<PAGE>
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 June 30, 2000
-------------
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 July 31, 2000, was 33,036,807 shares.
1
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Index
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income - Three Months and
Six Months Ended June 30, 2000 and 1999 3
Consolidated Balance Sheets -
June 30, 2000 and December 31, 1999 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Part II. Other Information
Item 1. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Shareholders 19
Item 6. Exhibits and Reports on Form 8-K 19
</TABLE>
2
<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)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- ------------------------------
2000 1999 2000 1999
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales $ 873,116 $ 772,360 $ 1,727,665 $ 1,513,444
Cost of goods sold 782,427 692,013 1,547,208 1,354,368
---------- ---------- ------------ -----------
Gross margin 90,689 80,347 180,457 159,076
---------- ---------- ------------ -----------
Selling, general and administrative expenses 64,810 59,488 130,043 118,086
Depreciation and amortization 5,270 4,684 10,431 9,145
Interest expense, net 3,053 3,034 6,358 6,130
Discount on accounts receivable securitization 1,959 795 3,818 1,790
Distributions on mandatorily redeemable
preferred securities 1,774 1,774 3,548 3,548
Nonrecurring restructuring credit (750) (1,000) (750) (1,000)
---------- ---------- ------------ -----------
Total expenses 76,116 68,775 153,448 137,699
---------- ---------- ------------ -----------
Income before income taxes 14,573 11,572 27,009 21,377
Income tax provision 6,558 5,092 12,154 9,406
---------- ---------- ------------ -----------
Net income $ 8,015 $ 6,480 $ 14,855 $ 11,971
========== ========== ============ ===========
Net income per common share-basic $ 0.25 $ 0.20 $ 0.46 $ 0.37
========== ========== ============ ===========
Net income per common share-diluted $ 0.23 $ 0.19 $ 0.43 $ 0.36
========== ========== ============ ===========
Cash dividends per common share $ 0.0625 $ 0.0600 $ 0.1225 $ 0.1100
========== ========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(in thousands, except per share data) June 30, December 31,
(unaudited) 2000 1999
------------ ------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 630 $ 669
Accounts and notes receivable, net
of allowance of $6,760 and $6,479 212,458 226,927
Merchandise inventories 362,485 342,478
Other current assets 18,731 19,172
--------- ---------
Total current assets 594,304 589,246
Property and equipment, net of accumulated
depreciation of $55,794 and $52,516 24,859 25,877
Goodwill, net of accumulated amortization
of $30,983 and $27,989 207,843 210,837
Other assets, net 41,736 39,040
--------- ---------
Total assets $ 868,742 $ 865,000
========= =========
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 318,036 $ 303,490
Accrued payroll and related liabilities 7,754 6,883
Other accrued liabilities 57,330 59,425
--------- ---------
Total current liabilities 383,120 369,798
Long-term debt 151,972 174,553
Other liabilities 6,721 6,268
--------- ---------
Total liabilities 541,813 550,619
--------- ---------
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 - 32,910 shares and 32,711 shares 65,820 65,422
Paid-in capital 14,047 12,890
Retained earnings 114,902 104,069
Accumulated other comprehensive income 160 -
--------- ---------
Total shareholders' equity 194,929 182,381
--------- ---------
Total liabilities and shareholders' equity $ 868,742 $ 865,000
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(in thousands) Six Months Ended
(unaudited) June 30,
-----------------------
2000 1999
--------- ---------
<S> <C> <C>
Operating activities
Net income $ 14,855 $ 11,971
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 10,431 9,145
Nonrecurring restructuring credit (750) (1,000)
Provision for LIFO reserve 1,750 1,200
Provision for losses on accounts and notes receivable 404 502
Changes in operating assets and liabilities:
Accounts and notes receivable 14,065 (15,869)
Merchandise inventories (21,757) (9,499)
Accounts payable 27,046 59,231
Net change in other current assets
and current liabilities (665) (9,220)
Other, net 2,865 1,262
--------- ---------
Cash provided by operating activities 48,244 47,723
--------- ---------
Investing activities
Additions to property and equipment (3,726) (5,355)
Additions to computer software (5,825) (3,041)
Other, net (83) (1,146)
--------- ---------
Cash used for investing activities (9,634) (9,542)
--------- ---------
Financing activities
Reduction of debt (21,925) -
Other financing, net (13,746) (34,706)
Cash dividends paid (4,022) (3,596)
Proceeds from exercise of stock options 1,044 80
--------- ---------
Cash used for financing activities (38,649) (38,222)
--------- ---------
Net decrease in cash and cash equivalents (39) (41)
Cash and cash equivalents at beginning of period 669 546
--------- ---------
Cash and cash equivalents at end of period $ 630 $ 505
========= =========
</TABLE>
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 June 30, 2000 and the
consolidated results of operations for the three and six month periods and
cash flows for the six month periods ended June 30, 2000 and 1999.
