Jacksonville,
Florida 32216. The lease for this office space expires in March 2007.
As of March 30, 2001, the Company's facilities provided adequate space for
the Company's operations. Throughout the Company's history of growth, the
Company has been able to secure required facilities to meet its operating
requirements.
-24-
Item 3. Legal Proceedings
The Company, through its Gulf South Medical Supply subsidiary, Physician
Sales & Service subsidiary and/or predecessor companies, has been named as
one of many defendants in latex glove product liability claims in various
Federal and state courts. The defendants are primarily distributors of
certain brands of latex gloves. Currently, state litigation exists in New
Hampshire, Illinois, Massachusetts and California, while Federal and/or
Federal multi-district litigation is present in Washington, Georgia,
Indiana, New Hampshire, Pennsylvania and Ohio. Defense costs are currently
allocated by agreement between a consortium of insurers on a pro rata basis
for each case depending upon policy years and alleged years of exposure.
All of the insurance carriers are defending subject to a reservation of
rights. Ultimately, the manufacturers from which the gloves were purchased
may assume the defense and liability obligations. The Company intends to
vigorously defend the proceeding.
The Company has disputed the calculation of a supplemental premium charged
by CIGNA upon the termination by the Company of the health insurance
program administered by CIGNA. Subject to the execution of a definitive
settlement agreement, the Company has agreed in principle to settle the
dispute for $2.85 million and has reserved such amount in an escrow
account.
The Company and certain of its current officers and directors are named as
defendants in a purported securities class action lawsuit entitled Jack
Hirsch v. PSS World Medical, Inc., et al., Civil Action No.
3:98-cv-502-J-21TEM. The action, which was filed on or about May 28, 1998,
is pending in the United States District Court for the Middle District of
Florida, Jacksonville Division. An amended complaint was filed on December
11, 1998. The plaintiff alleges, for himself and for a purported class of
similarly situated stockholders who allegedly purchased the Company's stock
between December 23, 1997 and May 8, 1998, that the defendants engaged in
violations of certain provisions of the Exchange Act, and Rule 10b-5
promulgated thereunder. The allegations are based upon a decline in the
Company's stock price following announcement by the Company in May 1998
regarding the Gulf South Merger which resulted in earnings below analyst's
expectations. The plaintiff seeks indeterminate damages, including costs
and expenses. The Company filed a motion to dismiss the first amended
complaint on January 25, 1999. The court granted that motion without
prejudice by order dated February 9, 2000. Plaintiffs filed their second
amended complaint on March 15, 2000. The Company filed a motion to dismiss
the second amended complaint on May 1, 2000, which is pending. The Company
believes that the allegations contained in the complaint are without merit
and intends to defend vigorously against the claims. There can be no
assurance that this litigation will be ultimately resolved on terms that
are favorable to the Company.
Although the Company does not manufacture products, the distribution of
medical supplies and equipment entails inherent risks of product liability.
The Company maintains product liability insurance coverage. The Company is
also a party to various legal and administrative legal proceedings and
claims arising in the normal course of business. While any litigation
contains an element of uncertainty, management, after consultation with
outside legal counsel, believes that, other than as discussed above, the
outcome of any proceedings or claims which are pending or known to be
threatened will not have a material adverse effect on the Company's
consolidated financial position, liquidity, or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
-25-
PART II
Item 5. Market for the Registrant's Common Shares and Related Shareholder
Matters
Shares of PSS World Medical, Inc.'s Common Stock are quoted on the NASDAQ
National Market under the ticker symbol "PSSI." The following table
reflects the range of the NASDAQ reported high and low closing sale prices
of the Company's Common Stock during the periods indicated:
Quarter Ended High Low
------------------------------------------------ ------ -----
July 2, 1999.................................... 12.75 8.78
October 3, 1999................................. 11.94 8.41
December 31, 1999............................... 11.38 6.53
March 31, 2000.................................. 10.88 6.22
June 30, 2000................................... 10.31 6.25
September 30, 2000.............................. 7.16 3.63
December 29, 2000............................... 5.00 2.41
March 30, 2001.................................. 5.56 3.88
As of March 30, 2001, there were 1,463 holders of record and approximately
14,000 beneficial holders of the Company's Common Stock.
Since inception, the Company has neither declared nor paid cash dividends
on the Common Stock. The Company expects that earnings will be retained for
the growth and development of the Company's business. Accordingly, the
Company does not anticipate that any dividends will be declared on the
Common Stock for the foreseeable future.
Shareholder Rights Plan. In April 1998, the Board of Directors of the
Company adopted a shareholder rights plan in which a dividend of one
preferred stock purchase right was declared for each outstanding share of
common stock of the Company. Each right entitles the registered holder to
purchase from the Company one one-thousandth of a share of Series A Junior
Participating Preferred Stock of the Company, at an exercise price of $115
per one one-thousandth of a share, subject to adjustment. The rights are
not currently exercisable but will become exercisable 10 business days
after the Company announces that a person or group has acquired, or has
commenced a tender or exchange offer for, 15 percent or more of the
Company's common stock. Subsequent to the acquisition of 15 percent or more
of the Company's common stock, the Company may exchange each of the rights
for a share of common stock. The Company may also amend the shareholder
rights plan prior to the acquisition by a shareholder of 15 percent or more
of the Company's common stock. The rights under the plan expire on April
20, 2008, unless earlier exchanged or terminated. The rights have certain
anti-takeover effects and could cause substantial dilution to a person or
group that attempts to acquire the Company in certain circumstances, though
they should not interfere with any merger or other business combination
approved by the Board of Directors.
-26-
Item 6. Selected Financial Data
The following selected financial data of the Company for fiscal years 1997
through 2001 have been derived from the Company's consolidated financial
statements, which give retroactive effect to the mergers accounted for as
pooling of interests.
Fiscal Year Ended
------------------------------------------------------------------------
1997 1998 1999 2000 2001
----------- ---------- ---------- ---------- -----------
(Dollars in Thousands, Except Per Share Data)
Income Statement Data:
Net sales $1,167,076 $1,382,722 $1,567,167 $1,803,990 $1,814,805
Gross profit 276,308 354,314 402,022 448,812 416,415
G&A and selling expenses 259,261 322,235 328,169 404,103 429,389
International Business exit
charge -- -- -- -- 14,917
Income (loss) before cumulative
effect of accounting change 13,259 15,299 43,741 22,184 (36,061)
Cumulative effect of
accounting change -- -- -- (1,444) --
Net income (loss) 13,259 15,299 43,741 20,740 (36,061)
Basic earnings per share:
Income (loss) before
accounting change $0.20 $0.22 $0.62 $0.31 $(0.51)
Net income (loss) $0.20 $0.22 $0.62 $0.29 $(0.51)
Diluted earnings per share:
Income (loss) before
accounting change $0.20 $0.22 $0.61 $0.31 $(0.51)
Net income (loss) $0.20 $0.22 $0.61 $0.29 $(0.51)
Weighted average shares
outstanding:
Basic 66,207 69,575 70,548 70,966 71,187
Diluted 66,957 70,545 71,398 71,185 71,309
Balance Sheet Data:
Working capital $ 267,754 $ 376,239 $ 355,277 $ 414,071 $ 316,291
Total assets 510,376 686,737 743,381 873,417 772,634
Long-term liabilities 8,459 138,178 155,553 262,152 197,253
Total equity 350,397 380,060 416,560 439,627 404,302
-27-
Fiscal Year Ended
-------------------------------------
1999 2000 2001
--------- --------- ----------
(Dollars in thousands, except per share Data)
Other Financial Data:
Income (loss) from operations $73,853 $44,709 $(27,891)
Plus: Other Income 6,618 10,437 1,689
Plus: Depreciation and amortization 19,498 20,288 24,970
--------- --------- ----------
EBITDA (a) $99,969 $75,434 $ (1,232)
--------- --------- ----------
Interest expense $11,522 $15,457 $20,394
Interest coverage (b) 8.7x 4.9x N/A
EBITDA Margin (c) 6.4% 4.2% N/A
Cash (used in) provided by operating activities $(18,704) $16,971 $69,860
Cash used in investing activities (28,914) (94,322) (27,375)
Cash provided by (used in) financing activities 7,590 96,659 (68,525)
Refer to the Liquidity and Capital Resources section of Management's
Discussion and Analysis of Financial Condition and Results of Operations
for a discussion of cash flows from operating, investing and financing
activities.
(a) EBITDA represents income (loss) from operations, plus other income,
plus depreciation and amortization, and excludes net interest expense
and provision for income taxes. EBITDA is not a measure of performance
or financial condition under generally accepted accounting principles
("GAAP"). EBITDA is not intended to represent cash flow from
operations and should not be considered as an alternative measure to
income from operations or net income computed in accordance with GAAP,
as an indicator of the Company's operating performance, as an
alternative to cash flow from operating activities, or as a measure of
liquidity. In addition, EBITDA does not provide information regarding
cash flows from investing and financing activities which are integral
to assessing the effects on the Company's financial position and
liquidity as well as understanding the Company's historical growth.
The Company believes that EBITDA is a standard measure of liquidity
commonly reported and widely used by analysts, investors, and other
interested parties in the financial markets. However, not all
companies calculate EBITDA using the same method and the EBITDA
numbers set forth above may not be comparable to EBITDA reported by
other companies.
(b) Interest coverage represents the Ratio of EBITDA to interest expense.
(c) EBITDA margin represents the ratio of EBITDA to net sales.
-28-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis of the consolidated financial condition
and consolidated results of operations of PSS should be read in conjunction with
the more detailed information contained in the consolidated financial statements
and notes thereto included elsewhere in this Form 10-K.
All dollar amounts presented below are in millions, except per share data,
unless otherwise noted.
COMPANY GROWTH
During fiscal years 1997 through 2000, the Company had grown rapidly through
mergers and acquisitions, same-center growth, and new-center development. During
the most recent two fiscal quarters, the Company has focused on stabilizing this
growth. The number of Company service centers has grown from two at the end of
fiscal year 1984 to 99 as of March 30, 2001, including 49 Physician Supply
Business service centers, 34 Imaging Business service centers, 14 Long-Term Care
Business Service centers and 2 International Business service centers. In order
of priority, the Company's growth has been accomplished primarily through: (i)
acquiring local and regional Imaging Business medical products distributors;
(ii) acquiring local and regional Physician Supply Business medical-products
distributors; (iii) acquiring Gulf South Medical Supply, Inc. thereby forming
the basis of the Company's Long-Term Care Business; (iv) increasing sales from
existing service centers; and (v) increasing sales of diagnostic equipment.
The following table depicts the number of service centers, sales and service
representatives, and states served by the Company for the fiscal years
indicated. See Item 2.--Properties for a list of the Company's service centers.
Fiscal Year Ended (1)
-------------------------------------------
1997 1998 1999 2000 2001
------ ----- ----- ------ -----
Total Company:
Sales representatives....................................... 924 957 1,118 1,122 1,068
Service specialists......................................... 223 390 727 900 850
Service centers............................................. 103 111 110 101 99
States served............................................... 50 50 50 50 50
Physician Supply Business:
Sales representatives....................................... 720 703 731 735 719
Service centers............................................. 61 61 56 51 49
States served............................................... 50 50 50 50 50
Imaging Business:
Sales representatives....................................... 73 116 194 230 210
Service specialists......................................... 223 390 727 900 850
Service centers............................................. 21 25 37 34 34
States served............................................... 16 27 41 42 42
Long-Term Care Business:
Sales representatives....................................... 107 110 170 131 119
Service centers............................................. 19 22 14 14 14
States served............................................... 50 50 50 50 50
International Business:
Sales representatives....................................... 24 28 23 26 20
Service centers............................................. 2 3 3 2 2
Countries served............................................ 5 5 5 4 2
(1) Excludes pre-acquisition data of companies acquired by PSS World Medical,
Inc.
ACQUISITION PROGRAM
The Physician Supply Business has grown from one service center located in
Jacksonville, Florida, in 1983 to 49 at the end of fiscal 2001. The Imaging
Business began with acquisitions in fiscal year 1997 and has grown primarily
-29-
through acquisitions to 34 service centers to date. The Long-Term Care Business
was developed through the acquisition of Gulf South Medical Supply, Inc. in
March 1998 and has acquired seven long-term care companies during fiscal years
1999 and 2001.
The following table sets forth the number of acquisitions of the Company and the
prior revenues of the companies acquired for the periods indicated (in
thousands):
Fiscal Year Ended (1)
--------------------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- -------- ---------
Number of acquisitions...................... 10 15 27 24 1
Prior year revenues for acquired companies (2) $241,700 $498,942 $294,428 $173,664 $4,650
(1) Excludes pre-acquisition data of companies acquired by PSS World Medical,
Inc.
(2) Reflects 12-month trailing revenues for companies prior to their
acquisition by PSS World Medical, Inc. and is not necessarily reflective of
actual revenues under continued operations following an acquisition.
For the next 12 to 18 months, the Company is focusing primarily on the
operations of its existing operations.
OPERATING HIGHLIGHTS
The following tables set forth information regarding the Company's net sales by
business.
Fiscal Year Ended
--------------------------------------
1999 2000 2001
--------- --------- ---------
Net Sales
Physician Supply Business................................... $ 677.4 $ 708.7 $ 689.4
Imaging Business............................................ 526.4 704.3 737.9
Long-Term Care Business..................................... 343.5 366.6 367.6
International Business...................................... 19.9 24.4 19.9
--------- --------- ---------
Total Company...................................... $1,567.2 $ 1,804.0 $ 1,814.8
========= ========= =========
Fiscal Year Ended
--------------------------------------
1999 2000 2001
--------- --------- ---------
Percentage of Net Sales
Physician Supply Business................................... 43.2% 39.3% 38.0%
Imaging Business............................................ 33.6 39.0 40.7
Long-Term Care Business..................................... 21.9 20.3 20.2
International Business...................................... 1.3 1.4 1.1
--------- --------- ---------
Total Company...................................... 100.0% 100.0% 100.0%
========= ========= =========
Fiscal Year Ended
--------------------------------------
1999 2000 2001
--------- --------- ---------
Gross Profit Trends
Total Company 25.7% 24.9% 22.9%
-30-
Fiscal Year Ended
--------------------------------------
1999 2000 2001
--------- --------- ---------
Income (Loss) From Operations
Physician Supply Business................................... $ 42.7 $ 32.7 $17.3
Imaging Business............................................ 16.3 20.3 (1.4)
Long-Term Care Business..................................... 17.2 (5.0) (15.5)
International Business...................................... (2.3) (3.3) (28.3)
--------- --------- ---------
Total company...................................... $ 73.9 $ 44.7 $(27.9)
========= ========= =========
Fiscal Year Ended
-----------------------
2000 2001
--------- ---------
Operating Trends:
Average Days Sales Outstanding.................... 55.5 51.7
Average Inventory Turnover........................ 8.2x 8.4x
Accounts receivable, net of allowances, were $284.4 million and $236.8 million
at March 31, 2000 and March 30, 2001, respectively. Inventories were $178.0
million and $154.7 million as of March 31, 2000 and March 30, 2001,
respectively.
The following table sets forth certain liquidity trends of the Company for the
periods presented (in millions):
Fiscal Year Ended
-----------------------
2000 2001
-------- ---------
Liquidity Trends:
Cash and Investments............................. $ 64.7 $ 34.7
Working Capital.................................. 414.1 316.3
RESULTS OF OPERATIONS
The table below sets forth for each of the fiscal years 1999 through 2001,
certain financial information as a percentage of net sales. The following
financial information includes the pre-acquisition financial information of
companies acquired in transactions accounted for as poolings of interests.
Fiscal Year Ended
------------------------------
1999 2000 2001
------ ------ ------
Income Statement Data
Net sales........................................................... 100.0% 100.0% 100.0%
Gross profit....................................................... 25.7 24.9 22.9
General and administrative expenses................................. 14.7 16.0 17.3
Selling expenses.................................................... 6.2 6.5 6.3
Operating income.................................................... 4.7 2.5 (1.5)
Net income ........................................................ 2.8 1.1 (2.0)
FISCAL YEAR ENDED MARCH 30, 2001 VERSUS FISCAL YEAR ENDED MARCH 31, 2000
Net Sales. Net sales for fiscal 2001 totaled $1.81 billion, an increase of $10.8
million, or 0.6%, over the fiscal 2000 total of $1.80 billion. During the third
and fourth quarter of fiscal 2000, two of the Company's most
-31-
significant suppliers had manufacturing product recalls and production issues
that materially disrupted availability of products to the Physician Supply and
Imaging Businesses. Although the Company has been successful in implementing
strategies to convert and replace manufacturer recalled products in its
Physician Supply Business, and replace with new products the revenues
interrupted by supplier backorders in the Imaging Business, it has not fully
recovered to historical run rates. On a comparative basis, the Imaging Business
reported an increase in net sales during fiscal 2001 primarily due to the full
year impact of revenues associated with acquisitions completed in fiscal 2000.
In addition, the Long-Term Care Business has continued to maintain revenues
while tightening credit policies.
Gross Profit. Gross profit for fiscal 2001 totaled $416.4 million, a
decrease of $32.4 million, or 7.2%, over the fiscal 2000 gross profit of
$448.8 million. The gross profit decrease over the prior fiscal year was
primarily attributable to i) the increased mix of lower margin products that
replaced higher margin products impacted by product recalls and vendor supply
interruptions in the Physician Supply and Imaging Businesses, ii) increased
fixed service costs resulting from Imaging Business acquisitions during fiscal
2000, and iii) continued margin pressures in the Long-Term Care Business as a
result of its large chain customers renegotiating prices due to changes in the
way such customers are reimbursed by the government. In addition, during fiscal
2001, the Physician Supply and Imaging Businesses recorded inventory write-downs
of approximately $4.1 million and $1.7 million, respectively, for inventory the
Company has discontinued selling due to the end of certain manufacturer
relationships and changes in policy related to the amortization of demonstration
equipment held in inventory.
As a result of an analysis of the Company's accounts receivable records during
the fourth quarter of fiscal 2001, the Company recorded adjustments to reduce
sales and accounts receivable by $1.6 million, $1.9 million, and $0.5 million
during the first, second, and third quarters of fiscal 2001, respectively. In
addition, in connection with the Company's year end physical inventory
procedures, the Company identified a $3.8 million adjustment to cost of goods
sold and vendor liabilities, which applies to the second quarter of fiscal 2001.
In connection with the restatements discussed above, the Company's independent
auditors, Arthur Andersen, advised the Company in writing that they noted
certain matters involving internal controls that they considered to be material
weaknesses. These matters involved inventory, accounts payable, sales, and
accounts receivable procedures. In order to remedy this situation, the Company
has implemented or is in the process of implementing the corrective policies and
procedures recommended by Arthur Andersen as well as additional policies and
procedures identified by management.
During fiscal 2001, the Company continued to experience margin pressures in the
Long-Term Care Business resulting from large chain customers renegotiating
prices due to the implementation of the Prospective Pay System ("PPS"). The
Company expects this trend to continue in the Long-Term Care Business.
General and Administrative Expenses. General and administrative expenses for
fiscal 2001 totaled $314.2 million, an increase of $26.5 million, or 9.2%, from
the fiscal 2000 total of $287.7 million. General and administrative expenses as
a percentage of net sales, increased to 17.3% for fiscal 2001 from 16.0% for
fiscal 2000.
