<PAGE>
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 JUNE 30, 1999
[ ] 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 0-23832
PSS WORLD MEDICAL, INC.
(Exact name of registrant as specified in its charter)
Florida 59-2280364
(State or other jurisdiction (IRS employer
of incorporation) identification number)
4345 Southpoint Blvd.
Jacksonville, Florida 32216
(Address of principal executive offices) (Zip code)
Registrant's telephone number (904) 332-3000
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 August 13, 1999, 1999 a total of 70,988,171 shares of common stock,
par value $.01 per share, of the registrant were outstanding.
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
JUNE 30, 1999
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
--------------------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1999 and April 2, 1999 3
Condensed Consolidated Statements of Operations -
For the Three Months Ended June 30, 1999 and 1998 (Restated) 4
Condensed Consolidated Statements of Cash Flows -
For the Three Months Ended June 30, 1999 and 1998 (Restated) 5
Notes to Condensed Consolidated Financial Statements -
June 30, 1999 and 1998 (Restated) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
PART II OTHER INFORMATION
Item 1. Legal Proceedings 33
Item 2. Changes in Securities and Use of Proceeds 33
Item 6. Exhibits and Reports on Form 8-K 34
SIGNATURES 37
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share Data)
<TABLE>
<CAPTION>
June 30, April 2,
1999 1999
---------- ---------
(Unaudited) *
<S> <C> <C>
Current Assets:
Cash and cash equivalents......................................................... $ 38,891 $ 41,106
Marketable securities............................................................. 9,170 3
Accounts receivable, net.......................................................... 278,779 272,996
Inventories, net.................................................................. 132,666 153,626
Employee advances................................................................. 770 702
Prepaid expenses and other........................................................ 66,753 59,413
--------- ---------
Total current assets..................................................... 527,029 527,846
--------- ---------
Property and equipment, net.......................................................... 51,643 48,167
Other Assets:
Intangibles, net.................................................................. 158,018 146,082
Other............................................................................. 21,210 21,286
--------- ---------
Total assets............................................................. $757,900 $743,381
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................................. $103,754 $112,966
Accrued expenses.................................................................. 48,279 48,704
Current maturities of long-term debt and capital lease obligations................ 827 1,062
Other............................................................................. 10,492 8,536
--------- ---------
Total current liabilities................................................ 163,352 171,268
Long-term debt and capital lease obligations, net of current portion................. 163,475 152,442
Other................................................................................ 2,393 3,111
--------- ---------
Total liabilities........................................................ 329,220 326,821
--------- ---------
Shareholders' Equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized, no shares issued
and outstanding................................................................ -- --
Common stock, $.01 par value; 150,000,000 shares authorized, 70,797,599 and
70,796,024 shares issued and outstanding at June 30, 1999 and April 2, 1999, 708 708
respectively...................................................................
Additional paid-in capital........................................................ 349,533 349,460
Retained earnings................................................................. 82,521 70,211
Cumulative other comprehensive income............................................. (1,440) (1,177)
--------- ---------
431,322 419,202
Unearned ESOP shares.............................................................. (2,642) (2,642)
--------- ---------
Total shareholders' equity............................................... 428,680 416,560
--------- ---------
Total liabilities and shareholders' equity............................... $757,900 $743,381
========= =========
</TABLE>
* Condensed from audited financial statements.
The accompanying notes are an integral part of these
condensed consolidated statements.
3
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
June 30, 1999 June 30, 1998
--------------- ---------------
(Restated)
<S> <C> <C>
Net sales $ $
436,719 367,562
Cost of goods sold 320,298 270,364
--------------- ---------------
Gross profit 116,421 97,198
General and administrative expenses 59,508 54,523
Selling expenses 34,346 26,696
--------------- ---------------
Income from operations 22,567 15,979
--------------- ---------------
Other income (expense):
Interest expense (3,511) (3,093)
Interest and investment income 451 1,748
Other income 1,391 762
--------------- ---------------
(1,669) (583)
--------------- ---------------
Income before provision for income taxes 20,898 15,396
Provision for income taxes 8,588 6,528
--------------- ---------------
Net income $ 12,310 $ 8,868
=============== ===============
Earnings per share:
Basic $ 0.17 $ 0.13
=============== ===============
Diluted $ 0.17 $ 0.12
=============== ===============
Weighted average shares outstanding (in thousands):
Basic 70,796 70,384
=============== ===============
Diluted 71,151 71,253
=============== ===============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated statements.