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 and six month periods ended June 30, 2000 and 1999
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. Investment
In October 1999, in a private offering, the company purchased an equity
investment in Neoforma.com, Inc. (Neoforma), a provider of business-to-
business e-commerce services in the healthcare industry. In January 2000,
Neoforma made an initial public offering, at which time the shares held by
O&M were converted to common stock. The investment is classified as
available-for-sale, in accordance with Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities, and is included in other assets, net in the consolidated
balance sheets at fair value, with unrealized gains and losses, net of tax,
reported as accumulated other comprehensive income. At June 30, 2000, the
estimated fair value (based on the quoted market price), gross unrealized
gain and cost basis of this investment were $1.5 million, $0.3 million and
$1.2 million. At December 31, 1999, the investment was stated at its cost
basis of $1.2 million, as there was no market for the securities at that
time.
6
<PAGE>
5. Acquisition
On July 30, 1999, the company acquired certain net assets of Medix, Inc.
(Medix), a distributor of medical and surgical supplies. In connection with
the acquisition, management adopted a plan for integration of the
businesses which includes closure of some Medix facilities and
consolidation of certain administrative functions. An accrual was
established to provide for certain costs of this plan. The following table
sets forth the activity in the accrual since December 31, 1999:
<TABLE>
<CAPTION>
(in thousands) Balance at Balance at
December 31, 1999 Charges June 30, 2000
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Losses under lease commitments $1,609 $201 $1,408
Employee separations 339 192 147
Other 685 32 653
----------------------------------------------------------------------------------------
Total $2,633 $425 $2,208
========================================================================================
</TABLE>
As of June 30, 2000, approximately 35 employees had been terminated since
the inception of the plan.
6. Restructuring Reserve
As a result of the Columbia/HCA Healthcare Corporation contract
cancellation in the second quarter of 1998, the company recorded a
nonrecurring restructuring charge to downsize operations. In the second
quarter of 2000, the company re-evaluated its estimate of the remaining
costs to be incurred in connection with the restructuring plan and reduced
the reserve by $750 thousand. The following table sets forth the activity
in the restructuring reserve since December 31, 1999:
<TABLE>
<CAPTION>
(in thousands) Balance at Balance at
December 31, 1999 Charges Adjustments June 30, 2000
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Losses under lease commitments $2,304 $ 585 $ 1,379 $3,098
Asset write-offs 3,316 716 (1,681) 919
Employee separations 13 7 (6) -
Other 477 35 (442) -
------------------------------------------------------------------------------------------------------------
Total $6,110 $1,343 $ (750) $4,017
============================================================================================================
</TABLE>
7. Revolving Credit Facility
Effective April 24, 2000, the company replaced its revolving credit
facility with a new agreement expiring in April 2003. The credit limit of
the new facility is $225.0 million, unchanged from the previous facility,
and the interest is based on LIBOR or the Prime Rate, at the company's
discretion. Under the new facility, the company is charged a commitment fee
of between 0.20% and 0.275% on the unused portion of the facility and a
utilization fee of 0.25% if borrowings exceed $112.5 million. The terms of
the new agreement limit the amount of indebtedness that the company may
incur, require the company to maintain certain levels of net worth, current
ratio, leverage ratio and fixed charge coverage, and restrict the ability
of the company to materially alter the character of the business through
consolidation, merger, or purchase or sale of assets.
