-----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, Lcby6NZE4YM+2b87uN3pBTJWZvqqCxDtYdNO/BRDTc0pgTy5cNC64fBSGenxiijs 1b8WuVLTt8bab955l5hyiA== 0000950144-97-001485.txt : 19970222 0000950144-97-001485.hdr.sgml : 19970222 ACCESSION NUMBER: 0000950144-97-001485 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970214 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHYSICIAN SALES & SERVICE INC /FL/ CENTRAL INDEX KEY: 0000920527 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047] IRS NUMBER: 592280364 STATE OF INCORPORATION: FL FISCAL YEAR END: 0329 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23832 FILM NUMBER: 97536254 BUSINESS ADDRESS: STREET 1: 7800 BELFORT PKWY STREET 2: STE 250 CITY: JACKSONVILLE STATE: FL ZIP: 32256 BUSINESS PHONE: 9042961406 MAIL ADDRESS: STREET 1: 7800 BELFORT PARKWAY STREET 2: STE 250 CITY: JACKSONVILLE STATE: FL ZIP: 32256 10-Q 1 PHYSICIAN SALES & SERVICE, INC. 1 FORM 10-Q 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, 1996 ----------------- [ ] 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 ------- PHYSICIAN SALES & SERVICE, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) FLORIDA 59-2280364 - ---------------------------------------- ------------------------- (State or other jurisdiction (IRS employer of incorporation) identification number) 7800 Belfort Parkway, Suite 250 Jacksonville, Florida 32256 - ---------------------------------------- ------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number (904) 281-0011 ----------------------- 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 13, 1997 a total of 36,904,069 shares of common stock, par value $.01 per share, of the registrant were outstanding. 2 PHYSICIAN SALES & SERVICE, INC. & SUBSIDIARIES DECEMBER 31, 1996 INDEX
PART I FINANCIAL INFORMATION PAGE NUMBER ----------- Condensed Consolidated Balance Sheets - December 31, 1996 and March 29, 1996 3 Condensed Consolidated Statements of Operations - Three and Nine Months Ended December 31, 1996 and 1995 4 Condensed Consolidated Statements of Cash Flows - Nine Months Ended December 31, 1996 and 1995 5 Notes to Condensed Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 15
2 3 PHYSICIAN SALES & SERVICE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 29, 1996 1996 ----------------- ----------------- (UNAUDITED) (UNAUDITED) ASSETS Current Assets: Cash and cash equivalents $ 64,205,318 $ 86,333,789 Accounts receivable, net 120,116,806 96,080,135 Inventories 76,133,964 55,755,869 Prepaid expenses and other 16,721,551 10,764,125 ----------------- ----------------- Total current assets 277,177,639 248,933,918 Property and equipment, net 18,520,941 14,764,706 Other Assets: Intangibles, net 18,473,812 13,884,322 Other 6,364,364 1,375,053 ----------------- ----------------- Total assets $ 320,536,756 $ 278,957,999 ================= ================= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 82,613,236 $ 59,307,636 Accrued expenses 18,906,275 9,656,433 Other 8,297,137 6,196,692 ----------------- ----------------- Total current liabilities 109,816,648 75,160,761 Long-Term Liabilities 3,746,453 4,247,075 ----------------- ----------------- Total liabilities 113,563,101 79,407,836 ----------------- ----------------- Shareholders' Equity: Preferred stock, $.01 par value; 1,000,000 shares authorized, no shares issued and outstanding - - Common stock, $.01 par value; 60,000,000 shares authorized, 36,879,696 and 35,122,472 shares issued and outstanding at December 31, 1996 and March 29, 1996, respectively 368,797 351,225 Additional paid-in capital 206,246,973 200,193,475 Retained earnings (deficit) 329,390 (994,537) Foreign currency translation 28,495 - ----------------- ----------------- Total shareholders' equity 206,973,655 199,550,163 ----------------- ----------------- Total liabilities and shareholders' equity $ 320,536,756 $ 278,957,999 ================= =================