4
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------
June 30, 1999 June 30, 1998
---------------- ---------------
(Restated)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 12,310 $ 8,868
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization 4,485 5,072
Provision for doubtful accounts 151 317
Gain on sale of fixed assets (33) 0
Deferred compensation 66 222
Changes in operating assets and liabilities, net of effects from
business acquisitions:
Accounts receivable, net (866) (16,167)
Inventories 24,228 7,368
Prepaid expenses and other current assets (6,862) 1,110
Other assets (2,568) (2,219)
Accounts payable, accrued expenses and other liabilities (14,225) (24,698)
---------------- ---------------
Net cash provided by (used in) operating activities 16,686 (20,127)
---------------- ---------------
Cash Flows From Investing Activities:
Purchases of marketable securities (9,168) (29,332)
Proceeds from sales and maturities of marketable securities 0 77,531
Proceeds from sale of fixed assets 38 0
Capital expenditures (5,147) (2,905)
Purchases of businesses, net of cash acquired (13,085) (7,212)
Payments on noncompete agreements (486) (886)
---------------- ---------------
Net cash (used in) provided by investing activities (27,848) 37,196
---------------- ---------------
Cash Flows From Financing Activities:
Proceeds from borrowings 11,000 205
Repayment of borrowings (1,720) (2,109)
Principal payments under capital lease obligations (78) (107)
Proceeds from issuance of common stock 8 86
---------------- ---------------
Net cash provided by (used in) financing activities 9,210 (1,925)
---------------- ---------------
Foreign currency translation adjustment (263) 30
---------------- ---------------
Net decrease in cash and cash equivalents (2,215) 15,174
Cash and cash equivalents, beginning of period 41,106 81,483
---------------- ---------------
Cash and cash equivalents, end of period $ 38,891 $ 96,657
================ ===============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated statements.
5
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (Restated)
(Unaudited)
(Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted)
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements of PSS World Medical, Inc.
("PSS" or the "Company") reflect, in the opinion of management, all
adjustments necessary to present fairly the financial position and results
of operations for the periods indicated and give retroactive effect to the
mergers with Medical Imaging Systems, Inc. ("MIS") and TriStar Imaging
Systems, Inc. ("TriStar") acquired during fiscal 1999 and various acquired
companies previously accounted for as immaterial pooling-of-interests
transactions (the "Pooled Entities"). The Company's previously issued
financial statements included in Form 10Q for the three months ended June
30, 1998 were not restated for (1) the information systems accelerated
depreciation, (2) the reversal of GSMS restructuring charge, and (3) the
immaterial Pooled Entities (refer to Note 10 - Restatements). These
transactions were accounted for under the pooling-of-interests method of
accounting, and accordingly, the accompanying consolidated financial
statements have been retroactively restated as if PSS, MIS, TriStar, and
the Pooled Entities had operated as one entity since inception.
The accompanying condensed consolidated financial statements should be read
in conjunction with the financial statements and related notes in the
Company's 1999 Annual Report on Form 10-K. 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.
Financial statements for the Company's subsidiaries outside the United
States are translated into U.S. dollars at year-end exchange rates for
assets and liabilities and weighted average exchange rates for income and
expenses. The resulting translation adjustments are recorded in the other
comprehensive income component of shareholders' equity.
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
Purchase Acquisitions
During the three months ended June 30, 1999, the Company acquired certain
assets and assumed certain liabilities of one physician supply and
equipment distributor, four imaging supply and equipment distributors, and
two long-term care distributors. During the three months ended June 30,
1998, the Company acquired certain assets and assumed certain liabilities
of three physician supply and equipment distributors, two imaging supply
and equipment distributors, and one long-term care distributors. A summary
of the details of the transactions follows:
June 30, 1999 June 30, 1998
------------- -------------
Number of acquisitions...................... 7 6
Total consideration......................... $20,552 $9,555
Cash paid, net of cash acquired............. 13,085 7,841
Goodwill recorded........................... 10,931 2,651
Value of Noncompete Agreements.............. 575 1,105
6
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (Restated)
(Unaudited)
(Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted)
The operations of the acquired companies have been included in the
Company's results of operations subsequent to the dates of acquisition.
Supplemental pro forma information, assuming these acquisitions had been
made at the beginning of the year, is not provided, as the results would
not be materially different from the Company's reported results of
operations.
These acquisitions were accounted for under the purchase method of
accounting, and accordingly, the assets of the acquired companies have been
recorded at their estimated fair values at the dates of the acquisitions.
The excess of the purchase price over the estimated fair value of the net
assets acquired has been recorded as goodwill and is amortized over 15 to
30 years.
The accompanying consolidated financial statements reflect the preliminary
allocation of the purchase price. The allocation of the purchase price,
performed using values and estimates available as of the date of the
financial statements, has not been finalized due to certain pre-acquisition
contingencies identified by the Company and the nature of the estimates
required in the establishment of the Company's merger integration plans.
Accordingly, goodwill associated with these acquisitions may increase or
decrease in fiscal 2000.
