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 March 31, 1995
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
incorporation or organization) Identification No.)
4800 Cox Road, Glen Allen, Virginia 23060
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 747-9794
(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 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No _____
The number of shares of the Company's Common Stock outstanding
as of April 25, 1995 was 30,815,991 shares.
Owens & Minor, Inc. and Subsidiaries
Index
Part I. Financial Information
Consolidated Balance Sheets - March 31, 1995 and
December 31, 1994
Consolidated Statements of Income - Three Months Ended
March 31, 1995 and 1994
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1995 and 1994
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>
<S> <C> <C>
(In thousands, except per share data) March 31, December 31,
1995 1994
Assets
Current assets
Cash and cash equivalents $ 261 $ 513
Accounts and notes receivable, net 306,321 290,240
Merchandise inventories 353,757 323,851
Other current assets 25,799 26,222
Total current assets 686,138 640,826
Property and equipment, net 38,743 38,620
Excess of purchase price over net
assets acquired, net 174,688 175,956
Other assets 18,774 13,158
Total assets $ 918,343 $ 868,560
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt $ 236 $ 236
Accounts payable 274,279 296,878
Accrued payroll and related liabilities 9,472 11,294
Other accrued liabilities 46,935 50,630
Total current liabilities 330,922 359,038
Long-term debt 323,304 248,427
Other liabilities 5,496 4,919
Total liabilities 659,722 612,384
Shareholders' equity
Preferred stock, par value $100 per share;
authorized - 10,000 shares
Series A; Participating Cumulative
Preferred Stock; none issued - -
Series B; Cumulative Preferred
Stock; 4 1/2%, convertible;
issued - 1,150 shares 115,000 115,000
Common stock, par value $2 per share;
authorized - 200,000 shares; issued -
30,808 shares in 1995 and 30,764 in 1994 61,616 61,528
Paid-in capital 1,631 1,207
Retained earnings 80,374 78,441
Total shareholders' equity 258,621 256,176
Commitments and contingencies
Total liabilities and shareholders'
equity $ 918,343 $ 868,560
</TABLE>
See Notes to Consolidated Financial Statements
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)
Three Months Ended March 31,
<TABLE>
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1995 1994
Net sales $ 747,095 $ 390,794
Cost of sales 674,187 351,668
Gross margin 72,908 39,126
Selling, general and administrative 53,561 28,373
expenses
Depreciation and amortization 3,516 2,302
Interest expense, net 5,391 768
Nonrecurring restructuring expenses 2,661 -
Total expenses 65,129 31,443
Income before income taxes 7,779 7,683
Provision for income taxes 3,166 2,927
Net income 4,613 4,756
Dividends on preferred stock 1,294 -
Net income attributable to common stock $ 3,319 $ 4,756
Net income per common share $ 0.11 $ 0.15
Cash dividends per common share $ 0.045 $ 0.035
Weighted average common shares
and common share equivalents 31,087 31,133
</TABLE>
See Notes to Consolidated Financial Statements
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands) Three Months Ended March 31,
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1995 1994
Operating Activities
Net income $ 4,613 $ 4,756
Noncash charges to income
Depreciation and amortization 3,516 2,302
Provision for losses on accounts and
notes receivable 121 -
Provision for LIFO reserve 962 1,381
Other, net 559 243
Cash provided by net income and noncash 9,771 8,682
charges
Change in assets and liabilities
Accounts and notes receivable (16,202) (661)
Merchandise inventories (30,868) (22,457)
Accounts payable (65,174) 11,619
Net change in other current assets
and current liabilities (4,157) 1,198
Other, net (3,935) 850
Cash used for operating activities (110,565) (769)
Investing Activities
Additions to property and equipment (2,363) (662)
Other, net (2,030) (233)
Cash used for investing activities (4,393) (895)
Financing Activities
Additions to long-term debt 74,696 11,412
Reductions of long-term debt (59) (361)
Other short-term financing 42,575 (8,627)
Cash dividends paid (2,680) (1,073)
Exercise of options 174 307
Cash provided by financing activities 114,706 1,658
Net decrease in cash and cash (252) (6)
equivalents
Cash and cash equivalents at beginning 513 2,048
of year
Cash and cash equivalents at end of $ 261 $ 2,042
period
</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 March 31, 1995 and the results of operations and cash flows
for the three month periods ended March 31, 1995 and 1994.
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. Nonrecurring Restructuring Expenses
During the first quarter, the Company incurred $2.7 million of
nonrecurring restructuring expenses related to the Company's
restructuring plan developed in connection with the Company's
May 1994 combination with Stuart Medical, Inc. (Stuart) and its
related decision to contract out the management and operation
of its mainframe computer system. The restructuring expenses
incurred during the first quarter of 1995 relate primarily to
duplicate facility costs. All facility consolidations are
expected to be completed during 1995 with total 1995
restructuring expenses approximating $9.0 million. At March
31, 1995, accrued restructuring expenses were $1.5 million.
Item 2.
