UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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)
Post Office Box 27626, Richmond, Virginia 23261-7626
- ---------------------------------------------------------------------------
(Mailing address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 747-9794
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 Owens & Minor, Inc.'s common stock outstanding as
of April 30, 1999, was 32,684,682 shares.
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Index
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income - Three
Months Ended March 31, 1999 and 1998 3
Consolidated Balance Sheets - March 31, 1999
and December 31, 1998 4
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17
Part II. Other Information
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited) Three Months Ended
March 31,
----------------------------
1999 1998
------------- -------------
Net sales $ 741,084 $ 797,950
Cost of goods sold 662,355 715,863
---------- -----------
Gross margin 78,729 82,087
---------- -----------
Selling, general and administrative expenses 58,598 60,942
Depreciation and amortization 4,461 4,468
Interest expense, net 3,096 3,613
Discount on accounts receivable securitization 995 1,609
Distributions on mandatorily redeemable
preferred securities 1,774 -
---------- -----------
Total expenses 68,924 70,632
---------- -----------
Income before income taxes 9,805 11,455
Income tax provision 4,314 4,696
---------- -----------
Net income 5,491 6,759
Dividends on preferred stock - 1,294
---------- -----------
Net income attributable to common stock $ 5,491 $ 5,465
========== ===========
Net income per common share - basic $ 0.17 $ 0.17
========== ===========
Net income per common share - diluted $ 0.17 $ 0.17
========== ===========
Cash dividends per common share $ 0.05 $ 0.05
========== ===========
See accompanying notes to consolidated financial statements.
3
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except per share data) March 31, December 31,
1999 1998
---------------------------------
Assets (Unaudited)
Current assets
Cash and cash equivalents $ 730 $ 546
Accounts and notes receivable, net
of allowance of $6,393 and $6,273 231,742 213,765
Merchandise inventories 301,257 275,094
Other current assets 8,818 14,816
---------- ----------
Total current assets 542,547 504,221
Property and equipment, net of accumulated
depreciation of $48,001 and $45,812 25,543 25,608
Goodwill, net of accumulated
amortization of $23,980 and $22,843 157,139 158,276
Other assets, net 29,700 29,663
---------- ----------
Total assets $ 754,929 $ 717,768
=========== ==========
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 241,793 $ 206,251
Accrued payroll and related liabilities 6,258 8,974
Other accrued liabilities 53,859 53,749
----------- ----------
Total current liabilities 301,910 268,974
Long-term debt 150,000 150,000
Accrued pension and retirement plans 5,809 5,668
----------- ----------
Total liabilities 457,719 424,642
----------- ----------
Company-obligated mandatorily redeemable
preferred securities of subsidiary
trust, holding solely convertible
debentures of Owens & Minor, Inc. 132,000 132,000
----------- ----------
Shareholders' equity
Preferred stock, par value $100 per share;
authorized - 10,000 shares
Series A; Participating Cumulative
Preferred Stock; none issued - -
Common stock, par value $2 per share;
authorized - 200,000 shares; issued and
outstanding - 32,686 shares and 32,618
shares 65,372 65,236
Paid-in capital 12,371 12,280
Retained earnings 87,467 83,610
----------- ----------
Total shareholders' equity 165,210 161,126
----------- ----------
Total liabilities and shareholders' equity $ 754,929 $ 717,768
=========== ==========
See accompanying notes to consolidated financial statements.
4
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands) Three Months Ended
(Unaudited) March 31,
------------------------
1999 1998
---------- -----------
Operating activities
Net income $ 5,491 $ 6,759
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 4,461 4,468
Provision for LIFO reserve 610 2,617
Provision for losses on accounts and notes
receivable 240 84
Changes in operating assets and liabilities:
Accounts and notes receivable (18,217) 11,269
Merchandise inventories (26,773) (24,484)
Accounts payable 68,307 48,551
Net change in other current assets
and current liabilities 3,393 5,092
Other 428 (1,039)
---------- -----------
Cash provided by operating activities 37,940 53,317
---------- -----------
Investing activities
Additions to property and equipment (2,124) (1,098)
Additions to computer software (134) (815)
Other, net (1,179) 26
---------- -----------
Cash used for investing activities (3,437) (1,887)
---------- -----------
Financing activities
Reduction of long-term debt - (32,550)
Other short-term financing, net (32,765) (18,986)
Cash dividends paid (1,634) (2,916)
Proceeds from exercise of stock options 80 2,689
---------- -----------
Cash used for financing activities (34,319) (51,763)
---------- -----------
Net increase (decrease) in cash and cash equivalents 184 (333)
Cash and cash equivalents at beginning of year 546 583
--------- -----------
Cash and cash equivalents at end of period $ 730 $ 250
========== ===========
See accompanying notes to consolidated financial statements.
5
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
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 its
wholly-owned subsidiaries (O&M or the company) as of March 31, 1999 and the
consolidated results of operations and cash flows for the three month periods
ended March 31, 1999 and 1998.
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
The company uses estimated gross margin rates to determine the cost of goods
sold during interim periods. To improve the accuracy of its estimated gross
margins for interim reporting purposes, the company takes physical inventory
counts at selected distribution centers. Reported results of operations for
the three month periods ended March 31, 1999 and 1998 reflect the results of
such counts, to the extent that they are materially different from estimated
amounts. 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. Restructuring Reserve
As a result of the Columbia/HCA Healthcare Corporation contract termination
in the second quarter of 1998, the company recorded a nonrecurring
restructuring charge to downsize operations. The following table sets forth
the activity in the restructuring reserve during the three month period ended
March 31, 1999:
(In thousands)
Balance at Balance at
December 31, 1998 Charges March 31, 1999
-----------------------------------------------------------------------
Losses under lease commitments $ 3,621 $ 360 $ 3,261
Asset write-offs 3,463 29 3,434
Employee separations 1,649 261 1,388
Other 508 22 486
-----------------------------------------------------------------------
Total $ 9,241 $ 672 $ 8,569
=======================================================================
Approximately 20 employees were terminated in connection with the
restructuring plan during the three month period ended March 31, 1999.
6
<PAGE>
5. Net Income per Common Share
The following sets forth the computation of basic and diluted net income per
common share:
(In thousands, except per share data) Three Months Ended
March 31,
--------------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------------
Numerator:
Net income $ 5,491 $ 6,759
Preferred stock dividends - 1,294
--------------------------------------------------------------------------
Numerator for basic net income per common
share - net income attributable to common
stock $ 5,491 5,465
Distributions on convertible mandatorily
redeemable preferred securities, net of
income taxes 993 -
--------------------------------------------------------------------------
Numerator for diluted net income per common
share - net income attributable to common
stock after assumed conversions $ 6,484 $ 5,465
--------------------------------------------------------------------------
Denominator:
Denominator for basic net income per
common share - weighted average shares 32,556 32,337
Effect of dilutive securities:
Conversion of mandatorily redeemable
preferred securities 6,400 -
Stock options and restricted stock 129 169
--------------------------------------------------------------------------
Denominator for diluted net income per
common share - adjusted weighted
average shares and assumed
conversions 39,085 32,506
--------------------------------------------------------------------------
Net income per common share - basic $ 0.17 $ 0.17
Net income per common share - diluted $ 0.17 $ 0.17
==========================================================================
6. Condensed Consolidating Financial Information
The following tables present condensed consolidating financial information
for: Owens & Minor, Inc.; on a combined basis, the guarantors of Owens &
Minor, Inc.'s 10 7/8% Senior Subordinated 10-year Notes (Notes); and the
non-guarantor subsidiaries of the Notes. Separate financial statements of the
guarantor subsidiaries are not presented because the guarantors are jointly,
severally and unconditionally liable under the guarantees and the company
believes the condensed consolidating financial information is more meaningful
in understanding the financial position, results of operations and cash flows
of the guarantor subsidiaries.