7
<PAGE>
8. Comprehensive Income
The company's comprehensive income for the three months and six months
ended June 30, 2000 and 1999 is shown in the table below. Other
comprehensive income is comprised of unrealized gain on investment, net of
income tax.
<TABLE>
<CAPTION>
(in thousands) Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $ 8,015 $ 6,480 $14,855 $11,971
Other comprehensive income - increase (decrease)
in unrealized gain on investment, net of tax (1,106) - 160 -
--------------------------------------
Comprehensive income $ 6,909 $ 6,480 $15,015 $11,971
======================================
</TABLE>
9. Net Income per Common Share
The following sets forth the computation of basic and diluted net income
per common share:
<TABLE>
<CAPTION>
(in thousands, except per share data) Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic net income per common
share - net income $ 8,015 $ 6,480 $14,855 $11,971
Distributions on convertible mandatorily redeemable
preferred securities, net of income taxes 976 993 1,951 1,987
--------------------------------------------------------------------------------------------------------
Numerator for diluted net income per common share -
net income attributable to common stock after
assumed conversions $ 8,991 $ 7,473 $16,806 $13,958
--------------------------------------------------------------------------------------------------------
Denominator:
Denominator for basic net income per
common share - weighted average shares 32,595 32,572 32,590 32,564
Effect of dilutive securities:
Conversion of mandatorily redeemable preferred
securities 6,400 6,400 6,400 6,400
Stock options and restricted stock 334 124 284 127
--------------------------------------------------------------------------------------------------------
Denominator for diluted net income per common
share - adjusted weighted average shares and
assumed conversions 39,329 39,096 39,274 39,091
--------------------------------------------------------------------------------------------------------
Net income per common share - basic $ 0.25 $ 0.20 $ 0.46 $ 0.37
Net income per common share - diluted $ 0.23 $ 0.19 $ 0.43 $ 0.36
========================================================================================================
</TABLE>
10. Contingency
The company expects to receive notice from the Internal Revenue Service
that it intends to disallow certain deductions for interest on loans
associated with the company's corporate-owned life insurance (COLI)
program. The total impact of the potential disallowance of these deductions
would be approximately $8.5 million after tax, including interest.
Management believes that the company has complied with the tax law as it
relates to its COLI program, and plans to vigorously pursue appropriate
appeals options. The ultimate resolution of this matter may take several
years and a
8
<PAGE>
determination adverse to the company could have a material impact on the
company's results of operations.
11. 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.
<TABLE>
<CAPTION>
Condensed Consolidating Financial Information
(in thousands)
For the three months ended Owens & Guarantor Non-guarantor
June 30, 2000 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statements of Operations
Net sales $ - $ 873,116 $ - $ - $ 873,116
Cost of goods sold - 782,427 - - 782,427
------------------------------------------------------------------------------------------------------------------------------------
Gross margin - 90,689 - - 90,689
------------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses - 64,535 275 - 64,810
Depreciation and amortization - 5,270 - - 5,270
Interest expense, net 4,362 (1,309) - - 3,053
Intercompany interest expense, net (1,863) 7,379 (5,516) - -
Discount on accounts receivable securitization - 2 1,957 - 1,959
Distributions on mandatorily redeemable preferred securities - - 1,774 - 1,774
Nonrecurring restructuring credit - (750) - - (750)
------------------------------------------------------------------------------------------------------------------------------------
Total expenses 2,499 75,127 (1,510) - 76,116
------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (2,499) 15,562 1,510 - 14,573
Income tax provision (benefit) (1,100) 6,845 813 - 6,558
------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (1,399) $ 8,717 $ 697 $ - $ 8,015
====================================================================================================================================
<CAPTION>
For the three months ended Owens & Guarantor Non-guarantor
June 30, 1999 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statements of Operations
Net sales $ - $ 772,360 $ - $ - $ 772,360
Cost of goods sold - 692,013 - - 692,013
------------------------------------------------------------------------------------------------------------------------------------
Gross margin - 80,347 - - 80,347
------------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses - 59,273 215 - 59,488
Depreciation and amortization - 4,684 - - 4,684
Interest expense, net 4,137 (1,103) - - 3,034
Intercompany interest expense, net (1,731) 5,795 (4,064) - -