The accompanying notes are an integral part of these condensed consolidated statements. 3 4 PHYSICIAN SALES & SERVICE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1996 1995 1996 1995 ----------------- ----------------- ----------------- ----------------- Net Sales $ 179,612,457 $ 137,600,259 $ 503,538,713 $ 385,722,103 Cost of Goods Sold 128,558,548 98,459,856 363,882,167 276,912,791 ----------------- ----------------- ----------------- ----------------- Gross Profit 51,053,909 39,140,403 139,656,546 108,809,312 General and Administrative Expenses 27,819,398 21,417,857 77,485,348 61,333,559 Selling Expenses 17,009,688 12,742,837 46,373,075 35,521,522 Merger Costs and Expenses 317,388 3,483,744 7,251,388 15,578,560 ----------------- ----------------- ----------------- ----------------- Income (Loss) From Operations 5,907,435 1,495,965 8,546,735 (3,624,329) ----------------- ----------------- ----------------- ----------------- Other Income (Expense): Interest income (expense) 543,107 (230,499) 1,593,772 (2,196,821) Other income 691,266 617,506 1,343,511 1,171,200 ----------------- ----------------- ----------------- ----------------- 1,234,373 387,007 2,937,283 (1,025,621) ----------------- ----------------- ----------------- ----------------- Income (Loss) Before (Provision) Benefit for Income Taxes 7,141,808 1,882,972 11,484,018 (4,649,950) Income Tax (Provision) Benefit (2,677,000) (565,000) (4,407,000) 104,450 ----------------- ----------------- ----------------- ----------------- Net Income (Loss) $ 4,464,808 $ 1,317,972 $ 7,077,018 $ (4,545,500) ================= ================= ================= ================= Net Income (Loss) Per Common and Common Equivalent Share $ 0.12 $ 0.04 $ 0.19 $ (0.17) ================= ================= ================= ================= Weighted average number of shares outstanding 36,733,000 31,494,000 36,346,000 26,749,000 ================= ================= ================= =================
The accompanying notes are an integral part of these condensed consolidated statements. 4 5 PHYSICIAN SALES & SERVICE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, 1996 1995 ---------------- ---------------- Cash Flows From Operating Activities: Net income (loss) $ 7,077,018 $ (4,545,500) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 3,509,565 2,918,361 Merger costs and expenses 6,469,506 5,795,750 Foreign currency translation 28,495 - Changes in operating assets and liabilities, net of effects from business acquisitions: Increase in accounts receivable (13,229,704) (23,173,139) Increase in inventories (6,378,727) (22,847,565) Decrease (increase) in prepaid expenses and other current assets 5,919,913 (4,993,132) Increase in other assets (8,200,198) (79,547) Increase in accounts payable, accrued expenses and other liabilities 9,216,313 28,124,074 ---------------- ---------------- Net cash provided by (used in) operating activities 4,412,181 (18,800,698) ---------------- ---------------- Cash Flows From Investing Activities: Capital expenditures (3,297,745) (3,152,896) Payment for purchases of net assets from business acquisitions (5,083,487) (1,887,652) Payments on noncompete agreements (1,178,932) (514,722) ---------------- ---------------- Net cash used in investing activities (9,560,164) (5,555,270) ---------------- ---------------- Cash Flows From Financing Activities: Net repayments of long-term debt (17,829,744) (31,132,889) Net proceeds from issuance of common stock 1,949,256 146,691,753 Distributions to former S-Corporation shareholders (1,100,000) (365,000) ---------------- ---------------- Net cash (used in) provided by financing activities (16,980,488) 115,193,864 Net (decrease) increase in cash and cash equivalents (22,128,471) 90,837,896 Cash and cash equivalents, beginning of period 86,333,789 1,231,205 ---------------- ---------------- Cash and cash equivalents, end of period $ 64,205,318 $ 92,069,101 ================ ================
