<PAGE> 1
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 September 30, 1996
Transition report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934:
For the transition period from to
---------- -----------
Commission file number: 0-23540
GULF SOUTH MEDICAL SUPPLY, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 64-0831411
--------------- -------------------
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
426 CHRISTINE DR., RIDGELAND, MISSISSIPPI 39157
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(601) 856-5900
--------------
(Registrant's telephone number, including area code)
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
----- -----
As of November 11, 1996 there were 16,264,923 shares of common stock
outstanding.
<PAGE> 2
GULF SOUTH MEDICAL SUPPLY, INC.
INDEX
PART I FINANCIAL INFORMATION
<TABLE>
<CAPTION>
page
----
ITEM 1. FINANCIAL STATEMENTS
<S> <C> <C>
Condensed Balance Sheets as of September 30, 1
1996 (unaudited) and December 31, 1995
Condensed Statements of Income (unaudited) - 2
three months ended September 30, 1996 and 1995
and nine months ended September 30, 1996 and
1995
Condensed Statements of Cash Flows (unaudited) 3
for the nine months ended September 30, 1996
and 1995
Notes to Condensed Financial Statements 4
(unaudited) - September 30, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 7
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II OTHER INFORMATION 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES 14
</TABLE>
<PAGE> 3
GULF SOUTH MEDICAL SUPPLY, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................................... $ 78,578 $ 2,147
Trade accounts receivable, less allowance for doubtful accounts of $1,710 in 1996
and $1,141 in 1995 ............................................................. 37,080 28,742
Inventories ..................................................................... 22,983 16,874
Prepaid income taxes ............................................................ -- 1,032
Prepaid expenses and other ...................................................... 1,404 1,836
Deferred income taxes ........................................................... 664 664
--------- ---------
Total current assets .......................................................... 140,709 51,295
Property and equipment:
Land ............................................................................ 567 567
Building ........................................................................ 600 600
Equipment ....................................................................... 2,705 1,853
--------- ---------
3,872 3,020
Accumulated depreciation ........................................................ (1,244) (882)
--------- ---------
2,628 2,138
Other assets:
Goodwill .......................................................................... 4,395 1,141
Note receivable - trade ........................................................... 1,744 --
Notes receivable from affiliate ................................................... 413 413
Other assets ...................................................................... 1,794 34
--------- ---------
8,346 1,588
--------- ---------
Total assets .................................................................... $ 151,683 $ 55,021
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank ............................................................ $ -- $ 1,403
Trade accounts payable .......................................................... 8,617 9,913
Accrued expenses and other current liabilities................................... 795 1,351
Current portion of long-term debt ............................................... -- 2,400
--------- ---------
Total current liabilities ..................................................... 9,412 15,067
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares -- 1,000,000
Issued and outstanding shares-none
Common stock, $.01 par value:
Authorized shares -- 30,000,000
Issued and outstanding shares -- 16,264,923 in 1996 and 13,918,096 in 1995 ........ 162 139
Paid-in capital .................................................................... 115,679 22,052
Retained earnings .................................................................. 26,430 17,763
--------- ---------
Total stockholders' equity ........................................................ 142,271 39,954
--------- ---------
Total liabilities and stockholders' equity ........................................ $ 151,683 $ 55,021
========= =========
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See accompanying notes.
1
<PAGE> 4
GULF SOUTH MEDICAL SUPPLY, INC.
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales .................................. $ 46,122 $ 33,253 $ 130,980 $ 94,468
Cost of sales .............................. 35,430 25,295 100,217 71,230
--------- --------- --------- ---------
Gross profit ............................... 10,692 7,958 30,763 23,238
Selling, general and administrative expenses 6,171 4,453 17,020 13,216
Merger costs and expenses (Note 3) ......... -- -- 512 --
--------- --------- --------- ---------
Operating income ........................... 4,521 3,505 13,231 10,022
Interest expense ........................... (24) (37) (219) (105)
Interest income ............................ 756 41 962 148
--------- --------- --------- ---------
Income before income taxes ................. 5,253 3,509 13,974 10,065
Income taxes ............................... (1,869) (1,430) (5,309) (4,055)
--------- --------- --------- ---------
Net income ................................. $ 3,384 $ 2,079 $ 8,665 $ 6,010
========= ========= ========= =========
Net income per share ....................... $ 0.21 $ 0.15 $ 0.57 $ 0.43
========= ========= ========= =========
Weighted average shares outstanding ........ 16,421 14,013 15,085 13,981
========= ========= ========= =========
</TABLE>
See accompanying notes.
