-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L/P16uQekK1OWGRdqrqkml8XgBqhKgP1tFEtHB0LpJJtytkYEUCH28cJkD0/IozY HMKrdorzGPjHLkS1iKKD+w== 0000920527-00-000002.txt : 20000215 0000920527-00-000002.hdr.sgml : 20000215 ACCESSION NUMBER: 0000920527-00-000002 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PSS WORLD MEDICAL INC CENTRAL INDEX KEY: 0000920527 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047] IRS NUMBER: 593500595 STATE OF INCORPORATION: FL FISCAL YEAR END: 0329 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-23832 FILM NUMBER: 541664 BUSINESS ADDRESS: STREET 1: 4345 SOUTHPOINT BLVD STREET 2: STE 250 CITY: JACKSONVILLE STATE: FL ZIP: 32216 BUSINESS PHONE: 9043323000 MAIL ADDRESS: STREET 1: 4345 SOUTHPOINT BLVD CITY: JACKSONVILLE STATE: FL ZIP: 32216 FORMER COMPANY: FORMER CONFORMED NAME: PHYSICIAN SALES & SERVICE INC /FL/ DATE OF NAME CHANGE: 19940318 10-Q/A 1 FORM 10-Q/A FOR PSS WORLD MEDICAL, INC. 39 FORM 10-Q/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended DECEMBER 31, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ____________ Commission File Number 0-23832 PSS WORLD MEDICAL, INC. (Exact name of registrant as specified in its charter) Florida 59-2280364 (State or other jurisdiction (IRS employer of incorporation) identification number) 4345 Southpoint Blvd. Jacksonville, Florida 32216 (Address of principal executive offices) (Zip code) Registrant's telephone number (904) 332-3000 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 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. [X] Yes [ ] No As of February 8, 1999 a total of 71,056,941 shares of common stock, par value $.01 per share, of the registrant were outstanding. PSS WORLD MEDICAL, INC. AND SUBSIDIARIES DECEMBER 31, 1998 INDEX
Page ---------- PART I: FINANCIAL INFORMATION Item 1--Financial Statements Condensed Consolidated Balance Sheets - December 31, 1998 and April 3, 1998, (Restated) 3 Condensed Consolidated Statements of Operations - Three and Nine Months Ended December 31, 1998 and 1997, (Restated) 4 Condensed Consolidated Statements of Cash Flows - Nine Months Ended December 31, 1998 and 1997, (Restated) 5 Notes to Condensed Consolidated Financial Statements - December 31, 1998 and 1997, (Restated) 6 Item 2--Management's Discussion and Analysis of Financial Condition and Results of Operations (Restated) 23 PART II: OTHER INFORMATION Item 1--Legal Proceedings 35 Item 2--Changes in Securities and Use of Proceeds 36 Item 6--Exhibits and Reports on Form 8-K 37 SIGNATURES 39
2 PART I: FINANCIAL INFORMATION ITEM 1.--FINANCIAL STATEMENTS PSS WORLD MEDICAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands, Except Share Data)
ASSETS December 31, April 3, 1998 1998 (Restated) (Restated) ------------ ---------- (Unaudited) * Current Assets: Cash and cash equivalents $ 58,734 $ 81,483 Marketable securities 476 81,550 Accounts receivable, net 263,473 213,869 Inventories, net 135,502 126,926 Employee advances 519 442 Prepaid expenses and other 55,762 45,409 ------------ ---------- Total current assets 514,466 549,679 Property and equipment, net 43,019 31,473 Other Assets: Intangibles, net 134,429 90,608 Other 19,464 19,494 ------------ ---------- Total assets $ 711,378 $ 691,254 ============ ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 107,176 $ 109,790 Accrued expenses 45,631 48,081 Current maturities of long-term debt and capital lease obligations 1,749 3,570 Other 18,681 7,058 ------------ ---------- Total current liabilities 173,237 168,499 Long-term debt and capital lease obligations, net of current portion 129,311 134,057 Other 1,206 4,121 ------------ ---------- Total liabilities 303,754 306,677 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, 70,707,166 and 70,171,909 shares issued and outstanding at December 31, 1998 and April 3, 1998, respectively 707 702 Additional paid-in capital 348,437 341,987 Retained earnings 62,468 46,021 Cumulative other comprehensive income (1,197) (1,296) ------------ ---------- 410,415 387,414 Unearned ESOP Shares (2,791) (2,837) ------------ ---------- Total shareholders' equity 407,624 384,577 ------------ ---------- Total liabilities and shareholders' equity $ 711,378 $ 691,254 ============ ==========
*Condensed from audited financial statements. The accompanying notes are an integral part of these condensed consolidated statements. 3 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Dollars in Thousands, Except Per Share Data)
Three Months Ended Nine Months Ended --------------------------- --------------------------- December 31, December 31, December 31, December 31, 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Net sales $ 399,547 $ 353,642 $ 1,154,475 $ 1,013,197 Cost of goods sold 289,862 259,365 842,691 747,259 ------------ ------------ ------------ ------------ Gross profit 109,685 94,277 311,784 265,938 General and administrative expenses 53,913 53,376 160,746 153,744 Selling expenses 32,484 26,330 88,953 74,626 ------------ ------------ ------------ ------------ Income from operations 23,288 14,571 62,085 37,568 ------------ ------------ ------------ ------------ Other income (expense): Interest expense (2,701) (2,837) (8,834) (3,972) Interest and investment income 506 2,029 3,651 3,424 Other income 1,819 957 3,839 2,128 ------------ ------------ ------------ ------------ (376) 149 (1,344) 1,580 ------------ ------------ ------------ ------------ Income before provision for income taxes 22,912 14,720 60,741 39,148 Provision for income taxes 9,090 5,990 24,744 15,638 ------------ ------------ ------------ ------------ Net income $ 13,822 $ 8,730 $ 35,997 $ 23,510 ============ ============ ============ ============ Earnings per share: Basic $0.20 $0.12 $0.51 $0.34 ============ ============ ============ ============ Diluted $0.19 $0.12 $0.50 $0.34 ============ ============ ============ ============ Weighted average shares outstanding (in thousands): Basic 70,615 69,949 70,481 69,238 ============ ============ ============ ============ Diluted 72,118 71,108 71,731 70,151 ============ ============ ============ ============
The accompanying notes are an integral part of these condensed consolidated statements. 4 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands)
Nine Months Ended ---------------------------- December 31, December 31, 1998 1997 ------------ ------------ Cash Flows From Operating Activities: Net income $ 35,997 $ 23,510 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 15,426 8,230 Provision for doubtful accounts 2,213 1,104 Merger and other non-recurring costs and expenses 1,181 6,997 Deferred compensation 222 -- Changes in operating assets and liabilities, net of effects from business acquisitions: Accounts receivable, net (41,518) (21,765) Inventories 9,549 (10,078) Prepaid expenses and other current assets (1,129) (1,946) Other assets (2,627) (3,781) Accounts payable, accrued expenses and other liabilities (29,889) 2,284 ------------ ------------ Net cash (used in) provided by operating activities (10,575) 4,555 ------------ ------------ Cash Flows From Investing Activities: Purchases, maturities, and sales of marketable securities, net 74,574 (44,750) Capital expenditures (16,632) (7,577) Purchases of businesses, net of cash acquired (55,678) (7,691) Payments on noncompete agreements (2,032) (2,959) ------------ ------------ Net cash provided by (used in) investing activities 232 (62,977) ------------ ------------ Cash Flows From Financing Activities: Proceeds from public debt offering, net of debt issue cost -- 119,459 Repayments of borrowings (16,044) (55,112) Principal payments under capital lease obligations (299) -- Proceeds from issuance of common stock 3,838 2,482 ------------ ------------ Net cash (used in) provided by financing activities (12,505) 66,829 ------------ ------------ Foreign currency translation adjustment 99 167 ------------ ------------ Net (decrease) increase in cash and cash equivalents (22,749) 8,574 Cash and cash equivalents, beginning of period 81,483 41,106 ------------ ------------ Cash and cash equivalents, end of period $ 58,734 $ 49,680 ============ ============
The accompanying notes are an integral part of these condensed consolidated statements. 5 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Restated)--(Continued) (Unaudited) NOTE 1--BASIS OF PRESENTATION The condensed consolidated financial statements of PSS World Medical, Inc. ("PSS" or the "Company") reflect, in the opinion of management, all adjustments necessary to present fairly the financial position and results of operations for the periods indicated and give retroactive effect to the mergers with Medical Imaging Systems, Inc. ("MIS") and TriStar Imaging Systems, Inc. ("TriStar") acquired during fiscal 1999 and various acquired companies previously accounted for as immaterial pooling-of-interests transactions (the "Pooled Entities"). These transactions were accounted for under the pooling-of-interests method of accounting, and accordingly, the accompanying condensed consolidated financial statements have been retroactively restated as if PSS, MIS, TriStar, and the Pooled Entities had operated as one entity since inception. The Company's previously issued financial statements included in Form 10Q for the three and nine months ended December 31, 1998 were not restated for: (1) the information systems accelerated depreciation, (2) the reversal of Gulf South Medical Supply, Inc. ("Gulf South") restructuring charge, (3) the reversal of Gulf South direct transaction costs and (4) the immaterial Pooled Entities (refer to Note 10--Restatements). In addition, the financial statements for the three and nine months ended December 31, 1997 were not restated for: (1) a correction of an error in recording certain operating expenses at Gulf South, and (2) the immaterial Pooled Entities (refer to Note 10--Restatements). The Company's fiscal year ends on the Friday closest to March 31 of each year. Prior to April 4, 1998, Gulf South's year-end was December 31. The three and nine months ended September 30, 1997 of Gulf South were consolidated with the three and nine months ended December 31, 1997 of the Company. In addition, Gulf South's balance sheet as of December 31, 1997 was consolidated with PSS' balance sheet as of April 3, 1998. Effective April 4, 1998, Gulf South's fiscal year-end was changed to conform to the Company's year-end. As such, Gulf South's results of operations for the period January 1, 1998 to April 3, 1998 are not included in any of the periods presented in the accompanying condensed consolidated statements of income. Accordingly, Gulf South's results of operations for the three months ended April 3, 1998 are reflected as an adjustment to shareholders' equity of the Company as of April 4, 1998. Refer to the section titled Gulf South's Results of Operations for the Three Months Ended April 3, 1998 and March 31, 1997 included in Management's Discussion and Analysis of Results of Operations for further clarification. The Company's three and nine months ended December 31, 1998 condensed consolidated financial statements include the combined results of operations for the period from April 4, 1998 to December 31, 1998, of both PSS and Gulf South. The following table provides a rollforward of retained earnings from April 3, 1998 to December 31, 1998: Rollforward of Retained Earnings ----------- (Restated) Retained earnings, 4/3/98............................... $46,021 Gulf South results of operations, 1/1/98 to 4/3/98...... (19,550) ----------- Retained earnings, 4/4/98............................... 26,471 Net income for the nine months ended 12/31/98........... 35,997 ----------- Retained earnings, 12/31/98............................. $62,468 =========== 6 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Restated)--(Continued) (Unaudited) The accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and related notes in the Company's 1999 Annual Report on Form 10-K/A. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the Securities and Exchange Commission rules and regulations. Financial statements for the Company's subsidiary outside the United States are translated into U.S. dollars at quarter-end exchange rates for assets and liabilities and weighted average exchange rates for income and expenses. The resulting translation adjustments are recorded in the other comprehensive income component of shareholders' equity. The results of operations for the interim periods covered by this report may not necessarily be indicative of operating results for the full fiscal year. Certain items have been reclassified to conform to the current year presentation. NOTE 2--BUSINESS ACQUISITIONS Pooling-of-Interests Transaction During the three months ended December 31, 1998, the Company merged with TriStar Imaging Systems, Inc. ("TriStar"), an imaging supply and equipment distributor with aggregate annual revenues of approximately $40.0 million, in a merger accounted for under the pooling-of-interests method. The Company issued approximately 294,000 shares of PSS common stock in connection with this pooling. The accompanying condensed consolidated financial statements have been retroactively restated as if PSS and TriStar had operated as one entity since inception. Purchase Acquisitions During the three months ended December 31, 1998, the Company acquired certain assets and assumed certain liabilities of two imaging supply and equipment distributors and the common stock of two additional imaging supply and equipment distributors. A summary of the details of the transactions follows: December 31, 1998 ------------ Number of acquisitions..................................... 