UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to _________
Commission file number 1-9810
OWENS & MINOR, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1701843
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4800 Cox Road, Glen Allen, Virginia 23060
(Address of principal executive offices) (Zip Code)
(804) 747-9794
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report.)
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 month
(or for such shorter period that
the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past 90 days. YES X NO
|The number of shares of the Company's Common Stock outstanding as of
October 31, 1994 was 30,714,195.
Owens & Minor, Inc. and Subsidiaries
Index
Part I Financial Information
Consolidated Balance Sheets - September 30, 1994 and
December 31, 1993
Consolidated Statements of Income - Three Months and
Nine Months Ended September 30, 1994 and 1993
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1994 and 1993
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of Results of
Operations and Financial Condition
Part II Other Information
Part I. Financial Information
Item 1. Financial Statements
Owens & Minor, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
(In thousands, except per share data)
September 30, December 31
1994 1993
Assets
Current assets
<S> <C> <C>
Cash and cash equivalents $ 344 $ 2,048
Accounts and notes receivable, net 267,716 144,629
Merchandise inventories 320,890 124,848
Other current assets 20,916 10,638
Total current assets 609,866 282,163
Property and equipment, net 37,465 23,863
Excess of purchase price over net assets 166,524 17,316
acquired, net
Other assets 10,630 10,980
Total Assets $ 824,485 $ 334,322
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt $ 275 $ 1,494
Accounts payable 264,080 120,699
Accrued payroll and related liabilities 11,859 5,768
Other accrued liabilities 46,839 15,111
Total current liabilities 323,053 143,072
Long-term debt 245,341 50,768
Other liabilities 4,672 3,539
Total Liabilities 573,066 197,379
Stockholders' equity
Preferred stock, par value $100;
authorized - 10,000 shares
Series A: Participating Cumulative
Preferred Stock; none issued - -
Series B: Participating Cumulative
Preferred Stock; 4 1/2%,
convertible; issued - 1,150 115,000 -
Common stock, par value $2.00;
authorized - 200,000 shares;
issued-30,710 and 20,285 shares 61,420 40,569
Paid-in capital 684 9,258
Retained earnings 74,315 87,116
Total Stockholders' Equity 251,419 136,943
Commitments and contingencies
Total Liabilities and Stockholders' Equity $ 824,485 $ 334,322
</TABLE>
See Notes to Consolidated Financial Statements
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net sales $ 693,004 $ 361,959 $1,665,561 $1,020,992
Cost of sales 626,770 323,808 1,503,392 913,553
Gross margin 66,234 38,151 162,169 107,439
Selling, general and 46,445 27,611 115,570 78,556
administrative expenses
Depreciation and amortization 3,757 1,948 9,356 5,488
Interest expense, net 3,927 829 6,915 2,134
Nonrecurring restructuring 9,037 - 27,654 -
expenses
Total expenses 63,166 30,388 159,495 86,178
Income before income taxes 3,068 7,763 2,674 21,261
Income tax expense 1,582 2,973 1,557 8,380
Income before cumulative effect
of change in accounting 1,486 4,790 1,117 12,881
principle
Cumulative effect of change in - - - 706
accounting principle
Net income 1,486 4,790 1,117 13,587
Dividends on preferred stock 1,293 - 2,020 -
Net income (loss) attributable to $ 193 $ 4,790 $ (903) $ 13,587
common stock
Net income (loss) per common share:
Income (loss) before cumulative effect of change
in accounting principle $ 0.01 $ 0.15 $ (0.03) $ 0.42
Cumulative effect of change in - - - 0.02
accounting principle
Net income (loss) per common share $ 0.01 $ 0.15 $ (0.03) $ 0.44
Cash dividends per common share $ 0.045 $ 0.035 $ 0.125 $ 0.105
Weighted average common shares
and common share equivalents 31,191 30,910 30,981 30,684
</TABLE>
See Notes to Consolidated Financial Statements
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
Nine Months Ended
(In thousands) September 30,
1994 1995
Operating Activities
Net income and noncash charges
<S> <C> <C>
Net income $ 1,117 $ 13,587
Noncash charges (credits) to income
Cumulative effect of change - (706)
in accounting principle
Depreciation and amortization 9,356 5,488
Provision for losses on accounts and
notes receivable 837 859
Provision for LIFO reserve 640 949
Other, net 798 675
Cash provided by net income and noncash charge 12,748 20,852
Changes in working capital
Accounts and notes receivable (123,924) (15,663)
Merchandise inventories (85,322) (39,404)
Accounts payable 21,794 21,278
Net change in other current assets
and current liabilities 37,645 320
Other, net 82 (627)
Cash used for operating activities (136,977) (13,244)
Investing Activities
Business acquisition, net of cash acquired (38,622) (2,416)
Additions to property and equipment (2,559) (5,000)
Other, net (664) (2,644)
Cash used for investing activities (41,845) (10,060)
Financing Activities
Cash dividends paid (4,986) (3,157)
Additions to long-term debt 214,192 41,900
Reductions of long-term debt (74,967) (5,121)
Other short-term financing 42,079 (7,300)
Exercise of options 800 479
Cash provided by financing activities 177,118 26,801
Net increase (decrease) in cash and (1,704) 3,497
cash equivalents
Cash and cash equivalents at beginning of year 2,048 7,068
Cash and cash equivalents at end of period $ 344 $ 10,565
</TABLE>
See Notes to Consolidated Financial Statements
Owens & Minor, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Accounting Policies
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
(which are comprised only of normal recurring accruals and the
use of estimates) necessary to present fairly the consolidated
financial position of Owens & Minor, Inc. and subsidiaries as
of September 30, 1994 and the results of operations for the
three and nine month periods ended September 30, 1994 and 1993
and cash flows for the nine month periods ended September 30,
1994 and 1993.