2
<PAGE> 5
GULF SOUTH MEDICAL SUPPLY, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1996 1995
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash used in operating activities .............. $ (5,917) $ (7,330)
INVESTING ACTIVITIES
Purchases of equipment ............................. (852) (373)
Increase in other assets ........................... (3,166) --
Purchase of operating assets from Express Care,
L.P. and L&M Medical, Inc. ....................... (3,482) (3,749)
-------- --------
Net cash used in investing activities .............. (7,500) (4,122)
FINANCING ACTIVITIES
Payments on note payable to bank ................... (1,403) --
Principal payments on long-term debt ............... (9,600) --
Borrowings under revolving line of credit .......... 7,200 3,749
Proceeds from exercise of stock options ............ 570 --
Proceeds from issuance of common stock ............. 93,081 89
-------- --------
Net cash provided by financing activities .......... 89,848 3,838
Net increase (decrease) in cash and cash equivalents 76,431 (7,614)
Cash and cash equivalents at beginning of period ... 2,147 9,146
-------- --------
Cash and cash equivalents at end of period ......... $ 78,578 $ 1,532
======== ========
NON-CASH TRANSACTIONS
Tax benefit of stock options exercised ............. $ 1,721 $ --
======== ========
Conversion of account receivable to note receivable $ 1,882 $ --
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 6
GULF SOUTH MEDICAL SUPPLY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, these condensed financial statements do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
fair presentation have been included. Operating results for the three- and
nine-month periods ended September 30, 1996 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1996. For
further information, refer to the financial statements and footnotes thereto
for the year ended December 31, 1995 included in the Gulf South Medical Supply,
Inc.'s Annual Report on Form 10-K.
2. PUBLIC OFFERING OF COMMON STOCK
The Company completed a third public offering on June 12, 1996 pursuant to
which the Company received net proceeds of approximately $91.5 million from the
sale by the Company of 2,223,276 shares of its common stock. A portion of the
net proceeds from the offering were used to repay the outstanding balance under
the Company's revolving credit facility ($9.6 million), with the remaining
balance to be used for working capital and other general corporate purposes.
3. ACQUISITIONS
On April 1, 1996, the Company acquired certain operating assets and liabilities
of Express Care, L. P. ("Express Care") for approximately $3.5 million in a
transaction accounted for using the purchase method of accounting. Accordingly,
the results of operations include Express Care from the date of the
acquisition.
On February 29, 1996, the Company completed the acquisition of all outstanding
common stock of Bayer Medical Service Systems, Inc. ("Bayer"). The Company
issued 151,724 shares of its common stock in exchange for the outstanding
common stock of Bayer. The share exchange was accounted for as a pooling of
interests and accordingly, the Company's financial statements have been
restated to include accounts and operations of Bayer for all periods prior to
the share exchange. Separate results of operations for Bayer for the periods
prior to the share exchange with Bayer (two months in 1996 and nine months in
1995) which have been combined with the Company are as follows:
4
<PAGE> 7
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
--------- --------- --------- ---------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Net Sales
Gulf South $ 46,122 $ 30,894 $ 129,264 $ 86,991
Bayer -- 2,359 1,716 7,477
--------- --------- --------- ---------
Combined $ 46,122 $ 33,253 $ 130,980 $ 94,468
========= ========= ========= =========
Gross Profit
Gulf South $ 10,692 $ 7,422 $ 30,336 $ 21,364
Bayer -- 536 427 1,874
--------- --------- --------- ---------
Combined $ 10,692 $ 7,958 $ 30,763 $ 23,238
========= ========= ========= =========
Net Income
Gulf South $ 3,384 $ 2,183 $ 8,664 $ 6,164
Bayer -- (104) 1 (154)
--------- --------- --------- ---------
Combined $ 3,384 $ 2,079 $ 8,665 $ 6,010
========= ========= ========= =========
</TABLE>
In connection with the share exchange, $512,000 of merger costs and expenses
($315,000 after tax, or $.02 per share) were incurred and charged to expense in
the quarter ended March 31, 1996 and the nine months ended September 30, 1996.
The merger costs and expenses related to legal, accounting and other costs
incurred in combining the operations of the previously separate companies.
4. INVENTORIES
Inventories, which consist primarily of medical supplies and related products,
are stated at the lower of cost (average cost method) or market. Provision for
excess, obsolete or slow-moving goods has been made in the financial statements
based on management's estimates.