In addition, the terms of certain of the Company's recent acquisition
agreements provide for additional consideration to be paid if the acquired
entity's results of operations exceed certain targeted levels. Targeted
levels are generally set above the historical experience of the acquired
entity at the time of acquisition. Such additional consideration is to be
paid in cash or with shares of the Company's common stock and is recorded
when earned as additional purchase price. The maximum amount of remaining
contingent consideration is approximately $5.9 million (payable through
fiscal 2001). The first potential earn-out payment is effective in fiscal
2000.
The following table summarizes the adjustments recorded against goodwill
during the three months ended June 30, 1999:
June 30, 1999
-------------
Merger costs and expenses ................................... $ 593
Integration plan accrual..................................... 990
-------------
$1,583
=============
During the three months ended June 30, 1999, the Company recorded $593 of
merger integration costs and expenses directly to goodwill as incurred as
these costs were contemplated at the time of acquisition. In addition, the
Company recorded $990 of additional goodwill at the time an integration
plan was formalized. Refer to Note 4, Accrued Merger and Restructuring
Costs and Expenses, for further discussion regarding the integration plan.
During the three months ended June 30, 1998, there were no adjustments to
goodwill.
Pooling-of-Interests Transaction
During the three months ended June 30, 1998, the Company merged with an
imaging supply and equipment distributor, with aggregate annual revenues of
approximately $18.0 million, in a merger accounted for under the
pooling-of-interests method. The Company issued approximately 349,000
shares of PSS common stock in connection with this pooling. The
accompanying condensed consolidated financial statements have been
retroactively restated as if PSS and the pooled company had operated as one
entity since inception.
NOTE 3 - CHARGES INCLUDED IN GENERAL AND ADMINISTRATIVE EXPENSES
Charges Included In General and Administrative Expenses
In addition to typical general and administrative expenses, this line
includes charges related to merger activity, restructuring activity, and
other special items. The following table summarizes charges included in
general and administrative expenses in the accompanying consolidated
statements of income:
7
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (Restated)
(Unaudited)
(Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted)
June 30, 1999 June 30, 1998
------------- -------------
(Restated)
Merger costs and expenses.................... $ 372 $ 829
Restructuring costs and expenses............. 513 1,995
Information systems accelerated depreciation. -- 1,499
------------- -------------
Total ....................................... $ 885 $ 4,323
============= =============
Merger Costs and Expenses
The Company's policy is to accrue merger costs and expenses at the
commitment date of an integration plan if certain criteria under EITF 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity ("EITF 94-3") or 95-14, Recognition of
Liabilities in Anticipation of a Business Combination ("EITF 95-14"), are
met. Merger costs and expenses recorded at the commitment date primarily
include charges for involuntary employee termination costs, branch
shut-down costs, lease termination costs, and other exit costs.
If the criteria described in EITF 94-3 or EITF 95-14 are not met, the
Company records merger costs and expenses as incurred. Merger costs
expensed as incurred include the following: (1) costs to pack and move
inventory from one facility to another or within a facility in a
consolidation of facilities, (2) relocation costs paid to employees in
relation to an acquisition accounted for under the pooling-of-interests
method of accounting, (3) systems or training costs to convert the acquired
companies to the current existing information system, 4) training costs
related to conforming the acquired companies operational policies to that
of the Company's operational policies, and (5) direct transaction costs
primarily consist of investment banking, legal, accounting, and filing fees
related to mergers with the Company.. In addition, amounts incurred in
excess of the original amount accrued at the commitment date are expensed
as incurred.
Merger costs and expenses for the three months ended June 30, 1999 included
merger charges expensed as incurred, which primarily related to branch
shutdown costs.
Merger costs and expenses for the three months ended June 30, 1998 included
$200 of charges recorded at the commitment date of an integration plan
adopted by management and $629 of charges for merger costs expensed as
incurred. The merger costs expensed as incurred primarily relate to direct
transaction costs from the merger with MIS and the Pooled Entities.
Restructuring Costs and Expenses
Restructuring costs and expenses for the three months ended June 30, 1999
included $727 of charges for restructuring costs expensed as incurred,
which primarily relate to other exit costs. Other exit costs include costs
to pack and move inventory, costs to set up new facilities, employee
relocation costs, and other related facility closure costs. In addition,
the Company reversed $214 of restructuring costs and expenses into income,
which related to an overaccrual for involuntary employee termination costs
from restructuring Plan A. Refer to Note 4, Accrued Merger and
Restructuring Costs and Expenses, for a further discussion regarding the
restructuring plan.
8
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (Restated)
(Unaudited)
(Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted)
During the three months ended June 30, 1998, management approved and
adopted an additional Gulf South component to its formal plan to
restructure the Company. This restructuring plan identified two additional
distribution centers and two corporate offices to be merged with existing
facilities and identified three executives to be involuntarily terminated.
Accordingly, the Company recorded restructuring costs and expenses of
$1,503 at the commitment date of the restructuring plan adopted by
management. Such costs include branch shutdown costs, lease termination
costs, involuntary employee termination costs of $281, $570, and $652,
respectively.