2. Interim Results of Operations
The results of operations for interim periods are not
necessarily indicative of the results to be expected for the
full year.
3. Interim Gross Margin Reporting
In general, the Company uses estimated gross profit rates to
determine the cost of sales during interim periods. To improve
the accuracy of its estimated gross margins for interim
reporting purposes, the Company takes physical inventories at
selected distribution centers and reported results of
operations for the quarter reflect the results of such
inventories, if materially different. Management will continue
a program of interim physical inventories at selected
distribution centers to the extent it deems appropriate to
ensure the accuracy of interim reporting and to minimize
year-end adjustments.
4. Long-Term Debt
During the third quarter of 1994 the Company entered into
interest rate swap and cap agreements to manage interest rate
risk of the Company's $350,000,000 Senior Credit Agreement.
Under the swap agreements the Company pays the counterparties
a fixed interest rate, ranging from 6.35% - 6.71%, and the
counterparties pay the Company interest at a variable rate
based on the 3 - month London Interbank Borrowing Offering Rate
(LIBOR). The total notional amount of the interest rate swaps
was $55,000,000 at September 30, 1994 and the term of the
agreements range from 2 - 3 years. Under the interest rate cap
agreements the Company is compensated by the counterparties if
the 3 -month LIBOR rate exceeds 6.5%. The notional amounts of
the cap agreements total $20,000,000 and the term of these
agreements is 2 years. The Company is exposed to certain
losses in the event of nonperformance by the counterparties to
these agreements, however the Company's exposure is not
significant and nonperformance is not anticipated.
5. Nonrecurring Restructuring Expenses
During the second and third quarters of 1994 nonrecurring
restructuring expenses were incurred under a formal
restructuring plan adopted in connection with the Company's
combination with Stuart Medical, Inc. and the Company's related
decision to contract out the management and operation of its
mainframe computer system.
The $27.7 million (pre-tax) of nonrecurring expenses are
comprised primarily of severance costs associated with
termination of employees (approximately $7.1 million), costs
of consolidating distribution facilities and offices and
increasing efficiencies within the Company (approximately $7.3
million) and costs of terminating leases and other incremental
costs associated with the contracting out of the Company's
mainframe computer operations (approximately $10.3 million).
The restructuring expenses also include approximately $3.0
million of non-cash asset write-downs. The Company anticipates
incurring additional restructuring expenses associated with
this plan, with total restructuring expenses estimated to be
$35 million.
6. Business Combination
On May 10, 1994, the Company exchanged $40.2 million in cash
and 1.15 million shares of 4.5%, $100 par value, Series B
Cumulative Preferred Stock for all the capital stock of Stuart
Medical, Inc. (Stuart), a distributor of medical/surgical
supplies. The Series B Cumulative Preferred Stock is
convertible into approximately 7.0 million shares of common
stock. The transaction was accounted for as a purchase and,
accordingly, the operating results of Stuart have been included
in the Company's consolidated operating results since May 1,
1994. The purchase price exceeded the net assets acquired by
approximately $151 million which is being amortized on a
straight-line basis over 40 years.
Item 2.
Owens & Minor, Inc. and Subsidiaries
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Net Sales
During the third quarter net sales increased 91.5% to $693.0 million in 1994
from $362.0 million in 1993. For the year sales increased 63.1% compared to
the first nine months of 1993. The sales increase is due primarily to the
combination with Stuart Medical, Inc. (Stuart), the Company's continued
market share improvement from previously announced new supply agreements
with Voluntary Hospitals of America, Inc. (VHA) and Columbia/HCA
Healthcare Corporation (Columbia/HCA), account penetration and product
line expansion. Assuming the Company's combination with Stuart had occurred
on January 1, 1993, net sales would have shown an increase of 16% for the
quarter and the nine months.
Gross Margin
Gross margin as a percentage of net sales declined during the third quarter
to 9.6% in 1994 from 10.5% in 1993. Gross margin is also down for the first
nine months from 10.5% in 1993 to 9.7% in 1994. This anticipated decline
is due primarily to lower margins in the above mentioned new national supply
contracts. Although the lower gross margin of these contracts reduces the
Company's overall gross margin as a percentage of net sales, the increase
in sales produced an increase in gross margin dollars for the first nine
months of 1994 of approximately 50.9%.