In addition to typical general and administrative expenses, this caption
includes charges related to merger activity, restructuring activity, and other
special items. The following table summarizes charges included as a component of
general and administrative expenses in the accompanying consolidated statements
of operations:
-32-
2001 2000
---------- ---------
Merger costs and expenses................... $ 5,588 $ 1,700
Restructuring costs and expenses............ 8,708 13,245
Acceleration of depreciation................ 1,504 --
Long-Term Care Business bad debt charge..... 19,991 --
Goodwill impairment charge.................. -- 517
Operational tax charge...................... (749) (1,221)
Other....................................... 3,789 --
---------- ---------
$ 38,831 $ 14,241
========== =========
Merger Costs and Expenses
Refer to Note 3, Charges Included in General and Administrative Expenses,
in the footnotes to the accompanying consolidated financial statements for
the Company's policy related to merger costs and expenses.
Merger costs and expenses for fiscal 2001 and 2000 include $989 and $2,300,
respectively, of charges for merger costs expensed as incurred. At the end
of each quarter, management re-evaluates its plans and adjusts previous
estimates. During fiscal 2001 and 2000, the Company reversed approximately
$155 and $1,602, respectively, of merger costs and expenses previously
established under prior plans, of which $148 and $1,437 related to accrued
lease termination costs. Refer to Note 4, Accrued Merger and Restructuring
Costs and Expenses, in the footnotes to the accompanying consolidated
financial statements for further discussion regarding merger plans.
Effective February 1, 2000, the Board of Directors approved and adopted the
PSS World Medical, Inc. Officer Retention Bonus Plan and the PSS World
Medical, Inc. Corporate Office Employee Retention Bonus Plan (collectively
the "Retention Plans"). As part of the Company's strategic alternatives
process, management adopted these plans to retain certain officers and key
employees during the transition period. The total costs related to these
plans is approximately $10,059 of which $4,754 and $1,002 were expensed
during the years ended March 30, 2001 and March 31, 2000, respectively, and
$2,872, and $1,431 will be recognized as expense in fiscal 2002 and 2003,
respectively.
Restructuring Costs and Expenses
Refer to Note 4, Accrued Merger and Restructuring Costs and Expenses, in
the footnotes to the accompanying consolidated financial statements for
further discussion regarding merger plans.
Fiscal 2001
During the quarter ended December 29, 2000, management approved and
adopted a formal plan, among other things, to restructure certain
leadership positions within the Company ("Plan E"). This plan includes
costs related to the severance of certain members of senior management
including the Company's former Chairman and Chief Executive Officer.
Accordingly, the Company recorded restructuring costs and expenses of
$4,887 at the commitment date of the restructuring plan adopted by
management and an additional $644 of severance costs during the
quarter ended March 30, 2001. The Company also recorded $3,446 of
restructuring costs as incurred during the year ended March 30, 2001.
In addition, the Company reversed $269, which primarily related to
branch shutdown costs, previously established as restructuring costs
under prior plans.
Fiscal 2000
During the quarter ended September 30, 1999, management approved and
adopted a formal plan to restructure certain operations of Gulf South
("Plan C"), an additional component to the previously established
Plans A and B. This restructuring plan identified five additional
distribution centers and the Gulf South corporate facility as
redundant or inadequate for future operations. As a result, these
locations were closed and made permanently idle. Accordingly, the
Company recorded restructuring costs and
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expenses of $4,967 at the commitment date of the restructuring plan
adopted by management. Such costs include branch shutdown costs, lease
termination costs, and involuntary employee termination costs of $494,
$2,915, and $1,558, respectively.
Restructuring costs and expenses for the year ended March 31, 2000
also included $9,213 of charges that were expensed as incurred and
primarily relate to other exit costs. Other exit costs include costs
to pack and move inventory, costs to set up new facilities, employee
relocation costs, and other related facility closure costs. In
addition, the Company reversed $1,341 of restructuring costs into
income, which related to over-accrual for lease termination costs, and
involuntary employee termination costs.
During the quarter ended March 31, 2000, management approved and
adopted another formal plan to restructure the Imaging Business' sales
and service organization and the shut down of two facilities ("Plan
D"). Accordingly, the Company recorded restructuring costs and
expenses of $318 at the commitment date of the restructuring plan
adopted by management. Restructuring costs and expenses for the
quarter ended March 31, 2000 also included $88 of charges that were
expensed as incurred and primarily relate to other exit costs. Other
exit costs include costs to pack and move inventory, costs to set up
new facilities, employee relocation costs, and other related facility
closure costs.
Acceleration of Depreciation
During the quarter ended December 29, 2000, the Company identified certain
assets for replacement due to the implementation of its Enterprise Resource
Planning ("ERP") system. Pursuant to SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of ("SFAS 121"), the Company
evaluated the recoverability of the assets. Based on the Company's
analysis, the impairment did not exist at the division level; therefore,
management reviewed its estimated useful lives in accordance with
Accounting Principles Board No. 20, Accounting Changes ("APB 20"), and
recorded $1,504 of accelerated depreciation.
Long-Term Care Business Bad Debt Charge
During the quarter ended December 29, 2000, the Company recorded $19,991 of
bad debt expense to increase the accounts receivable reserves at Gulf South
Medical. The increase to the reserve balance was primarily attributed to
changes in assumptions concerning customers currently in bankruptcy based
on information acquired during the second quarter, including the fact that
the Company did not receive critical vendor designation for certain
customers as it had received for other bankrupt customers in the past. In
addition, the increase was also attributed to i) changes in reserve
assumptions for non-performing customers based on the change in assumptions
discussed above, ii) changes in management's credit policies and
procedures, and iii) changes in credit and collection department
management. Based on information currently available, management believes
the Company has recorded appropriate reserves for uncollectible
receivables.
Goodwill Impairment Charge
During fiscal 2000, the Imaging Business closed its Metro New York
facility. The closure of this facility triggered an asset impairment as
determined under SFAS 121. As a result, goodwill of $517 was written off
during fiscal 2000.
Operational Tax Charge
During the years ended March 30, 2001 and March 31, 2000, the Company
performed an analysis and reversed $749 and $1,221, respectively, of a
previously recorded operating tax charge reserve.
Other
During the year ended March 30, 2001, the Company incurred $3,695 primarily
relating to legal and professional fees and other costs pursuant to the
Company's strategic alternatives process and severance costs. In addition,
the Company incurred $94 of costs related to acquisitions not consummated.
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Selling Expenses. Selling expenses for fiscal 2001 totaled $115.2 million,
a decrease of $1.2 million, or 1.0%, over the fiscal 2000 total of $116.4
million. Selling expense as a percentage of net sales was approximately 6.3% and
6.5% for fiscals 2001 and 2000, respectively. The decrease in selling
expense as a percentage of net sales is a result of a reduction in sales
representatives primarily compensated under fixed pay arrangements.
International Business Exit Charge. During the quarter ended December 29, 2000,
the Company adopted a plan for divesting the Company's European operations. As a
result, the Company recorded approximately $14.9 million as an International
Business exit charge. Subsequent to year end, the Company sold its European
operations.
(Loss)/Income from Operations. The Company incurred an operating loss for fiscal
2001 of $27.9 million compared to operating income of $44.7 million for the
fiscal 2000 primarily due to the factors discussed above.
Interest Expense. Interest expense for fiscal 2001 totaled $20.4 million,
an increase of $4.9 million, or 31.9%, over the fiscal 2000 total of $15.5
million. The increase in interest expense in fiscal 2001 over fiscal 2000 was
due to i) a higher average revolving loan balance outstanding over the prior
year, ii) higher incremental bank borrowing rates and LIBOR rates over the prior
year, iii) higher incremental interest rates charged on revolving loan balances
due to increases in the Company's leverage ratio as measured under the senior
credit facility, and iv) the accelerated amortization of $1.1 million of debt
issuance costs in the quarter ended March 30, 2001 in anticipation of
refinancing the senior credit facility subsequent to year-end.
Interest and Investment Income. Interest and investment income for fiscal 2001
totaled $2.7 million, an increase of $0.9 million, or 47.2%, over the fiscal
year 2000 total of $1.8 million. The increase primarily resulted from an
increase in the average invested balances over the prior year and an increase in
the average investment interest rate of return over the prior year. The increase
was partially offset by a $1.2 million other than temporary impairment on an
available for sale security.
Other Income. Other income for fiscal 2001 totaled $1.7 million, a decrease of
$8.7 million, or 83.8%, over the fiscal 2000 total of $10.4 million. Other
income consists of finance charges on customer accounts. Other income for fiscal
year 2000 includes $6.5 million received due to a favorable medical x-ray film
antitrust settlement claim. In addition, the decrease in other income resulted
from improved accounts receivable agings that lowered finance charges on
customer accounts and a decrease in gains on the sale of fixed assets over prior
year amounts.
(Benefit)/Provision for Income Taxes. Benefit for income taxes was $7.8 million
for fiscal 2001, a change of $27.2 million from the provision for income
taxes of $19.3 million for fiscal 2000. This decrease primarily resulted
from the decrease in taxable income due to the factors discussed above. The
effective income tax rate was 17.8% in fiscal 2001 versus 46.6% in fiscal
2000. The effective tax rate is generally higher than the Company's statutory
rate in fiscal 2000 due to the nondeductible nature of certain merger related
costs and the impact of the Company's foreign subsidiary. In addition, the
initial non-deductible nature of the International Business exit charge
negatively impacted the tax benefit in fiscal 2001.
Net (Loss)/Income. The Company incurred a net loss for fiscal 2001 of $36.1
million compared to net income of $20.7 million for fiscal 2000 primarily
due to the factors described above.
FISCAL YEAR ENDED MARCH 31, 2000 VERSUS FISCAL YEAR ENDED APRIL 2, 1999
Net Sales. Net sales for fiscal 2000 totaled $1.80 billion, an increase of
$236.8 million, or 15.1%, over the fiscal 1999 total of $1.57 billion. The
increase in sales can be attributed to (i) net sales from the acquisition of
companies during fiscal 1999 and 2000 accounted for as purchases; (ii)
internal sales growth of centers operating at least two years; (iii) the
Company's focus on diagnostic equipment sales; (iv) incremental sales generated
in connection with exclusive and semi-exclusive vendor relationships; but (v)
offset by sales lost from manufacturer recalls and supply issues.
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Gross Profit. Gross profit for fiscal 2000 totaled $448.8 million, an
increase of $46.8 million, or 11.6%, over the fiscal 1999 total of $402.0
million. The increase in gross profit dollars is primarily attributable to the
sales growth described above. Gross profit as a percentage of net sales was
24.9% and 25.7% for fiscal 2000 and 1999, respectively. Although there has
been considerable gross margin pressure from competition and a consolidating
customer base, as well as internal pressure from an increase of Imaging Business
revenues at a lower margin, the Company has successfully maintained its overall
gross margins. The slight decrease in gross margin as a percentage of sales is
attributable to the expansion of imaging revenues with lower gross profit
margins and loss of higher margin equipment in the fourth quarter due to product
recall and supply issues offset by (i) an increase in the sales mix of higher
margin diagnostic equipment and service, (ii) an increase in sales of higher
margin private label supplies by all division, and (iii) the ability to
negotiate lower product purchasing costs which resulted from increased
purchasing volume subsequent to the Gulf South acquisition.
During fiscal 2000, the Company experienced continued margin pressures in the
Long-Term Care Business resulting from large chain customers renegotiating
prices due to the implementation of PPS. The Company expects this trend to
continue in the Long-Term Care Business.
General and Administrative Expenses. General and administrative expenses for
fiscal 2000 totaled $287.7 million, an increase of $56.9 million, or 24.7%,
from the fiscal 1999 total of $230.8 million. General and administrative
expenses as a percentage of net sales, increased to 16.0% for fiscal 2000
from 14.7% for fiscal 1999. The increase in general and administrative
expenses as a percentage of net sales was a result of (i) write-offs, reserves
and costs associated with long-term care customer receivables, (ii) loss of
revenues from manufacturer recalls and supply issues without loss of costs
associated with servicing those products, (iii) integration of systems and
branch shutdowns in the Imaging division, (iv) incremental costs associated with
product recalls, replacement, transition and training of new product replacing
old products without revenues for replacement products, or new products, and (v)
costs and lack of focus associated with the Company's strategic alternatives
process.
In addition to typical general and administrative expenses, this caption
includes charges related to merger activity, restructuring activity, and other
special items. The following table summarizes charges included as a component of
general and administrative expenses in the accompanying consolidated statements
of operations:
2000 1999
--------- --------
Merger costs and expenses.................... $ 1,700 $ 4,371
Restructuring costs and expenses............. 13,245 4,922
Acceleration of depreciation................. -- 5,379
Goodwill impairment charge................... 517 --
Operational tax charge....................... (1,221) --
Other........................................ -- 1,010
--------- --------
$ 14,241 $ 15,682
========= ========
Merger Costs and Expenses
Refer to Note 3, Charges Included in General and Administrative Expenses,
in the footnotes to the accompanying consolidated financial statements for
the Company's policy related to merger costs and expenses.
Merger costs and expenses for fiscal 1999 include $2,818 of charges
recorded at the commitment date of an integration plan adopted by
management. Merger costs and expenses for fiscal 2000 and 1999 include
$2,300 and $2,481, respectively, of charges for merger costs expensed as
incurred. At the end of each quarter, management reevaluates its plans and
adjusts previous estimates. During fiscal 2000 and 1999, the Company
reversed approximately $1,602 and $928, respectively, of merger costs and
expenses previously established under prior plans, of which $1,437 related
to accrued lease termination costs in fiscal 2000 and $777 related to
direct transactions costs in fiscal 1999. Refer to Note 4, Accrued Merger
and Restructuring Costs and Expenses, in the footnotes to the accompanying
consolidated financial statements for further discussion regarding merger
plans.
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Effective February 1, 2000, the Board of Directors approved and adopted the
PSS World Medical, Inc. Officer Retention Bonus Plan and the PSS World
Medical, Inc. Corporate Office Employee Retention Bonus Plan (collectively
the "Retention Plans"). As part of the Company's strategic alternatives
process, management adopted these plans to retain certain officers and key
employees during the transition period. The total costs related to these
plans is approximately $10,059 of which $1,002 was expensed during the year
ended March 31, 2000, and $4,754, $2,872, and $1,431 will be recognized as
expense in fiscal 2001, 2002 and 2003, respectively.
Restructuring Costs and Expenses
Refer to Note 4, Accrued Merger and Restructuring Costs and Expenses, in
the footnotes to the accompanying consolidated financial statements for
further discussion regarding merger plans.
Fiscal 2000
During the quarter ended September 30, 1999, management approved and
adopted a formal plan to restructure certain operations of Gulf South
("Plan C"), an additional component to the previously established
Plans A and B. This restructuring plan identified five additional
distribution centers and the Gulf South corporate facility as
redundant or inadequate for future operations. As a result, these
locations were closed and made permanently idle. Accordingly, the
Company recorded restructuring costs and expenses of $4,967 at the
commitment date of the restructuring plan adopted by management. Such
costs include branch shutdown costs, lease termination costs,
involuntary employee termination costs of $494, $2,915, and $1,558,
respectively.
Restructuring costs and expenses for the year ended March 31, 2000
also included $9,213 of charges that were expensed as incurred and
primarily relate to other exit costs. Other exit costs include costs
to pack and move inventory, costs to set up new facilities, employee
relocation costs, and other related facility closure costs. In
addition, the Company reversed $1,341 of restructuring costs into
income, which related to over-accrual for lease termination costs, and
involuntary employee termination costs.
During the quarter ended March 31, 2000, management approved and
adopted another formal plan to restructure the Imaging Business' sales
and service organization and the shut down of two facilities ("Plan
D"). Accordingly, the Company recorded restructuring costs and
expenses of $318 at the commitment date of the restructuring plan
adopted by management. Restructuring costs and expenses for the
quarter ended March 31, 2000 also included $88 of charges that were
expensed as incurred and primarily relate to other exit costs. Other
exit costs include costs to pack and move inventory, costs to set up
new facilities, employee relocation costs, and other related facility
closure costs.
Fiscal 1999
During the quarter ended June 30, 1998, management approved and
adopted Plan B, an additional Gulf South component to the 1998
restructuring plan or Plan A. This restructuring plan identified two
additional distribution centers and two corporate offices to be merged
with existing facilities and identified three executives to be
involuntarily terminated. Accordingly, the Company recorded
restructuring costs and expenses of $1,503 at the commitment date of
the restructuring plan adopted by management. Such costs include
branch shutdown costs, lease termination costs, involuntary employee
termination costs of $281, $570, and $652, respectively.
The remaining $3,419 of restructuring costs recorded during fiscal
1999 represents charges expensed as incurred. Such costs include
charges for training costs related to conforming the acquired
companies operational policies to that of the Company's operational
policies, direct transaction costs, involuntary employee termination
costs, and other exit costs of $1,138, $227, $300, and $1,754,
respectively. Other exit costs include costs to pack and move
inventory, costs to set up new facilities, employee relocation costs,
and other related facility closure costs.
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Acceleration of Depreciation
In connection with the Gulf South merger during fiscal 1998, management
evaluated the adequacy of the combined companies' information systems. The
Company concluded that its existing information systems were not compatible
with those of Gulf South's and not adequate to support the future internal
growth of the combined companies and expected growth resulting from future
acquisitions. Pursuant to SFAS 121, the Company evaluated the
recoverability of the information system assets. Based on the Company's
analysis, impairment did not exist at the division level; therefore,
management reviewed its estimated useful lives in accordance with APB 20
and recorded $5,379 of incremental depreciation expense resulting from
management's decision to replace its information systems.
Goodwill Impairment Charge
During fiscal 2000, the Imaging Business closed their Metro New York
facility. The closure of this facility triggered an asset impairment as
determined under SFAS 121. As a result, goodwill of $517 was written off
during fiscal 2000.
Operational Tax Charge
During the fiscal year ended March 31, 2000, the Company performed an
analysis and reversed $1,221 of a previously recorded operating tax charge
reserve.
Other
During the year ended April 2, 1999, the Company incurred
approximately $1,010 of costs related to acquisitions not consummated.
Selling Expenses. Selling expenses for fiscal 2000 totaled $116.4 million,
an increase of $19.0 million, or 19.5%, over the fiscal 1999 total of $97.4
million. Selling expense as a percentage of net sales was approximately 6.5% and
6.2% for fiscal 2000 and 1999, respectively. Selling expense as a
percentage of net sales increased as a result of (i) incremental commissions
incurred on product recalls, replacement and transition without recognition of
revenue, (ii) replacement of lost Long-Term Care chain business without
commission costs by new regional accounts revenue that are commissioned, (iii)
salaries of equipment representatives not leveraged with sales due to supply
issues, and (iv) lack of focus and performance associated with the strategic
alternatives process.
Operating Income. Operating income for fiscal 2000 totaled $44.7 million, a
decrease of $29.2 million, or 39.5%, over the fiscal 1999 total of $73.9
million. As a percentage of net sales, operating income for fiscal 2000
decreased to 2.5% from 4.7% for fiscal 1999 as a result of the factors
discussed above.
Interest Expense. Interest expense for fiscal 2000 totaled $15.5 million,
an increase of $4.0 million, or 34.2%, over the fiscal 1999 total of $11.5
million. The increase in interest expense in fiscal 2000 over fiscal 1999 was
due to (i) borrowings used in connection with acquisitions during fiscal 2000,
(ii) inventory build up associated with product recalls and Y2K inventory
overstock, (iii) cash used in connection with capital expenditures of which most
was invested in new systems and e-commerce and (iv) increase in Long-Term Care
Business customer receivables due to its restructuring of the collection efforts
from Jackson, Mississippi to Jacksonville, Florida.
Interest and Investment Income. Interest and investment income for fiscal 2000
totaled $1.8 million, a decrease of $2.9 million, or 61.2%, over the fiscal
1999 total of $4.7 million. The decrease primarily resulted from lower levels of
invested capital due to the use of cash and investments to fund capital
expenditures and business acquisitions during fiscal 2000.