7
<PAGE>
<TABLE>
<CAPTION>
Condensed Consolidating Financial Information
(In thousands)
- -------------------------------------------------------------------------------------------------------------
Three months ended Owens & Guarantor Non-guarantor
March 31, 1999 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statements of Operations
Net sales $ - $ 741,084 $ - $ - $ 741,084
Cost of goods sold - 662,355 - - 662,355
- -------------------------------------------------------------------------------------------------------------
Gross margin - 78,729 - - 78,729
- -------------------------------------------------------------------------------------------------------------
Selling, general and administrative
expenses 5 58,501 92 - 58,598
Depreciation and amortization - 4,461 - - 4,461
Interest expense, net 4,149 (1,053) - - 3,096
Intercompany interest expense, net (1,696) 6,740 (3,924) (1,120) -
Discount on accounts receivable
securitization - 6 989 - 995
Distributions on mandatorily
redeemable preferred securities - - 1,774 - 1,774
- -------------------------------------------------------------------------------------------------------------
Total expenses 2,458 68,655 (1,069) (1,120) 68,924
=============================================================================================================
Income (loss) before income taxes (2,458) 10,074 1,069 1,120 9,805
Income tax provision (benefit) (1,082) 4,441 462 493 4,314
- -------------------------------------------------------------------------------------------------------------
Net income (loss) $(1,376) $ 5,633 $ 607 $ 627 $ 5,491
=============================================================================================================
Three months ended Owens & Guarantor Non-guarantor
March 31, 1999 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------------
Statements of Operations
Net sales $ - $ 797,950 $ - $ - $ 797,950
Cost of goods sold - 715,863 - - 715,863
- -------------------------------------------------------------------------------------------------------------
Gross margin - 82,087 - - 82,087
- -------------------------------------------------------------------------------------------------------------
Selling, general and administrative
expenses - 60,880 62 - 60,942
Depreciation and amortization - 4,468 - - 4,468
Interest expense, net 4,443 (830) - - 3,613
Intercompany interest expense, net (3,883) 7,966 (2,900) (1,183) -
Discount on accounts receivable
securitization - 12 1,597 - 1,609
- -------------------------------------------------------------------------------------------------------------
Total expenses 560 72,496 (1,241) (1,183) 70,632
=============================================================================================================
Income (loss) before income taxes (560) 9,591 1,241 1,183 11,455
Income tax provision (benefit) (227) 3,922 504 497 4,696
- -------------------------------------------------------------------------------------------------------------
Net income (loss) (333) 5,669 737 686 6,759
Dividends on preferred stock 1,294 - - - 1,294
- -------------------------------------------------------------------------------------------------------------
Net income (loss) attributable to
common stock $(1,627) $ 5,669 $ 737 $ 686 $ 5,465
=============================================================================================================
</TABLE>
8
<PAGE>
Condensed Consolidating Financial Information
(In thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Owens & Guarantor Non-guarantor
March 31, 1999 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheets
Assets
Current assets
Cash and cash equivalents $ 505 $ 224 $ 1 $ - $ 730
Accounts and notes receivable, net - 87,058 144,684 - 231,742
Merchandise inventories - 301,257 - - 301,257
Intercompany advances, net 150,040 121,130 1,183 (272,353) -
Other current assets - 8,777 41 - 8,818
- -------------------------------------------------------------------------------------------------------------
Total current assets 150,545 518,446 145,909 (272,353) 542,547
Property and equipment, net - 25,543 - - 25,543
Goodwill, net - 157,139 - - 157,139
Intercompany investments 303,941 15,001 136,083 (455,025) -
Other assets, net 9,522 18,658 1,520 - 29,700
- -------------------------------------------------------------------------------------------------------------
Total assets $464,008 $734,787 $283,512 $(727,378) $754,929
=============================================================================================================
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ - 241,793 $ - $ - $241,793
Accrued payroll and related
liabilities - 6,258 - - 6,258
Intercompany advances, net - 148,305 124,675 (272,980) -
Other accrued liabilities 4,960 47,540 1,359 - 53,859
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 4,960 443,896 126,034 (272,980) 301,910
Long-term debt 150,000 - - - 150,000
Intercompany long-term debt 136,083 - - (136,083) -
Accrued pension and retirement plans - 5,809 - - 5,809
- -------------------------------------------------------------------------------------------------------------
Total liabilities 291,043 449,705 126,034 (409,063) 457,719
- -------------------------------------------------------------------------------------------------------------
Company-obligated mandatorily
redeemable preferred securities of
subsidiary trust, holding solely
convertible debentures of
Owens & Minor, Inc. - - 132,000 - 132,000
- -------------------------------------------------------------------------------------------------------------
Shareholders' equity
Common stock 65,372 - 4,083 (4,083) 65,372
Paid-in capital 12,371 299,858 15,001 (314,859) 12,371
Retained earnings (accumulated
deficit) 95,222 (14,776) 6,394 627 87,467
- -------------------------------------------------------------------------------------------------------------
Total shareholders' equity 172,965 285,082 25,478 (318,315) 165,210
- -------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $464,008 $734,787 $283,512 $(727,378) $754,929
=============================================================================================================
</TABLE>
9
<PAGE>
Condensed Consolidating Financial Information
(In thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Owens & Guarantor Non-guarantor
December 31, 1998 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheets
Assets
Current assets
Cash and cash equivalents $ 505 $ 40 $ 1 $ - $ 546
Accounts and notes receivable, net 100,148 113,617 - 213,765
Merchandise inventories - 275,094 - - 275,094
Intercompany advances, net 148,992 90,698 1,183 (240,873) -
Other current assets - 14,816 - - 14,816
- -------------------------------------------------------------------------------------------------------------
Total current assets 149,497 480,796 114,801 (240,873) 504,221
Property and equipment, net - 25,608 - - 25,608
Goodwill, net - 158,276 - - 158,276
Intercompany investments 303,941 15,001 136,083 (455,025) -
Other assets, net 9,784 19,879 - - 29,663
- -------------------------------------------------------------------------------------------------------------
Total assets $ 463,222 $ 699,560 $ 250,884 $ (695,898) $ 717,768
- -------------------------------------------------------------------------------------------------------------
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ - $ 206,251 $ - $ - $ 206,251
Accrued payroll and related
liabilities - 8,974 - - 8,974
Intercompany advances, net - 148,992 92,509 (241,501) -
Other accrued liabilities 1,394 50,994 1,361 - 53,749
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 1,394 415,211 93,870 (241,501) 268,974
Long-term debt 150,000 - - - 150,000
Intercompany long-term debt 136,083 - - (136,083) -
Accrued pension and retirement plans - 5,668 - - 5,668
- --------------------------------------------------------------------------------------------------------------
Total liabilities 287,477 420,879 93,870 (377,584) 424,642
- --------------------------------------------------------------------------------------------------------------
Company-obligated mandatorily
redeemable preferred securities of
subsidiary trust, holding solely
convertible debentures of
Owens & Minor, Inc. - - 132,000 - 132,000
- --------------------------------------------------------------------------------------------------------------
Shareholders' equity
Common stock 65,236 - 4,083 (4,083) 65,236