The Company imports certain medical supplies from overseas suppliers. The
contracts with these suppliers require the Company to make deposits prior to
shipment. Such deposits are classified as other current assets (included in
"prepaid expenses and other" in the accompanying balance sheet) until the
supplies are received. At that time, the deposits are re-classified as
inventories.
5. REVENUE RECOGNITION
Revenue is recognized when product is shipped to customers. Credit is extended
based upon an evaluation of the customer's financial condition and generally
does not require collateral. Substantially all of the Company's accounts
receivables are due from companies in the long-term care industry located
throughout the United States. The Company makes provisions for estimated
doubtful accounts based on periodic analytical and credit-worthiness reviews.
Credit losses are provided for in the financial statements and have
consistently been within management's expectations.
5
<PAGE> 8
6. CREDIT FACILITIES AND LONG-TERM DEBT
The Company has a $15.0 million revolving credit facility which matures
September 25, 1998, of which $15.0 million was available at September 30, 1996.
Borrowings bear interest, at the option of the Company, at prime or at LIBOR
plus 1% to 2.5% per annum. A facility fee of .125% per annum is charged on the
unused portion of the revolving credit facility. Substantially all of the
Company's assets would collateralize any borrowings in excess of $7.5 million.
The revolving credit facility contains numerous restrictive covenants and
financial ratio requirements.
7. NET INCOME PER COMMON SHARE
Net income per common share is computed by dividing net income applicable to
common stock based on the weighted average number of shares outstanding (as
restated, see Note 3) during the three months ended September 30, 1996 and 1995
(16,420,856 and 14,013,308 shares, respectively) and the nine months ended
September 30, 1996 and 1995 (15,085,007 and 13,980,973 shares, respectively).
Common equivalent shares relating to the stock options exercisable at September
30, 1996 and 1995 have been calculated using the treasury stock method based on
the higher of the average or the ending market value of the common stock during
the three- and nine-month periods ended September 30, 1996 and 1995.
6
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the Company's
condensed financial statements included elsewhere herein.
Certain of the statements contained herein are forward-looking statements and
involve risks and uncertainties, and the Company's actual experience may differ
materially from that discussed below. Factors that may cause such a difference
include, but are not limited to, those discussed in "Factors Affecting Future
Performance" as well as future events that have the effect of reducing the
Company's available cash balances, such as unanticipated operating losses or
capital expenditures related to possible future acquisitions.
GENERAL
Management of the Company anticipates further downward pressures on gross
margin because of continued price competition influenced primarily by large
chain customers, and continued implementation of the Company's long-term
strategy to expand sales with aggressive pricing. The Company expects that
these pressures on gross margin may be offset to some extent by reducing
selling, general and administrative expenses as a percentage of increased net
sales, and by increasing as a percentage of net sales the sales volume to the
Company's independent and home health customers, which sales have historically
yielded higher gross margins due to the nature of the services involved. To
date, the Company has also offset the decrease in gross margin in part by
participation in volume-based rebate programs offered by vendors.
Notwithstanding these strategies, there can be no assurance that the Company
will be able to offset reductions in gross margin to a significant extent.
During the third quarter ended September 30, 1996, management undertook a review
of its operations and determined that certain existing distribution facilities
are non-essential for the Company's distribution activities, and do not meet the
Company's strategic objectives. The Company has consolidated and plans to
continue consolidating such distribution facilities into its existing larger
regional distribution centers. To date, charges related to such distribution
facility closures have been, and Management anticipates such changes in the
future will be, immaterial to the Company's operations or financial position. To
date, such charges have consisted of, and are expected to continue consisting
of, among other matters, asset write-offs, relocation and employment severance
costs, and facility lease costs.
7
<PAGE> 10
The following discussion and analysis compares the results of operations of the
Company for the three- and nine-month periods ended September 30, 1996 to the
three- and nine-month periods ended September 30, 1995, respectively.
RESULTS OF OPERATIONS - THIRD QUARTER ENDED SEPTEMBER 30, 1996 AND 1995
Net sales increased by $12.8 million, or 38.7%, to $46.1 million for the three
months ended September 30, 1996 compared to $33.3 million for the same period
in 1995. This increase was attributable to the addition of new customers,
facility expansion by existing customers and increased sales penetration in
existing customer facilities.