Discount on accounts receivable securitization - 11 784 - 795
Distributions on mandatorily redeemable preferred securities - - 1,774 - 1,774
Nonrecurring restructuring credit - (1,000) - - (1,000)
------------------------------------------------------------------------------------------------------------------------------------
Total expenses 2,406 67,660 (1,291) - 68,775
------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (2,406) 12,687 1,291 - 11,572
Income tax provision (benefit) (1,059) 5,595 556 - 5,092
------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (1,347) $ 7,092 $ 735 $ - $ 6,480
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Condensed Consolidating Financial Information
(in thousands)
<TABLE>
<CAPTION>
For the six months ended Owens & Guarantor Non-guarantor
June 30, 2000 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statements of Operations
Net sales $ - $ 1,727,665 $ - $ - $ 1,727,665
Cost of goods sold - 1,547,208 - - 1,547,208
------------------------------------------------------------------------------------------------------------------------------------
Gross margin - 180,457 - - 180,457
------------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses - 129,483 560 - 130,043
Depreciation and amortization - 10,431 - - 10,431
Interest expense, net 8,938 (2,580) - - 6,358
Intercompany interest expense, net (4,027) 14,578 (10,551) - -
Discount on accounts receivable securitization - 9 3,809 - 3,818
Distributions on mandatorily redeemable preferred securities - - 3,548 - 3,548
Nonrecurring restructuring credit - (750) - - (750)
------------------------------------------------------------------------------------------------------------------------------------
Total expenses 4,911 151,171 (2,634) - 153,448
------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (4,911) 29,286 2,634 - 27,009
Income tax provision (benefit) (2,161) 12,840 1,475 - 12,154
------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (2,750) $ 16,446 $ 1,159 $ - $ 14,855
====================================================================================================================================
<CAPTION>
For the six months ended Owens & Guarantor Non-guarantor
June 30, 1999 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statements of Operations
Net sales $ - $ 1,513,444 $ - $ - $ 1,513,444
Cost of goods sold - 1,354,368 - - 1,354,368
------------------------------------------------------------------------------------------------------------------------------------
Gross margin - 159,076 - - 159,076
------------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 5 117,774 307 - 118,086
Depreciation and amortization - 9,145 - - 9,145
Interest expense, net 8,286 (2,156) - - 6,130
Intercompany interest expense, net (3,427) 11,452 (8,025) - -
Discount on accounts receivable securitization - 17 1,773 - 1,790
Distributions on mandatorily redeemable preferred securities - - 3,548 - 3,548
Nonrecurring restructuring credit - (1,000) - - (1,000)
------------------------------------------------------------------------------------------------------------------------------------
Total expenses 4,864 135,232 (2,397) - 137,699
------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (4,864) 23,844 2,397 - 21,377
Income tax provision (benefit) (2,141) 10,492 1,055 - 9,406
------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (2,723) $ 13,352 $ 1,342 $ - $ 11,971
====================================================================================================================================
</TABLE>
11
<PAGE>
Condensed Consolidating Financial Information
(in thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Owens & Guarantor Non-guarantor
June 30, 2000 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheets
Assets
Current assets
Cash and cash equivalents $ 507 $ 122 $ 1 $ - $ 630
Accounts and notes receivable, net - 106,586 105,872 - 212,458
Merchandise inventories - 362,436 49 - 362,485
Intercompany advances, net 130,209 (52,724) (77,485) - -
Other current assets 42 18,689 - - 18,731
------------------------------------------------------------------------------------------------------------------------------------
Total current assets 130,758 435,109 28,437 - 594,304
Property and equipment, net - 24,855 4 - 24,859
Goodwill, net - 207,843 - - 207,843
Intercompany investments 305,441 15,001 136,083 (456,525) -
Other assets, net 10,938 30,303 495 - 41,736
------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 447,137 $ 713,111 $ 165,019 $ (456,525) $ 868,742
====================================================================================================================================
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ - $ 318,036 $ - $ - $ 318,036
Accrued payroll and related liabilities - 7,754 - - 7,754
Other accrued liabilities 1,295 54,120 1,915 - 57,330
------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,295 379,910 1,915 - 383,120
Long-term debt 151,300 672 - - 151,972
Intercompany long-term debt 136,083 - - (136,083) -
Other liabilities - 6,721 - - 6,721
