<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ 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
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Commission File Number 0-23832
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PHYSICIAN SALES & SERVICE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
FLORIDA 59-2280364
- ---------------------------------------------- ------------------------------------
(State or other jurisdiction of incorporation) (IRS employer identification number)
7800 Belfort Parkway, Suite 250
Jacksonville, Florida 32256
- -------------------------------------------------- -----------------------------
(Address of principal executive offices) (Zip code)
</TABLE>
Registrant's telephone number (904) 281-0011
------------------------------
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 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.
[ X ] Yes [ ] No
As of November 13, 1996 a total of 35,209,164 shares of common stock,
par value $.01 per share, of the registrant were outstanding.
<PAGE> 2
PHYSICIAN SALES & SERVICE, INC. & SUBSIDIARIES
SEPTEMBER 30, 1996
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NUMBER
-----------
<S> <C>
Condensed Consolidated Balance Sheets -
September 30, 1996 and March 29, 1996 3
Condensed Consolidated Statements of Operations -
Three and Six Months Ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 14
</TABLE>
2
<PAGE> 3
PHYSICIAN SALES & SERVICE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 29,
1996 1996
---------------- --------------
(UNAUDITED) *
<C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 71,214,056 $ 86,332,758
Accounts receivable, net 109,646,492 92,060,750
Inventories 56,580,379 52,270,694
Prepaid expenses and other 9,860,537 10,665,017
--------------- --------------
Total current assets 247,301,464 241,329,219
Property and equipment, net 16,634,790 14,486,092
Other Assets:
Intangibles, net 14,945,458 13,884,322
Other 5,077,726 1,374,148
--------------- --------------
Total assets $ 283,959,438 $ 271,073,781
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 67,181,359 $ 57,638,770
Accrued expenses 14,882,792 8,939,122
Other 4,538,520 2,806,048
--------------- --------------
Total current liabilities 86,602,671 69,383,940
Long-Term Liabilities 2,823,725 4,043,085
--------------- --------------
Total liabilities 89,426,396 73,427,025
--------------- --------------
Shareholders' Equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized, no shares issued and outstanding - -
Common stock, $.01 par value; 60,000,000 shares
authorized, 35,198,660 and 34,528,814 shares issued
and outstanding at September 30, 1996 and March 29,
1996, respectively 351,987 345,288
Additional paid-in capital 203,841,355 200,124,412
Retained deficit (9,656,586) (2,822,944)
Foreign currency translation (3,714) -
--------------- --------------
Total shareholders' equity 194,533,042 197,646,756
--------------- --------------
Total liabilities and shareholders' equity $ 283,959,438 $ 271,073,781
=============== ==============
</TABLE>
* Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed consolidated
statements.
3
<PAGE> 4
PHYSICIAN SALES & SERVICE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
-------------------- -------------------- -------------------- -------------------
<C> <C> <C> <C> <C>
Net Sales $161,911,534 $119,671,789 $301,614,085 $224,982,268
Cost of Goods Sold 117,057,334 85,348,639 216,839,735 158,829,942
------------------- ------------------- ------------------- ------------------
Gross Profit 44,854,200 34,323,150 84,774,350 66,152,326
General and Administrative Expenses 24,751,556 19,610,378 47,608,713 37,798,168
Selling Expenses 14,828,938 10,853,089 28,333,887 21,719,685
Merger Costs and Expenses - 12,094,816 6,934,000 12,094,816
-------------------- ------------------- ------------------- ------------------
Income (Loss) From Operations 5,273,706 (8,235,133) 1,897,750 (5,460,343)
------------------- ------------------- ------------------- ------------------
Other Income (Expense):
Interest income (expense) 522,512 (938,646) 1,050,665 (1,966,322)
Other income 247,970 279,400 652,245 553,694
------------------- ------------------- ------------------- ------------------
770,482 (659,246) 1,702,910 (1,412,628)
------------------- ------------------- ------------------- ------------------
Income (Loss) Before (Provision) Benefit for