The accompanying notes are an integral part of these condensed consolidated statements. 5 6 PHYSICIAN SALES & SERVICE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION The condensed consolidated financial statements of Physician Sales & Service, Inc. ("PSS" or "the Company") reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations for the periods indicated. The adjustments include the retroactive adjustment to reflect a three-for-one stock split effective September 22, 1995 and give effect to the merger with Taylor Medical Incorporated ("Taylor") effective August 21, 1995 and to the merger with Treadway Enterprises, Inc. ("X-ray Georgia") effective December 20,1996, both accounted for under the pooling-of-interests method. The accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and related notes in the Company's 1996 Annual Report to Shareholders. 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. 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 During the three months ended December 31, 1996, the Company merged with three radiology and imaging distributors (the "X-ray Companies") in stock-for-stock mergers accounted for under the pooling-of-interests method. The accompanying consolidated financial statements have been restated for periods prior to the pooling for the merger with X-ray Georgia. The accompanying consolidated financial statements have not been restated for periods prior to the poolings due to the immateriality of the mergers with Diagnostic Imaging, Inc. ("DI") and Chesapeake X-ray Corporation ("Chesapeake"). Accordingly, the results of operations of DI and Chesapeake have been reflected in the consolidated financial statements prospectively from the acquisition dates in November and December of 1996 respectively. The X-ray Companies distribute radiology and imaging equipment, chemicals and supplies, and provide technical service to the acute and altenate site markets with combined annual revenues of approximately $140 million. Merger costs and expenses of $0.3 million associated with the mergers of PSS and three radiology and imaging distributors were recorded during the three months ended December 31, 1996. Such costs included direct merger costs primarily consisting of investment banking, legal, accounting and filing fees. Additional merger costs and expenses will be recorded next quarter related to the consolidation of duplicate service center locations, realigning regional and corporate functions, consolidating information systems and reducing personnel. On November 25, 1996, the Company acquired DI in a merger pursuant to which the Company issued 662,330 shares of Common Stock to the former shareholders of DI, of which 99,351 shares are currently being held in escrow to indemnify the Company against certain potential losses related to the operation of DI prior to the merger in exchange for all of the outstanding shares of capital stock of DI valued at $12.8 million at the time of the merger. The shares were issued in a private placement to 14 investors, pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act of 1933, as amended. On December 19, 1996, the Company acquired Chesapeake in a merger pursuant to which the Company issued 377,790 shares of Common Stock to the former shareholders of Chesapeake, of which 22,317 shares are currently being held in escrow in exchange for all of the outstanding shares of capital stock of Chesapeake valued at $7.0 million at the time of the merger. The shares were issued in a private placement to two accredited investors. On December 20, 1996, the Company acquired X-ray Georgia in a merger pursuant to which the Company issued 593,672 shares of Common Stock to the former shareholders of X-ray Georgia, of which 52,675 shares are currently being held in escrow in exchange for all of the outstanding shares of capital stock of X-ray Georgia valued at $11.0 million at the time of the merger. The shares were issued in a private placement to two accredited investors. No underwriters were engaged in connection with the foregoing sales of securities. 6 7 PHYSICIAN SALES & SERVICE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) X-ray Georgia was a Subchapter S Corporation for income tax purposes and, therefore did not pay U.S. federal income taxes. X-ray Georgia will be included in the Company's U.S. federal income tax return subsequent to the date of acquisition. Separate net sales, net income (loss) and related per share amounts of merged entities are presented in the following table. In addition, the table includes unaudited pro forma net income (loss) and net income (loss) per share amounts which reflect pro forma adjustments to present income taxes of X-ray Georgia on the basis on which they will be reported in future periods.