Paid-in capital 12,280 299,858 15,001 (314,859) 12,280
Retained earnings (accumulated
deficit) 98,229 (21,177) 5,930 628 83,610
- --------------------------------------------------------------------------------------------------------------
Total shareholders' equity 175,745 278,681 25,014 (318,314) 161,126
- --------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 463,222 $ 699,560 $250,884 $ (695,898) $ 717,768
==============================================================================================================
</TABLE>
10
<PAGE>
Condensed Consolidating Financial Statements
(In thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
For the three months ended Owens & Guarantor Non-guarantor
March 31, 1999 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statements of Cash Flows
Operating activities
Net income (loss) $ (1,376) $ 5,633 $ 607 $ 627 $ 5,491
Adjustments to reconcile net income
(loss) to cash provided by
(used for) operating activities:
Depreciation and amortization - 4,461 - - 4,461
Provision for LIFO reserve - 610 - - 610
Provision for losses on accounts
and notes receivable - 184 56 - 240
Changes in operating assets and
liabilities:
Accounts and notes receivable - 12,906 (31,123) - (18,217)
Merchandise inventories - (26,773) - - (26,773)
Accounts payable - 68,307 - - 68,307
Net change in other current
assets and current liabilities 3,566 (172) (1) 3,393
Other, net 412 644 (1) (627) 428
- -------------------------------------------------------------------------------------------------------------
Cash provided by (used for)
operating activities 2,602 65,800 (30,462) - 37,940
- -------------------------------------------------------------------------------------------------------------
Investing activities
Additions to property and equipment - (2,124) - - (2,124)
Additions to computer software - (134) - - (134)
Other, net - 21 (1,200) - (1,179)
- -------------------------------------------------------------------------------------------------------------
Cash used for investing activities (2,237) (1,200) - - (3,437)
- -------------------------------------------------------------------------------------------------------------
Financing activities
Change in intercompany advances (1,048) (30,614) 31,662 - -
Other short-term financing, net - (32,765) - - (32,765)
Cash dividends paid (1,634) - - - (1,634)
Proceeds from exercise of stock
options 80 - - - 80
- -------------------------------------------------------------------------------------------------------------
Cash provided by (used for)
financing activities (2,602) (63,379) 31,662 - (34,319)
- -------------------------------------------------------------------------------------------------------------
Net increase in cash and cash - 184 - - 184
equivalents
Cash and cash equivalents at
beginning of year 505 40 1 - 546
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of
period $ 505 $ 224 $ 1 $ - $ 730
=============================================================================================================
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Condensed Consolidating Financial
Statements
(In thousands)
- -------------------------------------------------------------------------------------------------------------
For the three months ended Owens & Guarantor Non-guarantor
March 31, 1999 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statements of Cash Flows
Operating activities
Net income (loss) $ (333) $ 5,669 $ 737 $ 686 $ 6,759
Adjustments to reconcile net income
(loss) to cash provided by (used for)
operating activities:
Depreciation and amortization - 4,468 - - 4,468
Provision for LIFO reserve - 2,617 - - 2,617
Provision for losses on accounts
and notes receivable 29 55 84
Changes in operating assets and
liabilities:
Accounts and notes receivable - 18,953 (7,684) - 11,269
Merchandise inventories - (24,484) - - (24,484)
Accounts payable - 48,551 - - 48,551
Net change in other current
assets and current liabilities 4,025 1,308 (241) - 5,092
Other, net 282 (634) (1) (686) (1,039)
- -------------------------------------------------------------------------------------------------------------
Cash provided by (used for)
operating activities 3,974 56,477 (7,134) - 53,317
- -------------------------------------------------------------------------------------------------------------
Investing activities
Additions to property and equipment - (1,098) - - (1,098)
Additions to computer software - (815) - - (815)
Other, net - 26 - - 26
- -------------------------------------------------------------------------------------------------------------
Cash used for investing activities - (1,887) - - (1,887)
- -------------------------------------------------------------------------------------------------------------
Financing activities
Reduction of long-term debt (32,550) - - - (32,550)
Change in intercompany advances 28,503 (35,637) 7,134 - -
Other short-term financing, net - (18,986) - - (18,986)
Cash dividends paid (2,916) - - - (2,916)
Proceeds from exercise of stock
options 2,689 - - - 2,689
- -------------------------------------------------------------------------------------------------------------
Cash provided by (used for)
financing activities (4,274) (54,623) 7,134 - (51,763)
- -------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash
equivalents (300) (33) - - (333)
Cash and cash equivalents at
beginning of year 505 78 - - 583
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of
period $ 205 $ 45 $ - $ - $ 250
=============================================================================================================
</TABLE>
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following management discussion and analysis describes material changes in
the financial condition of Owens & Minor, Inc. and its wholly-owned subsidiaries
(O&M or the company) since December 31, 1998. Trends of a material nature are
discussed to the extent known and considered relevant. This discussion should be
read in conjunction with the consolidated financial statements, related notes
thereto and management's discussion and analysis of financial condition and
results of operations included in the company's 1998 Annual Report on Form 10-K
for the year ended December 31, 1998.
Financial Condition, Liquidity and Capital Resources
Liquidity. The company's liquidity improved during the first quarter of 1999.
Combined outstanding debt and off balance sheet accounts receivable
securitization borrowings were reduced by $10.0 million to $215.0 million at
March 31, 1999, from $225.0 million at December 31, 1998. The reduction was due
to the positive impact of cash flow from operations. The capitalization ratio at
March 31, 1999, including the Mandatorily Redeemable Preferred Securities
(Securities) as equity and excluding the effect of the accounts receivable
securitization, was 42.0% compared to 43.4% at December 31, 1998. This
improvement was primarily the result of the reduction in outstanding borrowings
under the off balance sheet accounts receivable securitization.
In May 1998, Owens & Minor, Inc. repurchased all of its outstanding Series B
Cumulative Preferred Stock, financing the repurchase with substantially all the
net proceeds of the $132.0 million of Securities issued by Owens & Minor Trust I
(Trust). These transactions reduced the company's overall cost of capital for
the first quarter of 1999 compared to the first quarter in 1998.
The company expects that its available financing will be sufficient to fund its
working capital needs and long-term strategic growth, although this cannot be
assured. At March 31, 1999, the company had $225.0 million of unused credit
under its revolving credit facility and approximately $67.4 million under its
receivables financing facility.
Working Capital Management. The company's working capital at March 31, 1999
increased by $30.9 million from March 31, 1998. The company's accounts
receivable days sales outstanding (excluding the impact of the off balance sheet
accounts receivable securitization) increased to 35.6 at March 31, 1999, from
33.0 at March 31, 1998, and inventory turnover decreased to 9.3 times in the
first quarter of 1999 from 9.8 times in the first quarter of 1998. These changes
were driven in part by the reduction in the sales base due to the loss of the
Columbia/HCA Healthcare Corporation (Columbia/HCA) contract, partially offset by
sales to Tenet BuyPower, a new customer, beginning in February 1999.