Other Income. Other income for fiscal 2000 totaled $10.4 million, an increase of
$3.8 million, or 57.7%, over the fiscal 1999 total of $6.6 million. Other
income primarily consists of finance charges on customer accounts. In addition,
other income for fiscal 2000 includes $6.5 million received due to a
favorable medical x-ray film antitrust settlement claim.
Provision for Income Taxes. Provision for income taxes for fiscal 2000
totaled $19.3 million, a decrease of $10.6 million, or 35.4%, over the fiscal
year 1999 total of $29.9 million. This decrease primarily resulted from the
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decrease in taxable income due to the factors discussed above. The effective
income tax rate was 46.6% in fiscal 2000 versus 40.6% in fiscal 1999. The
effective tax rate is generally higher than the Company's statutory rate due to
the nondeductible nature of certain merger related costs and the impact of the
Company's foreign subsidiary, both of which were higher in 2000 than 1999. In
addition, the reduction of taxable income in 2000 resulted in the permanent
items having a greater impact on the effective rate than in fiscal 1999.
Net Income. Net income for fiscal 2000 totaled $20.7 million, a decrease of
$23.0 million, or 52.6%, over the fiscal 1999 total of $43.7 million. As a
percentage of net sales, net income decreased to 1.1% for fiscal 2000 from
2.8% for fiscal 1999 due primarily to the factors described above. In
addition, the Company has changed its method of accounting for equipment sales
and contingent rebate income effective April 3, 1999. As such, during fiscal
2000 the Company recorded the cumulative effect of the change in accounting
principle, which reduced net income for the year ended March 31, 2000 by $1.4
million ($2.4 pre-tax).
LIQUIDITY AND CAPITAL RESOURCES
As the Company's business grows, its cash and working capital requirements will
also continue to increase as a result of the anticipated growth of the Company's
operations. This growth will be funded through a combination of cash flow from
operations and revolving credit borrowings.
Statement of Cash Flows Discussion
Net cash provided by (used in) operating activities was $69.9 million, $17.0
million, and $(18.7) million in fiscal 2001, 2000, and 1999, respectively.
The increase in operating cash flows during fiscal 2001 primarily resulted from
a decrease in accounts receivable and inventory balances over the prior year due
to working capital management initiatives implemented in fiscal 2001. The Gulf
South bad debt charge of $19.9 million and the International Business exit
charge of $14.9 million were non-cash in nature and therefore did not affect
operating cash flows.
Net cash used in investing activities was $27.4 million, $94.3 million, and
$28.9 million, in fiscal 2001, 2000, and 1999, respectively. During fiscal
2001, the Company used approximately $22.9 million of cash primarily for capital
expenditures related to hardware purchases and software development costs for
the Physician Supply Business' JD Edwards One World ERP system. These capital
expenditures were primarily funded by the operating cash flows of the Company.
Net cash (used in) provided by financing activities was $(68.5) million, $96.7
million, and $7.6 million, for fiscal 2001, 2000, and 1999, respectively.
During fiscal 2001, the Company repaid a net $67.4 million of debt, primarily on
its senior credit facility. These repayments were funded by approximately $26.0
million of short-term investments and approximately $41.0 million of operating
cash flows.
Operating Trends
The Company had working capital of $316.3 million and $414.1 million as of March
30, 2001 and March 31, 2000, respectively. Accounts receivable, net of
allowances, were $236.8 million and $284.4 million at March 30, 2001 and March
31, 2000, respectively. The average number of days sales in consolidated
accounts receivable outstanding was approximately 51.7 and 55.5 days for the
years ended March 30, 2001 and March 31, 2000, respectively. For the year ended
March 30, 2001, the Company's Physician Supply, Imaging, and Long-Term Care
Businesses had days sales in accounts receivable of approximately 48.8, 44.1,
and 69.3, respectively.
Inventories were $154.7 million and $178.0 million as of March 30, 2001 and
March 31, 2000, respectively. The Company had annualized consolidated inventory
turnover of 8.4x and 8.2x times for the years ended March 30, 2001 and March 31,
2000, respectively. For the year ended March 30, 2001, the Company's Physician
Supply, Imaging, and Long-Term Care Businesses had consolidated annualized
inventory turnover of 7.7x, 9.0x, and 8.9x, respectively. Inventory financing
historically has been achieved through negotiating extended payment terms from
suppliers.
-39-
Senior Subordinated Notes
The Company has issued $125.0 million aggregate principal amount of 8.5% senior
subordinated notes due in 2007 (the "Notes"). The Notes are unconditionally
guaranteed on a senior subordinated basis by all of the Company's domestic
subsidiaries. Interest on the Notes accrues from the date of original issuance
and is payable semiannually on April 1 and October 1 of each year, commencing on
April 1, 1998, at a rate of 8.5% per annum. The semiannual payments of
approximately $5.3 million are expected to be funded by the operating cash flow
of the Company. No principal payments on the Notes are required over the next
five years. The Notes contain certain restrictive covenants that, among other
things, limit the Company's ability to incur additional indebtedness. The
Company may incur indebtedness up to certain specified levels and, provided that
no event of default exists, additional indebtedness may be incurred if the
Company maintains a consolidated fixed charge coverage ratio, after giving
effect to such additional indebtedness, of greater than 2.0 to 1.0.
Senior Revolving Credit Agreement
On February 11, 1999, the Company entered into a $140.0 million senior revolving
credit facility (the "Original Credit Agreement") with a syndicate of financial
institutions with NationsBank, N.A. as principal agent. Borrowings under the
Original Credit Agreement were available for working capital, capital
expenditures, and acquisitions, and secured by the common stock and assets of
the Company and its subsidiaries. On October 20, 1999, the Company amended the
Original Credit Agreement to allow, among other things, for repurchases of up to
$50.0 million of the Company's common stock through October 31, 2000. In
addition, effective August 4, 2000, the Company obtained an amendment to the
Original Credit Agreement modifying certain financial ratios contained therein.
Effective September 30, 2000, the Company obtained a limited waiver to the
Original Credit Agreement for failure to meet the criteria for the fixed charge
coverage ratio and the leverage ratio during the fiscal quarter ended September
30, 2000.
On December 28, 2000, the Company amended and restated the Original Credit
Agreement, as amended (the "Amended Credit Agreement"). Pursuant to the terms of
the Amended Credit Agreement, the Company was permitted to make revolving credit
borrowings in an amount up to the lesser of (a) the revolving committed amount,
which initially was $120 million, reducing to $110 million on March 31, 2002,
and $100 million on March 31, 2003, or (b) a borrowing base based on eligible
receivables and inventory. In addition, under the Amended Credit Agreement the
leverage and fixed charge covenants were amended for the quarter ended December
29, 2000, and adjusted over time as specified in the Amended Credit Agreement.
As of March 30, 2001, the Company was not in compliance with certain covenants
under the Amended Credit Agreement. However, since the Company successfully
refinanced the indebtedness subsequent to year-end, waivers were not obtained.
On May 24, 2001, the Company paid all outstanding amounts and obligations due
under the Amended Credit Agreement.
New Revolving Credit Agreement
On May 24, 2001, the Company entered into a credit agreement (the "Agreement"),
by and among the Company, as borrower thereunder (the "Borrower"), the
subsidiaries of the Borrower party thereto, the lenders from time to time party
thereto (the "Lenders"), Bank of America, N.A., as Agent for the Lenders (in
such capacity, the "Agent", or the "Bank") and Banc of America Securities LLC,
as Arranger.
The Agreement provides for a four-year credit facility consisting of a revolving
line of credit and letters of credit (the "Credit Facility"). Initial borrowings
under the Credit Facility were used to refinance the Amended Credit Agreement.
The maximum amount of the Credit Facility is $120.0 million until the Bank has
syndicated $70.0 million of its commitments and thereafter $120.0 million plus
the lesser of (a) the excess of the amount of the Bank's commitments that have
been syndicated over $70.0 million and (b) $30.0 million. Availability of
borrowings under the Credit Facility depends upon (a) the amount of a borrowing
base consisting of accounts receivable and, upon satisfaction of certain
requirements, inventory and (b) compliance with certain debt incurrence tests
under the Company's Indenture, dated as of October 7, 1997, relating to the
Notes. The Credit Facility will bear interest at the Bank's prime rate plus a
margin of between 0.25% and 1.00% based on the Company's ratio of funded debt to
EBITDA (as defined in the Agreement) or at LIBOR plus a margin of between 1.75%
and 3.50% based on the Company's ratio of funded debt to EBITDA. Under the
Agreement, the Company and its subsidiaries are subject to certain covenants,
including but not limited to, limitations on (a) paying dividends and
repurchasing stock, (b) repurchasing its Notes, (c) selling or transferring
assets, (d) making certain investments (including acquisitions) and (e)
incurring additional indebtedness and liens. Proceeds from the Credit Facility
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will be used to refinance existing indebtedness outstanding under the Company's
Amended Credit Agreement, issue letters of credit, finance ongoing working
capital requirements, and general corporate purposes of the Company. The Credit
Facility matures on May 24, 2005.
As of March 30, 2001, the Company has not entered into any material working
capital commitments that require funding. The Company believes that the expected
cash flows from operations, available borrowing under the credit facility, and
capital markets are sufficient to meet the Company's anticipated future
requirements for working capital, capital expenditures, and acquisitions for the
foreseeable future.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The following assessment of the Company's market risks does not include
uncertainties that are either nonfinancial or nonquantifiable, such as
political, economic, tax and credit risks.
Interest Rates. The Company's exposure to market risk for changes in interest
rates relates primarily to the Company's credit agreements and investments.
The Company's long-term debt obligations are primarily comprised of the $125.0
million Notes, which bear interest at a fixed rate of 8.5%, and variable rate
borrowings under the Amended Credit Agreement. As of March 30, 2001, the Company
had $65.0 million outstanding under the Amended Credit Agreement at variable
interest rates, at the Company's option, at either the lender's base rate plus a
margin of 2.75% (10.75% at March 30, 2001) or the Eurodollar rate plus a margin
of 3.75%. The weighted-average interest rate under the Amended Credit Agreement
was 9.74% as of March 30, 2001.
Subsequent to year end, the Company refinanced the Amended Credit Agreement with
the Credit Facility. The Credit Facility has substantially similar market risk
characteristics as the variable rate facility described above.
The Company's investment portfolio consists of cash and cash equivalents
including deposits in banks, government securities, money market funds, and
short-term investments with maturities, when acquired, of 90 days or less. The
Company seeks to maximize capital preservation by investing these funds in
high-quality issuers.
As of March 30, 2001, the Company did not hold any derivative financial or
commodity instruments.
Foreign Currency. The Company is subject to interest rate risk and certain
foreign currency risk relating to its operations in Europe; however, the Company
does not consider its exposure in such areas to be material. Subsequent to
year-end, the Company sold its European operations.
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Item 8. Financial Statements and Supplementary Data
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Page
--------
Report of Independent Certified Public Accountants.................................................. F-2
Consolidated Balance Sheets - March 30, 2001 and March 31, 2000 .................................... F-3
Consolidated Statements of Operations for the Years Ended March 30, 2001, March 31, 2000, and
April 2, 1999.................................................................................... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended March 30, 2001, March 31, 2000,
and April 2, 1999................................................................................ F-5
Consolidated Statements of Cash Flows for the Years Ended March 30, 2001, March 31, 2000, and
April 2, 1999 F-6
Notes to Consolidated Financial Statements.......................................................... F-7
Schedule II - Valuation and Qualifying Accounts for the Years Ended April 2, 1999, March 31, 2000,
and March 30, 2001............................................................................... F-37
-F-1-
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To PSS World Medical, Inc.:
We have audited the accompanying consolidated balance sheets of PSS World
Medical, Inc. (a Florida corporation) and subsidiaries as of March 30, 2001 and
March 31, 2000, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended March 30, 2001. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the financial position of PSS World Medical, Inc. and
subsidiaries as of March 30, 2001 and March 31, 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
March 30, 2001 in conformity with accounting principles generally accepted in
the United States.
As explained in Note 1 to the consolidated financial statements, effective April
3, 1999, the Company changed certain of its accounting principles for revenue
recognition as a result of the adoption of Staff Accounting Bulletin No. 101,
"Revenue Recognition".
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to the
consolidated financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
- -----------------------
Arthur Andersen LLP
Jacksonville, Florida
June 19, 2001
-F-2-
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 30, 2001 and March 31, 2000
(Dollars in Thousands, Except Per Share Data)
ASSETS
2001 2000
---------- ----------
Current Assets:
Cash and cash equivalents......................................................... $ 34,374 $ 60,414
Marketable securities............................................................. 314 4,328
Accounts receivable, net.......................................................... 236,846 284,441
Inventories, net.................................................................. 154,725 178,038
Employee advances................................................................. 478 973
Prepaid expenses and other........................................................ 60,633 57,515
---------- ----------
Total current assets..................................................... 487,370 585,709
Property and equipment, net.......................................................... 76,247 65,783
Other Assets:
Intangibles, net.................................................................. 183,452 202,242
Employee advances................................................................. 524 --
Other............................................................................. 25,041 19,683
---------- ----------
Total assets............................................................. $772,634 $873,417
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................................. $119,238 $124,448
Accrued expenses.................................................................. 39,234 35,434
Current maturities of long-term debt and capital lease obligations................ 1,752 4,274
Other............................................................................. 10,855 7,482
---------- ----------
Total current liabilities................................................ 171,079 171,638
Long-term debt and capital lease obligations, net of current portion................. 190,040 254,959
Other................................................................................ 7,213 7,193
---------- ----------
Total liabilities........................................................ 368,332 433,790
---------- ----------
Commitments and contingencies (Notes 1, 2, 4, 9, 14, 15, 18, 19, and 20)
Shareholders' Equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized, no shares issued
and outstanding................................................................ -- --
Common stock, $.01 par value; 150,000,000 shares authorized, 71,077,236 shares
issued and outstanding at March 30, 2001 and March 31, 2000.................... 711 711
Additional paid-in capital........................................................ 348,701 349,186
Retained earnings................................................................. 54,890 90,951
Cumulative other comprehensive loss............................................... -- (390)
---------- ----------
404,302 440,458
Unearned ESOP shares.............................................................. -- (831)
---------- ----------
Total shareholders' equity............................................... 404,302 439,627
---------- ----------
Total liabilities and shareholders' equity............................... $772,634 $873,417
========== ==========
The accompanying notes are an integral part of these consolidated balance sheets.
-F-3-
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended March 30, 2001, March 31, 2000, and April 2, 1999
(Dollars in Thousands, Except Share Data)
2001 2000 1999
----------- ----------- -----------
Net sales.......................................................... $1,814,805 $1,803,990 $1,567,167
Cost of goods sold................................................. 1,398,390 1,355,178 1,165,145
----------- ----------- -----------
Gross profit........................................... 416,415 448,812 402,022
General and administrative expenses................................ 314,233 287,741 230,804
Selling expenses................................................... 115,156 116,362 97,365
International Business exit charge................................. 14,917 -- --
----------- ----------- -----------
(Loss) income from operations.......................... (27,891) 44,709 73,853
----------- ----------- -----------
Other income (expense):
Interest expense................................................ (20,394) (15,457) (11,522)
Interest and investment income.................................. 2,706 1,838 4,732
Other income.................................................... 1,689 10,437 6,618
----------- ----------- -----------
(15,999) (3,182) (172)
----------- ----------- -----------
(Loss) income before (benefit) provision for income taxes and
cumulative effect of accounting change.......................... (43,890) 41,527 73,681
(Benefit) provision for income taxes............................... (7,829) 19,343 29,940
----------- ----------- -----------
(Loss) income before cumulative effect of accounting change........ (36,061) 22,184 43,741
Cumulative effect of accounting change, net of taxes (Note 1) ..... -- (1,444) --
----------- ----------- -----------
Net (loss) income.................................................. $ (36,061) $ 20,740 $ 43,741
=========== =========== ===========
Earnings per share - Basic:
(Loss) income before cumulative effect of accounting change..... $ (0.51) $ 0.31 $ 0.62
Cumulative effect of accounting change ......................... -- (0.02) --
----------- ----------- -----------
Net (loss) income............................................... $ (0.51) $ 0.29 $ 0.62
=========== =========== ===========
Earnings per share - Diluted:
(Loss) income before cumulative effect of accounting change..... $ (0.51) $ 0.31 $ 0.61
Cumulative effect of accounting change.......................... -- (0.02) --
----------- ----------- -----------
Net (loss) income............................................... $ (0.51) $ 0.29 $ 0.61
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
-F-4-
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended March 30, 2001, March 31, 2000, and April 2, 1999
(Dollars in Thousands, Except Share Data)
Cumulative
Common Stock Additional Other Unearned
------------------- Paid-In Retained Comprehensive ESOP
Shares Amount Capital Earnings Income Shares Totals
---------- ------ ---------- -------- ------------- -------- ---------
Balance at April 4, 1998................ 70,374,594 $704 $344,581 $26,470 $(1,296) $(2,837) $367,622
Net income........................... -- -- -- 43,741 -- -- 43,741
Comprehensive income:
Cumulative foreign currency
translation adjustment ........ -- -- -- -- 119 -- 119
---------
Total comprehensive income........... 43,860
---------
Issuance of common stock............. 421,430 4 4,267 -- -- -- 4,271
Employee benefits and other.......... -- -- 612 -- -- 195 807
---------- ------ ---------- -------- ------------- -------- ---------
Balance at April 2, 1999................ 70,796,024 708 349,460 70,211 (1,177) (2,642) 416,560
---------- ------ ---------- -------- ------------- -------- ---------
Net income........................... -- -- -- 20,740 -- -- 20,740
Comprehensive income:
Cumulative foreign currency
translation adjustment ........ -- -- -- -- (939) -- (939)
Change in unrealized gain on
marketable security, net of tax -- -- -- -- 1,726 -- 1,726
---------
Total comprehensive income........... 21,527
---------
Issuance of common stock............. 281,212 3 98 -- -- -- 101
Employee benefits and other.......... -- -- (372) -- -- 1,811 1,439
---------- ------ ---------- -------- ------------- -------- ---------
Balance at March 31, 2000............... 71,077,236 711 349,186 90,951 (390) (831) 439,627
---------- ------ ---------- -------- ------------- -------- ---------
Net loss............................. -- -- -- (36,061) -- -- (36,061)
Comprehensive income:
Cumulative foreign currency
translation adjustment ........ -- -- -- -- 2,116 -- 2,116
Change in unrealized gain on
marketable security, net of tax -- -- -- -- (1,726) -- (1,726)
---------
Total comprehensive loss............. (35,671)
---------
Employee benefits and other.......... -- -- (485) -- -- 831 346
---------- ------ ---------- -------- ------------- -------- ---------
Balance at March 30, 2001............... 71,077,236 $711 $348,701 $54,890 $ -- $ -- $404,302
========== ====== ========== ======== ============= ======== =========
The accompanying notes are an integral part of these consolidated financial statements.