Income Taxes 6,044,188 (8,894,379) 3,600,660 (6,872,971)
Income Tax (Provision) Benefit (2,260,000) 1,518,000 (1,730,000) 669,450
------------------- ------------------- ------------------- ------------------
Net Income (Loss) $ 3,784,188 $ (7,376,379) $ 1,870,660 $ (6,203,521)
=================== =================== =================== ==================
Net Income (Loss) Per Common and Common
Equivalent Share $ 0.11 $ (0.30) $ 0.05 $ (0.25)
=================== =================== =================== ==================
Weighted average number of shares outstanding 35,731,000 24,725,000 35,656,000 24,588,000
=================== =================== =================== ==================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
4
<PAGE> 5
PHYSICIAN SALES & SERVICE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
SIX MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
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<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ 1,870,660 $(6,203,521)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,154,456 2,017,383
Merger costs and expenses 6,469,506 3,854,057
Foreign currency translation (3,714) -
Changes in operating assets and liabilities, net of
effects from business acquisitions:
Increase in accounts receivable (6,595,371) (19,645,022)
Increase in inventories (74,181) (9,185,654)
Decrease (increase) in prepaid expenses and other
current assets 1,393,297 (5,493,568)
(Increase) decrease in other assets (4,225,390) 98,981
(Decrease) increase in accounts payable, accrued
expenses and other liabilities (112,953) 17,984,087
Net cash provided by (used in) operating ---------------- ------------
activities 876,310 (16,573,257)
---------------- ------------
Cash Flows From Investing Activities:
Capital expenditures (2,671,432) (1,820,763)
Payment for purchases of net assets from business acquisitions (5,083,487) (581,364)
Payments on noncompete agreements (744,472) (365,758)
---------------- ------------
Net cash used in investing activities (8,499,391) (2,767,885)
---------------- ------------
Cash Flows From Financing Activities:
Net (repayments) proceeds of long-term debt (9,072,028) 17,690,162
Net proceeds from issuance of common stock 1,576,407 1,292,409
---------------- ------------
Net cash (used in) provided by financing
activities (7,495,621) 18,982,571
---------------- ------------
Net decrease in cash and cash equivalents (15,118,702) (358,571)
Cash and cash equivalents, beginning of period 86,332,758 1,151,210
---------------- ------------
Cash and cash equivalents, end of period $ 71,214,056 $ 792,639
================ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
5
<PAGE> 6
PHYSICIAN SALES & SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements of Physician Sales &
Service, Inc. ("PSS") or ("the Company") reflect, in the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position and results of operations
for the periods indicated. The adjustments include the retroactive adjustment
to reflect a three-for-one stock split effective September 22, 1995 and give
effect to the merger with Taylor Medical Incorporated ("Taylor") effective
August 21, 1995, accounted for as a pooling-of-interests.
The accompanying condensed consolidated financial statements should be
read in conjunction with the financial statements and related notes in the
Company's 1996 Annual Report to Shareholders. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to the
Securities and Exchange Commission rules and regulations.
The results of operations for the interim periods covered by this report
may not necessarily be indicative of operating results for the full fiscal
year. Certain items have been reclassified to conform to the current year
presentation.
NOTE 2 - BUSINESS ACQUISITIONS
During the three months ended September 30, 1996, the Company acquired
certain assets of a medical equipment and supply distribution company located
in Brussels, Belgium for approximately U.S. $1.2 million, in a transaction
accounted for as a purchase. The assets acquired consist primarily of accounts
receivable, inventory, and other assets. The purchase price paid consisted of
$0.5 million in cash and the assumption of accounts payable and accrued
liabilities of $0.9 million. The excess of the purchase price paid over the
fair market value of tangible net assets acquired of approximately $0.2 million
has been recorded as goodwill.