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 288,678 387,303 1,915 (136,083) 541,813
------------------------------------------------------------------------------------------------------------------------------------
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 65,820 40,879 5,583 (46,462) 65,820
Paid-in capital 14,047 258,979 15,001 (273,980) 14,047
Retained earnings 78,432 25,950 10,520 - 114,902
Accumulated other comprehensive income 160 - - - 160
------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 158,459 325,808 31,104 (320,442) 194,929
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 447,137 $ 713,111 $ 165,019 $ (456,525) $ 868,742
====================================================================================================================================
</TABLE>
12
<PAGE>
Condensed Consolidating Financial Information
(in thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Owens & Guarantor Non-guarantor
December 31, 1999 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheets
Assets
Current assets
Cash and cash equivalents $ 507 $ 158 $ 4 $ - $ 669
Accounts and notes receivable, net - 112,088 114,839 - 226,927
Merchandise inventories - 342,478 - - 342,478
Intercompany advances, net 157,711 (69,220) (88,491) - -
Other current assets - 19,172 - - 19,172
------------------------------------------------------------------------------------------------------------------------------------
Total current assets 158,218 404,676 26,352 - 589,246
Property and equipment, net - 25,877 - - 25,877
Goodwill, net - 210,837 - - 210,837
Intercompany investments 305,441 15,001 136,083 (456,525) -
Other assets, net 9,894 27,933 1,213 - 39,040
------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 473,553 $ 684,324 $ 163,648 $ (456,525) $ 865,000
------------------------------------------------------------------------------------------------------------------------------------
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ - $ 303,490 $ - $ - $ 303,490
Accrued payroll and related liabilities - 6,883 - - 6,883
Other accrued liabilities 1,354 56,368 1,703 - 59,425
------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,354 366,741 1,703 - 369,798
Long-term debt 172,600 1,953 - - 174,553
Intercompany long-term debt 136,083 - - (136,083) -
Other liabilities - 6,268 - - 6,268
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 310,037 374,962 1,703 (136,083) 550,619
------------------------------------------------------------------------------------------------------------------------------------
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 65,422 40,879 5,583 (46,462) 65,422
Paid-in capital 12,890 258,979 15,001 (273,980) 12,890
Retained earnings 85,204 9,504 9,361 - 104,069
------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 163,516 309,362 29,945 (320,442) 182,381
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 473,553 $ 684,324 $ 163,648 $ (456,525) $ 865,000
====================================================================================================================================
</TABLE>
13
<PAGE>
Condensed Consolidating Financial Information
(in thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
For the six months ended Owens & Guarantor Non-guarantor
June 30, 2000 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statements of Cash Flows
Operating activities
Net income (loss) $ (2,750) $ 16,446 $ 1,159 $ - $ 14,855
Adjustments to reconcile net income (loss) to cash
provided by (used for) operating activities:
Depreciation and amortization - 10,431 - - 10,431
Nonrecurring restructuring credit - (750) - - (750)
Provision for LIFO reserve - 1,750 - - 1,750
Provision for losses on accounts and notes receivable - 590 (186) - 404
Changes in operating assets and liabilities:
Accounts and notes receivable - 4,912 9,153 - 14,065
Merchandise inventories - (21,708) (49) - (21,757)
Accounts payable - 27,046 - - 27,046
Net change in other current assets
and current liabilities (101) (776) 212 - (665)
Other, net 1,028 1,119 718 - 2,865
------------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) operating activities (1,823) 39,060 11,007 - 48,244
------------------------------------------------------------------------------------------------------------------------------------
Investing activities
Additions to property and equipment - (3,722) (4) - (3,726)
Additions to computer software - (5,825) - - (5,825)
Other, net (155) 72 - - (83)
------------------------------------------------------------------------------------------------------------------------------------
Cash used for investing activities (155) (9,475) (4) - (9,634)
------------------------------------------------------------------------------------------------------------------------------------
Financing activities
Reduction of debt (21,300) (625) - - (21,925)
Change in intercompany advances 27,502 (16,496) (11,006) - -
Other financing, net (1,246) (12,500) - - (13,746)
Cash dividends paid (4,022) - - - (4,022)
Proceeds from exercise of stock options 1,044 - - - 1,044