The remaining $492 of restructuring costs recorded during the three months
ended June 30, 1998 represent charges expensed as incurred for other exit
costs.
Information Systems Accelerated Depreciation
In connection with the Gulf South merger during fiscal 1998, management
evaluated the adequacy of the combined companies' information systems. The
Company concluded that its existing information systems were not compatible
with those of Gulf South's and not adequate to support the future internal
growth of the combined companies and expected growth resulting from future
acquisitions.
Pursuant to SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, the Company evaluated
the recoverability of the information system assets. Based on the Company's
analysis, impairment did not exist at the division level; therefore,
management reviewed the depreciation estimates in accordance with
Accounting Principles Board ("APB") No. 20, Accounting Changes.
Effective April 4, 1998, the estimated useful lives of the PSS, DI, and
GSMS division information systems were revised to a range of 12 to 15
months, which was the original estimate of when the new systems
implementation would be completed. For the three months ended June 30,
1998, the $1,499 represents the incremental impact on depreciation expense
resulting from management's decision to replace its information systems.
NOTE 4 - ACCRUED MERGER AND RESTRUCTURING COSTS AND EXPENSES
Summary of Accrued Merger Costs and Expenses
In connection with the consummation of business combinations, management
often develops formal plans to exit certain activities, involuntarily
terminate employees, and relocate employees of the acquired companies.
Management's plans to exit an activity often include identification of
duplicate facilities for closure and identification of facilities for
consolidation into other facilities.
Generally, completion of the integration plans will occur within one year
from the date in which the plans were formalized and adopted by management.
However, intervening events occurring prior to completion of the plan, such
as subsequent acquisitions or system conversion issues, can significantly
impact a plan that had been previously established. Such intervening events
may cause modifications to the plans and are accounted for on a prospective
basis. At the end of each quarter, management reevaluates its integration
plans and adjusts previous estimates.
As part of the integration plans, certain costs are recognized at the date
in which the plan is formalized and adopted by management (commitment
date). These costs are generally related to employee terminations and
relocation, lease
9
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (Restated)
(Unaudited)
(Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted)
terminations, and branch shutdown. In addition, there are certain costs
that do not meet the criteria for accrual at the commitment date and are
expensed as the plan is implemented (refer to Note 3, Charges Included in
General and Administrative Expenses). Involuntary employee termination
costs are employee severance costs and termination benefits. Lease
termination costs are lease cancellation fees and forfeited deposits.
Branch shutdown costs include costs related to facility closure costs.
Employee relocation costs are moving costs of employees of an acquired
company in transactions accounted for under the purchase method of
accounting.
Accrued merger costs and expenses, classified as accrued expenses in the
accompanying consolidated balance sheets, were $4,242 and $4,084 at June
30, 1999 and April 2, 1999, respectively, as compared to $4,255 and $4,327
at June 30, 1998 and April 3, 1998. The discussion and rollforward of the
accrued merger costs and expenses below summarize the significant and
nonsignificant integration plans adopted by management for business
combinations accounted for under the purchase method of accounting and
pooling-of-interests method of accounting. Integration plans are considered
to be significant if the charge recorded to establish the accrual is in
excess of 5% of consolidated pretax income.
Significant Pooling-of-Interests Business Combination Plan
The Company formalized and adopted an integration plan in December 1997 to
integrate the operations of S&W with the Imaging Business. The following
accrued merger costs and expenses were recognized in the accompanying
consolidated statements of operations at the commitment date. A summary of
the merger activity related to the S&W merger is as follows:
Involuntary
Employee Lease Branch
Termination Termination Shutdown
Costs Costs Costs Total
------------ ------------ ----------- -----------
Balance at April 3, 1998 $ 156 $ 540 $ 461 $ 1,157
Adjustments -- -- -- --
Additions -- -- -- --
Utilized (2) -- (143) (145)
============ ============ ============ ===========
Balance at June 30, 1998 $ 154 $ 540 $ 318 $ 1,012
============ ============ ============ ===========
Involuntary employee termination costs are costs for seven employees,
including severance and benefits, who represent duplicative functions in
the accounting, purchasing, human resource, and computer support
departments at locations where facilities were combined into existing
facilities. As of June 30, 1998, one employee has been terminated and the
remaining six employees are estimated to be terminated by the end of second
quarter of fiscal 2000. Management identified seven distribution facilities
to be closed and all operations would be ceased due to duplicative
functions. Three of the seven identified distribution facilities had been
shut down by June 30, 1998, with the remaining four locations estimated to
be shut down by the second quarter of fiscal 2000. Included in branch
shutdown costs are costs related to contractual obligations that existed
prior to the merger date but will provide no ongoing value to the Company.