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1996 1995 1996 1995 ----------------- ----------------- ----------------- ----------------- Net Sales PSS $ 168,742,840 $ 126,310,856 $ 470,356,925 $ 351,293,124 X-ray Georgia 10,869,617 11,289,403 33,181,788 34,428,979 ----------------- ----------------- ----------------- ----------------- Total $ 179,612,457 $ 137,600,259 $ 503,538,713 $ 385,722,103 Net Income (Loss) PSS $ 4,053,770 $ 1,030,714 $ 6,138,847 $ (5,172,807) X-ray Georgia 411,038 287,258 938,171 627,307 ----------------- ----------------- ----------------- ----------------- Net Income (Loss) as Reported 4,464,808 1,317,972 7,077,018 (4,545,500) Pro forma Tax Provision for X-ray Georgia 156,194 109,158 356,505 238,377 ----------------- ----------------- ----------------- ----------------- Pro forma Net Income (Loss) $ 4,308,614 $ 1,208,814 $ 6,720,513 $ (4,783,877) Net Income (Loss) Per Share As Reported $ 0.12 $ 0.04 $ 0.19 $ (0.17) Pro forma $ 0.12 $ 0.04 $ 0.19 $ (0.18)
Additionally, during the three months ended December 31, 1996, the Company acquired a medical supplies and equipment distributor based in Germany in a cash-for-stock acquisition. Accordingly, the results of operations have been reflected in the consolidated financial statements prospectively from the acquisition date. 7 8 PHYSICIAN SALES & SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company was incorporated in 1983 in Jacksonville, Florida. Since its inception, the Company has achieved significant growth in the number of service center locations, geographic areas of operation, net sales, and profitability. The number of Company service centers has grown from two located in Florida at the end of fiscal 1984 to 61 service centers located throughout the United States distributing to approximately 92,000 office sites in all 50 states and service centers located in Belgium and Germany. During fiscal years 1992 through 1996, PSS's net sales grew at a compound annual rate of 40.5%, excluding the effect of restatement due to material acquisitions accounted for under the pooling-of-interests method. Giving retroactive effect of restatement, the Company's net sales grew at a compound rate of 28.2% during that same period. WorldMed International, Inc., a wholly owned subsidiary of the Company, was recently established by the Company to manage and develop the international medical supply and equipment distribution, consolidation, and growth opportunities. During the three months ended June 30, 1996, WorldMed International acquired Deckers, a Belgian based medical equipment and supply distributor to hospitals and physician offices in Belgium, Germany, and France with approximate annual sales of U.S. $15.5 million. During the three months ended September 30, 1996, the Company acquired the assets of another Belgian based medical equipment and supply distributor with last 12 month's revenues approximating U.S. $3.5 million. During the three months ended December 31, 1996, the Company acquired Franz Medical, a distributor of medical supplies and equipment to the German health care market with annual revenues of approximately U.S. $2.7 million. The Company's international market objective is to pursue acquisition opportunities throughout the European medical equipment and supply distribution market through its WorldMed International subsidiary. In November 1996, the Company completed its merger with DI of Jacksonville, Florida. DI distributes radiology and imaging equipment, chemicals and supplies, and provides technical service to the acute and alternate site markets through 13 locations in 5 southeastern states. DI reported $58.0 million in revenues for the twelve month period ended June 30, 1996. In December 1996, the Company completed mergers with X-ray Georgia, based in Atlanta, GA and Chesapeake based in Roanoke, VA. Both companies distribute radiology and imaging equipment, chemicals and supplies, and provide technical service to the acute and alternate site markets. X-ray or Georgia and Chesapeake had revenues of $45 million and $37 million for the latest twelve month period, respectively. The Company's objective is to pursue acquisition opportunities within the radiology and imaging distribution market which will position the consolidated Company to gain market share within this market and expand the product offerings to the physician office market currently serviced by PSS. While the Company's objectives have been expanded to include international expansion into the European medical equipment and supply market and to pursue multimarket medical distribution opportunities, such as radiology and imaging distribution, within the United States, the Company's primary objective is to be capable of servicing the medical equipment and supply needs of every office-based physician in the United States. To achieve this objective and expand profitability, PSS intends to (i) continue its efforts to acquire local and regional medical supply distributors to office-based physicians in select U.S. markets; (ii) increase sales of existing service centers by adding additional sales representatives and providing superior service, competitive pricing, and a broad product line which includes sophisticated diagnostic equipment marketed by PSS on an exclusive and semi-exclusive basis; (iii) continue expanding operating margins by increasing sales force productivity, focusing on growth through acquisitions rather than start-ups which initially entail significant losses, reducing product costs through volume purchase arrangements, leveraging fixed distribution costs, and improving operational efficiencies through system enhancements; and (iv) opening new service centers in select markets where acquisition opportunities are not available. This filing contains forward-looking information that is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected. 