Gross profit increased by $2.7 million, or 34.4%, to $10.7 million for the
three months ended September 30, 1996 compared to $8.0 million for the three
months ended September 30, 1995, while gross margin decreased to 23.2% from
23.9% over the same period. The decrease in gross margin was primarily due to a
greater sales mix of high volume, large chain customers that require more
competitive pricing, offset in part by lower selling and servicing costs
associated with such business, and a continuation of the Company's long-term
strategy to increase sales penetration in existing customer facilities and to
expand the Company's market reach to new customers. Both factors were offset in
part by vendor performance incentives earned by the Company through the
achievement of certain predetermined sales and purchase levels, and the taking
of prompt pay discounts with certain vendors.
Selling, general and administrative expenses increased by $1.7 million, or
38.6%, to $6.2 million for the three months ended September 30, 1996 compared
to $4.5 million for the three months ended September 30, 1995, and as a
percentage of net sales remained stable at 13.4%. Selling, general and
administrative expenses increased in order to support the Company's higher
sales volume in the period, while selling, general and administrative expenses
as a percentage of net sales remained stable due to leveraging of the Company's
general and administrative expenses through increased sales volume and the
lower selling and servicing costs generally associated with the Company's
greater mix of higher volume, large chain customers. Both factors were offset
in part by the additional costs associated with the operating activities of
L&M Medical, Inc., Bayer Medical Service Systems, Inc. and Express Care L. P.
Interest expense was $24,000 for the three months ended September 30, 1996
compared to $37,000 for the same period a year ago. This decrease was a result
of a portion of the net proceeds of the public offering in June 1996 being used
to repay the outstanding balance under the Company's revolving credit facility.
Interest income was $756,000 for the three months ended September 30, 1996
compared to $41,000 for the same period a year ago. This increase was
attributable to the net proceeds of the offering, in excess of the amounts used
to pay the outstanding balance of the Company's revolving credit facility,
being invested in short-term interest-bearing securities.
Income taxes increased by $439,000 to $1.9 million for the three months ended
September 30, 1996 compared to $1.4 million for the same period in 1995. This
increase was attributable to higher taxable income, which was partially offset
by a decrease in the effective tax rate to 35.6% for the three months ended
September 30, 1996, as compared to 40.8% for the same period in 1995. The
decrease in the effective tax rate was principally from increased tax-exempt
income for the three months ended September 30, 1996 as compared to the same
period in 1995.
8
<PAGE> 11
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Net sales increased by $36.5 million, or 38.7%, to $131.0 million for the nine
months ended September 30, 1996 compared to $94.5 million for the same period
in 1995. This increase was attributable to the addition of new customers,
facility expansion by existing customers and increased sales penetration in
existing customer facilities.
Gross profit increased by $7.6 million, or 32.4%, to $30.8 million for the nine
months ended September 30, 1996 compared to $23.2 million for the same period a
year ago, while gross margin decreased to 23.5% from 24.6% over the same
period. The decrease in gross margin was primarily due to a greater sales mix
of high volume, large chain customers that require more competitive pricing,
offset in part by lower selling and servicing costs associated with such
business, and a continuation of the Company's long-term strategy to increase
sales penetration in existing customer facilities and to expand the Company's
market reach to new customers. Both factors were offset in part by vendor
performance incentives earned by the Company through the achievement of certain
predetermined sales and purchase levels, and the taking of prompt pay discounts
with certain vendors.
Selling, general and administrative expenses increased by $3.8 million, or
28.8%, to $17.0 million for the nine months ended September 30, 1996 compared
to $13.2 million for the nine months ended September 30, 1995, and as a
percentage of net sales decreased to 13.0% from 14.0% over the same period.
Selling, general and administrative expenses increased in order to support the
Company's higher sales volume in the period, while the decrease in selling,
general and administrative expenses as a percentage of net sales was due to
leveraging of the Company's general and administrative expenses through
increased sales volume and the lower selling and servicing costs generally
associated with the Company's greater mix of higher volume, large chain
customers. Both factors were offset in part by costs associated with the
operating activities of L&M Medical, Inc., Bayer Medical Service Systems, Inc.
and Express Care L.P.
The Company incurred merger costs and expenses of $512,000 during the nine
months ended September 30, 1996 in connection with the acquisition of Bayer
Medical Service Systems, Inc.
Interest expense increased to $219,000 for the nine months ended September 30,
1996 compared to $105,000 for the same period a year ago. This increase was
attributable to increased borrowings under the Company's revolving line of
credit agreement for working capital purposes, offset in part by a portion of
the net proceeds of the public offering in June 1996 being used to repay the
outstanding balance under the Company's revolving credit facility.