------------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities 1,978 (29,621) (11,006) - (38,649)
------------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents - (36) (3) - (39)
Cash and cash equivalents at beginning of period 507 158 4 - 669
------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 507 $ 122 $ 1 $ - $ 630
====================================================================================================================================
</TABLE>
14
<PAGE>
Condensed Consolidating Financial Information
(in thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
For the six months ended Owens & Guarantor Non-guarantor
June 30, 1999 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statements of Cash Flows
Operating activities
Net income (loss) $ (2,723) $ 13,352 $ 1,342 $ - $ 11,971
Adjustments to reconcile net income (loss) to cash
provided by (used for) operating activities:
Depreciation and amortization - 9,145 - - 9,145
Nonrecurring restructuring credit - (1,000) - - (1,000)
Provision for LIFO reserve - 1,200 - - 1,200
Provision for losses on accounts and notes receivable - 328 174 - 502
Changes in operating assets and liabilities:
Accounts and notes receivable - 8,262 (24,131) - (15,869)
Merchandise inventories - (9,499) - - (9,499)
Accounts payable - 59,231 - - 59,231
Net change in other current assets (9,220)
and current liabilities (83) (9,124) (13) -
Other, net 967 170 125 - 1,262
------------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) operating activities (1,839) 72,065 (22,503) - 47,723
------------------------------------------------------------------------------------------------------------------------------------
Investing activities
Additions to property and equipment - (5,355) - - (5,355)
Additions to computer software - (3,041) - - (3,041)
Other, net - 54 (1,200) - (1,146)
------------------------------------------------------------------------------------------------------------------------------------
Cash used for investing activities - (8,342) (1,200) - (9,542)
------------------------------------------------------------------------------------------------------------------------------------
Financing activities
Change in intercompany advances 5,354 (29,057) 23,703 - -
Other financing, net - (34,706) - - (34,706)
Cash dividends paid (3,596) - - - (3,596)
Proceeds from exercise of stock options 80 - - - 80
------------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities 1,838 (63,763) 23,703 - (38,222)
------------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (1) (40) - - (41)
Cash and cash equivalents at beginning of period 505 40 1 - 546
------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 504 $ - $ 1 $ - $ 505
====================================================================================================================================
</TABLE>
15
<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, 1999. 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 Annual Report on Form 10-K for
the year ended December 31, 1999.
Financial Condition, Liquidity and Capital Resources
Liquidity. The company's liquidity improved during the first six months of
2000. Combined outstanding debt and off balance sheet accounts receivable
securitization were reduced by $19.9 million to $260.9 million at June 30, 2000,
from $280.8 million at December 31, 1999. The reduction was due to the positive
impact of cash flow from operations.
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. In April 2000, the company replaced its revolving credit facility with
a new agreement expiring in April 2003. At June 30, 2000, the company had
$223.7 million of unused credit under the new revolving credit facility and
$42.3 million under its receivables securitization facility.
Effective July 14, 2000, the company replaced its receivables securitization
facility with a new agreement expiring in July 2001. Under the terms of the new
facility, O&M Funding is entitled to transfer, without recourse, up to $225.0
million of its trade receivables to a group of unrelated third party purchasers
at a cost of funds equal to commercial paper rates, the prime rate, or LIBOR
(plus a charge for administrative and credit support services). The terms of
the new agreement require the company to maintain certain levels of net worth,
current ratio, leverage ratio and fixed coverage, and restrict the company's
ability to materially alter the character of the business through consolidation,
merger, or purchase or sale of assets.
Working Capital Management. The company's working capital decreased by $8.3
million from December 31, 1999 to $211.2 million at June 30, 2000, primarily due
to reductions of accounts receivable as a result of improved collections. This
cash was used to reduce the company's debt and fund capital expenditures.
Accounts receivable, excluding the impact of the company's receivables
securitization facility, decreased by $12.4 million to $320.1 million at June
30, 2000.
Capital Expenditures. Capital expenditures were $9.6 million in the first six
months of 2000, of which $5.8 million was for computer hardware and software.