10
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (Restated)
(Unaudited)
(Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted)
Involuntary
Employee Lease Branch
Termination Termination Shutdown
Costs Costs Costs Total
------------ ------------ ----------- -----------
Balance at April 2, 1999 $ 154 $ 540 $ 111 $ 805
Adjustments -- -- -- --
Additions -- -- -- --
Utilized -- (63) (75) (138)
============ ============ ============ ===========
Balance at June 30, 1999 $ 154 $ 477 $ 36 $ 667
============ ============ ============ ===========
As of June 30, 1999, one employee has been terminated and the remaining six
employees are estimated to be terminated by the end of second quarter of
fiscal 2000. Six of the seven identified distribution facilities had been
shut down by June 30, 1999, and the final location will be shut down in the
second quarter of fiscal 2000.
During fiscal 1999, information system programming delays occurred that
were not anticipated at the time the integration plan was finalized and
adopted by management. As a result, the information system conversion dates
for all locations were delayed. The accruals for involuntary employee
termination and branch shutdown costs have not been paid in full as of June
30, 1999 because the information system conversion must be completed prior
to consolidating distribution facilities. The lease termination costs will
be paid through fiscal 2002.
Nonsignificant Poolings-of-Interests Business Combination Plans
The following accrued merger costs and expenses were recognized in the
accompanying consolidated statements of operations at the date in which the
integration plan was formalized and adopted by management. A summary of the
merger activity related to eight nonsignificant pooling-of-interests
business combinations completed during fiscal 1997 through June 30, 1999,
respectively, is as follows:
Involuntary
Employee Lease Branch
Termination Termination Shutdown
Costs Costs Costs Total
------------ ------------ ----------- -----------
Balance at April 3, 1998 $ 165 $ 253 $ 518 $ 936
Adjustments -- -- -- --
Additions 74 -- 126 200
Utilized (17) (117) (280) (414)
============ ============ ============ ===========
Balance at June 30, 1998 $ 222 $ 136 $ 364 $ 722
============ ============ ============ ===========
The Imaging Business acquired MIS in June 1998, and management formalized
and adopted an integration plan in June 1998 to integrate the operations of
the acquired company. Approximately $141 of the $722 accrued merger costs
and expenses at June 30, 1998 relate to this integration plan. Involuntary
employee termination costs are costs for six employees, including severance
and benefits, who represent duplicative functions in the accounting,
purchasing, and computer support departments at the acquired company's
corporate office. As of June 30, 1998, no employees had been terminated.
Management identified one distribution facility to be closed in which all
operations would be ceased due to duplicative functions. The Company
expects closure of this facility to occur in the second quarter of fiscal
2000.
The remaining $581 of the $722 accrued merger costs and expenses at June
30, 1998 relate to several small integration plans that have been completed
as of April 2, 1999.
11
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (Restated)
(Unaudited)
(Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted)
Involuntary
Employee Lease Branch
Termination Termination Shutdown
Costs Costs Costs Total
------------ ------------ ----------- -----------
Balance at April 2, 1999 $ 74 $ 1,884 $ 236 $ 2,194
Adjustments -- -- -- --
Additions -- -- -- --
Utilized -- (22) (210) (232)
============ ============ ============ ===========
Balance at June 30, 1999 $ 74 $ 1,862 $ 26 $ 1,962
============ ============ ============ ===========
The Imaging Business acquired TriStar in October 1998, and management
formalized and adopted an integration plan in April 1999 to integrate the
operations of the acquired company. Approximately $1,857 of the $1,962
accrued merger costs and expenses at June 30, 1999 relate to this
integration plan. Management identified two distribution facilities to be
closed in which all operations would be ceased due to duplicative
functions, both of which were in the process of being shutdown as of June
30, 1999. Management anticipates this integration plan will be completed
during the second quarter of fiscal 2000; however, lease termination
payments will extend through fiscal 2007.
Significant Purchase Business Combination Plan
The Company formalized and adopted an integration plan in September 1997 to
integrate the operations of General X-Ray, Inc. ("GXI") with the Imaging
Business. The following accrued merger costs and expenses were recognized
and additional goodwill was recorded at the commitment date. A summary of
the GXI merger accruals is as follows:
<TABLE>
<CAPTION>
Involuntary
Employee Lease Branch
Relocation Termination Termination Shutdown
Costs Costs Costs Costs Total
------------ ----------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance at April 3, 1998 $ 162 $ 197 $ 1,090 $ 785 $ 2,234
Adjustments -- -- -- -- --
Additions -- -- -- -- --
Utilized (2) -- (60) (90) (152)
------------ ----------- ----------- --------- --------
Balance at June 30, 1998 $ 160 $ 197 $ 1,030 $ 695 $ 2,082
============ =========== =========== ========= ========
</TABLE>
The Company identified nine distribution facilities to be closed and all
operations would be ceased due to duplicative functions. Relocation costs
were recorded related to the transfer of approximately 15 GXI employees.