-F-5-
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended March 30, 2001, March 31, 2000, and April 2, 1999
(Dollars in Thousands)
2001 2000 1999
---------- --------- ---------
Cash Flows From Operating Activities:
Net (loss) income........................................................ $ (36,061) $ 20,740 $ 43,741
Adjustments to reconcile net (loss) income to net cash provided by (used
in) operating activities:
Cumulative effect of accounting change................................ -- 1,444 --
Depreciation.......................................................... 11,952 9,446 12,209
Amortization.......................................................... 13,018 10,842 7,289
Amortization of debt issuance costs................................... 1,975 782 886
Provision for doubtful accounts....................................... 24,240 15,812 5,181
International Business exit charge.................................... 14,917 -- --
(Benefit) provision for deferred income taxes......................... (7,829) 11,878 10,901
Loss (gain) on sale of fixed assets................................... 14 (871) (836)
Deferred compensation expense......................................... 345 721 365
Unrealized loss on marketable securities.............................. 1,186 -- 288
Changes in operating assets and liabilities, net of effects from
business acquisitions:
Accounts receivable, net........................................... 24,523 (23,041) (43,848)
Inventories, net................................................... 23,849 5,597 1,275
Prepaid expenses and other current assets.......................... (10,026) 8,656 (4,916)
Other assets....................................................... 665 (8,855) (2,265)
Accounts payable, accrued expenses, and other liabilities.......... 7,092 (36,180) (48,974)
---------- --------- ---------
Net cash provided by (used in) operating activities............. 69,860 16,971 (18,704)
---------- --------- ---------
Cash Flows From Investing Activities:
Purchases of marketable securities....................................... -- (1,500) (50,813)
Proceeds from sales and maturities of marketable securities.............. 3 -- 125,098
Proceeds from sale of property and equipment............................. 405 2,595 1,586
Capital expenditures..................................................... (22,857) (27,182) (24,774)
Purchases of businesses, net of cash acquired............................ (2,839) (59,410) (75,453)
Payments on noncompete agreements........................................ (2,087) (8,825) (4,558)
---------- --------- ---------
Net cash used in investing activities........................... (27,375) (94,322) (28,914)
---------- --------- ---------
Cash Flows From Financing Activities:
Proceeds from borrowings................................................. 100,180 175,797 24,000
Repayments of borrowings................................................. (167,542) (77,976) (20,337)
Principal payments under capital lease obligations....................... (79) (325) (366)
Proceeds from issuance of common stock................................... -- 101 4,174
Other.................................................................... (1,084) (938) 119
---------- --------- ---------
Net cash (used in) provided by financing activities............. (68,525) 96,659 7,590
---------- --------- ---------
Gulf South decrease in cash and cash equivalents for the three months ended
April 3, 1999 -- -- (349)
---------- --------- ---------
Net (decrease) increase in cash and cash equivalents........................ (26,040) 19,308 (40,377)
Cash and cash equivalents, beginning of year................................ 60,414 41,106 81,483
---------- --------- ---------
Cash and cash equivalents, end of year...................................... $ 34,374 $ 60,414 $ 41,106
========== ========= =========
Supplemental Disclosures:
Cash paid for:
Interest.............................................................. $ 19,393 $ 14,260 $ 11,026
========== ========= =========
Income taxes.......................................................... $ 975 $ 27,137 $ 18,192
========== ========= =========
The accompanying notes are an integral part of these consolidated financial statements.
-F-6-
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 30, 2001, MARCH 31, 2000, AND APRIL 2, 1999
(Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted)
1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company and Nature of Business
PSS World Medical, Inc. (the "Company" or "PSS") was incorporated in 1983
in Jacksonville, Florida. The Company, through its Physician Sales &
Service division ("Physician Supply Business") is a distributor of medical
supplies, equipment and pharmaceuticals to primary care and other
office-based physicians in the United States. As of March 30, 2001, the
Company operated 49 service centers distributing to over 100,000 physician
office sites in all 50 states.
In March 1996, PSS established two wholly-owned subsidiaries, WorldMed
International, Inc. ("WorldMed Int'l") and WorldMed, Inc., (together, the
"International Business"), to manage and develop the Company's European
medical equipment and supply distribution market. As of March 30, 2001, the
European operation included two service centers distributing to acute and
alternate care sites in Belgium and Germany. Subsequent to year-end, the
Company sold its International Business (Refer to Note 20, Subsequent
Events).
In November 1996, the Company established a wholly-owned subsidiary,
Diagnostic Imaging, Inc. ("DI" or the "Imaging Business"). DI is a
distributor of medical diagnostic imaging supplies, chemicals, equipment,
and services to the acute and alternate care markets in the United States.
As of March 30, 2001, DI operated 34 imaging division service centers
distributing to approximately 24,000 customer sites in 42 states.
In March 1998, the Company entered the long-term care market for the
distribution of medical supplies and other products with its acquisition of
Gulf South Medical Supply, Inc. ("Gulf South" or the "Long-Term Care
Business"). As of March 30, 2001, Gulf South, a wholly-owned subsidiary of
PSS, operated 14 long-term care distribution service centers serving over
14,000 long-term care accounts in all 50 states.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries using the fiscal year-ends discussed
below. All intercompany accounts and transactions have been eliminated. The
results of operations of companies acquired in purchase business
transactions are included in the accompanying consolidated financial
statements from the dates of acquisition.
Fiscal Year
The Company's fiscal year ends on the Friday closest to March 31 of each
year. Fiscal 2001, 2000, and 1999 each consist of 52 weeks.
Use of Estimates
In preparing financial statements in conformity with accounting principles
generally accepted in the United States, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
-F-7-
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, marketable securities, short-term trade receivables,
and accounts payable approximate their fair values due to the short-term
nature of these assets and liabilities. The fair value of the senior
subordinated debt is estimated using quoted market prices. The carrying
value of the Company's senior subordinated debt at March 30, 2001 and March
31, 2000 was $125,000 and the market value was approximately $104,000 and
$115,000, respectively. The carrying value of the Company's other long-term
debt was $66,792 and $134,233, at March 30, 2001 and March 31, 2000,
respectively, which approximates fair value.
Cash and Cash Equivalents
Cash and cash equivalents generally consist of cash held at banks,
short-term government obligations, commercial paper, and money market
instruments. The Company invests its excess cash in high-grade investments
and, therefore, bears minimal risk. These instruments have original
maturity dates not exceeding three months.
Marketable Securities
The Company holds investments classified as available-for-sale securities.
Available-for-sale securities are reported at fair value, with unrealized
gains and losses excluded from earnings but reported in other comprehensive
income, net of the effect of income taxes, until sold. At the time of sale,
any gains or losses are recognized as a component of operating results.
Gains and losses are based on the specific identification method of
determining cost.
Concentration of Credit Risk
The Company's trade accounts receivables are exposed to credit risk.
However, the majority of the market served by the Physician Supply Business
and Imaging Business are comprised of numerous individual accounts, none of
which is individually significant to the Company. Gulf South depends on a
limited number of large customers, and Gulf South's customers have been
experiencing significant financial difficulty since the advent of the
Prospective Payment System ("PPS"). Approximately 35%, 34%, and 38% of Gulf
South's revenues for the years ended March 30, 2001, March 31, 2000, and
April 2, 1999, respectively, represent sales to its top five customers. As
of March 30, 2001, the top five customers represented 27% of Gulf South's
gross accounts receivable and 24% of Gulf South's accounts receivable, net
of allowance for doubtful accounts. As of March 31, 2000, the top five
customers represented 32% of Gulf South's gross accounts receivable and 34%
of Gulf South's accounts receivable, net of allowance for doubtful
accounts. In addition, as of March 31, 2001, one of Gulf South's top five
customers was in bankruptcy and represented approximately 9% of Gulf
South's sales and less than 2% of the Company's consolidated sales. The
Company monitors the creditworthiness of its customers on an ongoing basis
and provides reserves for estimated bad debt losses and sales returns.
The Company had allowances for doubtful accounts and notes receivable of
approximately $18,742 and $12,418 as of March 30, 2001 and March 31, 2000,
respectively, of which $15,176 and $7,524, respectively, related to Gulf
South. Provisions for doubtful accounts were approximately $24,240,
$15,812, and $5,181, for fiscal ended 2001, 2000, and 1999,
respectively, of which $22,785, $11,193, and $2,485, respectively, related
to Gulf South.
During the quarter ended December 29, 2000, the Company recorded a bad debt
charge of $19,991 in its Long-Term Care Business (refer to Note 3, Charges
Included in General and Administrative Expenses).
-F-8-
Inventories
Inventories, which are comprised principally of medical and related
products, are stated at the lower of cost (first-in, first-out) or market.
Market is defined as net realizable value. A company-wide physical
inventory observation is performed semiannually. Any inventory that is
impaired for any reason is disposed of or written down to fair market value
at that time. Management reviews all branch inventory valuations and makes
additional adjustments if necessary.
Slow moving inventory is tracked using a report that details items that
have not moved in the last 180 to 360 days and an appropriate reserve is
established. Once slow moving inventory is identified, branches transfer
inventory to other branches with a market for that inventory. If management
determines the inventory is not saleable, the inventory is written off
against the allowance for obsolete inventory.
Property and Equipment
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from three to 39 years. Leasehold
improvements are amortized over the lease terms or the estimated useful
lives, whichever is shorter. Gain or loss upon retirement or disposal of
property and equipment is recorded in other income in the accompanying
consolidated statements of operations.
The Company evaluates the recoverability of long-lived assets not held for
sale by measuring the carrying amount of the assets against the estimated
undiscounted future cash flows. At the time such evaluations indicate that
the future undiscounted cash flows of certain long-lived assets are not
sufficient to recover the carrying value of such assets, the assets are
adjusted to their fair values.
The Company capitalizes the following costs associated with developing
internal-use computer software: (i) external direct costs of materials and
services consumed in developing or obtaining internal-use computer
software; (ii) certain payroll and payroll-related costs for employees who
are directly associated with the development of internal-use software, to
the extent of the time spent directly on the project; and (iii) interest
costs incurred while developing internal-use computer software. Capitalized
internal-use software costs are amortized over the estimated useful lives
of the software, ranging from 7 to 10 years.
Intangibles
Noncompetition agreements are amortized on a straight-line basis over the
lives of the agreements, which range from 3 to 15 years. The Company has
classified as goodwill the cost in excess of the fair value of net
identifiable assets purchased in business acquisitions that are accounted
for as purchase transactions. Goodwill is being amortized over 15 to 30
years using the straight-line method. The Company periodically evaluates
intangible assets to determine if an impairment exists.
Self-Insurance Coverage
The Company has a self-funded program for employee and dependent health
coverage. This program includes an administrator, a large provider network,
and stop loss reinsurance to cover individual claims in excess of $175 per
person and up to $1.0 million catastrophic loss maximum, per life time
benefit, per person. Claims incurred but not reported are recorded based on
estimates of claims provided by the third party administrator and are
included in accrued expenses in the accompanying consolidated balance
sheets.
Contingent Loss Accruals
In determining the accrual necessary for probable loss contingencies as
defined by Statement of Financial Accounting Standards ("SFAS") No. 5,
Accounting for Contingencies ("SFAS 5"), the Company includes estimates for
professional fees, such as legal, accounting, and consulting, and other
related costs to be incurred, unless such fees and related costs are not
probable of being incurred or are not reasonably estimable.
-F-9-
Income Taxes
The Company uses the asset and liability method in accounting for income
taxes. Deferred income taxes result primarily from the net tax effect of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes.
Shareholders' Equity
The Company realizes an income tax benefit from the exercise or early
disposition of certain stock options. This benefit results in a decrease in
current income taxes payable and a direct increase in additional paid-in
capital (refer to Note 10, Income Taxes).
Other Comprehensive Income
Cumulative other comprehensive income and total comprehensive income has
been separately disclosed in the accompanying consolidated statements of
shareholders' equity.
Revenue Recognition
Effective April 3, 1999, the Company adopted Staff Accounting Bulletin No.
101, Revenue Recognition ("SAB 101"), which changed its method for
accounting for equipment sales and contingent rebate income for the fiscal
year ended March 31, 2000. The cumulative effect of this accounting change
reduced net income for the year ended March 31, 2000, by $1.4 million ($2.4
million pre-tax). The cumulative after tax effect on both the basic and
diluted earnings per share was a reduction of $0.02 per share. The effect
of SAB 101, before the cumulative effect, did not have a material impact on
fiscal 2000 and would not have been material to fiscal 1999.
Revenue from the sale of products and equipment with no installation and
training requirements is recognized when products are shipped. Revenue from
the sale of equipment with installation and training requirements is
recognized when installation and training are complete. Revenue from
service contracts is recognized ratably over the term of the contract.
The Company earns incentive rebates from its vendors if certain performance
goals are achieved. Incentive rebate income is recognized in the accounting
period in which the Company meets the performance measure.
The Company allows customers to return products under its "no hassle
customer guarantee," and customers are issued credit memos. The Company
records an allowance for estimated sales returns and allowances at the end
of each period. Sales returns and allowances estimates, which are included
in accounts receivable in the accompanying balance sheets, are based on
historical experience.
Foreign Currency Translation
Financial statements for the International Business are translated into
U.S. dollars at year-end exchange rates for assets and liabilities and
weighted average exchange rates for income and expenses. The resulting
translation adjustments are recorded in the cumulative other comprehensive
income component of shareholders' equity.
Stock-Based Compensation
The Company accounts for its stock-based compensation plans using the
intrinsic value method. The Company adopted the disclosure only provisions
of SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123") for
employee and director stock-based compensation. In accordance with SFAS
123, for footnote disclosure purposes only, the Company computes its
earnings and earnings per share on a pro forma basis as if the fair value
method had been applied.
Earnings Per Common Share
Basic and diluted earnings per common share are presented in accordance
with SFAS No. 128, Earnings Per Share ("SFAS 128"). Basic earnings per
common share is computed by dividing net income by the weighted average
-F-10-
number of shares outstanding. Diluted earnings per common share includes
the dilutive effect of stock options (refer to Note 11, Earnings Per
Share).
Statements of Cash Flows
The Company's noncash investing and financing activities were as follows:
2001 2000 1999
--------- --------- ---------
Investing Activities:
Business acquisitions:
Fair value of assets acquired.................. $ 561 $ 41,146 $ 56,815
Liabilities assumed............................ 46 41,604 39,930
Noncompetition agreements issued............... 200 8,300 3,950
Financing Activities:
Tax benefits related to stock option plans...... -- 194 759
Reclassifications
Certain amounts for prior years have been reclassified to conform to the
current year presentation.
Recent Accounting Pronouncements
During June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities
("SFAS 133"). In June 1999, the FASB issued SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective
Date of FASB Statement 133 ("SFAS 137"), which delays the effective date of
SFAS 133 to fiscal years beginning after June 15, 2000. The effect of
adopting the provisions of this statement in the first quarter of fiscal
2002 was not material.
During September 2000, the Emerging Issues Task Force ("EITF") issued EITF
No. 00-10, Accounting for Shipping and Handling Fees and Costs ("EITF
00-10"), which addresses the income statement classification of amounts
charged to customers for, as well as costs incurred related to, shipping
and handling. The effective date of EITF 00-10 was the quarter ended March
30, 2001. EITF 00-10 requires that amounts billed to a customer in a sale
transaction related to shipping and handling be classified as revenue. In
addition, if costs incurred related to shipping and handling are
significant and are not included in cost of sales, an entity should
disclose both the amount of such costs and the income statement
classification.
Shipping and handling costs billed to customers are classified as revenues
for all periods presented; previously, these revenues were offset against
the related costs incurred, which were included in general and
administrative expenses. Revenues from shipping and handling for each of
the three years in the periods ended 2001, 2000, and 1999 were $11,180,
$10,454 and $2,663, respectively. Costs related to shipping and handling
are classified as general and administrative expenses and were $79,562,
$76,487 and $64,945, during each of the three years in the periods ended
2001, 2000, and 1999, respectively.
2. BUSINESS ACQUISTIONS
Purchase Acquisitions
During fiscal 2000, the Company acquired certain assets and assumed certain
liabilities of 6 medical supply and equipment distributors, 12 imaging
supply and equipment distributors, and 2 long-term health care
distributors. In addition, the Company acquired the common stock of 4
imaging supply and equipment distributors. A summary of the details of the
transactions follow:
-F-11-
Fiscal Year
---------------------------------------
2001 (a) 2000 1999
---------- --------- ---------
Number of acquisitions......................... 1 24 25
Total consideration............................ $ 969 $101,014 $115,183
Cash paid, net of cash acquired................ 923 59,410 75,453
Goodwill recorded.............................. 2,324 59,868 58,368
Noncompete payments............................ 200 7,235 3,950
(a) During fiscal 2001, goodwill recorded includes approximately $1,916 of
earnout payments.
The operations of the acquired companies have been included in the Company's
results of operations subsequent to the dates of acquisition. Supplemental
unaudited pro forma information, assuming these acquisitions had been made
at the beginning of the year in which the acquisition was made, and assuming
the acquisitions were made at the beginning of the immediate preceding year,
is included below. The unaudited pro forma selected financial data does not
purport to represent what the Company's results of operation would actually
have been had the transactions in fact occurred as of an earlier date or
project the results for any future date or period.
Fiscal Year
-------------------------
2000 1999
---------- ----------
Revenues............................................... $1,879,592 $1,850,583
Net Income............................................. 22,397 49,180
Earnings per share:
Basic................................................ $0.32 $0.70
Diluted.............................................. $0.31 $0.69
These acquisitions were accounted for under the purchase method of
accounting, and accordingly, the assets of the acquired companies have been
recorded at their estimated fair values at the dates of the acquisitions.
The excess of the purchase price over the estimated fair value of the net
identifiable assets acquired has been recorded as goodwill and is amortized
over 15 to 30 years. Goodwill was reduced by $494 during fiscal 2001 to
reflect purchase price allocations of acquisitions consummated in fiscal
2000. Remaining contingent earnouts of $2.4 million will be assessed in
fiscal 2002 and final purchase price allocations will be completed at that
time.
Merger costs and expenses
During fiscal 2000, the Company recorded approximately $595 of merger
integration costs and expenses directly to goodwill as incurred as these
costs were contemplated at the time of acquisition. In addition, during
fiscal 2000, the Company recorded approximately $489 of merger costs
and expenses related to other acquisitions directly to goodwill for costs
that were in excess of the original integration plan accrual estimated by
management. Such merger costs and expenses are recorded directly to
goodwill only if it is within one year from the date of the acquisition and
such expenses were contemplated at the time of the acquisition. If merger
costs and expenses are incurred subsequent to one year from the date of the
acquisition, or were not contemplated at the time of the acquisition, such
expenses are recorded in general and administrative expenses.
Reversal of excess accrued merger costs and expenses
During fiscal 2000, the Company reversed approximately $712 of certain
accrued merger costs and expenses that management determined to be
unnecessary due to changes in integration plans or estimates. Management
evaluates integration plans at each period end and determines if revisions
to the accruals are appropriate. Such revisions to the original estimates
are recorded directly to goodwill.
Deferred tax assets of acquired companies
During fiscal 2001, the Company increased goodwill by approximately
$420 and during fiscal 1999, the Company reduced goodwill by
approximately $2,644. These adjustments reflect a true-up of the deferred
tax assets and liabilities per the financial statements and the tax return,
as a result of additional information received on the deductibility of
certain pre-acquisition expenditures.
-F-12-
In addition, the terms of certain of the Company's recent acquisition
agreements provide for additional consideration to be paid (earnout
payments) if the acquired entity's results of operations exceed certain
targeted levels. Targeted levels are generally set above the historical
experience of the acquired entity at the time of acquisition. Such
additional consideration is to be paid in cash and is recorded when earned
as additional purchase price. The maximum amount of remaining contingent
consideration is approximately $2.4 million (payable through fiscal 2002).
During the year ended March 30, 2001, there were earnout payments related
to two Imaging Business acquisitions totaling $1.9 million. These amounts
were recorded as an adjustment to goodwill related to the acquisitions.
There were no earnout payments made during fiscal 2000 and 1999.