4 Total consideration........................................ $17,397 Cash paid, net of cash acquired............................ 11,150 Goodwill recorded.......................................... 9,855 Value of Noncompete Agreements............................. 45 The operations of the acquired companies have been included in the Company's results of operations subsequent to the dates of acquisition. Supplemental pro forma information, assuming these acquisitions had been made at the beginning of the year, is not provided, as the results would not be materially different from the Company's reported results of operations. 7 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Restated)--(Continued) (Unaudited) 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 value of the common stock issued in connection with these purchases is generally determined based on an average market price of the shares over a ten-day period before a definitive agreement is signed and the proposed transaction is announced. The excess of the purchase price over the estimated fair value of the net assets acquired has been recorded as goodwill and is amortized over 30 years. The accompanying condensed consolidated financial statements reflect the preliminary allocation of the purchase price. The allocation of the purchase price, performed using values and estimates available as of the date of the financial statements, has not been finalized due to certain pre-acquisition contingencies identified by the Company and the nature of the estimates required in the establishment of the Company's merger integration plans. Accordingly, goodwill associated with these acquisitions may increase or decrease in fiscal 1999. In addition, the terms of certain of the Company's recent acquisition agreements provide for additional consideration to be paid 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 or with shares of the Company's common stock and is recorded when earned as additional purchase price. The maximum amount of remaining contingent consideration is approximately $5.9 million (payable through fiscal 2001). The first potential earn-out payment is effective in fiscal 2000. During the three months ended December 31, 1998 and 1997, no adjustments were made to goodwill. NOTE 3--CHARGES INCLUDED IN GENERAL AND ADMINISTRATIVE EXPENSES In addition to typical general and administrative expenses, this line includes charges related to merger activity, restructuring activity, and other special items. The following table summarizes charges included in general and administrative expenses in the accompanying consolidated statements of income:
Three Months Ended Nine Months Ended --------------------------- --------------------------- December 31, December 31, December 31, December 31, 1998 1997 1998 1997 ------------ ------------ ------------ ------------ (restated) (restated) (restated) (restated) Merger costs and expenses........................... $ (16) $3,810 $ 470 $ 5,696 Restructuring costs and expenses.................... 498 -- 3,009 -- Information systems accelerated depreciation........ 1,814 -- 4,323 -- Gulf South operational tax charge................... -- 767 -- 2,301 Other charges....................................... 1,005 -- 1,005 2,457 ------------ ------------ ------------ ------------ Total charges included in continuing operations..... $ 3,301 $4,577 $ 8,807 $ 10,454 ============ ============ ============ ============
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 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity ("EITF 94-3") or 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. 8 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Restated)--(Continued) (Unaudited) 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, (4) training costs related to conforming the acquired companies operational policies to that of the Company's operational policies, and (5) direct transaction costs primarily consisting of investment banking, legal, accounting, and filing fees related to mergers with the Company. In addition, amounts incurred in excess of the original amount accrued at the commitment date are expensed as incurred. Merger costs and expenses for the three months ended December 31, 1998 include $136 of charges for merger costs expensed as incurred, which primarily related to direct transaction costs from the merger with TriStar. In addition, the Company reversed $152 of merger costs and expenses into income, which related to deferred compensation forfeited by terminated employees in relation to mergers. During the three months ended December 31, 1997, the Company recorded $1,677 of merger costs related to integration plans adopted by management and $434 of direct transaction costs expensed as incurred. In addition, merger costs and expenses include amounts incurred in excess of the original amounts accrued at commitment dates. Such costs include involuntary employee termination costs and branch shut-down costs of $1,201 and $498, respectively. Restructuring Costs and Expenses Restructuring costs and expenses for the three months ended December 31, 1998 include $103 of charges for training costs related to conforming the acquired companies operation policies to that of the Company's operational policies. The remaining $395 of restructuring costs and expenses recorded are charges for other exit costs expensed as incurred. 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. Information Systems 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 Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, 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 the depreciation estimates in accordance with Accounting Principles Board ("APB") No. 20, Accounting Changes. Effective April 4, 1998, the estimated useful lives of the PSS, DI, and GSMS division information systems were revised to a range of 12 to 15 months, which was the original estimate of when the new systems implementation would be completed. For the three and nine months ended December 31, 1998, the $1,814 and $4,323 of charges, respectively, represent the incremental impact on depreciation expense resulting from management's decision to replace its information systems. 9 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Restated)--(Continued) (Unaudited) Gulf South Operational Tax Charge The Company, in connection with the filing of its fiscal 1998 financial statements, restated for certain operational tax compliance issues in the financial statements of Gulf South for the year ended December 31, 1997. As such, Gulf South recorded operational charges of $767 and $2,310 during the three months and nine months ended December 31, 1997, respectively, primarily related to state and local, sales and use, and property taxes that are normally charged directly to the customer at no cost to the Company. Interest is included in the above charges as Gulf South did not timely remit payments to tax authorities. The Company reviewed all available information, including tax exemption notices received, and recorded charges to expense, during the period in which the tax noncompliance issues arose. Other Charges During the three and nine months ended December 31, 1998, the Company incurred approximately $1,005 of costs related to acquisitions not consummated. NOTE 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. 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 $1,312 and $4,327, at December 31, 1998 and April 3, 1998, respectively. The discussion and rollforward 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. 10 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Restated)--(Continued) (Unaudited) Significant Pooling-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. The following accrued merger costs and expenses were recognized in the accompanying consolidated statements of operations at the commitment date. A summary of the merger activity related to the S&W merger is as follows:
Involuntary Employee Lease Branch Termination Termination Shutdown Costs Costs Costs Total ----------- ----------- ----------- ---------- Balance at April 3, 1998................................. $ 156 $ 540 $ 461 $ 1,157 Additions............................................. -- -- -- -- Utilized.............................................. (2) -- (143) (145) ----------- ----------- ----------- ---------- Balance at June 30, 1998................................. 154 540 318 1,012 Adjustments -- -- -- -- Additions............................................. -- -- -- -- Utilized.............................................. -- -- (138) (138) ----------- ----------- ----------- ---------- Balance at September 30, 1998............................ 154 540 180 874 Adjustments........................................... -- -- -- -- Additions............................................. -- -- -- -- Utilized.............................................. -- -- (69) (69) ----------- ----------- ----------- ---------- Balance at December 31, 1998............................. $ 154 $ 540 $ 111 $ 805 =========== =========== =========== ==========
Involuntary employee termination costs are costs for seven employees, including severance and benefits, who represent duplicative functions in the accounting, purchasing, human resource, and computer support departments at locations where facilities were combined into existing facilities. As of December 31, 1998, one employee has been terminated and the remaining four employees are estimated to be terminated by the end of the third quarter of fiscal 2000. Management identified seven distribution facilities to be closed and all operations would be ceased due to duplicative functions. Three of the seven identified distribution facilities had been shut down by December 31, 1998, with the remaining four locations estimated to be shut down by the second quarter of fiscal 2000. Included in branch shutdown costs are costs related to contractual obligations that existed prior to the merger date but will provide no ongoing value to the Company. 11 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Restated)--(Continued) (Unaudited) Nonsignificant Poolings-of-Interests Business Combination Plans The following accrued merger costs and expenses were recognized in the accompanying consolidated statements of operations at the date in which the integration plan was formalized and adopted by management. A summary of the merger activity related to seven nonsignificant pooling-of-interests business combinations completed during fiscal 1997 through the nine months ended December 31, 1998, respectively, is as follows:
Involuntary Employee Lease Branch Termination Termination Shutdown Costs Costs Costs Total ----------- ----------- ----------- ---------- Balance at April 3, 1998................................. $ 165 $ 253 $ 518 $ 936 Adjustments.......................................... -- -- -- -- Additions............................................ 74 -- 126 200 Utilized............................................. (17) (117) (280) (414) ----------- ----------- ----------- ---------- Balance at June 30, 1998................................. 222 136 364 722 Adjustments.......................................... -- -- -- -- Additions............................................ -- -- -- -- Utilized............................................. (2) (57) (313) (372) ----------- ----------- ----------- ---------- Balance at September 30, 1998............................ 220 79 51 350 Adjustments.......................................... -- -- -- -- Additions............................................ -- -- -- -- Utilized............................................. (2) (63) (51) (116) ----------- ----------- ----------- ---------- Balance at December 31, 1998............................. $ 218 $ 16 $ -- $ 234 =========== =========== =========== ==========
The Imaging Business acquired MIS in June 1998, and management formalized and adopted an integration plan in June 1998 to integrate the operations of the acquired company. Approximately $68 of accrued merger costs and expenses at December 31, 1998 relate to this integration plan. Involuntary employee termination costs are costs for six employees, including severance and benefits, who represent duplicative functions in the accounting, purchasing, and computer support departments at the acquired company's corporate office. As of December 31, 1998, one employee had been terminated. Management identified one distribution facility to be closed in which all operations would be ceased due to duplicative functions. The Company expects closure of this facility to occur in the second quarter of fiscal 2000. 12 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Restated)--(Continued) (Unaudited) Significant Purchase Business Combination Plan The Company formalized and adopted an integration plan in September 1997 to integrate the operations of General X-Ray, Inc. ("GXI") with the Imaging Business. The following accrued merger costs and expenses were recognized and additional goodwill was recorded at the commitment date. A summary of the GXI merger accruals is as follows:
Involuntary Employee Lease Branch Relocation Termination Termination Shutdown Costs Costs Costs Costs Total ---------- ----------- ----------- ---------- ---------- Balance at April 3, 1998.................. $ 162 $ 197 $ 1,090 $ 785 $ 2,234 Adjustments -- -- -- -- -- Additions............................. -- -- -- -- -- Utilized.............................. (2) -- (60) (90) (152) ---------- ----------- ----------- ---------- ---------- Balance at June 30, 1998................. 160 197 1,030 695 2,082 Adjustments (125) (85) (883) (32) (1,125) Additions............................. -- -- -- -- -- Utilized.............................. (35) (3) (81) (663) (782) ---------- ----------- ----------- ---------- ---------- Balance at September 30, 1998............ -- 109 66 -- 175 Adjustments -- -- -- -- -- Additions............................. -- -- -- -- -- Utilized.............................. -- (109) (66) -- (175) ---------- ----------- ----------- ---------- ---------- Balance at December 31, 1998............. $ -- $ -- $ -- $ -- $ -- ========== =========== =========== ========== ==========
The Company identified nine distribution facilities to be closed and all operations would be ceased due to duplicative functions. As of December 31, 1998 all facilities have been closed and operations have ceased. Relocation costs were recorded related to the transfer of approximately 15 GXI employees. As of December 31, 1998, all employees were relocated. Involuntary employee termination costs are costs for 19 employees, including severance and benefits, who represent duplicative functions as service and operations leaders, customer service representatives, and accounting personnel at locations where facilities would be combined. As of December 31, 1998, six employees have been terminated and the remaining 13 employees are estimated to be terminated by the end of fiscal 1999, with additional costs and expenses expensed as incurred. Certain intervening events occurred that modified the execution of the GXI integration plan. Due to growth from a subsequent acquisition and improvement in the operating results for a distribution facility previously identified to be closed, certain merger accruals were not utilized. Therefore, an adjustment was recorded during the second quarter of fiscal 1999 to reverse $1,125 of excessive accruals against goodwill. 13 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Restated)--(Continued) (Unaudited) Nonsignificant Purchase Business Combination Plans The following accrued merger costs and expenses were recognized and additional goodwill was recorded at the date in which the integration plans were formalized and adopted by management. A summary of the merger activity related to four nonsignificant purchase business combinations during fiscal 1997 through the nine months ended December 31, 1998 is as follows:
Involuntary Employee Lease Branch Relocation Termination Termination Shutdown Costs Costs Costs Costs Total ---------- ----------- ----------- ---------- ---------- Balance at April 3, 1998................... $ -- $ -- $ -- $ -- $ -- Additions from Gulf South subsidiary.... -- 102 100 250 452 ---------- ----------- ----------- ---------- ---------- Balance at April 4, 1998................... -- 102 100 250 452 Adjustments............................. -- -- -- -- -- Additions............................... -- -- -- -- -- Utilized................................ -- (11) (2) -- (13) ---------- ----------- ----------- ---------- ---------- Balance at June30, 1998.................... -- 91 98 250 439 Adjustments............................. 100 -- 246 401 747 Additions............................... -- -- -- -- -- Utilized................................ -- -- (22) (1) (23) ---------- ----------- ----------- ---------- ---------- Balance at September 30, 1998.............. 100 91 322 650 1,163 Adjustments............................. -- -- -- -- -- Additions............................... -- -- -- -- -- Utilized................................ (24) -- (8) (635) (667) ---------- ----------- ----------- ---------- ---------- Balance at December 31, 1998............... $ 76 $ 91 $ 314 $ 15 $ 496 ========== =========== =========== ========== ==========
The additions from the Gulf South subsidiary represent the additions of the accrued merger costs and expenses recorded by Gulf South during the period January 1 to April 3, 1998. No amounts were utilized during this period. Gulf South formalized and adopted an integration plan during the period January 1 to April 3, 1998. Approximately $413 of the $496 accrued merger costs and expenses at December 31, 1998 relate to this integration plan. Involuntary employee termination costs are costs for 23 employees, including severance and benefits, who represent duplicative functions in the accounting, purchasing, human resource, warehouse and computer support departments at locations where facilities were combined into existing facilities. As of December 31, 1998, 17 employees have been terminated. Management identified two distribution facilities to be closed in which all operations would be ceased due to duplicative functions, both of which had been shut down by December 31, 1998. Included in branch shutdown costs are costs related to contractual obligations that existed prior to the merger date but will provide no ongoing value to the Company. The Imaging Business acquired a company in September 1998 and management formalized and adopted an integration plan during the three months ended September 30, 1998 to integrate the operations of the acquired company. Approximately $83 of the $496 accrued merger costs and expenses at December 31, 1998 relate to this integration plan. Relocation costs are for four employees all of whom have been relocated as of December 31, 1998. Management identified five distribution facilities to be closed in which all operations would be ceased due to duplicative functions, none of which had been shut down by December 31, 1998. Included in branch shutdown costs are costs related to contractual obligations that existed prior to the merger date but will provide no ongoing value to the Company. Management anticipates this integration plan will be completed during fiscal 2000; however, lease termination payments will extend through fiscal 2003. 14 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Restated)--(Continued) (Unaudited) 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"). Subsequently, the Company adopted a second restructuring plan during the three months ended June 30, 1998 related to the Gulf South division ("Plan B") to further consolidate its operations. The Company recorded a total accrual of $7,972 related to Plan A. Approximately $3,691 of the $7,972 total restructuring charge was related to the PSS and DI divisions and was recorded in the accompanying consolidated statement of operations for the fiscal 1998. The additions from the Gulf South represent restructuring costs and expenses of $4,281 recorded by Gulf South during the unconsolidated period January 1 to April 3, 1998. No amounts were utilized during this period. This charge is not included in the accompanying consolidated statements of operations; rather it is included in the retained earnings adjustment recorded on April 4, 1998. Refer to Note 1, Basis of Presentation, for a discussion regarding the different year-ends of Gulf South and the Company. Accrued restructuring costs and expenses, classified as accrued expenses in the accompanying consolidated balance sheets, were $5,039 and $3,691, at December 31, 1998 and April 3, 1998, respectively. A summary of the restructuring plan activity is as follows:
Involuntary Employee Lease Branch Other Termination Termination Shutdown Exit Costs Costs Costs Costs Total ------------ ----------- ----------- --------- -------- Balance at April 3, 1998....................... $ 1,570 $ 1,389 $ 627 $ 105 $ 3,691 Additions from Gulf South subsidiary........ 1,880 406 1,455 540 4,281 ------------ ----------- ----------- --------- -------- Balance at April 4, 1998....................... 3,450 1,795 2,082 645 7,972 Adjustments................................. -- -- -- -- -- Additions................................... 652 570 281 -- 1,503 Utilized.................................... (842) (191) (857) (159) (2,049) ------------ ----------- ----------- --------- -------- Balance at June 30, 1998....................... 3,260 2,174 1,506 486 7,426 Adjustments................................. -- -- -- -- -- Additions................................... -- -- -- -- -- Utilized.................................... (233) (237) -- (262) (732) ------------ ----------- ----------- --------- -------- Balance at September 30, 1998.................. 3,027 1,937 1,506 224 6,694 Adjustments................................. -- -- -- -- -- Additions................................... -- -- -- -- -- Utilized.................................... (1,075) (335) (159) (86) (1,655) ------------ ----------- ----------- --------- -------- Balance at December 31, 1998................... $ 1,952 $ 1,602 $ 1,347 $ 138 $ 5,039 ============ =========== =========== ========= ========
15 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Restated)--(Continued) (Unaudited) Plan A Restructuring Plan A impacted all divisions, and involved merging 18 locations into existing locations and eliminating overlapping regional operations and management functions. As of December 31, 1998, 17 locations were merged into existing locations. The plan also included the termination of approximately 270 employees from operations, administration, and management. As of December 31, 1998, 192 employees were terminated as a result of the plan. Furthermore, branch shutdown costs include the costs to implement Best Practice Warehousing at the Gulf South division in order to provide efficient, consistent, standard service to Gulf South customers similar to the Company's established standards. Best Practice Warehousing involves removal of all products, tearing down racking, rebuilding racking, and relocating bins and products within the warehouse to achieve greater efficiencies in order filling. Costs were estimated based upon the size of the warehouses. Plan B During the first quarter of fiscal 1999, the Company established an additional accrual of $1,503 related to Plan B. Restructuring Plan B related only to the Gulf South division, and involved merging six additional locations into existing locations. As a result of the consolidation of the duplicate facilities, lease termination costs will be incurred through fiscal 2000. At December 31, 1998, three of the six locations had been shut down. The plan also included the termination of three employees from operations and management. As of December 31, 1998, no employees were terminated as a result of the plan. NOTE 5--COMPREHENSIVE INCOME The Company adopted SFAS No. 130, Reporting Comprehensive Income, which defines comprehensive income as net income plus direct adjustments to shareholders' equity. The cumulative translation adjustment of certain foreign entities is the only such direct adjustment recorded by the Company during the three months and nine months ended December 31, 1998 and 1997, as detailed in the following table:
Three Months Ended Nine Months Ended --------------------------- --------------------------- December 31, December 31, December 31, December 31, 1998 1997 1998 1997 ------------ ------------ ------------ ------------ (restated) (restated) (restated) (restated) Net income.......................................... $ 13,822 $ 8,730 $ 35,997 $ 23,510 ============ ============ ============ ============ Other comprehensive income, net of tax: Foreign currency translation adjustment.......... 20 (172) 99 (791) ------------ ------------ ------------ ------------ Comprehensive income................................ $ 13,842 $ 8,558 $ 36,096 $ 22,719 ============ ============ ============ ============
16 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Restated)--(Continued) (Unaudited) NOTE 6--EARNINGS PER SHARE In accordance with SFAS No. 128, Earnings Per Share, the calculation of basic earnings per common share and diluted earnings per common share is presented below:
Three Months Ended Nine Months Ended --------------------------- --------------------------- December 31, December 31, December 31, December 31, 1998 1997 1998 1997 ------------ ------------ ------------ ------------ (restated) (restated) (restated) (restated) Net income.......................................... $ 13,822 $ 8,730 $ 35,997 $ 23,510 ============ ============ ============ ============ Earnings per share: Basic............................................ $0.20 $0.12 $0.51 $0.34 ============ ============ ============ ============ Diluted.......................................... $0.19 $0.12 $0.50 $0.34 ============ ============ ============ ============ Weighted average shares outstanding (in thousands): Common shares.................................... 70,615 69,949 70,481 69,238 Assumed exercise of stock options and warrants... 1,503 1,159 1,250 913 ------------ ------------ ------------ ------------ Diluted shares outstanding....................... 72,118 71,108 71,731 70,151 ============ ============ ============ ============
NOTE 7--SEGMENT INFORMATION The Company has adopted SFAS No. 131, Disclosure About Segments of an Enterprise and Related Information, which establishes the way public companies report information about segments. SFAS No. 131 requires segment reporting in interim periods and disclosures regarding products and services, geographic areas, and major customers. 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. These segments include Physician Sales & Service Division (the "Physician Supply Business"), Diagnostic Imaging, Inc. (the "Imaging Business"), Gulf South Medical Supply, Inc. (the "Long-Term Care Business"), and WorldMed International, Inc. ("WorldMed Int'l") combined with the Holding Company. The Physician Supply Business is a distributor of medical supplies, equipment and pharmaceuticals to primary care and other office-based physicians in the United States. The Imaging Business is a distributor of medical diagnostic imaging supplies, chemicals, equipment, and service to the acute and alternate care markets in the United States. The Long-Term Care Business is a distributor of medical supplies and other products to the long-term care market. WorldMed Int'l along with WorldMed, Inc. manages and develops PSS' European medical equipment and supply distribution market. 17 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Restated)--(Continued) (Unaudited) 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:
Three Months Nine Months Ended Ended December 31, December 31, 1998 1998 ------------ ------------ NET SALES: Physician Supply Business $ 168,620 $ 506,956 Imaging Business 136,836 372,795 Long-Term Care Business 85,040 255,993 Other (a) 9,051 18,731 ------------ ------------ Total net sales $ 399,547 $ 1,154,475 ============ ============ INCOME FROM OPERATIONS: Physician Supply Business $ 12,614 $ 33,788 Imaging Business 6,266 13,958 Long-Term Care Business 5,474 16,577 Other (a) (1,066) (2,238) ------------ ------------ Total income from operations $ 23,288 $ 62,085 ============ ============ DEPRECIATION: Physician Supply Business $ 1,973 $ 5,739 Imaging Business 1,126 2,648 Long-Term Care Business 368 1,029 Other (a) 50 225 ------------ ------------ Total depreciation $ 3,517 $ 9,641 ============ ============ AMORTIZATION OF INTANGIBLE AND OTHER ASSETS: Physician Supply Business $ 506 $ 2,190 Imaging Business 1,124 2,292 Long-Term Care Business 448 1,303 Other (a) -- -- ------------ ------------ Total amortization of intangible assets $ 2,078 $ 5,785 ============ ============ PROVISION FOR DOUBTFUL ACCOUNTS: Physician Supply Business $ 739 $ 1,052 Imaging Business 150 291 Long-Term Care Business 46 354 Other (a) 241 516 ------------ ------------ Total provision for doubtful accounts $ 1,176 $ 2,213 ============ ============
(a) Other includes the holding company and the international subsidiaries. 18 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Restated)--(Continued) (Unaudited)
Three Months Nine Months Ended Ended December 31, December 31, 1998 1998 ------------ ------------ CAPITAL EXPENDITURES: Physician Supply Business $ 4,297 $ 10,047 Imaging Business 2,057 5,370 Long-Term Care Business 492 1,307 Other (a) (195) (92) ------------ ------------ Total capital expenditures $ 6,651 $ 16,632 ============ ============ December 31, April 3, 1998 1998 ------------ ------------ ASSETS: Physician Supply Business $ 268,124 $ 320,216 Imaging Business 241,253 158,698 Long-Term Care Business 188,795 196,306 Other (a) 13,206 16,034 ------------ ------------ Total capital expenditures $ 711,378 $ 691,254 ============ ============
(a) Other includes the holding company and the international subsidiaries. NOTE 8--COMMITMENTS AND CONTINGENCIES Gulf South and certain of its former officers and directors were named as defendants in two purported class action lawsuits filed on July 21, 1997 related to disclosures made in the prospectus issued by Gulf South in connection with its public offering of common stock during 1996. The Company believes that the allegations contained in the complaints are without merit and intends to defend vigorously against the claims. However, there can be no assurance that this litigation will ultimately be resolved on terms that are favorable to the Company. In May 1998, the Company and certain of its present directors and officers were named as defendants in a purported securities class action lawsuit related to alleged damages suffered by purchasers of the Company's common stock during the period from December 23, 1997 to May 8, 1998. The claimant seeks an unspecified amount of damages, including costs and expenses. The Company believes this lawsuit is without merit and intends to defend it vigorously. The Defendants filed their motion to dismiss on January 25, 1999. However, this lawsuit is in its early stages and there can be no assurances that this litigation will ultimately be resolved on terms that are favorable to the Company. The Company is named as a defendant in a purported patent infringement claim. In this lawsuit, the claimant alleges that the urinalysis test strips sold by the Company under the Penny Saver(TM) label infringe certain patents. The Company is contesting the claim of infringement and has obtained a written agreement from the manufacturer of the product indemnifying the Company for the costs of defense of the suit and for the underlying liability. In addition, the Company has indemnity rights against the U.S. a distributor of the product pursuant to its vendor agreement. The parties are currently in settlement negotiations, however, the Company believes that there will be a favorable settlement within the next 45 days. 19 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Restated)--(Continued) (Unaudited) Although the Company does not manufacture products, the distribution of medical supplies and equipment entails inherent risks of product liability. The Company has not experienced any significant product liability claims and maintains product liability insurance coverage. In addition, the Company is 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 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. NOTE 9---SUBSEQUENT EVENTS Subsequent to December 31, 1998, the Company acquired certain assets, including accounts receivable, inventories, and equipment of a long-term care distributor, the common stock of an imaging supply and equipment distributor, and the common stock of a long-term care distributor. These transactions were accounted for under the purchase method of accounting. A summary of the details of the transactions follows: Number of acquisitions.................................. 3 Total Consideration..................................... $15,484 Cash paid............................................... 8,588 Goodwill recorded....................................... 6,352 Value of Noncompete payments............................ 623 On February 11, 1999, the Company entered into a $140.0 million senior revolving credit facility with a syndicate of financial institutions with NationsBank, N.A. as principal agent. Borrowings under the credit facility are available for working capital, capital expenditures, and acquisitions, and are secured by the common stock and assets of the Company and its subsidiaries. The credit facility expires February 10, 2004 and borrowings bear interest at certain floating rates selected by the Company at the time of borrowing. The credit facility contains certain affirmative and negative covenants, the most restrictive of which, require maintenance of a maximum leverage ratio of 3.5 to 1, maintenance of consolidated net worth of $337.0 million, and maintenance of a minimum fixed charge coverage ratio of 2.0 to 1. In addition, the covenants limit additional indebtedness and asset dispositions, require majority lender approval on acquisitions with a total purchase price greater than $75.0 million, and restrict payments of dividends. NOTE 10--RESTATEMENTS The Company has restated its historical financial statements to include the effect of certain items as discussed below. The effect of the restatements is as follows: 20 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Restated)--(Continued) (Unaudited)
Three Months Ended December 31, 1998 ---------------------------------------------------- Information As Systems Previously Accelerated Immaterial As Reported Depreciation Poolings Restated ---------- ------------ ---------- --------- Net sales......................................... $394,223 $ -- $ 5,324 $ 399,547 Net income........................................ 15,032 (1,107) (103) 13,822 Earnings per share: Basic.......................................... $0.21 $(0.01) $0.00 $0.20 Diluted........................................ 0.21 (0.02) 0.00 0.19
Three Months Ended December 31, 1997 ------------------------------------------------------ As Gulf South Previously Operating Immaterial As Reported Expenses Poolings Restated ----------- ----------- ---------- --------- Net sales......................................... $ 330,615 $ -- $ 23,027 $ 353,642 Net income 9,325 (698) 103 8,730 Earnings per share: Basic.......................................... $0.14 $(0.01) $(0.01) $0.12 Diluted........................................ 0.13 (0.01) 0.00 0.12
Nine Months Ended December 31, 1998 ------------------------------------------------------------------------------------- Information Gulf South As Systems Gulf South Direct Previously Accelerated Restructuring Transaction Immaterial As Reported Depreciation Plan B Costs Poolings Restated ----------- ------------ ------------- ----------- ---------- ---------- Net sales............... $ 1,102,832 $ -- $ -- $ -- $ 51,643 $ 1,154,475 Net income 40,178 (2,641) (918) 475 (1,097) 35,997 Earnings per share: Basic................ $0.57 $(0.04) $(0.01) $0.01 $(0.02) $0.51 Diluted.............. 0.56 (0.04) (0.01) $0.01 (0.02) 0.50
Nine Months Ended December 31, 1997 ------------------------------------------------------ As Gulf South Previously Operating Immaterial As Reported Expenses Poolings Restated ----------- -------------- ---------- ----------- Net sales......................................... $ 938,920 $ -- $ 74,277 $ 1,013,197 Net income 25,004 (1,962) 468 23,510 Earnings per share: Basic.......................................... $0.37 $(0.02) $(0.01) $0.34 Diluted........................................ 0.36 (0.02) (0.00) 0.34
21 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Restated)--(Continued) (Unaudited) Information Systems Accelerated Depreciation The $1,107 and the $2,641 represent the incremental impact on depreciation expense, net of tax, for the three and nine months ended December 31, 1998, respectively, related to the replacement of the information systems. Refer to Note 3--Charges Included in General and Administrative Expenses for a further discussion regarding the accelerated depreciation. Gulf South Direct Transaction Costs Direct transaction costs primarily consist of professional fees, such as investment banking, legal, and accounting, for services rendered through the date of the merger. Due to subsequent negotiations and agreements between the Company and its service provider, actual costs paid were less than costs originally billed and recorded. As a result, approximately $475, net of tax, of costs were reversed against general and administrative expenses during the nine months ended December 31, 1998. Refer to Note 3--Charges Included in General and Administrative Expenses for further discussion regarding direct transaction costs. Operating Expenses During the three and nine months ended December 31, 1997, Gulf South charged certain operating expenses to an accrual for merger integration costs and expenses that were established as a component of goodwill as of the date of the acquisition. The Company determined that the operating expenses should have been expensed as incurred and included in the accompanying consolidated statements of income. As a result, Gulf South restated its condensed consolidated financial statements to include the effects of recording operating expenses as incurred and properly stating goodwill and accrued merger costs and expenses. Gulf South Restructuring Plan B Gulf South previously recorded $918 million, net of tax, of restructuring costs and expenses during the period January 1, 1998 to April 3, 1998 and, therefore, the amount was included in the retained earnings adjustment recorded on April 4, 1998. However, the Company's condensed consolidated financial statements have been restated to reverse the $918 million charge as certain recognition criteria were not met. The charge was recognized when the criteria were met, which was during the three months ended June 30, 1998. Immaterial Poolings The Company merged with certain imaging supply and equipment distributors in stock mergers accounted for under the pooling-of-interests method of accounting. Due to the immaterial effect of these acquisitions on prior periods, the Company's previously issued financial statements included in Form 10-Q for the three and nine months ended December 31, 1998 were not restated for the immaterial Pooled Entities. During fiscal 1999, the Company made two additional individually immaterial acquisitions accounted for as poolings of interests. As such, the Company evaluated the aggregate impact of the individually immaterial pooling of interest transactions on the Company's current and prior period financial statements and concluded that the aggregate impact was material to the Company's consolidated financial position taken as a whole. As a result, the Company's consolidated financial statements have been restated to include the historical financial results of the individually immaterial pooling-of-interest transactions for all periods. Other Charges During the three months ended December 31, 1999, the Company incurred approximately $1,005 of costs related to acquisitions not consummated. 