Capital Expenditures. Capital expenditures were approximately $2.3 million in
the first quarter of 1999, of which approximately $1.5 million was for computer
hardware and software, including $0.5 million for system upgrades to prepare for
Year 2000. The company expects to continue to invest in technology, including
system upgrades, as the most cost-effective method of reducing operating
expenses. These capital expenditures are expected to be funded through cash flow
from operations.
13
<PAGE>
Restructuring reserve. As a result of the Columbia/HCA contract termination in
the second quarter of 1998, the company recorded a nonrecurring restructuring
charge to downsize operations. In the first quarter of 1999, approximately $0.7
million was charged against this liability. At March 31, 1999, the restructuring
reserve had a balance of approximately $8.6 million.
Results of Operations
First quarter of 1999 compared with first quarter of 1998
Net sales. Net sales decreased 7.1% to $741.1 million in the first quarter of
1999 from $798.0 million in the first quarter of 1998. This decrease is
primarily due to the impact of the cancellation of the company's distribution
contract with Columbia/HCA. The decrease in sales was partially offset by both
increased penetration of existing accounts and new customer contracts. Sales for
the quarter included sales from Tenet BuyPower, the company's largest new
customer, beginning in February 1999.
Gross margin. Gross margin as a percentage of net sales increased to 10.6% in
the first quarter of 1999 from 10.3% in the first quarter of 1998. This
improvement reflects the company's continued emphasis on supply chain
initiatives with key suppliers as well as a lower sales base in 1999.
Selling, general and administrative expenses. Selling, general and
administrative (SG&A) expenses as a percentage of net sales increased to 7.9%
for the first quarter of 1999, compared to 7.6% for the first quarter of 1998.
The increase, as a percentage of net sales, was the result of a lower sales base
as the actual expense decreased $2.3 million to $58.6 million in the first
quarter of 1999 from $60.9 million in the first quarter of 1998. This reduction
was the result of cost-saving initiatives, including the reduction of
approximately 300 full-time equivalent (FTE) employees since March 31, 1998.
These cost savings were partially offset by increased information technology
spending, including $1.0 million of expenses to address Y2K computer issues,
compared with $0.8 million in the first quarter of 1998.
Depreciation and amortization. Depreciation and amortization for the first
quarter of 1999 was comparable to the first quarter of 1998.
Interest expense, net, and discount on accounts receivable securitization.
Interest expense, net, and discount on accounts receivable securitization
decreased to $4.1 million in the first quarter of 1999 from $5.2 million in the
first quarter of 1998. This reduction has been a result of the lower level of
the combined outstanding debt and the off balance sheet accounts receivable
securitization for the first quarter in 1999 compared to the same period in
1998. The company expects to continue to manage these costs by continuing its
working capital reduction initiatives and management of interest rates, although
the future results of these initiatives cannot be assured.
Distributions on mandatorily redeemable preferred securities and dividends on
preferred stock. In May 1998, the Trust issued $132.0 million of the Securities.
O&M applied substantially all of the net proceeds to repurchase all of its
outstanding Series B Cumulative Preferred Stock. As of March 31, 1999, the
company had accrued $1.2 million of distributions related to these Securities.
Income taxes. The company had an income tax provision of $4.3 million in the
first quarter of 1999 compared with $4.7 million in the first quarter of 1998.
The effective tax rate was 44.0%, compared to 41.0% for the same period in 1998
as lower income before taxes increased the impact of nondeductible expenses.
14
<PAGE>
Net income. Net income decreased to $5.5 million in the first quarter of 1999
from $6.8 million in the first quarter of 1998, principally as the result of the
issuance of the Securities during second quarter 1998. Net income attributable
to common stock of approximately $5.5 million in the first quarter of 1999 was
unchanged from the first quarter of 1998. The positive impact of the reduction
in SG&A expenses, lower interest expense, net, and discount on accounts
receivable securitization and the elimination of preferred dividends was offset
by lower sales and the related lower gross margin dollars as well as
distributions on the Securities. Although the company continues to pursue
initiatives to improve profitability, the future impact on net income cannot be
assured.
Readiness for Year 2000
The Year 2000 (Y2K) issue is the result of computer programs being written using
two-digit, rather than four-digit, year dates. O&M's computer hardware, software
and devices with embedded technology that are time-sensitive may recognize a
date code using "00" as the year 1900 rather than the year 2000. This situation
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in other normal business activities. The
company has divided its Y2K efforts into three main areas:
o computer hardware and software;
o other systems and equipment, such as telephone equipment, scanning
equipment and alarm systems; and
o suppliers and customers.
Computer Hardware and Software. In 1997, O&M completed its assessment of its
computer hardware and software, and developed a strategy of remediation. This
strategy includes retirement of outdated software and replacement or repair of
the remaining software and hardware. The company began repair and replacement
efforts in 1997, and expects they will be substantially complete by mid-1999,
prior to any currently anticipated impact on its computer hardware and software.
Testing of repairs is expected to be substantially complete in the third quarter
of 1999, but will continue through the end of the year. O&M estimates that, as
of March 31, 1999, it had completed approximately 98% of the repair, 60% of
replacement, and 40% of the testing that it believes will be necessary to fully
address potential Y2K issues relating to its computer hardware and software.
Other Systems and Equipment. The company has completed an inventory and
assessment of non-computer related systems and equipment at its operating
divisions and a similar inventory and assessment at its corporate offices. O&M
believes that the impact on operations of potential noncompliance for these
systems and equipment would be minimal. The company is continuing its program of
replacement and repair of non-compliant systems and equipment, and expects this
effort to be complete by late 1999.
Suppliers and Customers. O&M has contacted its significant suppliers to
determine the extent to which the company is vulnerable to the suppliers'
failure to remediate their Y2K compliance issues. Of the suppliers representing
approximately 90% of O&M's sales, 89% have responded, and, of those responding,
94% have indicated that they have either remedied their Y2K compliance issues,
or plan to do so before the end of 1999. The company will be conducting tests
with selected suppliers beginning in the second quarter of 1999.
15
<PAGE>
The company has also contacted its largest customers to determine their level of
Y2K readiness. Many customers have not yet responded to these inquiries or have
not responded with sufficient detail for O&M to determine whether they will be
Y2K compliant on a timely basis. The company is continuing its efforts to
ascertain the readiness of its customers, but since this readiness cannot be
assured, O&M is in the process of developing contingency plans to address the
most likely risks of non-compliance.
The company estimates the cost of its Y2K remediation efforts will total
approximately $9.7 million of operating expenses and $6.7 million of capital
expenditures. These expenditures will be funded from operating cash flows.
Through March 31, 1999, O&M had incurred approximately $6.7 million of expenses
and $4.3 million of capital spending related to its Y2K efforts, of which $1.0
million and $0.5 million were incurred in the first quarter of 1999. For the
remainder of 1999, the company expects to incur approximately $3.0 million of
expenses and $2.4 million of capital spending. Other information technology
efforts have not been significantly delayed by Y2K initiatives.
O&M is working on, but has not yet completed, an analysis of the operational
problems that would be reasonably likely to result from the failure by the
company and certain third parties to complete efforts necessary to achieve Y2K
compliance on a timely basis. The company is currently determining its most
reasonably likely worst-case scenario and will be developing contingency plans
to address this scenario. O&M plans to complete its analysis and contingency
planning by late 1999.