8 9 PHYSICIAN SALES & SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS The following is management's discussion and analysis of the results of operations for the three and nine months ended December 31, 1996 and 1995: THREE AND NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995 NET SALES. Net sales for the three months ended December 31, 1996 totaled $179.6 million, an increase of $42.0 million or 30.5% over net sales of $137.6 million for the three months ended December 31, 1995. Net sales for the nine months ended December 31, 1996 totaled $503.5 million, an increase of $117.8 million or 30.5% over net sales of $385.7 million for the nine months ended December 31, 1995. In order of contribution to the increase, net sales increased as the result of (i) internal sales growth of centers operating at least two years, (ii) incremental sales generated in connection with the Distribution Agreement with Abbott Laboratories ("Abbott Agreement") and (iii) net sales of centers acquired during the first nine months of fiscal 1997. The Company's service centers operating for at least 24 consecutive months as of fiscal year ended 1997 generated same center sales growth of 20.0% for the nine months ended December 31, 1996. The sales growth resulted from the continued development of PSS's sales force, further market penetration, increased emphasis on diagnostic equipment and supplies, and expansion of existing territories served by individual service centers. GROSS PROFIT. Gross profit for the three months ended December 31, 1996 totaled $51.1 million, an increase of $11.9 million or 30.4% over the three months ended December 31, 1995 total of $39.1 million. Gross profit for the nine months ended December 31, 1996 totaled $139.7 million, an increase of $30.8 million or 28.4% over the nine months ended December 31, 1995 total of $108.8 million. Gross profit as a percentage of net sales decreased to 28.4% and 27.7% for the three and nine months ended December 31, 1996 from 28.5% and 28.2% for the three and nine months ended December 31, 1995. The decrease in gross profit percentage is attributable to lower margins on diagnostic products distributed under the Abbott Agreement and lower margins of the X-ray Companies recently acquired, which had an average gross profit of 20.3% for the three months ended December 31, 1996. The Company is currently in the second year of a five year exclusive distributorship agreement with Abbott Laboratories. For the three and nine months ended December 31, 1996, the Company sold approximately $30.6 million and $84.3 million of Abbott product with a gross profit percentage of 22.8% and 21.6%,respectively. Margins under the Abbott Agreement are scheduled to increase annually based on achievement by the Company of certain performance goals as stipulated therein. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the three months ended December 31, 1996 totaled $27.8 million, an increase of $6.4 million or 29.9% over the three months ended December 31, 1995 total of $21.4 million. General and administrative expenses for the nine months ended December 31, 1996 totaled $77.5 million, an increase of $16.2 million or 26.3% over the nine months ended December 31, 1995 total of $61.3 million. As a percentage of sales, general and administrative expenses decreased to 15.5% and 15.4% for the three and nine months ended December 31, 1996 from 15.6% and 15.9% for the three and nine months ended December 31, 1995. The decrease in general and administrative expenses as a percentage of net sales was a result of the improved leveraging by PSS of its existing service centers' fixed general and administrative expenses through increased sales volume and through the successful integration of its acquired service centers into existing branches. The decrease in general and administrative expenses was accomplished while making the following investments during the past three quarters. To continue responding to a changing health care market, the Company has increased its focus on sales of diagnostic equipment to office based physicians and on penetration of the managed care market segment. Since inception, the Company has maintained a comprehensive and consultative sales 9 10 PHYSICIAN SALES & SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) approach with an emphasis on diagnostic products, which includes sophisticated diagnostic equipment and supplies related to the use of such equipment. At the beginning of fiscal 1997, the Company created a diagnostic team to train and educate newly hired or acquired sales representatives about the diagnostic equipment sales process. As a result, the Company has expanded its diagnostic products sales to 21.6% of total net sales for the three months ended December 31, 1996 as compared to 15.3% of total net sales for the three months ended December 31, 1995. Sales of diagnostic equipment, while generally lower in gross margin than supplies, require the reordering of diagnostic reagents which generally yield higher margins. Also at the beginning of fiscal 1997, the Company increased its emphasis on national customer accounts, including large physician group practices, physician practice management companies, physician-hospital organizations, physician management service organizations and group purchasing organizations through the expansion of its national accounts team. SELLING EXPENSES. Selling expenses for the