In September 1996, the Company signed an agreement to merge with
Diagnostic Imaging, Inc. ("DII") of Jacksonville, Florida. DII distributes
radiology and imaging equipment, chemicals and supplies, and provides technical
service to the acute and alternate site markets through 13 locations in 5
southeastern states. The agreement, as contemplated, is a stock-for-stock
transaction, to be accounted for as a pooling-of-interests. The Company has
received antitrust clearance. The consummation of the merger is subject to
other customary closing conditions.
6
<PAGE> 7
PHYSICIAN SALES & SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company was incorporated in 1983 in Jacksonville, Florida. Since its
inception, the Company has achieved significant growth in the number of service
center locations, geographic areas of operation, net sales, and profitability.
The number of Company service centers has grown from two located in Florida at
the end of fiscal 1984 to 61 service centers located throughout the United
States distributing to approximately 92,000 office sites in all 50 states and
one service center located in Belgium. During fiscal years 1992 through 1996,
PSS's net sales grew at a compound annual rate of 40.5%, excluding the
retroactive effect of Taylor net sales. Giving retroactive effect to the
merger with Taylor, the Company's net sales grew at a compound rate of 28.2%
during that same period.
WorldMed International, Inc. was recently established by the Company to
manage and develop the international medical supply and equipment distribution,
consolidation, and growth opportunities. During the three months ended June 30,
1996, the Company acquired Deckers, a Belgian based medical equipment and supply
distributor to hospitals and physician offices in Belgium, Germany, and France,
through WorldMed International. Prior to the acquisition, Decker's last 12
months' sales were approximately U.S. $15.5 million. During the three months
ended September 30, 1996, the Company acquired the assets of another Belgian
based medical equipment and supply distributor with last 12 month's revenues
approximating U.S. $3.5 million. The Company's international market objective is
to pursue acquisition opportunities throughout the European medical equipment
and supply distribution market through its WorldMed International subsidiary.
WorldMed, Inc. was recently formed to serve as a platform for the Company
to acquire multimarket medical distributors in the United States without
disrupting the physician office focus of PSS. In September 1996, the Company
signed an agreement to merge with DII of Jacksonville, Florida. DII
distributes radiology and imaging equipment, chemicals and supplies, and
provides technical service to the acute and alternate site markets through 13
locations in 5 southeastern states. Prior to the acquisition, DII's last
twelve months' revenues approximated $55.0 million. The Company's objective is
to pursue acquisition opportunities within the radiology and imaging
distribution market which will position the consolidated Company to gain market
share within this market and expand the product offerings to the physician
office market currently serviced by PSS. The Company anticipates the DII
transaction to close by the end of November 1996.
While the Company's objectives have been expanded to include international
expansion into the European medical equipment and supply market and to pursue
multimarket medical distribution opportunities, such as radiology and imaging
distribution, within the United States, the Company's primary objective is to
be capable of servicing the medical equipment and supply needs of every
office-based physician in the United States. To achieve this objective and
expand profitability, PSS intends to (i) continue its efforts to acquire local
and regional medical supply distributors to office-based physicians in select
U.S. markets; (ii) increase sales of existing service centers by adding
additional sales representatives and providing superior service, competitive
pricing, and a broad product line which includes sophisticated diagnostic
equipment marketed by PSS on an exclusive and semi-exclusive basis; (iii)
continue expanding operating margins by increasing sales force productivity,
focusing on growth through acquisitions rather than start-ups which initially
entail significant losses, reducing product costs through volume purchase
arrangements, leveraging fixed distribution costs, and improving operational
efficiencies through system enhancements; and (iv) opening new service centers
in select markets where acquisition opportunities are not available.
This filing contains forward-looking information that is subject to
certain risks, trends and uncertainties that could cause actual results to
differ materially from those projected.