O&M believes the Y2K issue will not pose significant operational problems for
the company. However, if all Y2K issues are not properly identified or if
assessment, remediation and testing are not completed on a timely basis, there
can be no assurance that the Y2K issue will not have a material adverse impact
on the company's results of operations or adversely affect its relationships
with customers, suppliers or others. Additionally, there can be no assurance
that Y2K non-compliance by other entities will not have a material adverse
impact on the company's systems or results of operations.
The costs of O&M's Y2K efforts and the dates on which the company believes it
will complete these efforts are based upon management's current estimates. These
estimates used numerous assumptions regarding future events, including the
continued availability of certain resources, third party remediation plans and
other factors. There can be no assurance that these estimates will prove to be
accurate, and actual results could differ materially from those currently
anticipated.
Risks
The company is subject to risks associated with changes in the medical industry,
including continued efforts to control costs, which place pressure on operating
margin, and changes in the way medical and surgical services are delivered to
patients.
Forward-looking Statements
Certain statements in this discussion constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, including, but not
limited to, general economic and business conditions, competition, changing
trends in customer profiles, outcome of outstanding litigation, readiness for
Year 2000 and changes in government regulations. Although O&M believes its
expectations with respect to the forward-looking statements are based upon
reasonable assumptions within the bounds of its knowledge of its
16
<PAGE>
business and operations, there can be no assurance that actual results,
performance or achievements of the company will not differ materially from any
future results, performance or achievements expressed or implied by such
forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The company believes there has been no material change in its exposure to market
risk from that discussed in Item 7A in the company's Annual Report on Form 10-K
for the year ended December 31, 1998.
Part II. Other Information
Item 1. Legal Proceedings
Certain legal proceedings pending against the company are described in the
company's Annual Report on Form 10-K for the year ended December 31, 1998.
Through March 31, 1999, there have been no material developments in any legal
proceedings reported in such Annual Report.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3 (ii) Amended and Restated Bylaws of Owens & Minor, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K
The company filed a Current Report on Form 8-K dated March 11, 1999,
Items 5 and 7, with respect to the issuance of a press release
relating to the death of Ann Greer Rector, Senior Vice President and
Chief Financial Officer of the company.
17
<PAGE>
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 May 6, 1999 /s/ Richard F. Bozard
-------------- ------------------------------
Richard F. Bozard
Vice President & Treasurer
Acting Chief Financial Officer
Date May 6, 1999 /s/ Olwen B. Cape
--------------- ------------------------------
Olwen B. Cape
Vice President & Controller
Chief Accounting Officer
<PAGE>
Exhibits Filed with SEC
Exhibit #
- ---------
3 (ii) Amended and Restated Bylaws of Owens & Minor, Inc.
27 Financial Data Schedule
Exhibit 3 (ii)
AMENDED AND RESTATED
BYLAWS
OF
OWENS & MINOR, INC.
ARTICLE I
Meetings of Shareholders
1.1 Places of Meetings. All meetings of the shareholders shall be held
at such place, either within or without the Commonwealth of Virginia, as from
time to time may be fixed by the Board of Directors.
1.2 Annual Meetings. The annual meeting of the shareholders, for the
election of Directors and transaction of such other business as may come before
the meeting, shall be held in each year on the fourth Tuesday in April, at 11:00
a.m., or on such other business day that is not earlier than the first day of
March and not later than the last day of April, or at such other time, as shall
be fixed by the Board of Directors.
1.3 Special Meetings. A special meeting of the shareholders for any
purpose or purposes may be called at any time by the Chairman of the Board, the
Chief Executive Officer, or by a majority of the Board of Directors. At a
special meeting no business shall be transacted and no corporate action shall be
taken other than that stated in the notice of the meeting.
1.4 Notice of Meetings. Written or printed notice stating the place, day
and hour of every meeting of the shareholders and, in case of a special meeting,
the purpose or purposes for which the meeting is called, shall be mailed not
less than ten nor more than sixty days before the date of the meeting to each
shareholder of record entitled to vote at such meeting, at his address which
appears in the share transfer books of the Corporation. Such further notice
shall be given as may be required by law, but meetings may be held without
notice if all the shareholders entitled to vote at the meeting are present in
person or by proxy or if notice is waived in writing by those not present,
either before or after the meeting.
1.5 Quorum. Any number of shareholders together holding at least a
majority of the outstanding shares of capital stock entitled to vote with
respect to the business to be transacted, who shall be present in person or
represented by proxy at any meeting duly called, shall constitute a quorum for
the transaction of business. If less than a quorum shall be in attendance at the
time for which a meeting shall have been called, the meeting may be adjourned
from time to time by a majority of the shareholders present or represented by
proxy without notice other than by announcement at the meeting.
<PAGE>
1.6 Voting. At any meeting of the shareholders each shareholder of a
class entitled to vote on any matter coming before the meeting shall, as to such
matter, have one vote, in person or by proxy, for each share of capital stock of
such class standing in his name on the books of the Corporation on the date, not
more than seventy days prior to such meeting, fixed by the Board of Directors as
the record date for the purpose of determining shareholders entitled to vote.
Every proxy shall be in writing, dated and signed by the shareholder entitled to
vote or his duly authorized attorney-in-fact.
1.7 Inspectors. An appropriate number of inspectors for any meeting of
shareholders may be appointed by the Chairman of such meeting. Inspectors so
appointed will open and close the polls, will receive and take charge of
proxies and ballots, and will decide all questions as to the qualifications of
voters, validity of proxies and ballots, and the number of votes properly cast.
1.8 Nomination by Shareholders. Subject to any rights of holders of shares
of the Preferred Stock of the Corporation, nominations for the election of
directors shall be made by the Board of Directors or by any shareholder entitled
to vote in elections of directors. However, any shareholder entitled to vote in
the election of directors may nominate one or more persons for election as
directors only at an annual meeting and if written notice of such shareholders'
intent to make such nomination or nominations has been given, either by personal
delivery or by United States registered or certified mail, postage prepaid, to
the Secretary of the Corporation not later than 90 days before the anniversary
of the date of the first mailing of the Corporation's proxy statement for the
immediately preceding year's annual meeting. In no event shall the public
announcement of an adjournment or postponement of an annual meeting or the fact
that an annual meeting is held after the anniversary of the preceding annual
meeting commence a new time period for the giving of a shareholder's notice as
described above. Each notice shall set forth (i) the name and address of record
of the shareholder who intends to make the nomination, the beneficial owner, if
any, on whose behalf the nomination is made and of the person or persons to be
nominated, (ii) the class and number of shares of the Corporation that are owned
by the shareholder and such beneficial owners, (iii) a representation that the
shareholder is a holder of record of shares of the Corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice, (iv) a description of
all arrangements, understandings or relationships between the shareholder and
each nominee and any other person or person (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
shareholder, and such other information regarding each nominee proposed by such
shareholder as would be required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required to be
disclosed, pursuant to the proxy rules of the Securities and Exchange
Commission, had the nominee been nominated, or intended to be nominated, by the
Board of Directors, and shall include a consent signed by each such nominee to
serve as a director of the Corporation it so elected. In the event that a
shareholder attempts to nominate any person without complying with the
procedures set forth in this Section 1.8, such person shall not be nominated and
shall not stand for election at such meeting. The Chairman of the Board of
Directors shall have the power and duty to determine whether a nomination
proposed
<PAGE>
to be brought before the meeting was made in accordance with the procedures set
forth in this Section 1.8 and, if any proposed nomination is not in compliance
with this Section 1.8, to declare that such defective proposal shall be
disregarded.