The company expects to continue supporting strategic initiatives and improving
operational efficiency through investments in technology, including system
upgrades. These expenditures are expected to be funded through cash flow from
operations.
Results of Operations
Second quarter and first six months of 2000 compared with 1999
Net sales. Net sales increased 13.0% to $873.1 million in the second quarter of
2000 from $772.4 million in the second quarter of 1999. Net sales increased
14.2% to $1.7 billion in the first six months of 2000 from $1.5 billion in the
first six months of 1999. Excluding the sales generated by Medix, net sales
increased 6.8% for the second quarter and 7.9% for the first six months of 2000.
Most of this
16
<PAGE>
increase resulted from increased penetration of existing accounts, most
significantly Tenet BuyPower, whose distribution contract began in February
1999.
Gross margin. Gross margin was 10.4% of net sales, consistent with the second
quarter of 1999. Gross margin as a percentage of net sales decreased slightly to
10.4% in the first six months of 2000 compared with 10.5% for the first six
months of 1999. The decrease was a result of changes in the company's sales mix.
Selling, general and administrative expenses. Selling, general and
administrative (SG&A) expenses as a percentage of net sales decreased to 7.4% of
net sales for the second quarter of 2000, compared to 7.7% for the second
quarter of 1999. SG&A expense decreased to 7.5% of net sales for the first six
months of 2000, compared to 7.8% for the same period of 1999. The decrease as a
percentage of sales was the result of economies of scale created by a higher
sales base in 2000, operating efficiencies driven by improved warehouse
technology, continued management of administrative costs, and the elimination of
the need for Year 2000 remediation efforts.
Depreciation and amortization. Depreciation and amortization expense for the
second quarter and first six months of 2000 increased by 1 2.5% and 14.1% from
the same periods in 1999, due, in part, to goodwill amortization resulting from
the Medix acquisition. Goodwill amortization from the Medix acquisition
approximated $0.4 million for the second quarter and $0.7 million for the first
six months of 2000. In addition, depreciation expense increased as a result of
higher capital spending associated with information technology initiatives. O&M
anticipates increases in depreciation throughout the rest of 2000 as the company
continues to invest in information technology.
Interest expense, net, and discount on accounts receivable securitization
(financing costs). Financing costs totaled $5.0 million for the second quarter
of 2000 and $10.2 million for the first six months of 2000, compared with $3.8
million and $7.9 million for the same periods of 1999. The increase in
financing costs is due to an increase in sales of accounts receivable under the
company's off balance sheet receivables securitization facility of $42.7 million
since the second quarter of 1999. The increase in securitization resulted from
the Medix acquisition, partially offset by positive cash flows from operations.
The company expects to continue to manage its financing costs by continuing its
working capital reduction initiatives and management of interest rate risks,
although the future results of these initiatives cannot be assured.
Nonrecurring restructuring credits. As a result of the Columbia/HCA contract
cancellation in the second quarter of 1998, the company recorded a nonrecurring
restructuring charge of $6.6 million, after taxes, to downsize operations. In
the second quarters of 2000 and 1999, the company re-evaluated its restructuring
reserve. Since the actions under this plan had resulted in lower projected
total costs than originally anticipated, the company recorded reductions in the
reserve which increased net income by approximately $0.4 million in 2000 and
$0.6 million in 1999, after taxes.
Income taxes. The income tax provision was $12.2 million for the first six
months of 2000 compared with $9.4 million for the first six months of 1999. The
effective tax rate was 45.0%, compared to 44.0% for the same period in 1999.
This rate increase results primarily from increases in certain nondeductible
expenses.
17
<PAGE>
Net income. Net income increased to $8.0 million for the second quarter of 2000
from $6.5 million for the second quarter of 1999 and increased to $14.9 million
for the first six months of 2000 from $12.0 million for the same period of 1999.
Excluding the adjustments to the restructuring reserve, net income increased to
$7.6 million for the second quarter of 2000 from $5.9 million for the second
quarter of 1999 and increased to $14.4 million for the first six months of 2000
from $11.4 million for the same period of 1999. The increase is primarily due
to the increase in sales and success in controlling operating expenses through
productivity improvements.