3. CHARGES INCLUDED IN GENERAL AND ADMINISTRATIVE EXPENSES
In addition to normal general and administrative expenses, this caption
includes charges related to merger activity, restructuring activity, and
other special items. The following table summarizes unusual charges
included as components of general and administrative expenses in the
accompanying consolidated statements of operations:
2001 2000 1999
----------- --------- ---------
Merger costs and expenses.................... $ 5,588 $ 1,700 $ 4,371
Restructuring costs and expenses............. 8,708 13,245 4,922
Acceleration of depreciation................. 1,504 -- 5,379
Long-Term Care Business bad debt charge...... 19,991 -- --
Goodwill impairment charge................... -- 517 --
Operational tax charge....................... (749) (1,221) --
Other........................................ 3,789 -- 1,010
----------- --------- ---------
$ 38,831 $14,241 $15,682
=========== ========= =========
Merger Costs and Expenses
The Company's policy is to accrue merger costs and expenses at the
commitment date of an integration plan if certain criteria under EITF No.
94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity ("EITF 94-3") or EITF No. 95-14,
Recognition of Liabilities in Anticipation of a Business Combination ("EITF
95-14"), are met. Merger costs and expenses recorded at the commitment date
primarily include charges for involuntary employee termination costs,
branch shut-down costs, lease termination costs, and other exit costs.
If the criteria described in EITF 94-3 or EITF 95-14 are not met, the
Company records merger costs and expenses as incurred. Merger costs
expensed as incurred include the following: (1) costs to pack and move
inventory from one facility to another or within a facility in a
consolidation of facilities, (2) relocation costs paid to employees in
relation to an acquisition accounted for under the pooling-of-interests
method of accounting, (3) systems or training costs to convert the acquired
companies to the current existing information system, and (4) training
costs related to conforming the acquired companies operational policies to
that of the Company's operational policies. In addition, amounts incurred
in excess of the original amount accrued at the commitment date are
expensed as incurred.
Merger costs and expenses for fiscal 2001, 2000, and 1999 include $989,
$2,300, and $2,481, respectively, of charges for merger costs expensed as
incurred. In addition, merger costs and expenses for fiscal 1999 include
$2,818 of charges recorded at the commitment date of an integration plan
adopted by management. At the end of each quarter, management reevaluates
its plans and adjusts previous estimates. During fiscal 2001, 2000, and
1999, the Company reversed approximately $155, $1,602, and $928,
respectively, of merger costs and expenses previously established under
prior plans, of which $148 and $1,437 related to accrued lease termination
costs in fiscal 2001 and 2000, respectively, and $777 related to direct
transactions costs in fiscal 1999. Refer to Note 4, Accrued Merger and
Restructuring Costs and Expenses, for further discussion regarding merger
plans.
Effective February 1, 2000, the Board of Directors approved and adopted the
PSS World Medical, Inc. Officer Retention Bonus Plan and the PSS World
Medical, Inc. Corporate Office Employee Retention Bonus Plan (collectively
the "Retention Plans"). As part of the Company's strategic alternatives
process, management adopted these plans to retain certain officers and key
employees during the transition period. The total costs related to these
-F-13-
plans is approximately $10,059 of which $4,754 and $1,002 were expensed
during the years ended March 30, 2001 and March 31, 2000, respectively, and
$2,872, and $1,431 will be recognized as expense in fiscal 2002 and 2003,
respectively.
Restructuring Costs and Expenses
Fiscal 2001
During the quarter ended December 29, 2000, management approved and
adopted a formal plan, among other things, to restructure certain
leadership positions within the Company ("Plan E"). This plan includes
costs related to the severance of certain members of senior management
including the Company's former Chairman and Chief Executive Officer.
Accordingly, the Company recorded restructuring costs and expenses of
$4,887 at the commitment date of the restructuring plan adopted by
management and an additional $644 in severance costs in the quarter
ended March 30, 2001. The Company also recorded $3,446 of
restructuring costs as incurred during the year ended March 30, 2001.
In addition, the Company reversed $269, which primarily related to
branch shutdown costs, previously established as restructuring costs
under prior plans.
Fiscal 2000
During the quarter ended September 30, 1999, management approved and
adopted a formal plan to restructure certain operations of Gulf South
("Plan C"), an additional component to the previously established
Plans A and B. This restructuring plan identified five additional
distribution centers and the Gulf South corporate facility as
redundant or inadequate for future operations. As a result, these
locations were closed and made permanently idle. Accordingly, the
Company recorded restructuring costs and expenses of $4,967 at the
commitment date of the restructuring plan adopted by management. Such
costs include branch shutdown costs, lease termination costs, and
involuntary employee termination costs of $494, $2,915, and $1,558,
respectively. Refer to Note 4, Accrued Merger and Restructuring Costs
and Expenses, for further discussion regarding the restructuring plan.
Restructuring costs and expenses for the year ended March 31, 2000
also included $9,213 of charges that were expensed as incurred and
primarily relate to other exit costs. Other exit costs include costs
to pack and move inventory, costs to set up new facilities, employee
relocation costs, and other related facility closure costs. In
addition, the Company reversed $1,341 of restructuring costs into
income, which related to over-accrual for lease termination costs, and
involuntary employee termination costs.
During the quarter ended March 31, 2000, management approved and
adopted another formal plan to restructure the Imaging Business' sales
and service organization and the shut down of two facilities ("Plan
D"). Accordingly, the Company recorded restructuring costs and
expenses of $318 at the commitment date of the restructuring plan
adopted by management. Refer to Note 4, Accrued Merger and
Restructuring Costs and Expenses, for further discussion regarding the
restructuring plan. Restructuring costs and expenses for the quarter
ended March 31, 2000 also included $88 of charges that were expensed
as incurred and primarily relate to other exit costs. Other exit costs
include costs to pack and move inventory, costs to set up new
facilities, employee relocation costs, and other related facility
closure costs.
Fiscal 1999
During the quarter ended June 30, 1998, management approved and
adopted Plan B, an additional Gulf South component to the 1998
restructuring plan or Plan A. This restructuring plan identified two
additional distribution centers and two corporate offices to be merged
with existing facilities and identified three executives to be
involuntarily terminated. Accordingly, the Company recorded
restructuring costs and expenses of $1,503 at the commitment date of
the restructuring plan adopted by management. Such costs include
branch shutdown costs, lease termination costs, involuntary employee
termination costs of $281, $570, and $652, respectively.
The remaining $3,419 of restructuring costs recorded during fiscal
1999 represents charges expensed as incurred. Such costs include
charges for training costs related to conforming the acquired
companies operational policies to that of the Company's operational
policies, direct transaction costs, involuntary employee termination
costs, and other exit costs of $1,138, $227, $300, and $1,754,
respectively. Other exit costs include
-F-14-
costs to pack and move inventory, costs to set up new facilities,
employee relocation costs, and other related facility closure costs.
Acceleration of Depreciation
During the quarter ended December 29, 2000, the Company identified certain
assets for replacement due to the implementation of its Enterprise Resource
Planning ("ERP") system. Pursuant to SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of ("SFAS 121"), the Company
evaluated the recoverability of the assets. Based on the Company's
analysis, impairment did not exist at the division level; therefore,
management reviewed its estimated useful lives in accordance with
Accounting Principles Board No. 20, Accounting Changes ("APB 20"), and
recorded $1,504 of accelerated depreciation.
In connection with the Gulf South merger during fiscal 1998, management
evaluated the adequacy of the combined companies' information systems. The
Company concluded that its existing information systems were not compatible
with those of Gulf South's and not adequate to support the future internal
growth of the combined companies and expected growth resulting from future
acquisitions. Pursuant to SFAS 121, the Company evaluated the
recoverability of the information system assets. Based on the Company's
analysis, impairment did not exist at the division level; therefore,
management reviewed its estimated useful lives in accordance with APB 20
and recorded $5,379 of incremental depreciation expense resulting from
management's decision to replace its information systems.
Long-Term Care Business Bad Debt Charge
During the quarter ended December 29, 2000, the Company recorded $19,991 of
bad debt expense to increase the accounts receivable reserves at Gulf South
Medical Supply. The increase to the reserve balance was primarily
attributed to changes in assumptions concerning customers currently in
bankruptcy based on information acquired during the quarter, including the
fact that the Company did not receive critical vendor designation for
certain customers as it had received for other bankrupt customers in the
past. In addition, the increase was also attributed to i) changes in
reserve assumptions for non-performing customers based on the change in
assumptions discussed above, ii) changes in management's credit policies
and procedures, and iii) changes in credit and collection department
management. Based on information currently available, management believes
the Company has recorded appropriate reserves for uncollectible
receivables.
Goodwill Impairment Charge
During fiscal 2000, the Imaging Business closed its Metro New York
facility. The closure of this facility triggered an asset impairment as
determined under SFAS 121. As a result, goodwill of $517 was written off
during fiscal 2000.
Operational Tax Charge
During the year ended March 30, 2001 and March 31, 2000, the Company
performed an analysis and reversed $749 and $1,221, respectively, of a
previously recorded operating tax charge reserve.
Other
During the year ended March 30, 2001, the Company incurred $3,695,
primarily relating to legal and professional fees and other costs pursuant
to the Company's strategic alternatives process and severance costs. In
addition, the Company incurred $94 of costs related to acquisitions not
consummated. During the year ended April 2, 1999, the Company
incurred approximately $1,010 of costs related to acquisitions not
consummated.
4. ACCRUED MERGER AND RESTRUCTURING COSTS AND EXPENSES
Summary of Accrued Merger Costs and Expenses
In connection with the consummation of business combinations, management
often develops formal plans to exit certain activities, involuntarily
terminate employees, and relocate employees of the acquired companies.
-F-15-
Management's plans to exit an activity often include identification of
duplicate facilities for closure and identification of facilities for
consolidation into other facilities.
Generally, completion of the integration plans will occur within one year
from the date in which the plans were formalized and adopted by management.
However, intervening events occurring prior to completion of the plan, such
as subsequent acquisitions or system conversion issues, can significantly
impact a plan that had been previously established. Such intervening events
may cause modifications to the plans and are accounted for on a prospective
basis. At the end of each quarter, management reevaluates its integration
plans and adjusts previous estimates.
As part of the integration plans, certain costs are recognized at the date
in which the plan is formalized and adopted by management (commitment
date). These costs are generally related to employee terminations and
relocation, lease terminations, and branch shutdown. In addition, there are
certain costs that do not meet the criteria for accrual at the commitment
date and are expensed as the plan is implemented (refer to Note 3, Charges
Included in General and Administrative Expenses). Involuntary employee
termination costs are employee severance costs and termination benefits.
Lease termination costs are lease cancellation fees and forfeited deposits.
Branch shutdown costs include costs related to facility closure costs.
Employee relocation costs are moving costs of employees of an acquired
company in transactions accounted for under the purchase method of
accounting.
Accrued merger costs and expenses, classified as accrued expenses in the
accompanying consolidated balance sheets, were $294 and $1,089, at March
30, 2001 and March 31, 2000, respectively. The discussion of the accrued
merger costs and expenses below summarize the significant and
nonsignificant integration plans adopted by management for business
combinations accounted for under the purchase method of accounting and
pooling-of-interests method of accounting. Integration plans are considered
to be significant if the charge recorded to establish the accrual is in
excess of 5% of consolidated pretax income.
Significant Poolings-of-Interests Business Combination Plan
The Company formalized and adopted an integration plan in December 1997 to
integrate the operations of S&W with the Imaging Business. As of December
31, 1999, all of the employees had been terminated and all of the seven
identified distribution facilities had been shut down. Therefore, all costs
related to the merger plan had been incurred at March 30, 2001, except for
lease termination costs for one location for which payments will extend
through May 2001. During the year ended March 30, 2001, $86 of lease
expense was charged against the accrual leaving a remaining accrual of $16.
Nonsignificant Poolings-of-Interests Business Combination Plans
The Imaging Business acquired Tristar Imaging Systems, Inc. in October
1998, and management formalized and adopted an integration plan in late
fiscal 1999 to integrate the operations of the acquired company. Management
determined that all costs related to the merger plan had been incurred at
March 30, 2001. During the year ended March 30, 2001, $397 of lease
expense was charged against the accrual and the Company reversed
approximately $148 of merger costs and expenses previously established
under prior plans, all of which is related to lease terminations.
Therefore, no accrual remains at March 30, 2001.
Nonsignificant Purchase Business Combination Plan
The Imaging Business acquired South Jersey X-Ray, Inc. in October 1998, and
management formalized and adopted an integration plan during the three
months ended June 30, 1999 to integrate the operations of the acquired
company. All costs related to the merger plan had been incurred at March
30, 2001, except for lease termination costs for which payments will extend
through fiscal 2004. During the year ended March 30, 2001, $108 of
lease expense and $56 of employee termination costs were charged against
the accrual leaving a remaining balance of $278.
Summary of Accrued Restructuring Costs and Expenses
Primarily as a result of the impact of the Gulf South merger, in order to
improve customer service, reduce costs, and improve productivity and asset
utilization, the Company decided to realign and consolidate its operations.
Accordingly, the Company began implementing a restructuring plan during the
fourth quarter of fiscal 1998, which impacted all divisions ("Plan A"). The
-F-16-
accrued restructuring costs related to Plan A were fully utilized at March
30, 2001. Subsequently, the Company adopted a second restructuring plan
during the first quarter of fiscal 1999 related to the Gulf South Medical
Supply division ("Plan B") to further consolidate its operations.
During the second quarter of fiscal 2000, management evaluated the
Company's overall cost structure and implemented cost reductions in order
to meet internal profitability targets. In addition, management decided to
improve its distribution model and relocate the corporate office for Gulf
South to Jacksonville, Florida where the corporate offices for the Imaging
and Physician Supply Businesses are located. The Company implemented the
restructuring plan during the second quarter of fiscal 2000 that impacted
all divisions ("Plan C"). The total number of employees to be terminated
was 272.
During the fourth quarter of fiscal 2000, the Imaging Business' management
made a discretionary decision to change its business strategy and the way
it operates to improve future operations. These changes include
restructuring the Imaging Business sales force, terminating approximately
50 service engineers, and closure of two distribution centers ("Plan D").
All employees were terminated as of June 30, 2000, and the accruals
relating to Plan D were fully utilized at March 30, 2001.
During the third quarter of fiscal 2001, the Company's Board of Directors
along with senior management evaluated the Company's operating performance.
During this process, the Board and management decided to implement a
long-range action plan that would stabilize the workforce and business. As
part of the new strategic plan, the Company planned to reorganize several
senior management positions and make permanently idle two distribution
centers; one in the Diagnostic Imaging division and one in the Physician
Supply division ("Plan E"). The total number of employees to be terminated
in Plan E is 29.
Accrued restructuring costs and expenses related to Plans A, B, C, D and E,
classified as accrued expenses in the accompanying consolidated balance
sheets, totaled $3,715 and $1,607 at March 30, 2001 and March 31, 2000,
respectively. The following is a summary of the restructuring plan
activity:
Involuntary
Employee Lease Branch
Termination Termination Shutdown
Costs Costs Costs Total
------------- -------------- -------------- --------------
Balance at April 2, 1999 $ 1,602 $ 1,320 $ 896 $ 3,818
Adjustments (1,107) (436) (467) (2,010)
Additions 3,233 1,559 494 5,286
Utilized (3,352) (1,586) (549) (5,487)
------------- -------------- -------------- --------------
Balance at March 31, 2000 376 857 374 1,607
Adjustments (30) -- (239) (269)
Additions 5,531 -- -- 5,531
Utilized (2,541) (478) (135) (3,154)
------------- -------------- -------------- --------------
Balance at March 30, 2001 $ 3,336 $ 379 $ -- $ 3,715
============= ============== ============== ==============
Plan B
As of December 31, 1999, all of the six locations had been shut down and
all employees were terminated as a result of the plan. Approximately $67 of
lease termination payments remain accrued at March 30, 2001 for which
payments will extend through fiscal 2002.
Plan C
All employees were terminated as of March 31, 2000. After revising prior
estimates, the Company reversed $30 related to involuntary employee
terminations and $239 related to branch shutdown costs against
restructuring costs and expenses during the year ended March 30,
2001. Accrued restructuring costs and expenses related to Plan C at March
30, 2001 were approximately $312, which relates to lease terminations.
Plan E
Accrued restructuring costs and expenses related to Plan E at March 30,
2001 were approximately $3,336, all of which relates to involuntary
employee terminations. As of March 30, 2001, 16 employees had been
terminated under the plan.
-F-17-
5. INTERNATIONAL BUSINESS EXIT CHARGE
During the quarter ended December 29, 2000, management adopted, and the
Board of Directors approved, a plan for divesting the Company's European
operations. Management's primary consideration for this decision was that
the European operations are outside the core United States business
segments, making effective management difficult and resulting in lower than
expected operating performance for the past several years. The net assets
held for disposal consist of the operating assets of the European
operations less outstanding liabilities, and are valued at the lower of
aggregate fair value less expected costs to be incurred for sale.
Accordingly, during the quarter ended December 29, 2000 the Company
recorded $14.9 million as an International Business exit charge, primarily
to recognize an impairment of goodwill (net of accumulated amortization) of
$8.8 million and to recognize prior cumulative foreign currency translation
adjustments of $3.2 million.
Subsequent to year-end, the Company sold its European operations (refer to
Note 20, Subsequent Events). The European operations reported the following
results of operations for each of the three years in the period ended:
March 30, 2001 March 31, 2000 April 2, 1999
------------------ ------------------ -----------------
Net sales $ 19,873 $24,361 $19,925
Cost of goods sold 14,004 16,333 13,787
------------------ ------------------ -----------------
Gross profit 5,869 8,028 6,138
Selling, general and
administrative expenses 5,782 8,225 6,850
International Business exit
charge 14,917 -- --
------------------ ------------------ -----------------
Operating loss (14,830) (197) (712)
Interest expense (724) (238) 86
Intercompany interest expense (1,000) (1,203) (400)
Other income -- -- 142
------------------ ------------------ -----------------
(1,724) (1,441) (172)
------------------ ------------------ -----------------
Loss before provision for (16,554) (1,638) (884)
income taxes
Provision for income taxes -- -- --
------------------ ------------------ -----------------
Net loss $(16,554) $ (1,638) $ (884)
================== ================== =================
6. MARKETABLE SECURITY
Other than
Original temporary New Cost Unrealized
Available-for-Sale Security Cost impairment Basis Gain Fair Value
----------- ----------- --------- --------- ----------
March 30, 2001 $1,500 $(1,186) $ 314 -- $ 314
=========== =========== ========= ========= ==========
March 31, 2000 $1,500 -- $1,500 $2,285 $4,325
=========== =========== ========= ========= ==========
The Company holds an investment classified as available-for-sale security
at fair value, with unrealized gains and losses excluded from earnings but
reported in equity and other comprehensive income (net of the effect of
income taxes) until it is sold. At the time of the sales, any gains or
losses are recognized as a component of operating results. Gains and losses
are based on the specific identification method of determining cost.
During the quarter ended March 30, 2001, the Company recognized an other
than temporary impairment loss of $1,186 that was included in interest and
investment income in the accompanying consolidated statements of
operations. This charge related to an investment in an internet medical
supply portal that had experienced a significant and continuing decrease in
market value during fiscal 2001.
-F-18-
7 . PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, are summarized as follows:
2001 2000
---------- -----------
Land................................................ $ 1,184 $ 1,184
Building ........................................... 2,554 2,547
Equipment........................................... 88,064 76,304
Furniture, fixtures, and leasehold improvements..... 22,529 23,695
---------- -----------
114,331 103,730
Accumulated depreciation............................ (38,084) (37,947)
---------- -----------
$ 76,247 $ 65,783
========== ===========
Equipment includes equipment acquired under capital leases with a cost of
$476 and related accumulated depreciation of $368 at March 31, 2000.