1.9 Business Proposed by a Shareholder. To be properly brought before a
meeting of shareholders, business must be (i) specified in the notice of meeting
(or any supplement thereto) given by or at the direction of the Board of
Directors, (ii) otherwise properly brought before the meeting by or at the
direction of the Board of Directors or (iii) otherwise properly brought before
an annual meeting by a shareholder. In addition to any other applicable
requirements, for business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a shareholder's notice must be
given, either by personal delivery or by United States registered or certified
mail, postage prepaid, to the Secretary of the Corporation not later than 90
days before the anniversary of the date of the first mailing of the
Corporation's proxy statement for the immediately preceding year's annual
meeting. In no event shall the public announcement of an adjournment or
postponement of an annual meeting or the fact that an annual meeting is held
after the anniversary of the preceding annual meeting commence a new time period
for the giving of a shareholder's notice as described above. A shareholder's
notice to the Secretary shall set forth as to each matter the shareholder
proposes to bring before the meeting (i) a brief description of the business
desired to be brought before the meeting, including the complete text of any
resolutions to be presented at the meeting with respect to such business, and
the reasons for conducting such business at the meeting, (ii) the name and
address of record of the shareholder proposing such business and the beneficial
owner, if any, on whose behalf the proposal is made, (iii) the class and number
of shares of the Corporation that are owned by the shareholder and such
beneficial owner and (iv) any material interest of the shareholder and such
beneficial owner, in such business. In the event that a shareholder attempts to
bring business before a meeting without complying with the procedures set forth
in this Section 1.9, such business shall not be transacted at such meeting. The
Chairman of the Board of Directors shall have the power and duty to determine
whether any proposal to bring business before the meeting was made in accordance
with the procedures set forth in this Section 1.9 and, if any business is not
proposed in compliance with this Section 1.9, to declare that such defective
proposal shall be disregarded and that such proposed business shall not be
transacted at such meeting.
ARTICLE II
Directors
2.1 General Powers. The property, affairs and business of the
Corporation shall be managed under the direction of the Board of Directors, and,
except as otherwise expressly provided by law, the Articles of Incorporation or
these Bylaws, all of the powers of the Corporation shall be vested in such
Board.
<PAGE>
2.2 Number of Directors. The number of Directors constituting the Board
of Directors shall be ten (10). The Directors shall be divided into three (3)
classes, each class to be as nearly equal in number as possible.
2.3 Election and Removal of Directors; Quorum.
(a) At each annual meeting of shareholders, (i) the number of
Directors equal to the number in the class whose term expires at the time of
such meeting shall be elected to hold office until the third succeeding annual
meeting and until their successors are elected, and (ii) any other vacancies
then existing shall be filled.
(b) Any Director may be removed from office at a meeting called
expressly for that purpose by the vote of shareholders holding not less than a
majority of the shares entitled to vote at an election of Directors.
(c) Any vacancy occurring in the Board of Directors may be filled
by the affirmative vote of the majority of the remaining Directors though less
than a quorum of the Board, and the term of office of any Director so elected
shall expire at the next shareholders' meeting at which directors are elected.
(d) A majority of the number of Directors fixed by these Bylaws
shall constitute a quorum for the transaction of business. The act of a majority
of Directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors. Less than a quorum may adjourn any meeting.
2.4 Meetings of Directors. An annual meeting of the Board of Directors
shall be held as soon as practicable after the adjournment of the annual meeting
of shareholders at such place as the Board may designate. Other meetings of the
Board of Directors shall be held at places within or without the Commonwealth of
Virginia and at times fixed by resolution of the Board, or upon call of the
Chairman of the Board, the Chief Executive Officer or a majority of the
Directors. The Secretary or officer performing the Secretary's duties shall give
not less than twenty-four hours' notice by letter, telegraph or telephone (or in
person) of all meetings of the Board of Directors, provided that notice need not
be given of the annual meeting or of regular meetings held at times and places
fixed by resolution of the Board. Meetings may be held at any time without
notice if all of the Directors are present, or if those not present waive notice
in writing either before or after the meeting. The notice of meetings of the
Board need not state the purpose of the meeting.
2.5 Compensation. By resolution of the Board, Directors may be allowed a
fee and expenses for attendance at all meetings, but nothing herein shall
preclude Directors from serving the Corporation in other capacities and
receiving compensation for such other services.
<PAGE>
2.6 Eligibility for Service as a Director. Except for any present Director
who is more than 65 years of age on December 14, 1998, no person shall be
appointed or be eligible for election to the Board of Directors of the
Corporation if such person, at the time of the prospective appointment or
election, is then more than 67 years of age (so that no such person shall be
more than 70 years of age at the expiration of his or her term as a Director of
the Corporation). Any present Director who is more than 65 years of age on
December 14, 1998 shall not be appointed or be eligible for election to the
Board if such Director is more than 72 years of age at the time of the
prospective appointment or election (so that no such Director shall be more than
75 years of age at the expiration of his or her term as a Director of the
Corporation).
2.7 Director Emeritus. The Board of Directors may from time to time elect
one or more former directors as Directors Emeriti. Election as a Director
Emeritus shall be in recognition of contributions during his or her tenure on
the Board of Directors and in appreciation for loyal and dedicated service. A
Director Emeritus shall be elected for a term expiring on the date of the next
annual meeting of the Board and will be recognized at the annual meeting. A
Director Emeritus is an honorary non-compensated position and not considered a
"Director" or Section 16 Insider for the purposes of these bylaws or for any
other purpose. Therefore, Director Emeriti shall attend Board meetings and
participate in other Board events only at the invitation of the Chairman.
<PAGE>
ARTICLE III
Committees.
3.1 Executive Committee. The Board of Directors, by resolution adopted
by a majority of the number of Directors fixed by these Bylaws, may elect an
Executive Committee which shall consist of not less than three Directors,
including the Chief Executive Officer (if the Chief Executive Officer is also a
Director). When the Board of Directors is not in session, the Executive
Committee shall have all power vested in the Board of Directors by law, by the
Articles of Incorporation, or by these Bylaws, provided that the Executive
Committee shall not have power to (i) approve or recommend to shareholders
action that the Virginia Stock Corporation Act requires to be approved by
shareholders; (ii) fill vacancies on the Board or on any of its committees;
(iii) amend the Articles of Incorporation pursuant to ss.13.1-706 of the
Virginia Code; (iv) adopt, amend, or repeal the Bylaws; (v) approve a plan of
merger not requiring shareholder approval; (vi) authorize or approve a
distribution, except according to a general formula or method prescribed by the
Board of Directors; or (vii) authorize or approve the issuance or sale or
contract for sale of shares, or determine the designation and relative rights,
preferences, and limitations of a class or series of shares, other than within
limits specifically prescribed by the Board of Directors. The Executive
Committee shall report at the next regular or special meeting of the Board of
Directors all action that the Executive Committee may have taken on behalf of
the Board since the last regular or special meeting of the Board of Directors.