Involuntary employee termination costs are costs for 19 employees,
including severance and benefits, who represent duplicative functions as
service and operations leaders, customer service representatives, and
accounting personnel at locations where facilities would be combined.
As of April 2, 1999, all employees have been terminated and relocated. The
plan has been completed as of April 2, 1999, therefore, there is no impact
on the three months ended June 30, 1999.
12
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (Restated)
(Unaudited)
(Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted)
Nonsignificant Purchase Business Combination Plans
The following accrued merger costs and expenses were recognized and
additional goodwill was recorded at the date in which the integration plans
were formalized and adopted by management. A summary of the merger activity
related to sevennonsignificant purchase business combinations during fiscal
1998 through the three months ended June 30, 1999 is as follows:
<TABLE>
<CAPTION>
Involuntary
Employee Lease Branch
Relocation Termination Termination Shutdown
Costs Costs Costs Costs Total
------------ ----------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance at April 3, 1998 $ -- $ -- $ -- $ -- $ --
Additions from Gulf
South subsidiary -- 102 100 250 452
------------ ----------- ----------- --------- --------
Balance at April 4, 1998 -- 102 100 250 452
Adjustments -- -- -- -- --
Additions -- -- -- -- --
Utilized -- (11) (2) -- (13)
------------ ----------- ----------- --------- --------
Balance at June 30, 1998 $ -- $ 91 $ 98 $ 250 $ 439
============ =========== =========== ========= ========
</TABLE>
The additions from the Gulf South subsidiary represents the additions of
the accrued merger costs and expenses recorded by Gulf South during the
period January 1 to April 3, 1998. No amounts were utilized during this
period. GSMS formalized and adopted an integration plan during the period
January 1 to April 3, 1998. The accrual at June 30, 1998 primarily relates
to this integration plan. Involuntary employee termination costs are costs
for 23 employees, including severance and benefits, who represent
duplicative functions in the accounting, purchasing, human resource,
warehouse and computer support departments at locations where facilities
were combined into existing facilities. As of June 30, 1998, 17 employees
have been terminated. Management identified 2 distribution facilities to be
closed in which all operations would be ceased due to duplicative
functions, both of which had been shut down by June 30, 1998. Included in
branch shutdown costs are costs related to contractual obligations that
existed prior to the merger date but will provide no ongoing value to the
Company.
During fiscal 1999, information system programming delays occurred that
were not anticipated at the time the integration plan was finalized and
adopted by management. As a result, the information system conversion dates
for all locations were delayed. The accruals for involuntary employee
termination and branch shutdown costs have not been paid in full as of June
30, 1999 because the information system conversion must be completed prior
to consolidating distribution facilities. The lease termination costs will
be paid through fiscal 2002.
<TABLE>
<CAPTION>
Involuntary
Employee Lease Branch
Relocation Termination Termination Shutdown
Costs Costs Costs Costs Total
------------ ----------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance at April 2, 1999 $ 117 $ 545 $ 410 $ 13 $ 1,085
Adjustments -- -- -- -- --
Additions -- 75 690 225 990
Utilized (30) (94) (176) (162) (462)
------------ ----------- ----------- --------- --------
Balance at June 30, 1999 $ 87 $ 526 $ 924 $ 76 $ 1,613
============ =========== =========== ========= ========
</TABLE>
13
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (Restated)
(Unaudited)
(Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted)
The Imaging Business acquired Gilbert X-Ray, Inc. in September 1998 and
management formalized and adopted two separate integration plans in fiscal
1999 to integrate the operations of the acquired company. Approximately
$758 of the $1,613 accrued merger costs and expenses at June 30, 1999
relate to these integration plans. Relocation costs are for five employees
of which two had been relocated as of June 30, 1999. Involuntary employee
termination costs are costs for twenty-six employees, including severance
and benefits, who represent duplicative functions in the accounting,
purchasing, human resource, warehouse and computer support departments at
locations where facilities were combined into existing facilities. As of
June 30, 1999, eight employees have been terminated. Management identified
eight distribution facilities to be closed in which all operations would be
ceased due to duplicative functions, three of which had been shut down by
June 30, 1999. Included in branch shutdown costs are costs related to
contractual obligations that existed prior to the merger date but will
provide no ongoing value to the Company. Management anticipates these
integration plans will be completed during fiscal 2000; however, lease
termination payments will extend through fiscal 2003.
In addition, the Imaging Business acquired South Jersey X-Ray, Inc. in
October 1998, and management formalized and adopted an integration plan
during the three months ended June 30, 1999 to integrate the operations of
the acquired company. Approximately $743 of the $1,613 accrued merger costs
and expenses at June 30, 1999 relate to this integration plan. Involuntary
employee termination costs are costs for fifteen employees, including
severance and benefits, who represent duplicative functions in the
accounting, purchasing, human resource, warehouse and computer support
departments at locations where facilities were combined into existing
facilities. As of June 30, 1999, two employees have been terminated.