three months ended December 31, 1996 totaled $17.0 million, an increase of $4.3 million or 33.5% over the three months ended December 31, 1995 total of $12.7 million. Selling expenses for the nine months ended December 31, 1996 totaled $46.4 million, an increase of $10.9 million or 30.6% over the nine months ended December 31, 1995 total of $35.5 million. As a percentage of sales, selling expenses increased to 9.5% for the three months ended December 31, 1996 from 9.3% for the three months ended December 31, 1995. As a percentage of sales, selling expenses remained constant at 9.2% for the nine months ended December 31, 1996 as compared to December 31, 1995. MERGER COSTS AND EXPENSES. During the three months ended December 31, 1996, the Company recorded $0.3 million in non-recurring merger costs and expenses related to the acquisition of the X-ray Companies. During the nine months ended December 31, 1996, the Company recorded non-recurring merger costs and expenses of approximately $7.3 million associated with the mergers of PSS and three medical supply and equipment distributors and the X-ray Companies. Such costs included direct merger costs primarily consisting of investment banking, legal, accounting and filing fees. Additional merger costs and expenses will be recorded next quarter related to the consolidation of duplicate service center locations, realigning regional and corporate functions, consolidating information systems and reducing personnel. For the three and nine months ended December 31, 1995, the Company recorded merger costs and expenses of approximately $3.5 million and $15.6 million, respectively, associated with acquisitions. OPERATING INCOME (LOSS). The Company recorded operating income of $5.9 million for the three months ended December 31, 1996 as compared to $1.5 million for the three months ended December 31, 1995. The Company recorded operating income of $8.5 million for the nine months ended December 31, 1996 as compared to an operating loss of $3.6 million for the nine months ended December 31, 1995. The operating results for the three and nine months ended December 31, 1996 include non-recurring merger costs and expenses of approximately $0.3 million and $7.3 million, respectively. The operating results for the three and nine months ended December 31, 1995 include non-recurring merger costs and expenses of approximately $3.5 million and $15.6 million, respectively. Excluding the effect of these non-recurring costs, operating income would have increased $1.2 million or 25.0% to $6.2 million for the three months ended December 31, 1996 from operating income of $5.0 million for the three months ended December 31, 1995. Excluding the effect of these non-recurring costs, operating income would have increased $3.8 million or 32.2% to $15.8 million for the nine months ended December 31, 1996 from operating income of $12.0 million for the three months ended December 31, 1995. INTEREST INCOME (EXPENSE). The Company recorded interest income of approximately $0.5 million and $1.6 million during the three and nine months ended December 31, 1996 from short term investments. At December 31, 1996 the investments had a weighted average, taxable equivalent interest rate of approximately 6.3%. There was no interest expense for the three or nine months ended December 31, 1996, as compared to a net interest expense of $0.2 million and $2.2 million for the three and nine months ended December 31, 1995. The decrease in interest expense resulted from the use of a portion 10 11 PHYSICIAN SALES & SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) of the proceeds from a public equity offering during the three months ended December 31, 1995 to repay all outstanding bank debt. OTHER INCOME. The Company's other income totaled $0.7 million and $0.6 million, an increase of $0.1 million or 11.9%, for the three months ended December 31, 1996 and 1995, respectively. The Company's other income for the nine months ended December 31, 1996 totaled $1.4 million, an increase of $0.2 million or 14.7% over the nine months ended December 31, 1995 total of $1.2 million. Other income for the three and nine months ended December 31, 1996 and 1995 primarily represents finance charges on customer accounts. (PROVISION) BENEFIT FOR INCOME TAXES. The income tax provision totaled $2.7 million and $0.6 for the three months ended December 31, 1996 as compared to the three months ended December 31, 1995. The income tax provision totaled $4.4 million for the nine months ended December 31, 1996 as compared to a benefit for income taxes of $0.1 million for the nine months ended December 31, 1995. The income tax (provision) benefit computation is affected by the non-deductible nature of certain non-recurring merger costs and expenses in the period in which they were incurred. NET INCOME (LOSS). Net income totaled $4.5 million for the three months ended December 31, 1996 as compared to $1.3 million for the three months ended December 31, 1995. Net income totaled $7.1 million for the nine months ended December 31, 1996 as compared to a net loss of $4.5 million for the nine months ended December 31, 1995. The net income (loss) for the nine months ended December 31, 1996 and 1995 include non-recurring merger costs and expenses of approximately $7.3 million and $15.6 million, respectively. The following table shows net income (loss) and earnings (loss) per share for the nine months ended December 31, 1996 as compared to the nine months ended December 31, 1995 as reported and the pro-forma effect on net income and earnings per share excluding these non-recurring merger costs and expenses and the related tax benefits.