22 ITEM 2: PSS WORLD MEDICAL, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL PSS World Medical, Inc. (the "Company" or "PSS") is a specialty marketer and distributor of medical products to physicians, alternate-site imaging centers, long-term care providers, and hospitals through 108 service centers to customers in all 50 states and five European countries. Since its inception in 1983, the Company has become a leader in three of the market segments it serves with a focused, market specific approach to customer service, a consultative sales force, strategic acquisitions, strong arrangements with product manufacturers, innovative systems, and a unique culture of performance. The Company, through its Physician Sales & Service division, is the 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, number of service centers, and exclusively distributed products. Physician Sales & Service currently operates 56 medical supply distribution service centers with approximately 730 sales representatives ("Physician Supply Business") serving over 100,000 physician offices (representing approximately 50% of all physician offices) in all 50 states. The Physician Supply Business' primary market is the approximately 400,000 physicians who practice medicine in approximately 200,000 office sites throughout the United States. The Company, through its wholly owned subsidiary Diagnostic Imaging, Inc. ("DI"), is the 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, number of distribution centers, and number of sales representatives. DI currently operates 36 imaging distribution service centers with over 700 service specialists and 200 sales representatives ("Imaging Business") serving over 13,000 customer sites in 35 states. The Imaging Business' primary market is the approximately 5,000 hospitals and other alternate-site imaging companies operating approximately 50,000 office sites throughout the United States. Through its wholly owned subsidiary Gulf South Medical Supply, Inc. ("Gulf South"), the Company is become a leading national distributor of medical supplies and related products to the long-term care industry in the United States based on revenues, number of sales representatives, and number of service centers. Gulf South currently operates 13 distribution service centers with approximately 130 sales representatives ("Long-Term Care Business") serving over 10,000 long-term care facilities 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 representing over 10,000 long-term care facilities. In addition to its operations in the United States, the Company, through its wholly owned subsidiary WorldMed International, Inc. ("WorldMed"), operates three European service centers ("International Business") distributing medical products to the physician office and hospital markets in Belgium, France, Germany, Luxembourg, and the Netherlands. 23 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) INDUSTRY According to industry estimates, the United States medical supply and equipment segment of the health care industry represents a $34 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 includes distribution to the physician office, providers of imaging services, and long-term care facilities comprising approximately $14 billion or approximately 40% of the overall market 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 is benefiting 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. 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. Such reform proposals if adopted could impact the medical products distribution industry. Additionally, the cost of a significant portion of medical care in the United States is funded by government and private insurance programs. In recent years, government-imposed limits on reimbursement of hospitals, long-term care facilities, and other health care providers have impacted spending budgets in certain markets within the medical products industry. Recently, Congress has passed radical changes to reimbursements for nursing homes and home care providers. These changes also effect some distributors who directly bill the government for these providers. 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 the hospitals continue to consolidate. Consolidation sometimes shifts the medical products purchasing decision to individuals with whom medical products distributors had no prior selling relationship. Additionally, the consolidation creates larger customers. The majority of the market serviced by the Company consists of a large number of small customers with no individual customer exceeding more than 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 37% and 38% of the Long-Term Care Business revenues for the twelve months ended April 3, 1998 and the nine months ended December 31, 1998, respectively, represented sales to its top five customers. 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. 24 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) RESULTS OF OPERATIONS The condensed consolidated financial statements of PSS World Medical, Inc. ("PSS" or the "Company") reflect, in the opinion of management, all adjustments necessary to present fairly the financial position and results of operations for the periods indicated and give retroactive effect to the mergers with Medical Imaging Systems, Inc. ("MIS") and TriStar Imaging Systems, Inc. ("TriStar") acquired during fiscal 1999 and various acquired companies previously accounted for as immaterial pooling-of-interests transactions (the "Pooled Entities"). These transactions were accounted for under the pooling-of-interests method of accounting, and accordingly, the accompanying condensed consolidated financial statements have been retroactively restated as if PSS, MIS, TriStar, and the Pooled Entities had operated as one entity since inception. The Company's previously issued financial statements included in Form 10Q for the three and nine months ended December 31, 1998 were not restated for: (1) the information systems accelerated depreciation, (2) the reversal of Gulf South Medical Supply, Inc. ("Gulf South") restructuring charge, (3) the reversal of Gulf South direct transaction costs and (4) the immaterial Pooled Entities (refer to Note 10--Restatements). In addition, the financial statements for the three and nine months ended December 31, 1997 were not restated for: (1) a correction of an error in recording certain operating expenses at Gulf South, and (2) the immaterial Pooled Entities (refer to Note 10--Restatements). The Company's fiscal year ends on the Friday closest to March 31 of each year. Prior to April 4, 1998, Gulf South's year-end was December 31. The three and nine months ended September 30, 1997 of Gulf South were consolidated with the three and nine months ended December 31, 1997 of the Company. In addition, Gulf South's balance sheet as of December 31, 1997 was consolidated with PSS' balance sheet as of April 3, 1998. Effective April 4, 1998, Gulf South's fiscal year-end was changed to conform to the Company's year-end. As such, Gulf South's results of operations for the period January 1, 1998 to April 3, 1998 are not included in any of the periods presented in the accompanying condensed consolidated statements of income. Accordingly, Gulf South's results of operations for the three months ended April 3, 1998 are reflected as an adjustment to shareholders' equity of the Company as of April 4, 1998. Refer to the section titled Gulf South's Results of Operations for the Three Months Ended April 3, 1998 and March 31, 1997 included in Management's Discussion and Analysis of Results of Operations for further clarification. The Company's three and nine months ended December 31, 1998 condensed consolidated financial statements include the combined results of operations for the period from April 4, 1998 to December 31, 1998, of both PSS and Gulf South. THREE AND NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997 Net Sales. Net sales for the three months ended December 31, 1998 totaled $399.5 million, an increase of $45.9 million or 13.0% over net sales of $353.6 million for the three months ended December 31, 1997. Net sales for the nine months ended December 31, 1998 totaled $1,154.5 million, an increase of $141.3 million or 13.9% over net sales of $1,013.2 million for the nine months ended December 31, 1997. Approximately $34.9 million and $91.3 million of the increase in revenues for the three and nine months ended December 31, 1998, respectively, resulted from revenues of companies acquired subsequent to December 31, 1997 and revenues of companies acquired prior to December 31, 1997, but which did not contribute to revenues for the full three and nine month periods ended December 31, 1997. The remaining net sales increase during these periods resulted from sales growth of existing service centers coupled with incremental sales generated in connection with exclusive and semi-exclusive vendor relationships. 25 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Gross Profit. Gross profit for the three months ended December 31, 1998 totaled $109.7 million, an increase of $15.4 million or 16.3% over the three months ended December 31, 1997 total of $94.3 million. Gross profit for the nine months ended December 31, 1998 totaled $311.8 million, an increase of $45.9 million or 17.2% over the nine months ended December 31, 1997 total of $265.9 million. Gross profit as a percentage of net sales was 27.5% and 26.7% for the three months and 27.0% and 26.3% for the nine months ended December 31, 1998 and 1997, respectively. The increase in gross margin as a percentage of sales is attributable to an increase in the sales mix of higher margin diagnostic equipment, an increase in sales of higher margin private label medical supplies by the Physician Supply Business, the ability to negotiate lower product purchasing costs which resulted from increased purchasing volume subsequent to the Gulf South acquisition, and improved Imaging Business gross margins resulting from a film vendor maintaining margin dollars rebated to the Company while reducing film pricing to hospital customers. Although there has been considerable gross margin pressure from competition and a consolidating customer base, the Company has successfully maintained its overall gross margins. General and Administrative Expenses. General and administrative expenses for the three months ended December 31, 1998 totaled $53.9 million, an increase of $0.5 million or 1.0% over the three months ended December 31, 1997 total of $53.3 million. General and administrative expenses for the nine months ended December 31, 1998 totaled $160.8 million, an increase of $7.0 million or 4.6% over the nine months ended December 31, 1997 total of $153.7 million. As a percentage of net sales, general and administrative expenses were 13.5% and 15.0% for the three months and 13.9% and 15.2% for the nine months ended December 31, 1998 and 1997, respectively. In addition to typical general and administrative expenses, this income statement caption includes charges related to merger activity, restructuring activity, and other special items (refer to Note 3 of the accompanying condensed consolidated financial statements for further discussion of these charges). The following table summarizes charges included in general and administrative expenses in the accompanying consolidated statements of income:
Three Months Ended Nine Months Ended --------------------------- --------------------------- December 31, December 31, December 31, December 31, 1998 1997 1998 1997 ------------ ------------ ------------ ------------ (restated) (restated) (restated) (restated) Merger costs and expenses........................... $ (16) $3,810 $ 470 $ 5,696 Restructuring costs and expenses.................... 498 -- 3,009 -- Information systems accelerated depreciation........ 1,814 -- 4,323 -- Gulf South operational tax charge................... -- 767 -- 2,301 Other charges....................................... 1,005 -- 1,005 2,457 ------------ ------------ ------------ ------------ Total charges included in continuing operations..... $ 3,301 $4,577 $ 8,807 $ 10,454 ============ ============ ============ ============