Management identified two distribution facilities to be closed in which all
operations would be ceased due to duplicative functions, one of which had
been shut down by June 30, 1999. Included in branch shutdown costs are
costs related to contractual obligations that existed prior to the merger
date but will provide no ongoing value to the Company. Management
anticipates the integration plan to be completed during the first quarter
of fiscal 2001; however, lease termination payments will extend through
fiscal 2004.
Summary of Accrued Restructuring Costs and Expenses
Primarily as a result of the impact of the Gulf South merger, in order to
improve customer service, reduce costs, and improve productivity and asset
utilization, the Company decided to realign and consolidate its operations.
Accordingly, the Company began implementing a restructuring plan during the
fourth quarter of fiscal 1998 which impacted all divisions ("Plan A").
Subsequently, the Company adopted a second restructuring plan during the
first quarter of fiscal 1999 related to the Gulf South division ("Plan B")
to further consolidate its operations.
The Company recorded a total accrual of $7,971 related to Plan A.
Approximately $3,691 of the $7,971 total restructuring charge related to
the PSS and DI divisions and was recorded in the accompanying consolidated
statement of operations for the fiscal 1998. The additions from the Gulf
South subsidiary represent restructuring costs and expenses of $4,280
recorded by Gulf South during the unconsolidated period January 1 to April
3, 1998. No amounts were utilized during this period. This charge is
included in the retained earnings adjustment recorded on April 4, 1998.
14
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (Restated)
(Unaudited)
(Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted)
Accrued restructuring costs and expenses, classified as accrued expenses in
the accompanying consolidated balance sheets, were $3,139 and $3,817, at
June 30, 1999 and April 2, 1999, respectively, as compared to $7,425 and
$3,691 at June 30, 1998 and April 3, 1998, respectively. A summary of the
restructuring plan activity is as follows:
<TABLE>
<CAPTION>
Involuntary
Employee Lease Branch
Termination Termination Shutdown Other Exit
Costs Costs Costs Costs Total
------------ ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance at April 3, 1998 $ 1,570 $ 1,389 $ 627 $ 105 $ 3,691
Additions from Gulf
South subsidiary 1,879 406 1,455 540 4,280
------------ ------------ ---------- ------------ ----------
Balance at April 2, 1999 $ 3,449 $ 1,795 $ 2,082 $ 645 $ 7,971
Adjustments -- -- -- -- --
Additions 652 570 281 -- 1,503
Utilized (842) (191) (857) (159) (2,049)
------------ ------------ ---------- ------------ ----------
Balance at June 30, 1999 $ 3,259 $ 2,174 $ 1,506 $ 486 $ 7,425
============ ============ ========== ============ ==========
</TABLE>
Plan A
Restructuring Plan A impacted all divisions, and involved merging 18
locations into existing locations and eliminating overlapping regional
operations and management functions. As of June 30, 1998, seven locations
were merged into existing locations. The plan also included the termination
of approximately 270 employees from operations, administration, and
management. As of June 30, 1998, 75 employees were terminated as a result
of the plan. Furthermore, branch shutdown costs include the costs to
implement Best Practice Warehousing at the Gulf South division in order to
provide efficient, consistent, standard service to Gulf South customers
similar to the Company's established standards. Best Practice Warehousing
involves removal of all products, tearing down racking, rebuilding racking,
and relocating bins and products within the warehouse to achieve greater
efficiencies in order filling. The amount of costs was estimated based upon
the size of the warehouse.
Plan B
During the first quarter of fiscal 1999, the Company established an
additional accrual of $1,503 related to Plan B. Restructuring Plan B
related only to the Gulf South division, and involved merging six
additional locations into existing locations. As a result of the
consolidation of the duplicate facilities, lease termination costs will be
incurred through fiscal 2000. At June 30, 1998, two of the six locations
had been shut down. The plan also included the termination of three
employees from operations and management. As of June 30, 1998, no employees
were terminated as a result of the plan.
15
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (Restated)
(Unaudited)
(Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted)
<TABLE>
<CAPTION>
Involuntary
Employee Lease Branch
Termination Termination Shutdown Other Exit
Costs Costs Costs Costs Total
------------ ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance at April 2, 1999 $ 1,601 $ 1,320 $ 896 $ -- $ 3,817
Adjustments (214) -- -- -- (214)
Additions -- -- -- -- --
Utilized (128) (257) (79) -- (464)
------------ ------------ ---------- ------------ ----------
Balance at June 30, 1999 $ 1,259 $ 1,063 $ 817 $ -- $ 3,139
============ ============ ========== ============ ==========
</TABLE>
During fiscal 1999, information system programming delays occurred that
were not anticipated at the time the integration plan was finalized and
adopted by management. As a result, the information system conversion dates
for all locations were delayed. The accruals for involuntary employee
termination and branch shutdown costs have not been paid in full as of June
30, 1999 because the information system conversion must be completed prior
to consolidating distribution facilities. The lease termination costs will
be paid through fiscal 2002.