Depreciation expense, included in general and administrative expenses in
the accompanying consolidated statements of operations, aggregated
approximately $11,952, $9,446, and $12,209 for fiscal 2001, 2000, and 1999,
respectively.
8. INTANGIBLES
Intangibles, stated at cost, consist of the following:
2001 2000
---------- -----------
Goodwill ........................................... $ 182,690 $189,608
Noncompetition agreements and other................. 37,376 37,998
---------- -----------
220,066 227,606
Accumulated amortization............................ (36,614) (25,364)
---------- -----------
$ 183,452 $202,242
========== ===========
Future minimum payments required under noncompetition agreements at March
30, 2001 are as follows:
Fiscal Year:
2002............................................. $ 766
2003............................................. 218
2004............................................. 59
2005............................................. 43
2006............................................. 36
Thereafter....................................... 178
---------
$ 1,300
=========
-F-19-
Amortization expense, included in general and administrative expenses in the
accompanying consolidated statements of operations aggregated approximately
$13,018, $10,842, and $7,289 for fiscal 2001, 2000, and 1999, respectively, of
which $6,202, $5,374, and $3,627 for fiscal 2001, 2000 and 1999, respectively,
relates to goodwill amortization.
9. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consist of the following:
March 30, March 31,
2001 2000
---------- ----------
Senior subordinated notes........................................................ $125,000 $ 125,000
Senior revolving credit.......................................................... 65,000 121,000
Capital lease obligations........................................................ -- 171
Long-term debt of acquired companies............................................. -- 125
Notes payable to owners of acquired companies.................................... 65 2,093
Other notes...................................................................... 1,727 10,844
---------- ----------
191,792 259,233
Less current maturities.......................................................... (1,752) (4,274)
---------- ----------
$190,040 $ 254,959
========== ==========
Senior Subordinated Notes
The Company has issued $125.0 million aggregate principal amount of 8.5%
senior subordinated notes due in 2007 (the "Notes"). The Notes are
unconditionally guaranteed on a senior subordinated basis by all of the
Company's domestic subsidiaries. Interest on the Notes accrues from the
date of original issuance and is payable semiannually on April 1 and
October 1 of each year, commencing on April 1, 1998, at a rate of 8.5% per
annum. The semiannual payments of approximately $5.3 million are expected
to be funded by the operating cash flow of the Company. No principal
payments on the Notes are required over the next five years. The Notes
contain certain restrictive covenants that, among other things, limit the
Company's ability to incur additional indebtedness. The Company may incur
indebtedness up to certain specified levels and, provided that if no event
of default exists, additional indebtedness may be incurred if the Company
maintains a consolidated fixed charge coverage ratio, after giving effect
to such additional indebtedness, of greater than 2.0 to 1.0.
Senior Revolving Credit Agreement
On February 11, 1999, the Company entered into a $140.0 million senior
revolving credit facility (the "Original Credit Agreement") with a
syndicate of financial institutions with NationsBank, N.A. as principal
agent. Borrowings under the Original Credit Agreement were available for
working capital, capital expenditures, and acquisitions, and secured by the
common stock and assets of the Company and its subsidiaries. On October 20,
1999, the Company amended the Original Credit Agreement to allow, among
other things, for repurchases of up to $50.0 million of the Company's
common stock through October 31, 2000. In addition, effective August 4,
2000, the Company obtained an amendment to the Original Credit Agreement
modifying certain financial ratios contained therein. Effective September
30, 2000, the Company obtained a limited waiver to the Original Credit
Agreement for failure to meet the criteria for the fixed charge coverage
ratio and the leverage ratio during the fiscal quarter ended September 30,
2000.
On December 28, 2000, the Company amended and restated the Original Credit
Agreement, as amended (the "Amended Credit Agreement"). Pursuant to the
terms of the Amended Credit Agreement, the Company was permitted to make
revolving credit borrowings in an amount up to the lesser of (a) the
revolving committed amount, which initially was $120 million, reducing to
$110 million on March 31, 2002, and $100 million on March 31, 2003, or (b)
a borrowing base based on eligible receivables and inventory. In addition,
under the Amended Credit Agreement the leverage and fixed charge covenants
were amended for the quarter ended December 29, 2000, and adjusted over
time as specified in the Amended Credit Agreement.
As of March 30, 2001, the Company was not in compliance with certain
covenants under the Amended Credit Agreement. However, since the Company
successfully refinanced the indebtedness subsequent to year-end, waivers
-F-20-
were not obtained. On May 24, 2001, the Company paid all outstanding
amounts and obligations due under the Amended Credit Agreement.
New Revolving Credit Agreement
On May 24, 2001, the Company entered into a new credit agreement (the
"Agreement"), by and among the Company, as borrower thereunder (the
"Borrower"), the subsidiaries of the Borrower party thereto, the lenders
from time to time party thereto (the "Lenders"), Bank of America, N.A., as
Agent for the Lenders (in such capacity, the "Agent", or the "Bank") and
Banc of America Securities LLC, as Arranger.
The Agreement provides for a four-year credit facility consisting of a
revolving line of credit and letters of credit (the "Credit Facility").
Initial borrowings under the Credit Facility were used to refinance the
Amended Credit Agreement. The maximum amount of the Credit Facility is
$120.0 million until the Bank has syndicated $70.0 million of its
commitments and thereafter $120.0 million plus the lesser of (a) the excess
of the amount of the Bank's commitments that have been syndicated over
$70.0 million and (b) $30.0 million. Availability of borrowings under the
Credit Facility depends upon (a) the amount of a borrowing base consisting
of accounts receivable and, upon satisfaction of certain requirements,
inventory and (b) compliance with certain debt incurrence tests under the
Company's Indenture, dated as of October 7, 1997, relating to the Notes.
The Credit Facility will bear interest at the Bank's prime rate plus a
margin of between 0.25% and 1.00% based on the Company's ratio of funded
debt to EBITDA (as defined in the Agreement) or at LIBOR plus a margin of
between 1.75% and 3.50% based on the Company's ratio of funded debt to
EBITDA. Under the Agreement, the Company and its subsidiaries are subject
to certain covenants, including but not limited to, limitations on (a)
paying dividends and repurchasing stock, (b) repurchasing its Notes, (c)
selling or transferring assets, (d) making certain investments (including
acquisitions) and (e) incurring additional indebtedness and liens. Proceeds
from the Credit Facility will be used to refinance existing indebtedness
outstanding under the Company's Amended Credit Agreement, issue letters of
credit, finance ongoing working capital requirements, and general corporate
purposes of the Company. The Credit Facility matures on May 24, 2005.
Notes Payable to Owners of Acquired Companies
Notes payable to owners of acquired companies consists of holdback
agreements or notes payable that are paid to the previous owners after
certain contingencies are met, such as collection of all acquired accounts
receivable and the sale of acquired inventory.
Other Notes
At March 30, 2001, other notes consist of various debt maintained by
WorldMed Int'l, including a working capital line of credit and a mortgage
on facilities in Leuven, Belgium ("European Debt"). The interest rate on
the related debt was approximately 6.2% at March 30, 2001. Subsequent to
year end, the European Debt was assumed by a purchaser of the European
operations.
As of March 30, 2001, future minimum payments of long-term debt, excluding
capital lease obligations, are approximately as follows:
-F-21-
Fiscal Year:
2002............................................. $ 1,752
2003............................................. 40
2004............................................. 65,000
2005............................................. --
Thereafter....................................... 125,000
-----------
Total................................... $191,700
===========
10. INCOME TAXES
The provisions for income taxes are detailed below:
2001 2000 1999
--------- --------- ---------
Current tax provision:
Federal......................................................... $ -- $ 6,410 $16,253
State........................................................... -- 1,055 2,786
--------- --------- ---------
Total current.......................................... -- 7,465 19,039
--------- --------- ---------
Deferred tax (benefit) provision:
Federal......................................................... (6,683) 10,140 9,306
State........................................................... (1,146) 1,738 1,595
--------- --------- ---------
Total deferred......................................... (7,829) 11,878 10,901
--------- --------- ---------
Total income tax (benefit) provision................... $ (7,829) $19,343 $29,940
========= ========= =========
The difference between income tax computed at the Federal statutory rate and the
actual tax provision is shown below:
2001 2000 1999
--------- --------- ---------
(Loss) income before provision for taxes and cumulative effect of
accounting change............................................... $(43,890) $41,527 $73,681
========= ========= =========
Tax (benefit) provision at the 35% statutory rate.................. (15,362) 14,534 25,788
--------- --------- ---------
Increase (decrease) in taxes:
State income tax, net of Federal benefit........................ (745) 1,847 2,847
Effect of foreign subsidiary.................................... 5,794 574 310
Merger costs and expenses....................................... -- 153 (250)
Goodwill amortization........................................... 1,275 1,103 969
Meals and entertainment......................................... 427 438 454
Nontaxable interest income...................................... (113) (80) (374)
Officer life insurance.......................................... 808 478 (3)
Other, net...................................................... 87 296 199
--------- --------- ---------
Total increase in taxes................................ 7,533 4,809 4,152
--------- --------- ---------
Total income tax (benefit) provision................... $ (7,829) $19,343 $29,940
========= ========= =========
Effective tax rate................................................. 17.8% 46.6% 40.6%
========= ========= =========
Deferred income taxes for fiscal 2001 and 2000 reflect the impact of
temporary differences between the financial statement and tax bases of
assets and liabilities. The tax effect of temporary differences which
create deferred tax assets and liabilities at March 30, 2001 and March 31,
2000 are detailed below:
-F-22-
2001 2000
--------- ---------
Deferred tax assets:
Net operating loss carryforwards............................................. $12,200 $ 1,156
Allowance for doubtful accounts and sales returns............................ 5,994 6,117
Deferred compensation........................................................ 3,494 2,724
Accrued expenses............................................................. 3,240 2,276
Merger, restructuring and other nonrecurring costs and expenses.............. 2,206 2,574
Inventory uniform cost capitalization........................................ 2,178 1,934
Operational tax reserve...................................................... 2,108 3,332
Reserve for inventory obsolescence........................................... 1,756 1,208
Excess of book depreciation and amortization over tax depreciation and
amortization.............................................................. 911 1,030
Accrued professional fees.................................................... 786 949
Available for sale marketable securities..................................... 461 --
Other........................................................................ 600 428
--------- ---------
Gross deferred tax assets........................................... 35,934 23,728
--------- ---------
Deferred tax liabilities:
Available for sale marketable security....................................... -- (1,099)
Software development......................................................... (11,145) (6,820)
--------- ---------
Gross deferred tax liabilities...................................... (11,145) (7,919)
--------- ---------
Net deferred tax assets......................................................... $24,789 $15,809
========= =========
As of March 30, 2001, net current deferred tax assets and net non-current
deferred tax assets of $18,240 and $6,549 are included in prepaid and other
current assets and other assets, respectively, in the accompanying
consolidated balance sheets. As of March 31, 2000, net current deferred tax
assets, net non-current deferred tax assets, and net non-current deferred
tax liabilities of $16,461, $3,463, and $4,115 are included in prepaid
expenses, other assets, and other long-term liabilities, respectively, in
the accompanying consolidated balance sheets.
The income tax benefits related to the exercise or early disposition of
certain stock options and stock contribution to the ESOP reduce taxes
currently payable and are credited directly to additional paid-in capital.
Such amounts were $194 and $759 for fiscal 2000 and 1999, respectively.
At March 30, 2001 and March 31, 2000, the Company had net operating loss
carryforwards for income tax purposes of approximately $31,362 and 2,972,
respectively, which expire from 2002 to 2021. The utilization of the net
operating loss carryforwards is subject to limitation in certain years.
All deferred tax assets as of March 30, 2001 and March 31, 2000 are
considered to be realizable due to the projected future taxable income.
Therefore, no valuation allowance has been recorded as of March 30, 2001
and March 31, 2000.
-F-23-
11. EARNINGS PER SHARE
In accordance with SFAS 128, the calculation of basic earnings per common
share and diluted earnings per common share is presented below (share
amounts in thousands, except per share data):
2001 2000 1999
--------- -------- --------
Net (loss) income................................... $(36,061) $20,740 $43,741
========= ======== ========
Earnings per share:
Basic............................................ $ (0.51) $0.29 $0.62
========= ======== ========
Diluted.......................................... $ (0.51) $0.29 $0.61
========= ======== ========
Weighted average shares outstanding:
Common shares.................................... 71,187 70,966 70,548
Assumed exercise of stock options................ 122 219 850
--------- -------- --------
Diluted shares outstanding....................... 71,309 71,185 71,398
========= ======== ========
12. RELATED-PARTY TRANSACTION
During fiscal 1998, the Company loaned its former Chairman and Chief
Executive Officer $3,000 to consolidate debt incurred in relation to
certain real estate activities, as well as to provide the cash needed to
pay-off personal debt. During fiscal 2001, the principal amount of the loan
increased approximately $1,788. The loan is unsecured, bears interest at
the applicable Federal rate for long-term obligations 6.09% and 6.25% at
March 30, 2001 and March 31, 2000, respectively), and is due September
2007. No principal payments are required under the loan. The note was
amended in connection with the severance agreement to defer payments of
interest due prior to May 2003 until the loan maturity date. Interest
payments are due at least annually after May 2003. The note terms provide
for forgiveness of the debt in the event of a change in control. The note
was also amended, to provide for forgiveness of the debt if the former
Chairman and Chief Executive Officer dies prior to the loan maturity date.
Upon death,the loan will be repaid with proceeds from an insurance policy
the Company maintains on the former Chairman and Chief Executive Officer's
life. The outstanding principal, included in other assets in the
accompanying consolidated balance sheets, at March 30, 2001 and March 31,
2000 was approximately $4,731 and $2,985, respectively. Accrued interest
was approximately $243 and $151 at March 30, 2001 and March 31, 2000,
respectively. Interest income, included in interest and investment income
in the accompanying consolidated statements of operations for fiscal 2001
and 2000 was approximately $193 and $168, respectively. Principal payments
for fiscal 2001 and 2000 were approximately $110 and $0, respectively.
Interest payments for fiscal 2001 and 2000 were approximately $101 and
$163, respectively.
13. STOCK-BASED COMPENSATION PLANS
Broad-Based Employee Stock Plan
Under the Company's Broad-Based Employee Stock Plan, 1,700,000 shares of
the Company's common stock are reserved for issuance to nonofficer
employees. Grants under this plan are in the form of nonqualified stock
options or restricted stock. Options may be granted at prices not less than
the fair market value of the common stock on the date such option is
granted and are generally exercisable five years from the date of grant.
Any option may be exercisable no later than ten years from the date of
grant.
Information regarding this plan is summarized below (share amounts in
thousands):
-F-24-
Weighted
Average
Shares Price
--------- ---------
Balance, April 3, 1998.............................. -- --
Granted.......................................... 453 $9.73
Exercised........................................ -- --
Forfeited........................................ -- --
--------- ---------
Balance, April 2, 1999.............................. 453 9.73
Granted.......................................... 40 8.69
Exercised........................................ -- --
Forfeited........................................ (33) 9.03
--------- ---------
Balance, March 31, 2000............................. 460 9.35
Granted.......................................... 828 5.10
Exercised........................................ -- --
Forfeited........................................ (70) 7.76
--------- ---------
Balance, March 30, 2001............................. 1,218 $6.55
========= =========
The weighted-average per share fair value of options granted was $4.61,
$8.69, and $8.91 in fiscal 2001, 2000, and 1999, respectively. As of March
30, 2001, the range of exercise prices was $2.72 to $14.05 and the
weighted-average remaining contractual life of outstanding options was 5.9
years. As of March 30, 2001, approximately 482,000 shares of common stock
are available for issuance under the plan.
1999 Long-Term Incentive Plan
On June 21, 1999, the Company adopted the 1999 Long-Term Incentive Plan
(the "1999 LTIP"). Under the 1999 LTIP, 2,270,000 shares of the Company's
Common Stock are reserved for issuance to employees, officers and
directors. The Compensation Committee of the Board of Directors has
discretion to make grants under this plan in the form of incentive stock
options, nonqualified stock options, stock appreciation rights, performance
units, restricted stock awards, dividend equivalents, restricted stock, or
other stock-based awards.
Information regarding this plan is summarized below (share amounts in
thousands):
Weighted
Average
Shares Price
--------- ---------
Balance, April 2, 1999............................. -- --
Granted.......................................... 575 $9.00
Exercised........................................ -- --
Forfeited........................................ -- --
--------- ---------
Balance, March 31, 2000............................. 575 9.00
Granted.......................................... 1,149 4.19
Exercised........................................ -- --
Forfeited........................................ (32) 8.34
--------- ---------
Balance, March 30, 2001............................. 1,692 $5.75
========= =========
The weighted-average per share fair value of options granted was $3.92 and
$8.60 in fiscal 2001 and 2000, respectively. As of March 30, 2001, the
range of exercise prices was $2.59 to $10.87 and the weighted-average
remaining contractual life of outstanding options was 7.8 years. As of
March 30, 2001, approximately 578,000 shares of common stock are available
for issuance under the plan.
Incentive Stock Option Plan
Under the Company's qualified 1986 Incentive Stock Option Plan, 6,570,000
shares of the Company's common stock were reserved for sale to officers and
key employees. Options may be granted at prices not less than fair market
value at the date of grant and are exercisable during periods of up to five
years from that date. The exercisability of the options is not subject to
future performance.
-F-25-
Information regarding this plan is summarized below (share amounts in
thousands):
Weighted
Average
Shares Price
---------- ----------
Balance, April 3, 1998.............................. 113 $3.67
Granted.......................................... -- --
Exercised........................................ (110) 3.67
Forfeited........................................ (3) 3.67
---------- ----------
Balance, April 2, 1999.............................. -- $ --
========== ==========
All options are fully vested at the date of grant; therefore, all
outstanding options at the end of each period are exercisable. As of March
30, 2001 and March 31, 2000, there were no remaining outstanding options.
This plan has expired and no additional options may be granted.
Long-Term Stock Plan
In March 1994, the Company adopted the 1994 Long-Term Stock Plan under
which the Compensation Committee of the Board of Directors has discretion
to grant nonqualified stock options and restricted stock to any employee of
the Company. A total of 2,190,000 shares of the Company's common stock have
been reserved for issuance under this plan. The exercise price of options
granted under this plan may not be less than the fair market value of the
Company's common stock on the date of grant.
Information regarding the stock option component of this plan is summarized
below (share amounts in thousands):
Weighted
Average
Shares Price
---------- ----------
Balance, April 3, 1998.............................. 1,545 $16.19
Granted.......................................... 476 13.27
Exercised........................................ (66) 13.76
Forfeited........................................ (5) 16.78
---------- ----------
Balance, April 2, 1999.............................. 1,950 14.80
Granted.......................................... -- --
Exercised........................................ -- --
Forfeited........................................ -- --
---------- ----------
Balance, March 31, 2000............................. 1,950 14.80
Granted.......................................... -- --
Exercised........................................ -- --
Forfeited........................................ -- --
---------- ----------
Balance, March 30, 2001............................. 1,950 $14.80
========== ==========
All options are fully vested at the date of grant; therefore, all
outstanding options at the end of each period are exercisable. The
weighted-average per share fair value of options granted was $13.27 in
fiscal 1999. As of March 30, 2001, the range of exercise prices was $5.29
to $28.86 and the weighted-average remaining contractual life of
outstanding options was 5.0 years. As of March 31, 2000, there were no
remaining shares available for grant under this plan, and the Company does
not intend to make additional grants.