Interest income was $962,000 for the nine months ended September 30, 1996
compared to $148,000 for the same period a year ago. This increase was
attributable to the net proceeds of the offering, in excess of the amounts used
to pay the outstanding balance of the Company's revolving credit facility,
being invested in short-term interest-bearing securities.
Income taxes increased by $1.2 million to $5.3 million for the nine months
ended September 30, 1996 compared to $4.1 million for the same period in 1995.
This increase was attributable to higher taxable income, which was partially
offset by a decrease in the effective tax rate to 38.0% for the nine months
ended September 30, 1996, as compared to 40.3% for the same period in 1995. The
decrease in the effective tax rate was principally from increased tax-exempt
income for the nine months ended September 30, 1996 as compared to the same
period in 1995.
9
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
The Company completed a third public offering on June 12, 1996 pursuant to
which the Company received net proceeds of approximately $91.5 million from the
sale by the Company of 2,223,276 shares of its common stock. A portion of the
net proceeds from the offering were used to repay the outstanding balance under
the Company's revolving credit facility ($9.6 million), with the remaining
balance to be used for working capital and other general corporate purposes.
The Company's working capital was $131.3 million and its current ratio was 15.0
at September 30, 1996 as compared to working capital of $36.2 million and a
current ratio of 3.4 at December 31, 1995.
The Company has a revolving credit facility of $15.0 million, of which $15.0
million was available at September 30, 1996. Borrowings bear interest, at the
option of the Company, at prime or LIBOR plus an amount ranging from 1% to 2.5%
per annum. A facility fee of .125% per annum is charged on the unused portion
of the revolving credit facility. Substantially all of the Company's assets
would collateralize any borrowings in excess of $7.5 million under the
revolving credit facility, which contains numerous restrictive covenants and
financial ratio requirements.
The Company has consolidated, and plans to consolidate, certain distribution
facilities into its larger regional distribution centers which has resulted, and
may result, in cash expenditures in excess of those required in the ordinary
course of business.
The Company expects that available cash, borrowings available under its
existing revolving credit facility and funds generated from operations will be
sufficient to fund its operations through the fourth quarter of 1998.
The Company made capital expenditures totaling $852,000 for the nine months
ended September 30, 1996, primarily to purchase additional telephone and
computer equipment, and to fund various warehouse improvements.
FACTORS AFFECTING FUTURE PERFORMANCE
The Company's future operating results may be affected by various trends and
factors which are beyond the Company's control. These include adverse changes
in general economic conditions and changes in federal and state regulation
affecting the Company's customers. Accordingly, past trends should not be used
to anticipate future results and trends. Further, the Company's prior
performance should not be presumed to be an accurate indicator of future
performance.
The Company faces intense competition from a variety of regional, local and
national distributors. Barriers to entry in the long-term care distribution
industry are relatively low, and the risk of new competitors entering the
market, particularly on a local level, is high. In response to competitive
pressures, the Company has in the past lowered, and may in the future lower,
selling prices in order to maintain or increase market share, which has
resulted, and may in the future result, in lower gross margins. Certain of the
Company's current competitors, including many national distributors, have
substantially greater capital resources, sales and marketing experience, and
distribution capabilities than the Company. Certain of these national
distributors may have cost advantages over the Company due to their ability to
purchase products in large volumes, the Company may experience significant
pricing pressures from these and other competitors which could adversely affect
the Company's operating results.
10
<PAGE> 13
A key element of the Company's growth strategy is to augment its internal
growth with the acquisition of medical supply distributors, and inventory and
facilities of such distributors, that serve complementary markets or that
supplement the Company's presence in existing markets. Certain of these
businesses may be marginally profitable or unprofitable. In order to achieve
anticipated benefits from these acquisitions, the Company must successfully
integrate the acquired businesses with its existing operations, and no
assurance can be given that the Company will be successful in this regard. In
the past the Company has incurred one-time costs and expenses in connection
with acquisitions and it is likely that similar one-time costs and expenses may
be incurred in connection with future acquisitions, including the write-off of
unsold inventory and unused assets. In addition, attractive acquisitions are
difficult to identify and complete for a number of reasons, including
competition among prospective buyers and the possible need to obtain regulatory
approval. There can be no assurance that the Company will be able to complete
future acquisitions. In order to finance such acquisitions, it may be necessary
for the Company to raise additional funds either through public or private
financings, including bank borrowings. Any financing, if available at all, may
be on terms which are not favorable to the Company. The Company may also issue
shares of its Common Stock to acquire such businesses, which may result in
dilution to the Company's existing stockholders.