Selling Expenses. Selling expenses for the three months ended December 31, 1998 totaled $32.5 million, an increase of $6.2 million or 23.4% over the three months ended December 31, 1997 total of $26.3 million. Selling expenses for the nine months ended December 31, 1998 totaled $89.0 million, an increase of $14.3 million or 19.2% over the nine months ended December 31, 1997 total of $74.6 million. As a percentage of sales, selling expenses were 8.1% and 7.5% for the three months ended December 31, 1998 and 1997, respectively, and 7.7% and 7.4% for the nine months ended December 31, 1998 and 1997, respectively. Selling expenses as a percentage of sales increased due to a change in the Gulf South sales commission program from a primarily fixed salary plan to a variable commission plan, and the company-wide addition of approximately 100 sales trainees over the number of sales trainees in the comparable prior year period. The Company utilizes a variable commission plan, which pays commissions based on gross profit as a percentage of net sales. 26 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Operating Income. Operating income for the three months ended December 31, 1998 totaled $23.3 million, an increase of $8.7 million or 59.8% over the three months ended December 31, 1997 total of $14.6 million. Operating income for the nine months ended December 31, 1998 totaled $62.1 million, an increase of $24.5 million or 65.3% over the nine months ended December 31, 1997 total of $37.6 million. As a percentage of sales, operating income was 5.8% and 4.1% for the three months ended December 31, 1998 and 1997, respectively, and 5.4% and 3.7% for the nine months ended December 31, 1998 and 1997, respectively. Interest Expense. Interest expense for three months ended December 31, 1998 and 1997 was approximately $2.7 million. Interest expense for the nine months ended December 31, 1998 totaled $8.8 million, an increase of $4.9 million or 122.4% over the nine months ended December 31, 1997 total of $4.0 million. The increase in interest expense for the nine months ended December 31, 1998 over the comparable prior year period reflects interest on the $125 million 8.5% senior subordinated debt which was outstanding for a full nine months during fiscal 1999 compared to fiscal 1998. Interest and Investment Income. Interest and investment income for the three months ended December 31, 1998 totaled $0.5 million, a decrease of $1.5 million or 75.1% over the three months ended December 31, 1997 total of $2.0. Interest and investment income for the nine months ended December 31, 1998 totaled $3.7 million, an increase of $0.2 million or 6.6% over the nine months ended December 31, 1997 total of $3.4 million. The decrease in interest and investment income for the three months ended December 31, 1998 over the comparable prior year period reflects the use of cash previously invested for the purposes of acquisitions and capital expenditures during the nine months ended December 31, 1998. Other Income. Other income for the three months ended December 31, 1998 totaled $1.8 million, an increase of $0.9 million or 90.1% over the three months ended December 31, 1997 total of $0.9 million. Other income for the nine months ended December 31, 1998 totaled $3.8 million, an increase of $1.7 million or 80.4% over the nine months ended December 31, 1997 total of $2.1 million. Other income consists of finance charges on customer accounts and financing performance incentives. The increase in other income primarily results from the growth in the Company's operations. Provision For Income Taxes. Provision for income taxes for the three months ended December 31, 1998 totaled $9.1 million, an increase of $3.1 million or 51.8% over the three months ended December 31, 1997 total of $6.0 million. Provision for income taxes for the nine months ended December 31, 1998 totaled $24.7 million, an increase of $9.1 million or 58.2% over the nine months ended December 31, 1997 total of $15.6 million. The income tax provision computation is affected by the non-deductible nature of certain non-recurring merger costs and expenses in the period in which they are incurred. Net Income. Net income for the three months ended December 31, 1998 totaled $13.8 million, an increase of $5.1 million or 58.3% over the three months ended December 31, 1997 total of $8.7 million. Net income for the nine months ended December 31, 1998 totaled $36.0 million, an increase of $12.5 million or 53.1% over the nine months ended December 31, 1997 total of $23.5 million. As a percentage of net sales, net income was 3.5% and 2.5% for the three months ended December 31, 1998 and 1997, respectively, and 3.1% and 2.3% for the nine months ended December 31, 1998 and 1997, respectively. GULF SOUTH'S RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 3, 1998 AND MARCH 31, 1997 (RESTATED) The Company acquired Gulf South on March 26, 1998 in a transaction accounted for under the pooling-of-interests method of accounting. The financial statements have been retroactively restated as if Gulf South and the Company had operated as one entity since inception. As discussed in Note 1--Basis of Presentation, due to the consolidation method of the Company and the differing year ends of PSS and Gulf South, Gulf South's results of operations for the period January 1, 1998 to April 3, 1998 are not reflected in the condensed consolidated statements of operations for any periods presented. Rather they have been recorded as an adjustment to equity during the first quarter of 27 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) fiscal 1999. Following is management's discussion and analysis of the financial condition and results of operations of Gulf South for the three months ended April 3, 1998 as compared to the three months ended March 31, 1997. Three Months Ended April 3, 1998 ------------- Net sales.................................... $ 87,018 Cost of goods sold........................... 69,202 ------------- Gross profit........................ 17,816 General and administrative expenses.......... 43,020 Selling Expenses............................. 2,939 ------------- Loss from operations................ (28,143) Other income, net............................ 321 ------------- Loss before benefit for income taxes......... (27,822) Benefit for income taxes..................... 8,272 ------------- Net loss..................................... $ (19,550) ============= During the three months ended April 3, 1998, Gulf South recorded $32,500 in charges related to merger and restructuring costs and expenses, goodwill impairment charge, and other operating charges. These charges are included in cost of goods sold and general and administrative expenses above. The following table summarizes the components of the $32,500 million in charges.
Three Months Ended April 3, 1998 ------------- Cost of sales: Increase allowance for inventory............................................. $ 3,573 ------------- Total charges included in costs of goods sold....................... 3,573 ------------- General and administrative expenses: Reconciling items............................................................ 5,863 Direct transaction costs related to the merger............................... 5,656 Increase allowance for doubtful accounts..................................... 5,114 Restructuring costs and expenses............................................. 4,281 Legal fees and settlements................................................... 3,577 Operational tax charge....................................................... 2,771 Goodwill impairment charge................................................... 1,664 ------------- Total charges included in general & administrative expenses......... 28,927 ------------- Total charges....................................................... $ 32,500 =============
Increase Allowance for Inventory The charge relates directly to a change of plans, uses, and disposition efforts which new Gulf South management had as compared to prior management. This decision to significantly alter Gulf South's inventory retention and buying policies, and, therefore, to dispose of the related inventories, resulted in a change in the ultimate valuation of the impacted inventories. This charge was recognized in the period in which management made the decision to dispose of the affected inventory, which was Gulf South's quarter ended April 3, 1998. 28 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Reconciling Items This amount represents the charge needed to reconcile Gulf South's financial statements to its underlying books and records. Direct Transaction Costs Related to the Merger Direct transaction costs primarily consist of professional fees, such as investment banking, legal, and accounting, for services rendered through the date of the merger. As of April 2, 1999, all direct transaction costs were paid. Due to subsequent negotiations and agreements between the Company and its service provider, actual costs paid were less than costs originally billed and recorded. As a result, approximately $777 of costs were reversed against general and administrative expenses during the quarter ended September 30, 1998. Increase Allowance for Doubtful Accounts This charge relates directly to a change of plans and collection efforts that new management had as compared to prior Gulf South management. This change in operational policies resulted in a change in the ultimate collectibility of the related receivables and this charge was recognized in the period in which the operational decision to change collection efforts was made, which was Gulf South's quarter ended April 3, 1998. Restructuring Costs and Expenses In order to improve customer service, reduce costs, and improve productivity and asset utilization, the Company decided to realign and consolidate its operations with Gulf South. The restructuring costs and expenses, which directly relate to the merger with PSS World Medical, Inc., were recorded during the three months ended April 3, 1998. During this time period, management approved and committed to a plan to integrate and restructure the business of Gulf South. The Company recorded restructuring costs and expenses for costs for lease terminations, severance and benefits to terminate employees, facility closure, and other costs to complete the consolidation of the operations. The following table summarizes the components of the restructuring charge. Involuntary employee termination costs........................... $1,879 Lease termination costs.......................................... 977 Branch shutdown costs............................................ 885 Other exit costs................................................. 540 ------ $4,281 ====== Refer to Note 5--Accrued Merger and Restructuring Costs and Expenses, for a more detailed discussion regarding accrued restructuring costs and expenses. Legal Fees and Settlements Gulf South recorded a $2,000 accrual for legal fees specifically related to class action lawsuits, which Gulf South, the Company, and certain present and former directors and officers were named as defendants. These lawsuits are further discussed in Note 19--Commitments and Contingencies. In addition, Gulf South recorded a $1,577 in charges to settle certain disputes related to vendor and customer agreements. 