RESULTS OF OPERATIONS
The following is management's discussion and analysis of the results of
operations for the three and six months ended September 30, 1996 and 1995:
7
<PAGE> 8
PHYSICIAN SALES & SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NET SALES. Net sales for the three months ended September 30, 1996
totaled $161.9 million, an increase of $42.2 million or 35.3% over net sales of
$119.7 million for the three months ended September 30, 1995. Net sales for the
six months ended September 30, 1996 totaled $301.6 million, an increase of
$76.6 million or 34.1% over net sales of $225.0 million for the six months
ended September 30, 1995. In order of contribution to the increase, net sales
increased as the result of (i) internal sales growth of centers operating at
least two years, (ii) incremental sales generated in connection with the
Distribution Agreement with Abbott Laboratories ("Abbott Agreement") and (iii)
net sales of centers acquired during the first six months of fiscal 1997.
The Company's service centers operating for at least 24 consecutive months
generated same center sales growth of 20.5% for the three months ended
September 30, 1996. The sales growth resulted from the continued development
of PSS's sales force, further market penetration, increased emphasis on
diagnostic equipment and supplies, and expansion of existing territories served
by individual service centers.
GROSS PROFIT. Gross profit for the three months ended September 30, 1996
totaled $44.8 million, an increase of $10.5 million or 30.7% over the three
months ended September 30, 1995 total of $34.3 million. Gross profit for the
six months ended September 30, 1996 totaled $84.8 million, an increase of $18.6
million or 28.2% over the six months ended September 30, 1995 total of $66.2
million. Gross profit as a percentage of net sales decreased to 27.7% and
28.1% for the three and six months ended September 30, 1996 from 28.7% and
29.4% for the three and six months ended September 30, 1995. The decrease in
gross profit percentage is attributable to the following factors: (i)
penetration by the Company into larger physician group practices that require
more competitive pricing but entail lower selling and servicing costs, (ii)
lower margins on diagnostic products distributed under the Abbott Agreement,
(iii) lower margins produced by the U.S. companies acquired in the first
quarter as compared to the overall Company's historical gross profit, and (iv)
lower margins on sales of diagnostic equipment by a greater number of the
Company's sales force not yet fully exposed to the Company's comprehensive and
consultative sales approach to diagnostic equipment sales. The Company is
currently in the second year of a five year exclusive distributorship agreement
with Abbott Laboratories. For the three and six months ended September 30,
1996, the Company sold approximately $26.4 million and $53.7 million of Abbott
product with a gross profit percentage of 19.3% and 18.4%. The Abbott sales
negatively impacted the Company's gross profit percentages by 1.6% and 2.1% of
net sales for the three and six months ended September 30, 1996. Margins under
the Abbott Agreement are scheduled to increase annually based on achievement by
the Company of certain performance goals as stipulated therein.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the three months ended September 30, 1996 totaled $24.7 million, an
increase of $5.1 million or 26.1% over the three months ended September 30,
1995 total of $19.6 million. General and administrative expenses for the six
months ended September 30, 1996 totaled $47.6 million, an increase of $9.8
million or 25.9% over the six months ended September 30, 1995 total of $37.8
million. As a percentage of sales, general and administrative expenses
decreased to 15.3% and 15.8% for the three and six months ended September 30,
1996 from 16.4% and 16.8% for the three and six months ended September 30,
1995. The decrease in general and administrative expenses as a percentage of
net sales was a result of the improved leveraging by PSS of its existing
service centers' fixed general and administrative expenses through increased
sales volume and through the successful integration of its acquired service
centers into existing branches. The decrease in general and administrative
expenses was accomplished despite the following investments made during the
past two quarters. The Company has focused on increasing diagnostic equipment
and managed care sales as a percentage of total net sales. Since inception,
the Company has maintained a comprehensive and consultative sales approach with
an emphasis on diagnostic products, which includes sophisticated diagnostic
equipment and supplies related to the use of such equipment. However, since
the acquisition of Taylor, the Company experienced a decline in the percentage
of sales represented by equipment. In order to increase the sales of
equipment, the Company has created a diagnostic team to train and educate newly
hired or acquired sales representatives. As
8
<PAGE> 9
PHYSICIAN SALES & SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
a result, the Company has expanded its diagnostic products sales to 21.3% of
total net sales for the three months ended September 30, 1996 as compared to
16.8% of total net sales for the three months ended September 30, 1995. Sales
of diagnostic equipment, while generally lower in gross margin than supplies,
require the reordering of diagnostic reagents which generally yield higher
margins. In addition, through the development of its national accounts team,
the Company has increased its emphasis on national customer accounts, including
large physician group practices, physician practice management companies,
physician-hospital organizations, physician management service organizations
and group purchasing organizations. Finally, the Company has allocated
resources to develop newly acquired sales representatives and operational
personnel to help them become well-versed in PSS's broad product offerings,
innovative distribution systems, and focus on superior customer service to
continually improve customer satisfaction and productivity.