The Company depends on a limited number of large customers for a significant
portion of its net sales. Consolidation among long-term care providers and the
growth of the Company's business with large chains could increase such
dependence. The loss of, or significant declines in the level of purchases by,
one or more of these customers would have a material adverse effect on the
Company's operating results. Although the Company has not to date experienced
any failure to collect accounts receivable from its largest customers, an
adverse change in the financial condition of any of these customers, including
as a result of a change in governmental or private reimbursement programs,
could have a material adverse effect upon the Company's operating results. In
addition, the expansion of the Company's business with large chains has in the
past resulted in competitive pricing pressures and lower and lower operating
margins and such pressure on margins may continue in the future.
A key element of the Company's growth strategy is to increase sales to existing
and new customers, including large chains and independent operators, by adding
one or more new strategic distribution centers or expanding existing
distribution centers and by hiring additional direct sales or other personnel
and through national account sales efforts. Such efforts will result in
increased operating expenses. There can be no assurance that the establishment
of new strategic distribution centers, the expansion of existing distribution
centers, the addition of new sales or other personnel or national account sales
efforts will result in additional revenues or operation income.
As a result of changes occurring in the long-term care market, both the nature
of the Company's customer base as well as products and services required by its
customers are changing. The failure of the Company's management to effectively
respond to and manage changing business conditions, including changes in
customer requirements and changes to the Company's overall product mix, could
have an adverse effect on the Company's operating results.
Because the Company believes that its success to date is dependent in part upon
its ability to provide prompt, accurate and complete service to its customers
on a price-competitive basis, any disruption in its day-to-day operations or
material increases in its cost of procuring and delivering
11
<PAGE> 14
products could have an adverse effect on its operating results. In order
to provide prompt and complete service to its customers, the Company maintains
a significant investment in product inventory. Although the Company closely
monitors its inventory exposure through a variety of inventory control
procedures and policies, there can be no assurance that such procedures and
policies will continue to be effective or the unforeseen product developments
or price changes will not adversely affect the Company's operating results.
12
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
(11) Statement re: Computation of Earnings per Share
(27) Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during
the three months ended September 30, 1996.
13
<PAGE> 16
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.
GULF SOUTH MEDICAL SUPPLY, INC.
Date: November 14, 1996 By: /s/ Guy W. Edwards
----------------------------
Guy W. Edwards
Senior Vice President and
Chief Financial Officer
14
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
11 Statement re: Computation of Earnings per Share
27 Financial Data Schedule
</TABLE>
<PAGE> 1
GULF SOUTH MEDICAL SUPPLY, INC.
EXHIBIT (11) - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Average shares outstanding ................................ 16,265 13,795 14,894 13,791
Net effect of common stock options - based on the treasury
method using assumed fair market value equal to the
higher of the average or the ending market value of the
common stock during the three months ended
September 30, 1996 and 1995 and the nine months ended
September 30, 1996 and 1995 ........................... 156 218 191 190
------- ------- ------- -------
Weighted average number of common shares .................. 16,421 14,013 15,085 13,981
======= ======= ======= =======
Net income ................................................ $ 3,384 $ 2,079 $ 8,665 $ 6,010
======= ======= ======= =======
Net income per share ...................................... $ 0.21 $ 0.15 $ 0.57 $ 0.43
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE THREE AND NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 78,578
<SECURITIES> 0
<RECEIVABLES> 40,534
<ALLOWANCES> 1,710
<INVENTORY> 22,983
<CURRENT-ASSETS> 140,385
<PP&E> 3,872
<DEPRECIATION> 1,244
<TOTAL-ASSETS> 151,683
<CURRENT-LIABILITIES> 9,412
<BONDS> 0
0
0
<COMMON> 162
<OTHER-SE> 142,109
<TOTAL-LIABILITY-AND-EQUITY> 151,683
<SALES> 130,980
<TOTAL-REVENUES> 130,980
<CGS> 100,217
<TOTAL-COSTS> 100,217
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 219
<INCOME-PRETAX> 13,974
<INCOME-TAX> 5,309
<INCOME-CONTINUING> 8,665
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,665
<EPS-PRIMARY> .57
<EPS-DILUTED> .57
</TABLE>