3.2 Other Committees. The Board of Directors, by resolution adopted by a
majority of the number of Directors fixed by these Bylaws, may establish such
other standing or special committees of the Board as it may deem advisable,
consisting of not less than two Directors; and the members, terms and authority
of such committees shall be as set forth in the resolutions establishing the
same.
3.3 Meetings. Regular and special meetings of any Committee established
pursuant to this Article may be called and held subject to the same requirements
with respect to time, place and notice as are specified in these Bylaws for
regular and special meetings of the Board of Directors.
3.4 Quorum and Manner of Acting. A majority of the number of members of
any Committee shall constitute a quorum for the transaction of business at such
meeting. The action of a majority of those members present at a Committee
meeting at which a quorum is present shall constitute the act of the Committee.
3.5 Term of Office. Members of any Committee shall be elected as above
provided and shall hold office until their successors are elected by the Board
of Directors or until such Committee is dissolved by the Board of Directors.
<PAGE>
3.6 Resignation and Removal. Any member of a Committee may resign at any
time by giving written notice of his intention to do so to the Chief Executive
Officer or the Secretary of the Corporation, or may be removed, with or without
cause, at any time by such vote of the Board of Directors as would suffice for
his election.
3.7 Vacancies. Any vacancy occurring in a Committee resulting from any
cause whatever may be filled by a majority of the number of Directors fixed by
these Bylaws.
ARTICLE IV
Officers
4.1 Election of Officers: Terms. The officers of the Corporation shall
consist of a Chief Executive Officer, a President, a Secretary and a Treasurer.
Other officers, including a Chairman of the Board, one or more Vice Presidents
(whose seniority and titles, including Executive Vice Presidents and Senior Vice
Presidents, may be specified by the Board of Directors), and assistant and
subordinate officers, may from time to time be elected by the Board of
Directors. All officers shall hold office until the next annual meeting of the
Board of Directors and until their successors are elected. . Any two or more
officers may be combined in the same person as the Board of Directors may
determine.
4.2 Removal of Officers: Vacancies. Any officer of the Corporation may
be removed summarily with or without cause, at any time, by the Board of
Directors. Vacancies may be filled by the Board of Directors.
4.3 Duties. The officers of the Corporation shall have such duties as
generally pertain to their offices, respectively, as well as such powers and
duties as are prescribed by law or are hereinafter provided or as from time to
time shall be conferred by the Board of Directors. The Board of Directors may
require any officer to give such bond for the faithful performance of his duties
as the Board may see fit.
4.4 Duties of the Chief Executive Officer. The Chief Executive Officer
shall be either the Chairman of the Board or the President of the Corporation,
as designated by the Board of Directors. Subject to the direction and control of
the Board of Directors, the Chief Executive Officer shall supervise and control
the management of the Corporation, shall be primarily responsible for the
implementation of policies of the Board of Directors and shall have such duties
and authority as are normally incident to the position of chief executive
officer of
<PAGE>
a corporation and such other duties and authority as may be prescribed from time
to time by the Board of Directors or as are provided elsewhere in these Bylaws.
The Chief Executive Officer may sign and execute in the name of the Corporation
share certificates, deeds, mortgages, bonds, contracts or other instruments
except in cases where the signing and execution thereof shall be expressly
delegated by these Bylaws to some other officer or agent of the Corporation or
shall be required by law otherwise to be signed or executed.
4.5 Duties of the Chairman of the Board. The Board of Directors may ,
but need not, appoint from among its members an officer designated as the
Chairman of the Board. The Chairman of the Board shall, when present, preside
over meetings of the Board of Directors and shall have such other duties and
authority as may be prescribed from time to time by the Board of Directors or as
are provided for elsewhere in these Bylaws.
4.6 Duties of the President. Subject to the direction and control of the
Board of Directors and the Chief Executive Officer (if the President is not also
the Chief Executive Officer), the President shall supervise and control the
operations of the Corporation and shall have such other duties as may be
prescribed from time to time by the Board of Directors or the Chief Executive
Officer (if the President is not also the Chief Executive Officer) or as are
provided elsewhere in these Bylaws. The President may sign and execute in the
name of the Corporation share certificates, deeds, mortgages, bonds, contracts
or other instruments except in cases where the signing and execution thereof
shall be expressly delegated by the Board of Directors or the Chief Executive
Officer to some other officer or agent of the Corporation or shall be required
by law otherwise to be signed or executed.
4.7 Duties of the Vice Presidents. Each Vice President (which term
includes any Senior Executive Vice President, Executive Vice President and
Senior Vice President), if any, shall have such powers and duties as may from
time to time be assigned to him by the Chief Executive Officer or the Board of
Directors. Any Vice President may sign and execute in the name of the
Corporation deeds, mortgages, bonds, contracts or other instruments authorized
by the Board of Directors, except where the signing and execution of such
documents shall be expressly delegated by the Board of Directors or the Chief
Executive Officer to some other officer or agent of the Corporation or shall be
required by law or otherwise to be signed or executed.
4.8 Duties of the Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit all monies and securities of the Corporation in
such banks and depositories as shall be designated by the Board of Directors. He
shall be responsible (i) for maintaining adequate financial accounts and records
in
<PAGE>
accordance with generally accepted accounting practices; (ii) for the
preparation of appropriate operating budgets and financial statements; (iii) for
the preparation and filing of all tax returns required by law; and (iv) for the
performance of all duties incident to the office of Treasurer and such other
duties as from time to time may be assigned to him by the Board of Directors or
the Chief Executive Officer. The Treasurer may sign and execute in the name of
the Corporation share certificates, deeds, mortgages, bonds, contracts or other
instruments, except in cases where the signing and the execution thereof shall
be expressly delegated by the Board of Directors or by these Bylaws to some
other officer or agent of the Corporation or shall be required by law or
otherwise to be signed or executed.
4.9 Duties of the Secretary. The Secretary shall act as secretary of all
meetings of the Board of Directors and shareholders of the Corporation. When
requested, he shall also act as secretary of the meetings of the committees of
the Board. He shall keep and preserve the minutes of all such meetings in
permanent books. He shall see that all notices required to be given by the
Corporation are duly given and served; shall have custody of the seal of the
Corporation and shall affix the seal or cause it to be affixed by facsimile or
otherwise to all share certificates of the Corporation and to all documents the
execution of which on behalf of the Corporation under its corporate seal is
required in accordance with law or the provisions of these Bylaws; shall have
custody of all deeds, leases, contracts and other important corporate documents;
shall have charge of the books, records and papers of the Corporation relating
to its organization and management as a Corporation; shall see that all reports,
statements and other documents required by law (except tax returns) are properly
filed; and shall in general perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board of Directors or the Chief Executive Officer.
4.10 Compensation. The Board of Directors shall have authority to fix
the compensation of all officers of the Corporation.
ARTICLE V
Capital Stock
5.1 Certificates. The shares of capital stock of the Corporation shall
be evidenced by certificates in forms prescribed by the Board of Directors and
executed in any manner permitted by law and stating thereon the information
required by law. Transfer agents and/or registrars for one or more classes of
shares of the Corporation may be appointed by the Board of Directors and may be
required to countersign certificates representing shares of such class or
classes. If any officer whose signature or facsimile thereof shall have been
used on a share certificate shall for any reason cease to be an officer of the
Corporation and such certificate shall not then have been delivered by the
Corporation, the Board of Directors may nevertheless adopt such certificate and
it may then be issued and delivered as though such person had not ceased to be
an officer of the Corporation.