1994 Long-Term Incentive Plan
In March 1994, the Company adopted the 1994 Long-Term Incentive Plan which
provides officers with performance awards, consisting of cash or registered
shares of common stock, or a combination thereof, based primarily upon the
Company's total shareholder return as ranked against the companies
comprising the NASDAQ Composite Index over a three-year period. The maximum
payable under this plan to an eligible employee, whether in the form of
cash or common stock, may not exceed $1 million per fiscal year.
-F-26-
The plan also provides for nonqualified stock options or restricted stock
to be granted at the full discretion of the Compensation Committee. The
exercise price of options granted under this plan may not be less than the
fair market value of the Company's common stock on the date of grant;
accordingly, no compensation expense is recorded on the date the stock
options are granted. The aggregate number of shares of common stock,
including shares reserved for issuance pursuant to the exercise of options,
which may be granted or issued may not exceed 730,000 shares. No cash or
restricted stock was issued during fiscal 2001, 2000, and 1999.
Information regarding the stock option component of the plan is summarized
below (share amounts in thousands):
Weighted
Average
Shares Price
---------- ----------
Balance, April 3, 1998.............................. 418 $15.90
Granted.......................................... -- --
Exercised........................................ -- --
Forfeited........................................ -- --
---------- ----------
Balance, April 2, 1999.............................. 418 14.83
Granted.......................................... -- --
Exercised........................................ -- --
Forfeited........................................ -- --
---------- ----------
Balance, March 31, 2000............................. 418 14.83
Granted.......................................... -- --
Exercised........................................ -- --
Forfeited........................................ (29) 14.75
---------- ----------
Balance, March 30, 2001............................. 389 $14.83
========== ==========
All options are fully vested at the date of grant; therefore, all
outstanding options at the end of each period are exercisable. As of March
30, 2001, the range of exercise prices was $14.75 to $14.88 and the
weighted-average remaining contractual life of outstanding options was 4.8
years. As of March 30, 2001, no shares were available for grant under this
plan.
Directors' Stock Plan
In March 1994, the Company adopted the Directors' Stock Plan under which
non-employee directors receive an annual grant of an option to purchase
shares of the Company's common stock. During fiscal 1999, the Plan was
amended to increase the number of option grants from 1,500 to 3,000 and to
increase the number of shares available for grant. A total of 400,000
shares of the Company's common stock have been reserved for issuance under
this plan. The exercise price of options granted under this plan may not be
less than the fair market value of the Company's common stock on the date
of grant.
Information regarding the stock option component of this plan is summarized
below (share amounts in thousands):
-F-27-
Weighted
Average
Shares Price
---------- ----------
Balance, April 3, 1998.............................. 124 $15.70
Granted.......................................... 135 13.71
Exercised........................................ (6) 5.48
Forfeited........................................ (1) 5.48
---------- ----------
Balance, April 2, 1999.............................. 252 13.69
Granted.......................................... 72 9.17
Exercised........................................ (4) 5.48
Forfeited........................................ -- --
---------- ----------
Balance, March 31, 2000............................. 320 12.78
Granted.......................................... 123 6.78
Exercised........................................ -- --
Forfeited........................................ (43) 13.39
---------- ----------
Balance, March 30, 2001............................. 400 $10.95
========== ==========
All options are fully vested at the date of grant; therefore, all
outstanding options at the end of each period are exercisable. The
weighted-average per share fair value of options granted was $6.78, $9.17,
and $13.71 in fiscals 2001, 2000, and 1999, respectively. As of March 30,
2001, the range of exercise prices was $5.48 to $15.81 and the
weighted-average remaining contractual life of outstanding options was 7.6
years. At March 30, 2001, no shares were available for grant under this
plan.
Gulf South's Stock Option Plans
Under Gulf South's Stock Option Plans of 1997 and 1992, 1,487,500 and
2,275,000 shares, respectively, of common stock have been reserved for
grant to key management personnel and to members of the former Board of
Directors. The options granted have ten-year terms with vesting periods of
either three or five years from either the date of grant or the first
employment anniversary date. At March 30, 2001, approximately 898,000 and
1,216,000 shares were available for grant under the 1997 and 1992 plans,
respectively. However, shareholder approval must be received for any of the
remaining shares to be issued under this plan.
A summary of the Gulf South's stock option activity and related information
is as follows (share amounts in thousands):
Weighted
Average
Shares Price
---------- ----------
Balance, April 3, 1998.............................. 2,207 $13.55
Granted.......................................... -- --
Exercised........................................ (239) 11.46
Forfeited........................................ (24) 17.07
---------- ----------
Balance, April 2, 1999.............................. 1,944 13.77
Granted.......................................... -- --
Exercised........................................ (220) 10.52
Forfeited........................................ (950) 15.32
---------- ----------
Balance, March 31, 2000............................. 774 12.77
Granted.......................................... -- --
Exercised........................................ -- --
Forfeited........................................ (71) 16.20
---------- ----------
Balance, March 30, 2001............................. 703 $12.43
========== ==========
All options are fully vested at the date of grant; therefore, all
outstanding options at the end of each period are exercisable. As of March
30, 2001, the range of exercise prices for the 1992 plan was $4.57 to
$28.00 and the weighted-average remaining contractual life of outstanding
options was 4.9 years. As of March 30, 2001, the range of exercise prices
for the 1997 plan was $4.71 to $19.71 and the weighted-average remaining
contractual life of outstanding options was 6.5 years.
-F-28-
Warrants
The Company granted warrants for 787,500 shares of its common stock on
January 2, 1997 at an exercise price of $14.80 in connection with the
purchase of Gateway. All of the warrants were exercisable upon the date of
grant and expire January 2, 2002. No warrants have been exercised to date.
Fair Value of Stock Options
Under SFAS 123, pro forma information regarding net income (loss) and
earnings per share has been determined as if the Company had accounted for
its employee and director stock options under the fair value method. The
fair value of stock options granted has been estimated using a
Black-Scholes option pricing model.
The fair value of PSS' stock options (Broad-Based Employee Stock Plan,
Incentive Stock Option Plan, Long-Term Stock Plan, Long-Term Incentive
Plans, and Directors' Stock Plan) granted during fiscal 2001, 2000, and 1999
have been estimated based on the following weighted average assumptions: (i)
risk-free interest rates ranging from 4.4% to 6.4%; (ii) expected option
life ranging from 2 to 7.25 years; (iii) expected volatility of 75.0%,
60.0%, and 56.0%, respectively; and (iv) no expected dividend yield. Using
these assumptions, the estimated fair values of options granted for fiscal
2001, 2000, and 1999, were approximately $4,839, $2,842, and $9,091,
respectively, and such amounts would be included in compensation expense.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
Pro forma net income (loss) and net income (loss) per share for the fiscal
years ended 2001, 2000, and 1999, assuming the Company had accounted for
the plans under the fair value approach, are as follows (in thousands,
except per share data):
2001 2000 1999
--------- -------- --------
Net (loss) income:
As reported.......................... $(36,061) $20,740 $43,741
Pro forma............................ (38,965) 19,035 38,287
Earnings per share:
As reported:
Basic............................. $(0.51) $0.29 $0.62
Diluted........................... $(0.51) $0.29 $0.61
Pro forma:
Basic............................. $(0.55) $0.27 $0.54
Diluted........................... $(0.55) $0.27 $0.54
Because the fair value method of accounting has not been applied to options
granted prior to March 31, 1996, the resulting pro forma compensation cost
may not be representative of that to be expected in future years.
-F-29-
14. EMPLOYEE BENEFIT PLANS
The Company sponsors an employee stock ownership plan ("PSS ESOP")
available to all employees with at least one year of service. Employees can
invest their contributions in various mutual funds as well as the common
stock of the Company. Employer contributions are invested in the common
stock of the Company.
A company acquired in fiscal 1999 sponsored a leveraged employee stock
ownership plan ("Tristar ESOP"). The Tristar ESOP was merged into the PSS
ESOP effective August 6, 1999, and the note payable to a third party was
replaced with financing from the holding company. As a result of the
merger, the PSS ESOP became a leveraged ESOP. The supplemental matches for
fiscal 2001 and 2000 were $154 and $234, respectively. The Company accounts
for the PSS ESOP in accordance with SOP 93-6, Employers Accounting for
Employee Stock Ownership Plans. Accordingly, the shares pledged as
collateral are reported as unearned ESOP shares in the balance sheet. As
shares are released from collateral, the Company reports compensation
expense equal to the then current market price of the shares, and the
shares become outstanding for the earnings per share computation.
The PSS ESOP owned approximately 2,997,000 and 1,606,000 shares of the
Company's common stock at March 30, 2001 and March 31, 2000, respectively.
Company contributions to the plan, excluding the supplemental match, were
approximately $1,108, $1,417, and $123, for fiscal 2001, 2000, and 1999,
respectively, and are made at the discretion of the Company.
The following presents the PSS ESOP share activity: 2001 2000 1999
---------- --------- --------
Allocated shares........................................ 183,354 89,496 76,972
Shares released for allocation.......................... 34,579 28,201 12,524
Shares committed to be released......................... -- 65,657 --
Unreleased shares....................................... 11,795 46,374 140,232
---------- --------- --------
Total ESOP shares........................... 229,728 229,728 229,728
========== ========= ========
Fair value of unreleased shares......................... $ 53 $ 314 $ 1,224
========== ========= ========
Holdback shares of 11,795 related to the TriStar acquisition will be
settled in fiscal 2002. Approximately $154, $690, and $221, of related
expense was recognized in fiscal 2001, 2000, and 1999, respectively.
Employee Stock Purchase Plan
The Company also has an employee stock purchase plan available to employees
with at least one year of service. The plan allows eligible employees to
purchase company stock over-the-counter through payroll deductions.
PSS Deferred Compensation Program
The Company offers a deferred compensation program (the "Program") to
qualified executives, management, and salespeople. The Program, which is an
unfunded plan, is comprised of a deferred compensation plan and a stock
option program. The Company has purchased life insurance as a means to
finance the benefits that become payable under the plan.
Under the deferred compensation plan, participants can elect to defer up to
100% of their total compensation. The Company makes matching contributions
of up to 10% to 15% of the participant's deferral. The match contribution
ranges from 25% to 125% of the participant's deferral.
Under the stock option plan, participants are granted stock options to
purchase common stock of the Company. The number of stock options granted
is a function of the participant's annual deferral amount plus the Company
match. The grant price of the option is determined annually to reflect an
exercise price which allows the annual deferral amount to be supplemented
by the growth of the PSS stock in excess of the declared interest rate
projected to compound for four years. Thus, the option price is not less
than the fair market value of the common stock on the date such option is
granted.
Participant contributions are always 100% vested. The Company match and the
stock options vest as follows:
-F-30-
# of Years in the plan Vesting %
---------------------- ---------
Less than 4 years 0%
4 years 20%
5 years 40%
6 years 60%
7 years 80%
8 years 100%
Death or disability 100%
After the options are 100% vested, participants can exercise up to 25% of
vested options in any calendar year.
At age 60, or age 55 with 10 years of participation in the Program, the
retirement benefit is distributed to participants in five equal annual
installments, or in a lump sum payment if the vested account balance is $25
or less. The retirement benefit is distributed in a lump sum upon death and
over five years upon disability. In the event of termination of employment,
100% of the participant's vested balance will be distributed in five equal
installments, or in a lump sum payment if the vested account balance is $25
or less.
During fiscal 2001 and 2000, the Company matched approximately $1,186 and
$864, respectively, of employee deferrals. At March 30, 2001 and March 31,
2000, approximately $6,400 and $4,696, respectively, is recorded in other
long-term assets in the accompanying consolidated balance sheets. In
addition, $6,684 and $5,561 of deferred compensation is included in other
long-term liabilities in the accompanying consolidated balance sheets at
March 30, 2001 and March 30, 2000, respectively.
15. OPERATING LEASE COMMITMENTS
The Company leases various facilities and equipment under operating leases.
Certain lease commitments provide that the Company pay taxes, insurance,
and maintenance expenses related to the leased assets.
Rent expense approximated $31,529, $26,949 and $19,905, for fiscal 2001,
2000, and 1999, respectively. As of March 30, 2001, future minimum
payments, by fiscal year and in the aggregate, required under noncancelable
operating leases are as follows:
Fiscal Year:
2002............................................. $25,875
2003............................................. 21,728
2004............................................. 15,526
2005............................................. 9,465
2006............................................. 5,694
Thereafter....................................... 8,923
---------
Total................................... $87,211
=========
16. SEGMENT INFORMATION
The Company's reportable segments are strategic businesses that offer
different products and services to different segments of the health care
industry, and are based upon how management regularly evaluates the
Company. These segments are managed separately because of different
customers and products. See Note 1, Background and Summary of Significant
Accounting Policies, for descriptive information about the Company's
business segments. International Business and other follow the accounting
policies of the segments described in the summary of significant accounting
policies. The Company primarily evaluates the operating performance of its
segments based on net sales and income from operations.
The following table presents financial information about the Company's
business segments (in thousands):
-F-31-
2001 2000 1999
---------- ---------- ----------
NET SALES:
Physician Supply Business $ 689,444 $ 708,759 $ 677,360
Imaging Business 737,907 704,296 526,403
Long-Term Care Business 367,581 366,574 343,480
Other (a) 19,873 24,361 19,924
---------- ---------- ----------
Total net sales $1,814,805 $1,803,990 $1,567,167
========== ========== ==========
CHARGES INCLUDED IN GENERAL & ADMINISTRATIVE EXPENSE:
Physician Supply Business $ 1,952 $ 1,768 $ 3,358
Imaging Business 3,004 5,769 7,981
Long-Term Care Business 19,849 4,660 3,008
Other (a) 14,026 2,044 1,335
---------- ---------- ----------
Total charges included in general & administrative
expenses $ 38,831 $ 14,241 $ 15,682
========== ========== ==========
(LOSS) INCOME FROM OPERATIONS:
Physician Supply Business $ 17,336 $ 32,681 $ 42,727
Imaging Business (1,404) 20,297 16,305
Long-Term Care Business (15,528) (4,990) 17,186
Other (a) (28,295) (3,279) (2,365)
---------- ---------- ----------
Total income from operations $ (27,891) $ 44,709 $ 73,853
========== ========== ==========
DEPRECIATION:
Physician Supply Business $ 6,016 $ 4,393 $ 6,844
Imaging Business 3,457 3,127 3,614
Long-Term Care Business 1,862 1,698 1,429
Other (a) 617 228 322
---------- ---------- ----------
Total depreciation $ 11,952 $ 9,446 $ 12,209
========== ========== ==========
AMORTIZATION OF INTANGIBLE ASSETS:
Physician Supply Business $ 1,685 $ 1,932 $ 2,067
Imaging Business 8,754 6,327 3,460
Long-Term Care Business 2,309 2,223 1,762
Other (a) 270 360 0
---------- ---------- ----------
Total amortization of intangible assets $ 13,018 $ 10,842 $ 7,289
========== ========== ==========
PROVISION FOR DOUBTFUL ACCOUNTS:
Physician Supply Business $ 968 $ 1,241 $ 1,627
Imaging Business 487 3,378 846
Long-Term Care Business 22,785 11,193 2,485
Other (a) -- -- 223
---------- ---------- ----------
Total provision for doubtful accounts $ 24,240 $ 15,812 $ 5,181
========== ========== ==========
INTEREST EXPENSE:
Physician Supply Business $ 1,926 $ 2,604 $ 1,468
Imaging Business 9,645 4,067 4,247
Long-Term Care Business 5,291 4,343 2,219
Other (a) 3,532 4,443 3,588
---------- ---------- ----------
Total interest expense $ 20,394 $ 15,457 $ 11,522
========== ========== ==========
INTEREST AND INVESTMENT INCOME:
Physician Supply Business $ 103 $ 172 $ 67
Imaging Business -- -- 2
Long-Term Care Business 17 92 1,147
Other (a) 2,586 1,574 3,516
---------- ---------- ----------
Total interest and investment income $ 2,706 $ 1,838 $ 4,732
========== ========== ==========
(BENEFIT) PROVISION FOR INCOME TAXES:
Physician Supply Business $ 7,411 $ 13,103 $ 16,604
Imaging Business (2,613) 10,744 6,536
Long-Term Care Business (7,235) (2,845) 7,705
Other (a) (5,392) (1,659) (905)
---------- ---------- ----------
Total provision (benefit) for income taxes $ (7,829) $ 19,343 $ 29,940
========== ========== ==========
CAPITAL EXPENDITURES:
Physician Supply Business $ 15,583 $ 13,031 $ 15,149
Imaging Business 4,545 6,838 6,735
Long-Term Care Business 583 4,631 2,890
Other (a) 2,146 2,682 --
---------- ---------- ----------
Total capital expenditures $ 22,857 $ 27,182 $ 24,774
========== ========== ==========
2001 2000
---------- ----------
ASSETS:
Physician Supply Business $ 225,080 $ 243,020
Imaging Business 324,830 346,073
Long-Term Care Business 156,581 182,024
Other (a) 66,143 102,300
---------- ----------
Total assets $ 772,634 $ 873,417
========== ==========
(a) Other includes the holding company and the international subsidiaries.
-F-32-
17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table presents summarized unaudited quarterly results of
operations for the Company for fiscal 2001 and 2000. The Company
believes all necessary adjustments have been included in the amounts stated
below to present fairly the following selected information when read in
conjunction with the consolidated financial statements of the Company.
Future quarterly operating results may fluctuate depending on a number of
factors, including the timing of business acquisitions, and changes in
customer's buying patterns of supplies, diagnostic equipment and
pharmaceuticals. Results of operations for any particular quarter are not
necessarily indicative of results of operations for a full year or any
other quarter.
Reclassification - EITF 00-10
During the fourth quarter of fiscal 2001, the Company adopted the
provisions of EITF 00-10 (see Note 1, Background and Summary of Significant
Accounting Policies, for related discussion). Accordingly, amounts billed
to customers for shipping and handling were reclassified to net sales for
each of the quarters presented for fiscal 2001 and 2000. In addition, other
immaterial amounts were reclassified to conform to the current year
presentation.
Restatements
During the fourth quarter of fiscal 2001, the Company restated its
previously issued consolidated financial statements for the quarters ended
June 30, 2000, September 30, 2000, and December 29, 2000.
As a result of an analysis of the Company's accounts receivable records
during the fourth quarter of fiscal 2001, the Company recorded adjustments
to reduce sales and accounts receivable by $1.6 million, $1.9 million, and
$0.5 million during the first, second, and third quarters of fiscal 2001,
respectively.
In connection with the Company's year end physical inventory procedures,
the Company identified a $3.8 million adjustment to cost of goods sold and
vendor liabilities, which applies to the second quarter of fiscal 2001.