Selling, General and Administrative Expenses
In conjunction with the realization of synergies from the Stuart combination
and the benefits realized from the Company's emphasis on training and
technology development, the Company has been able to absorb the
increased sales volume without corresponding increases in
administrative expenses. These synergies and benefits have
decreased selling, general and administrative expenses as a
percentage of sales from 7.6% for the third quarter of 1993 and
7.7% for the first nine months of 1993 to 6.7% for the third
quarter of 1994 and 6.9% for the first nine months of 1994,
respectively.
Depreciation and Amortization
Depreciation and amortization increased approximately $1.8
million during the third quarter of 1994 as compared to the
third quarter of 1993 and $3.9 million for the first nine months
in 1994 compared to the same period in 1993. The increase is
due primarily to the assets acquired in the combination with
Stuart, the approximately $151 million excess of purchase price
over net assets acquired resulting from the combination and the
Company's continued investment in new and improved technology.
Interest Expense, Net
Interest expense, net of interest income, increased from $.8
million during the third quarter of 1993 to $3.9 million during
the same period in 1994. For the first nine months of 1994
interest expense, net of interest income, increased $4.8 million
compared to the same period in 1993. The increase is due to
increased borrowings to finance the combination with Stuart and
the unfavorable trend in interest rates during the first nine
months of 1994.
Income Tax Expense
The effective tax rate varied during the third quarter as a
percentage of income before income taxes from 38.3% in 1993 to
51.6% in 1994. The rate has also varied similarly year to date.
The rate variance is due to the amortization of the excess of
purchase price over net assets acquired in the Stuart
combination, which is not tax deductible, combined with the
lower income before income taxes caused by the restructuring
expenses.
Nonrecurring Restructuring Expenses
During the third quarter of 1994 the Company incurred
approximately $9.0 million of nonrecurring restructuring
expenses. These nonrecurring expenses as discussed in the
Company's 1994 proxy statement and second quarter Form 10-Q
relate to its combination with Stuart and its related decision
to contract out the management and operation of its mainframe
computer system. As discussed in note 5 of the Notes to
Consolidated Financial Statements, the expenses relate to
severance costs associated with the termination of employees,
consolidation of distribution facilities and offices, increasing
efficiencies within the Company, termination of leases and other
incremental costs related to the Company's contracting out of
its mainframe computer system. These restructuring expenses are
being recorded as incurred. Of the $27.7 million of
nonrecurring restructuring expenses incurred to date,
approximately $10.5 million will be paid in subsequent months.
Net Income
During the third quarter and the first nine months of 1994, the
Company recorded lower net income than 1993 due to the
anticipated restructuring expenses previously mentioned.
Without these nonrecurring expenses and the related tax benefit
the Company earned approximately $6.7 million or $.18 per common
share for the quarter ended September 30, 1994 and $17.6 million
or $.50 per common share for the nine months ended September 30,
1994, increases of 41.2% and 36.4%, respectively, over the same
periods in 1993. The increase in net income prior to
restructuring expenses is due primarily to the increased sales
and the reduction in operating expenses as a percent of net
sales.
Financial Condition
The Company uses several measurements for internal purposes of
managing assets, liquidity and capital resources. As a result
of, the Stuart combination the majority of measurements have
changed due to different customer bases and different management
objectives. In the transition process the Company will continue
its emphasis on management of assets, liquidity and capital
resources as a key ingredient to making the combination
successful. The following is a summary of a few of the
measurements the Company uses.
<TABLE>
<S> <C> <C> <C>
9/30/94 12/31/93 9/30/93
Return on Common Equity* 15.6% 14.6% 14.6%
Current Ratio 1.89 1.97 1.85
Inventory Turnover 8.2 11.5 10.0
Accounts Receivable Days Sales 35.6 34.2 35.2
Capitalization Ratio 49.4% 27.1% 29.3%
</TABLE>
* Excludes impact of nonrecurring restructuring expenses and
related tax benefit.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(b) There were no reports on Form 8-K for the three months ended
September 30, 1994.
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.
OWENS & MINOR, INC.
Date November 1, 1994 /s/ Glenn J. Dozier
Glenn J. Dozier
Senior Vice President, Finance,
Chief Financial Officer
Date November 1, 1994 /s/ F. Thomas Smiley
F. Thomas Smiley
Vice President, Controller
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000075252
<NAME> OWENS & MINOR INC/VA/
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 344
<SECURITIES> 0
<RECEIVABLES> 273,194
<ALLOWANCES> 5,478
<INVENTORY> 320,890
<CURRENT-ASSETS> 609,866
<PP&E> 65,621
<DEPRECIATION> 28,156
<TOTAL-ASSETS> 824,485
<CURRENT-LIABILITIES> 323,053
<BONDS> 0
<COMMON> 61,420
0
115,000
<OTHER-SE> 74,999
<TOTAL-LIABILITY-AND-EQUITY> 824,485
<SALES> 1,665,561
<TOTAL-REVENUES> 1,665,561
<CGS> 1,503,392
<TOTAL-COSTS> 1,627,481
<OTHER-EXPENSES> 27,654
<LOSS-PROVISION> 837
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<INCOME-PRETAX> 2,674
<INCOME-TAX> 1,557
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<NET-INCOME> 1,117
<EPS-PRIMARY> (.03)
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</TABLE>