<PAGE>
5.2 Lost, Destroyed and Mutilated Certificates. Holders of the shares of
the Corporation shall immediately notify the Corporation of any loss,
destruction or mutilation of the certificate therefor, and the Board of
Directors may in its discretion cause one or more new certificates for the same
number of shares in the aggregate to be issued to such shareholder upon the
surrender of the mutilated certificate or upon satisfactory proof of such loss
or destruction, and the deposit of a bond in such form and amount and with such
surety as the Board of Directors may require.
5.3 Transfer of Shares. The shares of the Corporation shall be
transferable or assignable only on the books of the Corporation by the holder in
person or by attorney on surrender of the certificate for such shares duly
endorsed and, if sought to be transferred by attorney, accompanied by a written
power of attorney to have the same transferred on the books of the Corporation.
The Corporation will recognize, however, the exclusive right of the person
registered on its books as the owner of shares to receive dividends or other
distributions and to vote as such owner. To the extent that any provision of the
Amended and Restated Rights Agreement between the Corporation and Bank of New
York, as Rights Agent, dated as of February 9, 1998, is deemed to constitute a
restriction on the transfer of any securities of the Corporation, including,
without limitation, the Rights, as defined therein, such restriction is hereby
authorized by these Bylaws.
5.4 Fixing Record Date. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors may fix in advance a date as the record
date for any such determination of shareholders, such date in any case to be not
more than seventy days prior to the date on which the particular action,
requiring such determination of shareholders, is to be taken. If no record date
is fixed for the determination of shareholders entitled to notice of or to vote
at a meeting of shareholders, or shareholders entitled to receive payment of a
dividend or other distribution, the date on which notices of the meeting are
mailed or the date on which the resolution of the Board of Directors declaring
such dividend or other distribution is adopted, as the case may be, shall be the
record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof unless the Board of Directors fixes a new record date, which it shall do
if the meeting is adjourned to a date more than 120 days after the date fixed
for the original meeting.
5.5 Control Share Acquisition Statute. Article 14.1 of the Virginia Stock
Corporation Act shall not apply to acquisitions of shares of capital stock of
the Corporation.
<PAGE>
ARTICLE VI
Miscellaneous Provisions
6.1 Seal. The seal of the Corporation shall consist of a circular design
with the words "Owens & Minor, Inc." around the top margin thereof, "Richmond,
Virginia" around the lower margin thereof and the word "Seal" in the center
thereof.
6.2 Fiscal Year. The fiscal year of the Corporation shall end on such
date and shall consist of such accounting periods as may be fixed by the Board
of Directors.
6.3 Checks, Notes and Drafts. Checks, notes, drafts and other orders for
the payment of money shall be signed by such persons as the Board of Directors
from time to time may authorize. When the Board of Directors so authorizes,
however, the signature of any such person may be a facsimile.
6.4 Amendment of Bylaws. Unless proscribed by the Articles of
Incorporation, these Bylaws may be amended or altered at any meeting of the
Board of Directors by affirmative vote of a majority of the number of Directors
fixed by these Bylaws. The shareholders entitled to vote in respect of the
election of Directors, however, shall have the power to rescind, amend, alter or
repeal any Bylaws and to enact Bylaws which, if expressly so provided, may not
be amended, altered or repealed by the Board of Directors.
6.5 Voting of Shares Held. Unless otherwise provided by resolution of
the Board of Directors or of the Executive Committee, if any, the Chief
Executive Officer may cast the vote which the Corporation may be entitled to
cast as a shareholder or otherwise in any other corporation, any of whose
securities may be held by the Corporation, at meetings of the holders of the
shares or other securities of such other corporation, or to consent in writing
to any action by any such other corporation, or in lieu thereof, from time to
time appoint an attorney or attorneys or agent or agents of the Corporation, in
the name and on behalf of the Corporation, to cast such votes or give such
consents. The Chief Executive Officer shall instruct any person or persons so
appointed as to the manner of casting such votes or giving such consent and may
execute or cause to be executedon behalf of the Corporation, and under its
corporate seal or otherwise, such written proxies, consents, waivers or other
instruments as may be necessary or proper.
<PAGE>
ARTICLE VII
Emergency Bylaws
7.1 The Emergency Bylaws provided in this Article VII shall be operative
during any emergency, notwithstanding any different provision in the preceding
Articles of these Bylaws or in the Articles of Incorporation of the Corporation
or in the Virginia Stock Corporation Act (other than those provisions relating
to emergency bylaws). An emergency exists if a quorum of the Corporation's Board
of Directors cannot readily be assembled because of some catastrophic event. To
the extent not inconsistent with these Emergency Bylaws, the Bylaws provided in
the preceding Articles shall remain in effect during such emergency and upon the
termination of such emergency the Emergency Bylaws shall cease to be operative
unless and until another such emergency shall occur.
7.2 During any such emergency:
(a) Any meeting of the Board of Directors may be called by any
officer of the Corporation or by any Director. The notice thereof shall specify
the time and place of the meeting. To the extent feasible, notice shall be given
in accord with Section 2.4 above, but notice may be given only to such of the
Directors as it may be feasible to reach at the time, by such means as may be
feasible at the time, including publication or radio, and at a time less than
twenty-four hours before the meeting if deemed necessary by the person giving
notice. Notice shall be similarly given, to the extent feasible, to the other
persons referred to in (b) below.
(b) At any meeting of the Board of Directors, a quorum shall
consist of a majority of the number of Directors fixed at the time by these
Bylaws. If the Directors present at any particular meeting shall be fewer than
the number required for such quorum, other persons present as referred to below,
to the number necessary to make up such quorum, shall be deemed Directors for
such particular meeting as determined by the following provisions and in the
following order of priority:
(i) Vice-Presidents not already serving as Directors, in the
order of their seniority of first election to such offices, or if two or more
shall have been first elected to such offices on the same day, in the order of
their seniority in age;
(ii) All other officers of the Corporation in the order of
their seniority of first election to such offices, or if two or more shall have
been first elected to such offices on the same day, in the order of their
seniority in age; and
<PAGE>
(iii) Any other persons that are designated on a list that
shall have been approved by the Board of Directors before the emergency, such
persons to be taken in such order of priority and subject to such conditions as
may be provided in the resolution approving the list.
(c) The Board of Directors, during as well as before any such
emergency, may provide, and from time to time modify, lines of succession in the
event that during such an emergency any or all officers or agents of the
Corporation shall for any reason be rendered incapable of discharging their
duties.
(d) The Board of Directors, during as well as before any such
emergency, may, effective in the emergency, change the principal office, or
designate several alternative offices, or authorize the officers so to do.
7.3 No officer, Director or employee shall be liable for action taken in
good faith in accordance with these Emergency Bylaws.
7.4 These Emergency Bylaws shall be subject to repeal or change by
further action of the Board of Directors or by action of the shareholders,
except that no such repeal or change shall modify the provisions of the next
preceding paragraph with regard to action or inaction prior to the time of such
repeal or change. Any such amendment of these Emergency Bylaws may make any
further or different provision that may be practical and necessary for the
circumstances of the emergency.
Amended 04/28/99
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