New Health Exchange
In April 2000, the company announced an agreement in principle with four other
leading healthcare distributors to form an Internet-based company that would be
an independent, commercially neutral healthcare product information exchange
focused on streamlining the healthcare supply chain. In July, the company
decided not to participate as a founding member, but will continue working with
the exchange as a supply chain partner, as well as with other industry
initiatives designed to increase productivity, process improvement and overall
cost reduction.
Recent Accounting Pronouncements
In September 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. In May 1999, the FASB delayed
the effective date of this standard by one year. In June 2000, the FASB amended
SFAS No. 133 with SFAS No. 138, Accounting for Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133. The company will be
required to adopt the provisions of these standards beginning on January 1,
2001. Management believes the effect of the adoption of these standards will be
limited to financial statement presentation and disclosure and will not have a
material effect on the company's financial condition or results of operations.
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. The loss of one of the company's larger customers could have a
significant effect on its business. However, management believes that the
company's competitive position in the marketplace and its ability to control
costs would enable it to continue profitable operations and attract new
customers in the event of such a loss.
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 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 business and operations, there can be no
assurance that actual results, performance or achievements of the company will
not differ
18
<PAGE>
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, 1999.
19
<PAGE>
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, 1999.
Through June 30, 2000, there have been no material developments in any legal
proceedings reported in such Annual Report.
Item 4. Submission of Matters to a Vote of Shareholders
The following matters were submitted to a vote of O&M's shareholders at its
annual meeting held on April 25, 2000, with the voting results designated below
each such matter:
(1) Election of Josiah Bunting, III, John T. Crotty, James E. Rogers and James
E. Ukrop as directors of O&M for a three-year term.
<TABLE>
<CAPTION>
Votes Against Broker
Directors Votes For Or Withheld Abstentions Non-Votes
------------------------ ---------------- ------------------ --------------- ----------------
<S> <C> <C> <C> <C>
Josiah Bunting, III 28,440,150 327,868 0 0
John T. Crotty 28,452,949 315,069 0 0
James E. Rogers 28,450,985 317,033 0 0
James E. Ukrop 28,451,721 316,297 0 0
</TABLE>
(2) Ratification of the appointment of KPMG LLP as O&M's independent auditors.
<TABLE>
<CAPTION>
Votes Against
Votes For Or Withheld Abstentions
------------- ------------------ ------------------
<S> <C> <C>
28,656,251 50,023 61,744
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10(a) Receivables Purchase Agreement dated as of July 14, 2000 among O&M
Funding Corp., Owens & Minor Medical, Inc., Owens & Minor, Inc.,
Falcon Asset Securitization Corporation, Receivables Capital
Corporation, Liberty Street Funding Corporation, Bank One, N.A.,
Bank of America, National Association, and The Bank of Nova Scotia
10(b) Receivables Sale Agreement dated as of July 14, 2000 among Koley's
Medical Supply, Inc., Owens & Minor Medical, Inc., Owens & Minor
West, Inc., Stuart Medical, Inc. and O&M Funding Corp.
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the company during the quarter for
which this Quarterly Report is filed.
20
<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 August 9, 2000 /s/ Richard F. Bozard
-------------------- -----------------------------------
Richard F. Bozard
Vice President & Treasurer
Acting Chief Financial Officer
Date August 9, 2000 /s/ Olwen B. Cape
-------------------- -----------------------------------
Olwen B. Cape
Vice President & Controller
Chief Accounting Officer
<PAGE>
Exhibits Filed with SEC
-----------------------
Exhibit #
---------
10(a) Receivables Purchase Agreement dated as of July 14, 2000 among O&M
Funding Corp., Owens & Minor Medical, Inc., Owens & Minor, Inc.,
Falcon Asset Securitization Corporation, Receivables Capital
Corporation, Liberty Street Funding Corporation, Bank One, N.A., Bank
of America, National Association, and The Bank of Nova Scotia
10(b) Receivables Sale Agreement dated as of July 14, 2000 among Koley's
Medical Supply, Inc., Owens & Minor Medical, Inc., Owens & Minor West,
Inc., Stuart Medical, Inc. and O&M Funding Corp.
27 Financial Data Schedule