Fiscal Year 2000 Fiscal Year 2001
------------------------------------------ -----------------------------------------
(In Thousands, Except Per Share Data) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
--------- --------- --------- --------- --------- -------- --------- ---------
Pre-Adjustment and Reclassification
Net sales........................ $437,001 $451,001 $462,101 $443,433 $470,213 $444,917 $447,326 $447,613
Cost of goods sold............... 329,774 337,186 347,277 340,642 357,159 340,818 343,672 351,898
--------- --------- --------- --------- --------- -------- --------- ---------
Gross profit................ 107,227 113,815 114,824 102,791 113,054 104,099 103,654 95,715
General and administrative expenses 58,026 66,625 61,807 91,127 69,765 66,636 94,747 75,380
Selling expenses................. 27,323 28,236 30,084 30,720 29,378 28,648 28,479 28,651
International Business Exit Charge -- -- -- -- -- -- 14,917 --
--------- --------- --------- --------- --------- -------- --------- ---------
Operating income (loss)..... 21,878 18,954 22,933 (19,056) 13,911 8,815 (34,489) (8,316)
Other income (expense)
Interest expense............ (3,511) (2,862) (4,074) (5,007) (5,035) (4,687) (4,673) (5,999)
Interest and investment income 451 477 391 516 700 561 547 898
Other income................ 1,058 7,293 1,551 533 812 715 567 (405)
--------- --------- --------- --------- --------- -------- --------- ---------
(2,002) 4,908 (2,132) (3,958) (3,523) (3,411) (3,559) (5,506)
Income (loss) before provision for
income taxes and cumulative effect of
accounting change................ 19,878 23,862 20,801 (23,014) 10,388 5,404 (38,048) (13,822)
Provision (benefit) for income taxes 8,191 9,563 8,881 7,294 4,764 2,908 (8,307) (4,154)
--------- --------- --------- --------- --------- -------- --------- ---------
Income (loss) before cumulative effect
of accounting change............. 11,685 14,299 11,920 (15,720) 5,624 2,496 (29,741) (9,668)
Cumulative effect of accounting change (1,444) -- -- -- -- -- -- --
--------- --------- --------- --------- --------- -------- --------- ---------
Net income (loss)........... 10,241 14,299 11,920 (15,720) 5,624 2,496 (29,741) (9,668)
========= ========= ========= ========= ========= ======== ========= =========
Earnings per share - Basic and Diluted:
Income (loss) before cumulative
effect of accounting change. $0.16 $0.20 $0.17 $(0.22) $0.08 $0.04 $(0.42) $(0.14)
Cumulative effect of accounting
change (0.02) -- -- -- -- -- -- --
--------- --------- --------- --------- --------- -------- --------- ---------
Net income (loss)........... $0.14 $0.20 $0.17 $(0.22) $0.08 $0.04 $(0.42) $(0.14)
========= ========= ========= ========= ========= ======== ========= =========
-F-33-
Fiscal Year 2000 Fiscal Year 2001
------------------------------------------ -----------------------------------------
(In Thousands, Except Per Share Data) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
--------- --------- --------- --------- --------- -------- --------- ---------
Reclassifications:
EITF 00-10 Reclassification
Net sales increase............ $1,336 $2,515 $3,254 $3,349 $3,078 $3,096 $2,573 --
Cost of goods sold increase
(decrease)................. 186 (116) 132 98 203 6 833 --
G&A expenses increase......... 1,150 2,631 3,122 3,251 2,875 3,090 1,740 --
Restatements:
Net sales decrease............ (1,643) (1,863) (505) --
Cost of goods sold increase... -- 3,801 -- --
Benefit from income taxes increase (639) (2,204) (197) --
--------- --------- --------- ---------
Net loss $(1,004) $(3,460) $ (308) --
--------- --------- --------- --------- --------- --------- --------- ---------
Earnings per share - Basic and Diluted: -- -- -- -- $(0.01) $(0.05) -- --
========= ========= ========= ========= ========= ========= ========= =========
(In Thousands, Except Per Share Data) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
--------- --------- --------- --------- --------- --------- --------- ---------
Final Adjusted and Reclassified (restated)(restated) (restated)
Net sales........................ $438,337 $453,516 $465,355 $446,782 $471,648 $446,150 $449,394 $447,613
Cost of goods sold............... 329,960 337,070 347,409 340,739 357,362 344,625 344,505 351,898
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit................ 108,377 116,446 117,946 106,043 114,286 101,525 104,889 95,715
General and administrative expenses 59,176 69,256 64,929 94,380 72,640 69,726 96,487 75,380
Selling expenses................. 27,323 28,236 30,084 30,719 29,378 28,648 28,479 28,651
International business exit charge -- -- -- -- -- -- 14,917 --
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income (loss)..... 21,878 18,954 22,933 (19,056) 12,268 3,151 (34,994) (8,316)
Other income (expense)
Interest expense............ (3,511) (2,862) (4,074) (5,010) (5,035) (4,687) (4,673) (5,999)
Interest and investment income 451 477 391 519 700 561 547 898
Other income................ 1,058 7,293 1,551 535 812 715 567 (405)
--------- --------- --------- --------- --------- --------- --------- ---------
(2,002) 4,908 (2,132) (3,956) (3,523) (3,411) (3,559) (5,506)
Income (loss) before provision for
income taxes and cumulative
effect of accounting change... 19,876 23,862 20,801 (23,014) 8,745 (260) (38,553) (13,822)
Provision (benefit) for income taxes 8,191 9,563 8,881 7,294 4,125 704 (8,504) (4,154)
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before cumulative
effect of accounting change... 11,685 14,299 11,920 (15,720) 4,620 (964) (30,049) (9,668)
Cumulative effect of accounting
change (1,444) -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)........... 10,241 14,299 11,920 (15,720) 4,620 (964) (30,049) (9,668)
========= ========= ========= ========= ========= ========= ========= =========
Earnings per share - Basic and
Diluted:
Income (loss) before cumulative
effect of accounting change $0.16 $0.20 $0.17 $(0.22) $0.06 $(0.01) $(0.42) $(0.14)
Cumulative effect of accounting
change (0.02) -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)............. $0.14 $0.20 $0.17 $(0.22) $0.06 $(0.01) $(0.42) $(0.14)
========= ========= ========= ========= ========= ========= ========= =========
-F-34-
18. COMMITMENTS AND CONTINGENCIES
The Company has employment agreements with certain executive officers which
provide that in the event of their termination or resignation, under
certain conditions, the Company may be required to continue salary payments
and provide insurance for a period ranging from 3 to 12 months for certain
executives and to repurchase a portion or all of the shares of common stock
held by the executives upon their demand at the fair market value at the
time of repurchase. The period of salary and insurance continuation and the
level of stock repurchases are based on the conditions of the termination
or resignation.
During fiscal 2000, the Board of Directors approved and adopted the PSS
World Medical, Inc. Officer Retention Bonus Plan and the PSS World Medical,
Inc. Corporate Office Employee Retention Bonus Plan. Refer to Note 3,
Charges included in General and Administrative Expenses for further
discussion.
During the second quarter of fiscal 2000, the Company received
approximately $6.5 million relating to a favorable medical x-ray film
antitrust settlement claim. The amount is classified as other income in the
accompanying consolidated statement of operations.
The Company, through its Gulf South Medical Supply subsidiary, Physician
Sales & Service subsidiary and/or predecessor companies, has been named as
one of many defendants in latex glove product liability claims in various
Federal and state courts. The defendants are primarily distributors of
certain brands of latex gloves. Currently, state litigation exists in New
Hampshire, Illinois, Massachusetts and California, while Federal and/or
Federal multi-district litigation is present in Washington, Georgia,
Indiana, New Hampshire, Pennsylvania and Ohio. Defense costs are currently
allocated by agreement between a consortium of insurers on a pro rata basis
for each case depending upon policy years and alleged years of exposure.
All of the insurance carriers are defending subject to a reservation of
rights. Ultimately, the manufacturers from which the gloves were purchased
may assume the defense and liability obligations. The Company intends to
vigorously defend the proceeding.
The Company and certain of its current officers and directors were named as
defendants in a purported securities class action lawsuit filed on or about
May 28, 1998. The allegations are based upon a decline in the Company's
stock price following announcements by the Company in May 1998 regarding
the Gulf South merger, which resulted in earnings below analyst's
expectations. The defendants' motion to dismiss the complaint was granted
by order dated February 9, 2000. Plaintiffs filed an amended complaint on
March 15, 2000. Defendants' motion to dismiss, filed May 1, 2000, is still
pending. The Company believes that the allegations contained in the
complaint are without merit and intends to defend vigorously against the
claims. However, the lawsuit is in the earliest stages, and there can be no
assurance that this litigation will ultimately be resolved on terms that
are favorable to the Company.
Although the Company does not manufacture products, the distribution of
medical supplies and equipment entails inherent risks of product liability.
Other than discussed above, the Company has not experienced any significant
product liability claims and maintains product liability insurance
coverage. In addition, the Company is also a party to various legal and
administrative proceedings and claims arising in the normal course of
business. While any litigation contains an element of uncertainty,
management, after consultation with its outside legal counsel, believes
that the outcome of any proceedings or claims which are pending or known to
be threatened will not have a material adverse effect on the Company's
consolidated financial position, liquidity, or results of operations.
On September 30, 1999, DI entered into a three year distributorship
agreement with an imaging supply vendor. The agreement stipulates that,
among other things, in the event of termination of the agreement due to a
change in control of DI, the Company will pay liquidated damages to the
vendor in the amount of the lesser of $6 million or $250,000 times the
number of months remaining under the agreement.
-F-35-
19. ABBOTT LABORATORIES DISTRIBUTION AGREEMENT
On March 27, 1995, the Company signed a Distribution Agreement with Abbott
Laboratories providing for the exclusive distribution of certain Abbott
diagnostic products. The Abbott Agreement, effective April 1, 1995, had a
five-year term. Simultaneous with the closing of the Abbott Agreement,
Abbott purchased 825,000 unregistered, restricted shares of PSS common
stock. A three-year irrevocable proxy to the PSS Board of Directors and a
perpetual stand still agreement were provided by Abbott in the Stock
Purchase Agreement.
On December 1, 2000, the Company renewed the Distribution Agreement with
Abbott Laboratories for an additional term of 3 years.
20. SUBSEQUENT EVENTS
Subsequent to year-end, the Company sold its International Business, to the
then management of the European operations, in the first quarter of fiscal
2002. The Company believes that no further losses related to exit
activities will be recorded.
On May 24, 2001, the Company refinanced its existing Amended Credit
Agreement with a Credit Facility (refer to Note 9, Long-Term Debt and
Capital Lease Obligations).
-F-36-
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED APRIL 2, 1999, MARCH 31, 2000, AND MARCH 30, 2001
(Dollars in Thousands)
Additions
------------------------
Balance Provision
at Charged Transfers Balance
Valuation Allowance for Beginning to From at End of
Accounts Receivable of Period Expense Acquisitions Write-offs Period
- ----------------------------------------------- ---------- ----------- ------------ ---------- -----------
Year ended April 2, 1999 9,990 4,181 332 7,585 6,918
Year ended March 31, 2000 6,918 14,312 -- 10,391 10,839
Year ended March 30, 2001 10,839 23,073 -- 16,341 17,571
Additions
------------------------
Balance Provision
at Charged Transfers Balance
Valuation Allowance for Beginning to From at End of
Notes Receivable of Period Expense Acquisitions Write-offs Period
- ----------------------------------------------- ---------- ----------- ------------ ---------- -----------
Year ended April 2, 1999 -- 1,000 -- -- 1,000
Year ended March 31, 2000 1,000 1,500 -- 921 1,579
Year ended March 30, 2001 1,579 1,167 -- 1,575 1,171
Additions
------------------------
Balance Provision
at Charged Transfers Balance
Gulf South Operational Beginning to From at End of
Tax Charge Reserve of Period Expense Acquisitions Write-offs Period
- ----------------------------------------------- ---------- ----------- ------------ ---------- -----------
Year ended April 2, 1999 6,227 801 1,019 5,136 2,911
Year ended March 31, 2000 2,911 499 -- 141 3,269
Year ended March 30, 2001 3,269 2,070 -- -- 5,339
Charged
To
Balance General
at & Balance
Valuation Allowance for Beginning Admin. at End of
Inventory Obsolescence of Period Expense Utilizations Period
- ----------------------------------------------- ---------- ----------- ------------ ----------
Year ended April 2, 1999 9,492 -- 1,646 7,846
Year ended March 31, 2000 7,846 (1,221) 496 6,129
Year ended March 30, 2001 6,129 (749) 992 4,388
-F-37-
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Incorporated by reference from the Company's Definitive Proxy Statement to
be filed by July 30, 2001 for its fiscal 2001 Annual Meeting of
Shareholders under the caption "Directors and Executive Officers of the
Registrant."
Item 11. Executive Compensation
Incorporated by reference from the Company's Definitive Proxy Statement to
be filed by July 30, 2001 for its fiscal 2001 Annual Meeting of
Shareholders under the caption "Executive Compensation."
Item 12. Security Ownership of Certain Beneficial Owners
Incorporated by reference from the Company's Definitive Proxy Statement to
be filed by July 30, 2001 for its fiscal 2001 Annual Meeting of
Shareholders under the caption "Beneficial Ownership of Certain
Stockholders" and "Stock Ownership of Directors and Officers."
Item 13. Certain Relationships and Related Transactions
Incorporated by reference from the Company's Definitive Proxy Statement to
be filed by July 30, 2001 for its fiscal 2001 Annual Meeting of
Shareholders under the caption "Certain Relationships and Related
Transactions."
-42-
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this Registration Statement:
1. Consolidated Financial Statements
Refer to Item 8 "Financial Statements and Supplementary Data" for a listing
of the Consolidated Financial Statements included therein.
2. Supplementary Data
Refer to Item 8 "Financial Statements and Supplementary Data" for a listing
of the Supplementary Data included therein.
Exhibit
Number Description
- ---------- ----------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation, dated as of March 15,
1994, as amended.(12)
3.2 Amended and Restated Bylaws, dated as of March 15, 1994.(3)
4.1 Form of Indenture, dated as of October 7, 1997, by and among the
Company, the Subsidiary Guarantors named therein, and SunTrust Bank,
Central Florida, National Association, as Trustee.(4)
4.1a Supplemental Indenture, dated as of February 15, 2001, by and among
the New Subsidiary Guarantors named therein and SunTrust Bank
(formerly known as SunTrust Bank, Central Florida, National
Association), as Trustee. (11)
4.2 Registration Rights Agreement, dated as of October 7, 1997, by and
among the Company, the Subsidiary Guarantors named therein, BT Alex.
Brown Incorporated, Salomon Brothers Inc. and NationsBanc Montgomery
Securities, Inc.(4)
4.3 Form of 81/2% Senior Subordinated Note due 2007, including Form of
Guarantee (Exchange Notes).(4)
4.4 Shareholder Protection Rights Agreement, dated as of April 20, 1998,
between PSS World Medical, Inc. and Continental Stock Transfer & Trust
Company, as Rights Agent.(13)
4.4a Amendment to Shareholder Protection Rights Agreement, dated as of June
21, 2000, between PSS World Medical, Inc. and Continental Stock
Transfer & Trust Company as Rights Agent.(10)
10.1 Incentive Stock Option Plan, dated as of May 14, 1986.(1)
10.2 Amended and Restated Directors Stock Plan.(7)
10.3 Amended and Restated 1994 Long-Term Incentive Plan.(7)
10.4 Amended and Restated 1994 Long-Term Stock Plan.(7)
10.5 1994 Employee Stock Purchase Plan.(2)
10.6 1994 Amended Incentive Stock Option Plan.(1)
-43-
10.7 PSS World Medical, Inc. 1999 Long-Term Incentive Plan.(9)
10.8 Distributorship Agreement between Abbott Laboratories and PSS World
Medical, Inc. (Portions omitted pursuant to a request for confidential
treatment -- Separately filed with Commission).(6)
10.9 Stock Purchase Agreement between Abbott Laboratories and Physician
Sales & Service, Inc.(6)
10.10 Amended and Restated Physician Sales and Service, Inc. Employee Stock
Ownership and Savings Plan.(8)
10.10a First Amendment to the Physician Sales and Service, Inc. Employee
Stock Ownership and Savings Plan.(8)
10.11 Agreement and Plan of Merger, dated as of December 14, 1997, by and
among the Company, PSS Merger Corp. and Gulf South Medical Supply,
Inc.(5)
10.12 Credit Agreement, dated as of May 24, 2001, by and among the Company,
each of the Company's subsidiaries therein named, the Lenders from
time to time party thereto, Bank of America,, N.A., as Agent, and Banc
of America Securities LLC, as Arranger.(15)
10.13 Employment Agreement, dated as of March 4, 1998, by and between the
Company and David A. Smith.
10.13a Amendment to Employment Agreement, dated as of April 17, 2000, by and
between the Company and David A. Smith.
10.14 Employment Agreement, dated as of April 1, 1998, by and between the
Company and John F. Sasen, Sr.
10.14a Amendment to Employment Agreement, dated as of April 1, 1998, by and
between the Company and John F. Sasen, Sr.
10.15 Severance Agreement, dated as of October 11, 2000, by and between the
Company and Frederick E. Dell.
10.16 Severance Agreement, dated as of February 1, 2001, by and between the
Company and Kirk A. Zambetti.
10.17 Severance Agreement, dated as of March 21, 2001, by and between the
Company and Patrick C. Kelly.
21.1 List of subsidiaries of the Company.
(1) Incorporated by Reference to the Company's Registration Statement on Form S-1, Registration No. 33-76580.
(2) Incorporated by Reference to the Company's Registration Statement on Form S-8, Registration No. 33-80657.
(3) Incorporated by Reference to the Company's Registration Statement on Form S-3, Registration No. 33-97524.
(4) Incorporated by Reference to the Company's Registration Statement on Form S-4, Registration No. 333-39679.
(5) Incorporated by Reference from Annex A to the Company's Registration Statement on Form S-4, Registration No. 333-44323.
(6) Incorporated by Reference to the Company's Annual Report on Form 10-K for the fiscal ended March 30, 1995.
(7) Incorporated by Reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996.
(8) Incorporated by Reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997.
(9) Incorporated by Reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999.
(10) Incorporated by Reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000.
(11) Incorporated by Reference to the Company's Quarterly Report on From 10-Q for the quarterly period ended December 29, 2000.
(12) Incorporated by Reference to the Company's Current Report on Form 8-K, filed April 8, 1998.
(13) Incorporated by Reference to the Company's Current Report on Form 8-K, filed April 22, 1998.
(14) Incorporated by Reference to the Company's Current Report on Form 8-K, filed June 5, 2001.
(b) Reports on Form 8-K
The following current reports on Form 8-K were filed during the
quarter ended March 30, 2001:
------------------ --------------------------------------------------------
Date of Report Items Reported
------------------ --------------------------------------------------------
January 12, 2001 Announcing the terms of the Amended and Restated
Credit Agreement, dated as of December 28, 2000
------------------ --------------------------------------------------------
-44-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Jacksonville, State
of Florida, on June 27, 2001.
PSS WORLD MEDICAL, INC.
By: /s/ David A. Smith
--------------------------------------------
David A. Smith
President and Chief Financial 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 dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Clark A. Johnson
- ------------------------------- June 25, 2001
Clark A. Johnson Chairman of the Board of Directors
/s/ David A. Smith
- ------------------------------- President, Chief Financial Officer, and Director June 25, 2001
David A. Smith (Principal Financial Officer)
/s/ Hugh M. Brown
- ------------------------------- June 25, 2001
Hugh M. Brown Director
/s/ T. O'Neal Douglas
- ------------------------------- June 25, 2001
T. O'Neal Douglas Director
/s/ Melvin L. Heckman
- ------------------------------- June 25, 2001
Melvin L. Heckman Director
/s/ Delores Kesler
- ------------------------------- Director June 25, 2001
Delores Kesler
/s/ Charles R. Scott
- ------------------------------- June 25, 2001
Charles R. Scott Director
/s/ Donna Williamson
- ------------------------------- June 25, 2001
Donna Williamson Director
-45-
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K into the Company's
previously filed Registration Statement File Nos. 33-80657, 33-90464, 333-15043,
333-64185, 33-85004, 33-97756, 33-99046, 33-97754, 333-30427, 333-64187,
333-50526, and 333-58272.
/s/ Arthur Andersen LLP
- -----------------------
ARTHUR ANDERSEN LLP
Jacksonville, Florida
June 26, 2001
-46-