SELLING EXPENSES. Selling expenses for the three months ended September
30, 1996 totaled $14.8 million, an increase of $4.0 million or 36.7% over the
three months ended September 30, 1995 total of $10.8 million. Selling expenses
for the six months ended September 30, 1996 totaled $28.3 million, an increase
of $6.6 million or 30.5% over the six months ended September 30, 1995 total of
$21.7 million. As a percentage of sales, selling expenses remained constant
at 9.1% for the three months ended September 30, 1996 as compared to September
30, 1995. As a percentage of sales, selling expenses decreased to 9.4% for the
six months ended September 30, 1996 from 9.7% for the six months ended
September 30, 1995. The decrease in selling expense as a percentage of net
sales is due to improved leveraging of existing service centers' fixed selling
expenses, such as salaries paid to sales representatives during the conversion
period from a guaranteed salary to a commission compensation arrangement and
the leveraging of fixed sales management salaries.
MERGER COSTS AND EXPENSES. During the three months ended September 30,
1996, the Company recorded no merger costs and expenses. During the six
months ended September 30, 1996, the Company recorded non-recurring merger
costs and expenses of approximately $6.9 million associated with the mergers of
PSS and three medical supply and equipment distributors. Such costs included
direct merger costs primarily consisting of investment banking, legal,
accounting and filing fees as well as consolidation costs from the closing of
duplicate service center locations, realigning regional and corporate
functions, consolidating information systems and reducing personnel.
For the three and six months ended September 30, 1995, the Company
recorded merger costs and expenses of approximately $12.1 million associated
with the merger of PSS and Taylor.
OPERATING INCOME (LOSS). The Company recorded operating income of $5.3
million for the three months ended September 30, 1996 as compared to an
operating loss of $8.2 million for the three months ended September 30, 1995.
The Company recorded operating income of $1.9 million for the six months ended
September 30, 1996 as compared to an operating loss of $5.5 million for the six
months ended September 30, 1995. The operating results for the six months
ended September 30, 1996 include non-recurring merger costs and expenses
related to the merger of PSS and three medical supply and equipment
distributors of approximately $6.9 million. The operating results for the
three and six months ended September 30, 1995 include non-recurring merger
costs and expenses related to the merger of PSS and Taylor of approximately
$12.1 million. Excluding the effect of these non-recurring costs, operating
income for the six months ended September 30, 1996 would have increased $2.2
million or 33.2% to $8.8 million for the six months ended September 30, 1996
from operating income of $6.6 million for the six months ended September 30,
1995.
INTEREST INCOME (EXPENSE). The Company recorded interest income of
approximately $0.5 million and $1.0 million during the three and six months
ended September 30, 1996 from short term investments. At September 30, 1996 the
investments primarily consisted of government securities and municipal issues
with a weighted average, taxable equivalent interest rate of approximately 5.9%.
There was no interest expense for the three or six months ended September 30,
1996, as compared to interest expense of $0.9 million and $2.0 million for the
three and six months ended September 30, 1995. The decrease in interest expense
resulted from use of a portion of the proceeds from a public equity offering
during the three months ended December 31, 1995 to repay all outstanding bank
debt.