Owens & Minor, Inc. and Subsidiaries
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Net Sales
During the first quarter of 1995 net sales increased 91.2% to $747.1
million from $390.8 million in the first quarter of 1994 due
primarily to the combination with Stuart. Assuming the Stuart
combination had occurred January 1, 1994, the increase would have
been approximately 16% for the quarter. This "same store" sales
increase is due primarily to new contracts with large healthcare
providers such as Columbia/HCA Healthcare Corp., Premier Health
Alliance and the Department of Defense; a new distribution agreement
with VHA, the Company's largest contract; and the continued product
line expansion by the Company.
For the first three months of 1995, members of VHA were given the
opportunity to choose one of four medical/surgical supply
distributors as their authorized distribution agent (ADA). In
addition to Owens & Minor, the distribution choices were Shared
Service Systems of Nebraska, the Burrows Company and newly added
Baxter distribution. Under terms of an agreement reached between VHA
and Baxter manufacturing, all ADAs will be authorized to distribute
a selected group of Baxter manufacturing products to VHA healthcare
organizations. VHA has informed the Company that 95% of its
membership has made their selection, and of the 911 accounts
previously doing business under the ADA agreement with Owens & Minor,
88% have been retained by the Company. In terms of revenue, it is
anticipated that the Company will keep approximately 85% of this VHA
volume, and the Company anticipates that the loss of volume will be
offset by the gain in distributing Baxter's self-manufactured
products to VHA hospitals and by increasing market share within VHA
facilities as a result of the expanded volume commitment of non-
traditional products by these accounts. Non-traditional products,
in this case, are products that have historically been sold direct
to hospitals by manufacturers, but are now beginning to come through
distribution, or products that have been sold through other channels
of distribution that are being consolidated through one distributor.
With VHA's expanded membership of 1,199 healthcare providers and
their increased potential, which includes for the first time a select
group of Baxter's self-manufactured products, the Company expects to
service approximately two-thirds of VHA's medical/surgical volume.
Gross Margin
Gross margin as a percentage of net sales declined to 9.8% in the
first quarter of 1995 from 10.0% in the first quarter of 1994. The
decrease was a result of the increase in sales from large lower
margin contracts. As the healthcare industry consolidates, gross
margin as a percent to net sales continues to be under pressure.
However, the Company should continue to be able to offset decreases
in gross margin percentages with an increase in sales volume,
producing an increase in gross margin dollars (86.3% for the first
quarter).
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of net
sales decreased from 7.3% in the first quarter of 1994 to 7.2% in
the first quarter of 1995. However, SG&A as a percentage of sales
has increased as compared to the year 1994 (6.8%). This increase was
primarily due to incremental costs associated with the VHA sign-up
period ended March 31, 1995, and incremental costs of handling
additional inventory. The additional inventory has been obtained to
ensure product availability to customers during the distribution
center combination process and the start-up of new contracts.
Depreciation and Amortization
Depreciation and amortization increased by $1.2 million in the first
quarter of 1995 compared to the first quarter of 1994 due primarily
to the additional goodwill amortization and depreciation expenses
related to the Stuart combination and the depreciation of the
Company's continued investment in new and improved technology.
Interest Expense, Net
Interest expense, net of interest income, increased from $.8 million
in 1994 to $5.4 million in 1995. The increase was the result of
increased borrowing to finance the combination with Stuart and the
unfavorable trend in interest rates.
Nonrecurring Restructuring Expenses
During the first quarter, the Company incurred $2.7 million of
nonrecurring restructuring expenses related to the Company's
restructuring plan developed in connection with the Company's May
1994 combination with Stuart and its related decision to contract out
the management and operation of its mainframe computer system. The
restructuring expenses incurred during the first quarter of 1995
relate primarily to duplicate facility costs. All facility
consolidations are expected to be completed during 1995, with total
1995 restructuring expenses approximating $9.0 million.
Net Income
During the quarter, the Company recorded lower net income than 1994
due to the anticipated nonrecurring restructuring expenses previously
mentioned. Without these nonrecurring expenses and the related tax
benefit, the Company earned approximately $6.2 million or $.16 per
common share. The increase in net income prior to nonrecurring
expenses was due primarily to increased sales.
Financial Condition
During the first quarter, the Company increased its long-term debt
to finance its technology initiatives and inventory increases. As
a result, the current ratio and capitalization ratio have increased
and inventory turnover has decreased. Debt should decline as
inventory is reduced with the consolidation of distribution centers.
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March 31, 1995 December 31, 1994
Return on Common Equity* 15.8% 16.2%
Current Ratio 2.1 1.8
Inventory Turnover 8.4 8.8
Accounts Receivable Days Sales 35.5 35.9
Capitalization Ratio 55.6% 49.2%
</TABLE>
* Excludes impact of nonrecurring restructuring expenses and related
tax benefit.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
Financial Data Schedule
(b) There were no reports on Form 8-K for the three
months ended March 31, 1995.
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.
(Registrant)
Date /s/ Glenn J. Dozier
Glenn J. Dozier
Senior Vice President, Finance,
Chief Financial Officer
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<PERIOD-END> MAR-31-1995
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<RECEIVABLES> 311,781
<ALLOWANCES> 5,460
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115,000
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