29 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Operational Tax Charge Gulf South recorded an operational tax charge of $9,492, of which $2,771 was recorded in the quarter ended April 3, 1998, for state and local, sales and use, and property taxes that are normally charged directly to the customer at no cost to the Company. Penalties and interest are included in the above charge as Gulf South did not timely remit payments to tax authorities. The Company reviewed all available information, including tax exemption notices received, and recorded charges to expense during the period in which the tax noncompliance issues arose. See Note 4--Charges Included in General and Administrative Expenses, for more detailed discussion related to this issue. Goodwill Impairment Charges The $1,664 goodwill impairment charge relates primarily to a prior Gulf South acquisition. During the quarter ended April 3, 1998, a dispute with the acquired company's prior owners and management resulted in the loss of key employees and all operational information related to the acquired customer base. This ultimately affected Gulf South's ability to conduct business related to this acquisition, and impacted Gulf South's ability to recover the value assigned the goodwill asset. (Loss) Income From Operations. Loss from operations for the three months ended April 3, 1998 totaled $28.1 million, a decrease of $32.1 million or 813.2% over the three months ended March 31, 1997 income from operations of $4.0 million. Operating income decreased primarily due to (i) significant 1998 charges to cost of sales and general and administrative expenses, (ii) infrastructure investments made in connection with the strategic objectives of the Company, and (iii) the lower gross profit percentage of companies acquired, each discussed above. Provision for Income Taxes. Gulf South recorded a tax benefit for income taxes for the three months ended April 3, 1998, of $8.3 million compared to a tax provision of $1.6 million for the three months ended March 31, 1997. The 1998 benefit primarily resulted from the $32.5 million in unusual charges related to merger and restructuring costs, asset impairment charges, and other unusual operating charges recorded during the three months ended April 3, 1998. The effective rate of Gulf South's tax benefit during 1998 was lower than the statutory rate, primarily due to the nondeductible nature of certain of Gulf South's direct transaction costs. Net (Loss) Income. Net loss for the three months ended April 3, 1998 totaled $19.6 million, a decrease of $22.4 million or 794.7% over the three months ended March 31, 1997 net income of $2.8 million. The decrease in net income is attributable to the factors discussed in Gross Profit and Charges Included in General and Administrative Expenses above, and the decrease in investment income of $144,000 due to the use of cash and investments for business acquisitions. 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 need to finance acquisitions and anticipated growth of the Company's operations. This growth will be funded through a combination of cash flow from operations, borrowings under the Company's senior revolving credit facility, and any future public offerings. 30 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Net cash used in operating activities was $10.6 million for the nine months ended December 31, 1998, compared to net cash provided by operating activities of $4.6 million for the nine months ended December 31, 1997, due to the timing of accounts receivable collections, payments of merger and acquisition expenses, and the timing of vendor payments. Net cash provided by investing activities was $0.2 million for the nine months ended December 31, 1998. This primarily resulted from $74.6 million provided by the sale and maturities of marketable securities offset by $55.7 million related to purchase business acquisitions and $16.6 million related to capital expenditures, of which approximately $8.5 million pertained to new information system expenditures. Net cash used by investing activities was $63.0 million for the nine months ended December 31, 1997. This use of cash primarily resulted from $44.8 million related to the purchase of marketable securities with proceeds of the public debt offering, $7.7 million relate to purchase business acquisitions, and capital expenditures of $7.6 million. Net cash used in financing activities was $12.5 million for the nine months ended December 31, 1998. This primarily resulted from $16.0 million in payoffs of debt assumed through business acquisitions offset by $3.8 million in proceeds from the issuance of common stock. Net cash provided by financing activities was $66.8 million for the nine months ended December 31, 1997. This primarily resulted from cash provided by the issuance of the $125.0 million senior subordinated notes and $2.5 million in proceeds from the issuance of common stock, partially offset by $55.1 million in payoffs of debt assumed through business acquisitions. The Company had working capital of $341.2 million and $381.2 million as of December 31, 1998 and April 3, 1998, respectively. The decrease in working capital primarily results from an increase in the frequency of purchase business acquisitions being funded by cash. This recent shift in the source of funding for purchase business acquisitions results in the conversion of a portion of the cash outlay into an intangible which is excluded from the calculation of working capital. Accounts receivable, net of allowances, were $263.5 million and $213.9 million at December 31, 1998 and April 3, 1998, respectively. The annualized days sales in accounts receivable was approximately 53.8 as of December 31, 1998 and 52.0 days at April 3, 1998. Inventories were $135.5 million and $126.9 million as of December 31, 1998 and April 3, 1998, respectively. The Company had annualized inventory turnover of 8.8x and 8.7x for the nine months ended December 31, 1998 and the year ended April 3, 1998, respectively. 31 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The following table presents EBITDA and other financial data for the three and nine months ended December 31, 1998 and 1997 (in thousands):
Three Months Ended Nine Months Ended --------------------------------------------------------- December 31, December 31, December 31, December 31, 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Income before provision for income taxes $ 22,912 $ 14,720 $ 60,741 $ 39,148 Plus: Interest Expense 2,701 2,837 8,834 3,972 ------------ ------------ ------------ ------------ EBIT (a) 25,613 17,557 69,575 43,120 Plus: Depreciation and amortization 5,799 2,876 15,426 8,230 ------------ ------------ ------------ ------------ EBITDA (b) 31,412 20,433 85,001 51,350 Unusual Charges Included in Continuing Operations(h) 1,487 4,577 4,484 10,454 Cash Paid for Unusual Charges Included in Continuing Operations (4,922) (1,695) (17,920) (4,471) ------------ ------------ ------------ ------------ Adjusted EBITDA (c) 27,977 23,315 71,565 57,333 EBITDA Coverage (d) 11.6x 7.2x 9.6x 12.9x EBITDA Margin (e) 7.9% 5.8% 7.4% 5.1% Adjusted EBITDA Coverage (f) 10.4x 8.2x 8.1x 14.4x Adjusted EBITDA Margin (g) 7.0% 6.6% 6.2% 5.7% Cash (used in) provided by operating activities $(10.6) $ 4.6 Cash provided by (used in) investing activities $ 0.2 $(63.0) Cash (used in) provided by financing activities $(12.5) $ 66.8
(a) EBIT represents income before income taxes plus interest expense. (b) EBITDA represents EBIT plus depreciation and amortization. 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. (c) Adjusted EBITDA represents EBITDA plus unusual charges included in continuing operations less cash paid for unusual charges included in continuing operations. (d) EBITDA coverage represents the ratio of EBITDA to interest expense. (e) BITDA margin represents the ratio of EBITDA to net sales. (f) Adjusted EBITDA coverage represents the ratio of Adjusted EBITDA to interest expense. (g) Adjusted EBITDA margin represents the ratio of Adjusted EBITDA to net sales. (h) The three and nine months ended December 31, 1998 exclude $1,814 and $4,323, respectively, of information systems accelerated depreciation. The additional depreciation is included in the depreciation and amortization line in the above table. On October 7, 1997, the Company issued, in a private offering under Rule 144A of the Securities Act of 1933, an aggregate principal amount of $125.0 million of its 8.5% senior subordinated notes due in 2007 (the "Private Notes") with net proceeds to the Company of $119.5 million after deduction for offering costs. The Private Notes are unconditionally guaranteed on a senior subordinated basis by all of the Company's domestic subsidiaries. On February 10, 1998, the Company closed its offer to exchange the Private Notes for senior subordinated notes (the "Notes") of the Company with substantially identical terms to the Private Notes (except that the Notes do not contain terms with respect to transfer restrictions). 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 will be funded by the operating cash flow of the Company. No other principal payments on the Notes are required over the next five years. The Notes contain 32 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) certain restrictive covenants that, among other things, limit the Company's ability to incur additional indebtedness. Provided, however, that no event of default exist, 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. The Company believes it is in compliance with all debt covenants as of December 31, 1998 and April 3, 1998. On February 11, 1999, the Company entered into a $140.0 million senior revolving credit facility with a syndicate of financial institutions with NationsBank, N.A. as principal agent. Borrowings under the credit facility are available for working capital, capital expenditures, and acquisitions, and are secured by the common stock and assets of the Company and its subsidiaries. The credit facility expires February 10, 2004 and borrowings bear interest at certain floating rates selected by the Company at the time of borrowing. The credit facility contains certain affirmative and negative covenants, the most restrictive of which require maintenance of a maximum leverage ratio of 3.5 to 1, maintenance of consolidated net worth of $337.0 million, and maintenance of a minimum fixed charge coverage ratio of 2.0 to 1. In addition, the covenants limit additional indebtedness and asset dispositions, require majority lender approval on acquisitions with a total purchase price greater than $75.0 million, and restrict payments of dividends. As of December 31, 1998, 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. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of December 31, 1998, the Company did not hold any derivative financial or commodity instruments. 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. The Company's interest rate risk is related to its Senior Subordinated Notes, which bear interest at a fixed rate of 8.5%. Year 2000 During the third quarter of fiscal 1999, management accelerated planned year 2000 compliance modifications and upgrades to the Company's existing hardware and software systems. The Company is currently in the phase of coding and testing software changes and expects completion of this phase by the end of March 1999. The final phase of the year 2000 compliance plan is expected to begin in April 1999 with implementation of modifications and upgrades to existing systems and is scheduled to be completed by July 1999. The European division and the Long-term Care business hardware and software systems are currently year 2000 compliant. The Imaging division currently has 25 of 31 service centers as well as its corporate location hardware and software systems converted to its new 2000 compliant system. The Physician Supply business begins implementation of its hardware and software system in April 1999. Ongoing testing will continue through the end of calendar 1999. In addition, the Company is currently formulating a non-information system audit plan to identify non-information operational risks at its field branches. 33 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Concurrent with the year 2000 modifications and upgrades to existing systems, the Company is currently replacing a majority of its internal information systems hardware and software with new systems ("New Systems") that are year 2000 compliant. These New Systems will be used in several key areas of the Company's business, including inventory management, purchasing, order processing, shipping, receiving, accounts payable, accounts receivable, and financial reporting. The Company expects to incur internal payroll costs, consulting fees, and hardware and software costs for preparation and implementation of these New Systems. The total expected costs related to the conversion of existing systems and implementation of the New systems is estimated to be approximately $15.0 million through fiscal 2000, with $8.5 million incurred through December 31, 1998. The anticipated impact and costs of the project is based on management's best estimates using information currently available. There can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. Based on its current estimates and information currently available, the Company does not anticipate that the costs associated with this project will have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows in future periods. The potential risks associated with the year 2000 issues include, but are not limited to, temporary disruption of the Company's operations in the areas of inventory management, purchasing, order processing, shipping, receiving, accounts payable, accounts receivable, and financial reporting. In addition, communications with customers, vendors, and other outside parties may be disrupted. Implementation of the New System entails contacting suppliers to ensure compatibility with the Company's information systems and to discuss year 2000 compliance issues. There can be no assurance that the systems of other companies which the Company's systems rely upon will be timely converted, or that such failure to convert by another company would not have a material adverse effect on the Company's systems and results of operations. The Company is in the process of updating its information technology disaster recovery plan to include year 2000 contingencies that may arise. Although the Company anticipates that minimal business disruption will occur as a result of the year 2000 issues based upon currently available information, incomplete or untimely resolution of year 2000 issues by either the Company or significant suppliers, customers and critical business partners could have a material adverse impact on the Company's consolidated financial position, results of operations and/or cash flows in future periods. All statements contained herein that are not historical facts, including, but not limited to, statements regarding anticipated growth in revenue, gross margins and earnings, statements regarding the Company's current business strategy, the Company's projected sources and uses of cash, and the Company's plans for future development and operations, are based upon current expectations. These statements are forward-looking in nature and involve a number of risks and uncertainties. Actual results may differ materially. Among the factors that could cause results to differ materially are the following: the availability of sufficient capital to finance the Company's business plans on terms satisfactory to the Company; competitive factors; the ability of the Company to adequately defend or reach a settlement of outstanding litigations and investigations involving the Company or its management; changes in labor, equipment and capital costs; changes in regulations affecting the Company's business; future acquisitions or strategic partnerships; general business and economic conditions ;successful implementation of the Company's year 2000 compliance plan, and other factors described from time to time in the Company's reports filed with the Securities and Exchange Commission. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. 34 PART II: OTHER INFORMATION ITEM 1--LEGAL PROCEEDINGS PSS 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. 98-502-cv-J-21A. 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. 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 Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 10b-5 promulgated thereunder. The allegations are based upon a decline in the PSS stock price following announcement by PSS in May 1998 regarding the Gulf South Merger which resulted in earnings below analyst's expectations. The plaintiff seeks damages, including costs and expenses. PSS believes that the allegations contained in the complaint are without merit and intends to defend vigorously against the claims. The defendants filed their motion to dismiss on January 25, 1999. However, the lawsuit is in the earliest stages, and there can be no assurance that this litigation will be ultimately resolved on terms that are favorable to PSS. Gulf South and certain of its current and former officers and directors, among others, are named as defendants in two purported securities class action lawsuits entitled Ernest Klein v. Gulf South Medical Supply, Inc., et al., Civil Action No. 3:97cv526WS, and Ann Krupnick v. Gulf South Medical Supply, Inc., et al., Civil Action No. 3:97cv525BN. Both actions, which were filed on July 21, 1997, are pending in the United States District Court for the Southern District of Mississippi, Jackson Division. The plaintiff in the Klein action alleges, for himself and for a purported class of similarly situated stockholders who allegedly purchased stock in Gulf South's June 1996 public offering of its common stock, that the defendants engaged in violations of certain provisions of the Securities Act of 1933, as amended ("Securities Act"), and Mississippi state law. The plaintiff in the Krupnick action alleges for herself and for a purported class of similarly situated stockholders who allegedly purchased Gulf South Common Stock between May 2, 1996 and July 22, 1996, that the defendants engaged in certain violations of the Exchange Act, Rule 10b-5 promulgated thereunder and Mississippi state law. Plaintiffs allege that the defendants artificially inflated the price of Gulf South stock by representing that Gulf South was "well positioned" to grow by increasing its sales to existing customers, including one of its largest customers Living Centers of America, after defendants had been informed by Living Centers that its distribution arrangement with Gulf South was being terminated in favor of a rival medical supply distributor. On August 21, 1998, the court filed an Order dismissing all the allegations in the Krupnick action. That case is presently on appeal to the United States Court of Appeals for the 5th Circuit. The same Order also dismissed the claims against Defendants Hixon, Piper, Tibbitts, Pritchard, Bayer, and Gulf South under section 12(2) of the Securities Act and corresponding claims against Defendants Hixon and Gulf South under section 15 of the Securities Act and Miss. Code Ann. Sections 75-71-717(a)(2) and 75-71-719 in the Klein action. Plaintiffs' claims under section 11 of the Securities Act remain pending in the Klein case. Plaintiffs seek damages, including costs and expenses. PSS believes that the allegations contained in the remaining claims are also without merit and intends to defend vigorously against the claims. However, there can be no assurance that this litigation will ultimately be resolved on terms that are favorable to PSS. PSS has been named in a purported patent infringement suit filed by Bayer Corp. in the United States District Court for the Middle District of Florida (No. 89-235 Civ. J-21A). In this lawsuit, Bayer alleges that certain of the urinalysis test strips sold under the Penny SaverTM name infringe four Bayer patents. The products are made by YeongDong Pharmaceuticals, which has agreed in writing to indemnify and defend the Company against the infringement claims. YeongDong Pharmaceuticals denies the products infringe the patents. In addition, PSS has indemnity rights against the U.S. distributor of the product, BioSys Laboratories, pursuant to its vendor agreement. Chemical analysis testing of the products conducted under the joint supervision of the parties, however, indicates that some representations YeongDong Pharmaceuticals made to the Company about the technology used by YeongDong Pharmaceuticals in one of the tests on the strip were incorrect. PSS continues to vigorously contest Bayer's claims, but has agreed to remove those Penny SaverTM urinalysis test strip products containing a test pad for leukocytes. The parties are currently in settlement negotiations and PSS believes that there will be a favorable settlement within the next 45 days. However, there can be no assurance that this litigation will ultimately be resolved on terms that are favorable to PSS. 35 PART II: OTHER INFORMATION (Continued) ITEM 1--LEGAL PROCEEDINGS (Continued) Although PSS does not manufacture products, the distribution of medical supplies and equipment entails inherent risks of product liability. PSS is a party to various legal and administrative legal proceedings and claims arising in the normal course of business. However, PSS has not experienced any significant product liability claims and maintains product liability insurance coverage. While any litigation contains an element of uncertainty, management 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 2--CHANGES IN SECURITIES AND USE OF PROCEEDS (a) Not applicable. (b) Not applicable. (c) On October 28, 1998, PSS issued an aggregate of 255,512 shares of common stock, $.01 par value per share, to the former shareholders of Tristar Imaging Systems, Inc. in exchange for all of the outstanding shares of capital stock of Tristar. An additional 33,133 shares are subject to issuance to the former shareholders of Tristar pending the resolution of potentially indemnifiable claims. The issuance of securities was made in reliance on the exemption from registration provided under Section 4(2) of the Securities Act of 1933, as amended, as a transaction by an issuer not involving a public offering. All of the securities were acquired by the recipients for investment and with no view toward a public resale or distribution without registration. The recipients qualified as accredited investors, the offers and sales were made without any public solicitation, and the stock certificates bear restrictive legends. (d) Not applicable. 36 ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
Exhibit Number Description - ------- ----------------------------------------------------------------------------------------------------- 3.1 Amended and Restated Articles of Incorporation dated March 15, 1994, as amended.(12) 3.2 Amended and Restated Bylaws dated March 15, 1994.(1) 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.(2) 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, Salamon Brothers Inc. and NationsBanc Montgomery Securities, Inc.(2) 4.3 Form of 81/2% Senior Subordinated Note due 2007, including Form of Guarantee (Private Notes).(2) 4.4 Form of 81/2% Senior Subordinated Note due 2007, including Form of Guarantee (Exchange Notes).(2) 4.5 Shareholder Protection Rights Agreement, dated as of April 20, 1998, between PSS World Medical, Inc. and Continental Stock Transfer & Trust Company, as Rights Agent.(11) 10.1 Registration Rights Agreement between the Company and Tullis-Dickerson Capital Focus, LP, dated as of March 16, 1994.(3) 10.2 Employment Agreement for Patrick C. Kelly.(14) 10.3 Incentive Stock Option Plan dated May 14, 1986.(3) 10.4 Shareholders Agreement dated March 26, 1986, between the Company, the Charthouse Co., Underwood, Santioni and Dunaway.(3) 10.5 Shareholders Agreement dated April 10, 1986, between the Company and Clyde Young.(3) 10.6 Shareholders Agreement between the Company and John D. Barrow.(3) 10.7 Amended and Restated Directors Stock Plan.(7) 10.8 Amended and Restated 1994 Long-Term Incentive Plan.(7) 10.9 Amended and Restated 1994 Long-Term Stock Plan.(7) 10.10 1994 Employee Stock Purchase Plan.(4) 10.11 1994 Amended Incentive Stock Option Plan.(3) 10.13 Distributorship Agreement between Abbott Laboratories and Physician Sales & Service, Inc. (Portions omitted as confidential--Separately filed with Commission).(5)
37 ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K (Continued)
Exhibit Number Description - ------- ----------------------------------------------------------------------------------------------------- 10.14 Stock Purchase Agreement between Abbott Laboratories and Physician Sales & Service, Inc.(5) 10.15 Amendment to Employee Stock Ownership Plan.(7) 10.15a Amendment and Restatement of the Physician Sales and Service, Inc. Employee Stock Ownership and Savings Plan.(8) 10.15b First Amendment to the Physician Sales and Service, Inc. Employee Stock Ownership and Savings Plan.(7) 10.16 Third Amended and Restated Agreement and Plan of Merger By and Among Taylor Medical, Inc. and Physician Sales & Service, Inc. (including exhibits thereto).(6) 10.17 Agreement and Plan of Merger by and Among Physician Sales & Service, Inc., PSS Merger Corp. and Treadway Enterprises, Inc.(8) 10.18 Amended and Restated Agreement and Plan of Merger, dated as of August 22, 1997, among the Company, Diagnostic Imaging, Inc., PSS Merger Corp. and S&W X-ray, Inc.(9) 10.19 Agreement and Plan of Merger dated December 14, 1997 by and among the Company, PSS Merger Corp. and Gulf South Medical Supply, Inc.(10) 27 Financial Data Schedule (for SEC use only) - ----------
(1) Incorporated by Reference to the Company's Registration Statement on Form S-3, Registration No. 33-97524. (2) Incorporated by Reference to the Company's Registration Statement on Form S-4, Registration No. 333-39679. (3) Incorporated by Reference from the Company's Registration Statement on Form S-1, Registration No. 33-76580. (4) Incorporated by Reference to the Company's Registration Statement on Form S-8, Registration No. 33-80657. (5) Incorporated by Reference to the Company's Annual Report on Form 10-K for the fiscal year ended March 30, 1995. (6) Incorporated by Reference to the Company's Annual Report on Form 10-K for the fiscal year ended March 29, 1996. (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 Current Report on Form 8-K, filed January 3, 1997. (9) Incorporated by Reference from Annex A to the Company's Registration Statement on Form S-4, Registration No. 333-33453. (10) Incorporated by Reference from Annex A to the Company's Registration Statement on Form S-4, Registration No. 333-44323. (11) Incorporated by Reference to the Company's Current Report on Form 8-K, filed April 22, 1998. (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 Annual Report on Form 10-K for the fiscal year ended April 3, 1998. (b) Reports on Form 8-K None. 38 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 on February 15, 1998. PSS WORLD MEDICAL, INC. /s/ DAVID A. SMITH ---------------------------- David A. Smith Executive Vice President and Chief Financial Officer 39 EX-27 2 FDS --
5 THIS SCHEDULE CONTAINGS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q/A FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 0000920527 PSS WORLD MEDICAL, INC. 1,000 3-MOS APR-02-1999 OCT-01-1998 DEC-31-1998 58,734 476 263,473 0 135,502 514,466 43,019 0 711,378 173,237 129,311 0 0 707 406,917 711,378 399,547 399,547 289,862 289,862 81,363 2,213 3,040 22,433 9,090 13,822 0 0 0 13,822 0.20 0.19
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