9
<PAGE> 10
PHYSICIAN SALES & SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
OTHER INCOME. The Company's other income totaled $0.3 million, for the
three months ended September 30, 1996 and 1995. The Company's other income for
the six months ended September 30, 1996 totaled $0.7 million, an increase of
$0.1 million or 17.8% over the six months ended September 30, 1995 total of
$0.6 million. Other income for the three and six months ended September 30,
1996 and 1995 primarily represents finance charges on customer accounts.
(PROVISION) BENEFIT FOR INCOME TAXES. The income tax provision totaled
$2.3 million for the three months ended September 30, 1996 as compared to a
benefit for income taxes of $1.5 million for the three months ended September
30, 1995. The income tax provision totaled $1.7 million for the six months
ended September 30, 1996 as compared to a benefit for income taxes of $0.7
million for the six months ended September 30, 1995. The income tax
(provision) benefit computation is affected by the non-deductible nature of
certain non-recurring merger costs and expenses in the period in which they
were incurred.
NET INCOME (LOSS). Net income totaled $3.8 million for the three months
ended September 30, 1996 as compared to a net loss of $7.4 million for the
three months ended September 30, 1995. Net income totaled $1.9 million for the
six months ended September 30, 1996 as compared to a net loss of $6.2 million
for the six months ended September 30, 1995. The net income (loss) for the six
months ended September 30, 1996 and 1995 include non-recurring merger costs and
expenses of approximately $6.9 million and $12.1 million, respectively. The
following table shows net income (loss) and earnings (loss) per share for the
six months ended September 30, 1996 as compared to the six months ended
September 30, 1995 as reported and the pro-forma effect on net income and
earnings per share excluding these non-recurring merger costs and expenses and
the related tax benefits.
<TABLE>
Pro-forma excluding
merger costs and expenses As reported
Six Months Ended Six Months Ended
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net income (loss) (in thousands) $6,571 $3,029 $1,871 $(6,204)
Net income (loss) per share $ 0.18 $ 0.12 $ 0.05 $ (0.25)
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $160.7 million and $171.9 million as of
September 30, 1996 and March 29, 1996, respectively. The decrease in working
capital was primarily attributable to the acquisitions of medical supply and
equipment distributors during the first two quarters of fiscal 1997.
Net cash provided by operating activities was $0.9 million for the six
months ended September 30, 1996 compared to net cash used in operating
activities of $16.6 million for the six months ended September 30, 1995. For
the six months ended September 30, 1996, a portion of the growth in accounts
receivable and inventories was funded by stock through the pooling transaction
and thus did not require the use of cash. For the six months ended September
30, 1995, these funds were utilized principally to fund the growth in the
Company's accounts receivable and inventories from new service centers and
continued growth in existing service centers and to consolidate the closing of
duplicate service center locations, realigning regional and corporate
functions, consolidating information systems and reducing personnel in
conjunction with the Taylor merger. Net cash used in investing activities was
$8.5 million and $2.8 million during the six months ended September 30, 1996
and September 30, 1995 respectively. The net cash used in investing activities
for the six months ended September 30, 1996 consisted primarily of capital
expenditures and the payment for purchases of net assets from business
acquisitions. The net
10
<PAGE> 11
PHYSICIAN SALES & SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
cash used in financing activities of $7.5 million for the six months ended
September 30, 1996 consisted primarily of debt repayment of $9.0 million
assumed in connection with business acquisitions offset by proceeds from the
issuance of common stock of $1.5 million.
Accounts receivable (net of allowances) were $109.6 million and $92.1
million as of September 30, 1996 and March 29, 1996, respectively. The average
number of days sales in accounts receivable was approximately 58 days as of
September 30, 1996 and as of March 29, 1996. Inventories were $56.6 million
and $52.3 million as of September 30, 1996 and March 29, 1996, respectively.
The Company had inventory turnover of 8.6 times as of September 30, 1996 and
8.0 times as of March 29, 1996.