Pro-forma excluding merger costs and expenses As reported Nine Months Ended Nine Months Ended December 31, 1996 December 31, 1995 December 31, 1996 December 31, 1995 ----------------- ----------------- ----------------- ----------------- Net income (loss) (in thousands) $ 11,949 $ 6,708 $ 7,077 $ (4,546) Net income (loss) per share $ 0.33 $ 0.24 $ 0.19 $ (0.17)
LIQUIDITY AND CAPITAL RESOURCES The Company had working capital of $167.4 million and $173.8 million as of December 31, 1996 and March 29, 1996, respectively. The decrease in working capital was primarily attributable to the acquisitions of medical supply and equipment distributors during the first three quarters of fiscal 1997. Net cash provided by operating activities was $4.4 million for the nine months ended December 31, 1996 compared to net cash used in operating activities of $18.8 million for the nine months ended December 31, 1995. For the nine months ended December 31, 1996, a portion of the growth in accounts receivable, inventories, and other assets was funded by stock through pooling transactions and thus did not require the use of cash. For the nine months ended December 31, 1995, these funds were utilized principally to fund the growth in the Company's accounts receivable and inventories from new service centers and continued growth in existing service centers and to consolidate the closing of duplicate service center locations, realigning regional and corporate functions, consolidating information systems and reducing personnel in conjunction with mergers. 11 12 PHYSICIAN SALES & SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The net cash used in investing activities for the nine months ended December 31, 1996 consisted primarily of capital expenditures and the payment for purchases of net assets from business acquisitions. The net cash used in financing activities of $17.0 million for the nine months ended December 31, 1996 consisted primarily of debt repayment of $17.8 million assumed in connection with business acquisitions offset by proceeds from the issuance of common stock of $1.9 million and distribution to former S-Corportation shareholders of $1.1 million. The net cash provided by financing activities of $115.2 million for the nine months ended December 31, 1995 consisted primarily of $126.7 million in net proceeds received from the Company's public offering of common stock which was used to pay off debt in the amount of $31.1 million and distribution to former S-Corporation shareholders of $0.4 million. Accounts receivable (net of allowances) were $120.1 million and $96.1 million as of December 31, 1996 and March 29, 1996, respectively. The average number of days sales in accounts receivable was approximately 56 days as of December 31, 1996 and 58 days as of March 29, 1996. Inventories were $76.1 million and $55.8 million as of December 31, 1996 and March 29, 1996, respectively. The Company had annual inventory turnover of 8.7 times for the nine months ended December 31, 1996 and 8.0 times for the year ended March 29, 1996. The Company has historically financed its liquidity needs for expansion through lines of credit provided by banks and the private and public offering of stock. The Company has no debt outstanding on its $60 million credit facility. Inventory financing has historically been achieved through negotiating extended payment terms from suppliers. The Company believes that its current cash and cash equivalent balances combined with the expected cash flows from operations, available credit facility, capital markets, and vendor credit will be sufficient to fund its liquidity needs for its existing operations and for service center expansion for at least the next two years. 12 13 PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS
EXHIBIT NO. DESCRIPTION ----------- ----------- 3.1 Amended and Restated Articles of Incorporation dated March 15, 1994. (1) 3.2 Amended and Restated Bylaws dated March 15, 1994. (1) 10.1 Financing and Security Agreement between the Company and NationsBank of Georgia, N.A., (as successor to NCNB National Bank of Florida), dated as of September 26, 1991, as amended.(2) 10.2 Registration Rights Agreement between the Company and Tullis-Dickerson Capital Focus, L.P., dated as of March 16, 1994. (2) 10.3 Employment Contract, as amended, for Patrick C. Kelly. (2) 10.4 Incentive Stock Option Plan dated May 14, 1986. (2) 10.5 Shareholders Agreement dated March 26, 1986, between the Company, the Charthouse Co., Underwood, Santioni and Dunaway. (2) 10.6 Shareholders Agreement dated April 10, 1986, between the Company and Clyde Young. (2) 10.7 Shareholders Agreement between the Company and John D. Barrow. (2) 10.8 Amended and Restated Directors Stock Plan. (7) 10.9 Amended and Restated 1994 Long Term Incentive Plan. (7) 10.10 Amended and Restated 1994 Long Term Stock Plan. (7) 10.11 1994 Employee Stock Purchase Plan. (3) 10.12 1994 Amended Incentive Stock Option Plan. (2) 10.13 Amended and Restated Loan and Security Agreement between the Company and NationsBank of Georgia, N.A. dated December 21, 1994. (4) 10.14 Distributorship Agreement between Abbott Laboratories and Physician Sales & Service, Inc. (Portions omitted as confidential - Separately filed with Commission). (5) 10.15 Stock Purchase Agreement between Abbott Laboratories and Physician Sales & Service, Inc. (5) 10.16 Intentionally Omitted 10.17 Third Amended and Restated Agreement and Plan of Merger By and Among Taylor Medical, Inc. and Physician Sales & Service, Inc. (including exhibits thereto) (6)
13 14 PART II OTHER INFORMATION (CONTINUED) (A) EXHIBITS
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.18 Agreement and Plan of Merger by and among Physician Sales & Service, Inc., PSS Merger Corp. and Treadway Enterprises, Inc. (8) 21.1 Subsidiaries of the registrant. 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-1 No. 33-76580. (3) Incorporated by Reference to the Company's Registration Statement on Form S-8, filed October 7, 1994. (4) Incorporated by Reference to the Company's Report on Form 10-Q for the quarterly period ended December 31, 1994. (5) Incorporated by Reference to the Company's Report on Form 10-K for the fiscal year ended March 30, 1995. (6) Incorporated by Reference to the Company's Report on Form 10-K for the fiscal year ended March 29, 1996. (7) Incorporated by Reference to the Company's 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. (B) REPORTS ON FORM 8-K The Company reported on December 9, 1996 (under Item 2, Acquisition or Disposition of Assets) that the Company had acquired Diagnostic Imaging, Inc. by a subsidiary merger. 14 15 OTHER INFORMATION 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 13, 1997. PHYSICIAN SALES & SERVICE, INC. /s/ David A. Smith ---------------------------------- David A. Smith Executive Vice President and Chief Financial Officer 15 EX-21.1 2 SUBSIDIARIES 1 EXHIBIT 21.1 SUBSIDIARIES
Named under which such Jurisdiction of Subsidiaries Conduct Subsidiary Incorporation Business ---------- ------------- -------- PSS Rhode Island, Inc. Rhode Island Pss Texas, Inc. Texas PSS Delaware, Inc. Delaware PSS Physician Services, Inc. Florida Standard/Crescent City Surgical Supplies, Louisiana Inc. PSS Taylor Medical, Inc. Delaware PSS Taylor *Taylor Medical Used Equipment, Inc. Delaware *Desert Medical Supply, Inc. Delaware *Taylor Medical of Louisiana, Inc. Louisiana Brown's Medical Supply Company Nebraska PSS Brown's Medical Medical Service Company, Inc. New Jersey Y-Labortories & Supplies, Inc. Mississippi WorldMed, Inc. Delaware WorldMed International, Inc. Delaware WorldMed, N.V. Belgium Diagnostic Imaging, Inc. Florida American Medical Diagnostic Imaging, Inc. Florida Diagnostic Imaging of the Carolinas, Inc. North Carolina Kings Diagnostic Imaging, Inc. Florida United X-Ray Company, Inc. Alabama Treadway Enterprises, Inc. Georgia X-Ray of Georgia Chesapeake X-Ray Corporation Virginia
All subsidiaries are 100% owned by Physician Sales & Service, Inc., except for (i) those designated by an asterisk which are 100% owned by PSS Taylor Medical, Inc. and (ii) WorldMed, N.V. which is owned by WorldMed, Inc. and WorldMed International, Inc. 16 EX-27 3 FINANCIAL DATA SCHEDULE
5 1 U.S. DOLARS 9-MOS MAR-28-1997 MAR-30-1996 DEC-31-1996 1 64,205,318 0 122,781,170 2,664,364 76,133,964 277,177,639 33,519,368 14,998,427 320,536,756 109,816,648 0 0 0 368,797 206,604,858 320,536,756 503,538,713 503,558,213 363,882,167 363,882,167 129,817,646 1,292,165 0 11,484,018 4,407,000 7,077,018 0 0 0 7,077,018 0.19 0
-----END PRIVACY-ENHANCED MESSAGE-----