The Company has historically financed its liquidity needs for expansion
through lines of credit provided by banks and the private and public offering
of stock. The Company has an unused credit line of $60 million on its credit
facility for capital and expansion requirements. Inventory financing has
historically been achieved through negotiating extended payment terms from
suppliers. The Company believes that its current cash and cash equivalent
balances combined with the expected cash flows from operations, bank borrowing,
capital markets, and vendor credit will be sufficient to fund its liquidity
needs for its existing operations and for service center expansion for at least
the next two years.
11
<PAGE> 12
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
3.1 Amended and Restated Articles of Incorporation dated March 15,
1994. (1)
3.2 Amended and Restated Bylaws dated March 15, 1994. (1)
10.1 Financing and Security Agreement between the Company and
NationsBank of Georgia, N.A., (as successor to NCNB National
Bank of Florida), dated as of September 26, 1991, as amended.(2)
10.2 Registration Rights Agreement between the Company and
Tullis-Dickerson Capital Focus, L.P., dated as of March 16,
1994. (2)
10.3 Employment Contract, as amended, for Patrick C. Kelly. (2)
10.4 Incentive Stock Option Plan dated May 14, 1986. (2)
10.5 Shareholders Agreement dated March 26, 1986, between the
Company, the Charthouse Co., Underwood, Santioni and Dunaway.(2)
10.6 Shareholders Agreement dated April 10, 1986, between the
Company and Clyde Young. (2)
10.7 Shareholders Agreement between the Company and John D.
Barrow.(2)
10.8 Amended and Restated Directors Stock Plan. (7)
10.9 Amended and Restated 1994 Long Term Incentive Plan. (7)
10.10 Amended and Restated 1994 Long Term Stock Plan. (7)
10.11 1994 Employee Stock Purchase Plan. (3)
10.12 1994 Amended Incentive Stock Option Plan. (2)
10.13 Amended and Restated Loan and Security Agreement between the
Company and NationsBank of Georgia, N.A. dated December 21,
1994. (4)
10.14 Distributorship Agreement between Abbott Laboratories and
Physician Sales & Service, Inc. (Portions omitted as
confidential - Separately filed with Commission). (5)
10.15 Stock Purchase Agreement between Abbott Laboratories and
Physician Sales & Service, Inc. (5)
10.16 Intentionally Omitted
10.17 Third Amended and Restated Agreement and Plan of Merger By and
Among Taylor Medical, Inc. and Physician Sales & Service, Inc.
(including exhibits thereto) (6)
</TABLE>
12
<PAGE> 13
PART II
OTHER INFORMATION
(CONTINUED)
(A) EXHIBITS
EXHIBIT NO. DESCRIPTION
21.1 Subsidiaries of the registrant. (6)
27 Financial Data Schedule (for SEC use only).
------------
(1) Incorporated by Reference to the Company's Registration Statement on
Form S-3, Registration No. 33-97524
(2) Incorporated by Reference to the Company's Registration Statement on
Form S-1 No. 33-76580.
(3) Incorporated by Reference to the Company's Registration Statement on
Form S-8, filed October 7, 1994.
(4) Incorporated by Reference to the Company's Report on Form 10-Q for the
quarterly period ended December 31, 1994.
(5) Incorporated by Reference to the Company's Report on Form 10-K for the
fiscal year ended March 30, 1995.
(6) Incorporated by Reference to the Company's Report on Form 10-K for the
fiscal year ended March 29, 1996.
(7) Incorporated by Reference to the Company's Report on Form 10-Q for the
quarterly period ended June 30, 1996.
(B) REPORTS ON FORM 8-K
None.
13
<PAGE> 14
OTHER INFORMATION
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 on November 13, 1996.
PHYSICIAN SALES & SERVICE, INC.
/s/ David A. Smith
----------------------------------------------------
David A. Smith
Executive Vice President and Chief Financial Officer
14
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