Plan A
As of June 30, 1999, 232 employees were terminated as a result of the plan.
Management anticipates terminating the remaining 38 employees by the end of
the fourth quarter of fiscal 2000. As of June 30, 1999, all of the
locations were merged into exisiting locations. The remaining locations
will be merged in fiscal 2000.
Plan B
At June 30, 1999, three of the six locations had been shut down and the
remaining three locations are scheduled to be shut down in fiscal 2000. As
of April 2, 1999, all employees were terminated as a result of the plan,
with the related severance payments to be made in fiscal 2000.
NOTE 5 - COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, Reporting Comprehensive Income, which
defines comprehensive income as net income plus direct adjustments to
shareholders' equity. The cumulative translation adjustment of certain
foreign entities is the only such direct adjustment recorded by the Company
during the three months ended June 30, 1999 and 1998, as detailed in the
following table:
June 30, 1999 June 30, 1998
------------- -------------
Net income.................................. $12,310 $8,868
------------- -------------
Other comprehensive income, net of tax:
Foreign currency translation adjustment.. (263) 30
------------- -------------
Comprehensive income........................ $12,047 $8,898
============= =============
16
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (Restated)
(Unaudited)
(Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted)
NOTE 6 - EARNINGS PER SHARE
In accordance with Statement of Financial Accounting Standards No. 128,
Earnings Per Share, the calculation of basic earnings per common share and
diluted earnings per common share is presented:
Three Months Ended
----------- -----------
June 30, June 30,
1999 1998
----------- -----------
Net income......................................... $12,310 $8,868
=========== ===========
Earnings per share:
Basic........................................... $0.17 $0.13
=========== ===========
Diluted......................................... $0.17 $0.12
=========== ===========
Weighted average shares outstanding (in thousands):
Common shares................................... 70,796 70,384
Assumed exercise of stock options and warrants.. 355 869
----------- -----------
Diluted shares outstanding...................... 71,151 71,253
=========== ===========
NOTE 7 - SEGMENT INFORMATION
The Company has adopted SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information, which establishes the way public
companies report information about segments. SFAS No. 131 requires segment
reporting in interim periods and disclosures regarding products and
services, geographic areas, and major customers.
The Company's reportable segments are strategic businesses that offer
different products and services to different segments of the health care
industry, and are based upon how management regularly evaluates the
Company. These segments are managed separately because of different
customers and products. These segments include Physician Sales & Service
Division (the "Physician Supply Business"), Diagnostic Imaging, Inc. ("DI"
or the "Imaging Business"), Gulf South Medical Supply, Inc. ("GSMS" or the
"Long-Term Care Business"), and WorldMed International, Inc. ("WorldMed
Int'l") combined with the Holding Company.
The Physician Supply Business is a distributor of medical supplies,
equipment and pharmaceuticals to primary care and other office-based
physicians in the United States. DI is a distributor of medical diagnostic
imaging supplies, chemicals, equipment, and service to the acute and
alternate care markets in the United States. GSMS is a distributor of
medical supplies and other products to the long-term care market. WorldMed
Int'l along with WorldMed, Inc. manages and develops PSS' European medical
equipment and supply distribution market.
The Company primarily evaluates the operating performance of its segments
based on net sales and income from operations.
17
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (Restated)
(Unaudited)
(Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted)
The following table presents financial information about the Company's business
segments:
Three Months Ended
---------------------
June 30, June 30,
1999 1998
--------- ---------
(Restated)
NET SALES:
Physician Supply Business $ 173,431 $165,855
Imaging Business 163,332 114,463
Long-Term Care Business 92,203 82,498
Other (a) 7,753 4,746
--------- ---------
Total net sales $ 436,719 $367,562
========= =========
INCOME FROM OPERATIONS:
Physician Supply Business $ 11,841 $ 10,464
Imaging Business 7,438 3,425
Long-Term Care Business 2,733 4,632
Other (a) 555 (2,542)
--------- ---------
Total income from operations $ 22,567 $ 15,979
========= =========
DEPRECIATION:
Physician Supply Business $ 985 $ 2,126
Imaging Business 685 1,006
Long-Term Care Business 346 373
Other (a) 65 100
--------- ---------
Total depreciation $ 2,081 $ 3,605
========= =========
AMORTIZATION OF INTANGIBLE AND OTHER ASSETS:
Physician Supply Business $ 518 $ 554
Imaging Business 1,266 549
Long-Term Care Business 540 364
Other (a) 80 --
--------- ---------
Total amortization of intangible
and other assets $ 2,404 $ 1,467
========= =========
PROVISION FOR DOUBTFUL ACCOUNTS:
Physician Supply Business $ (7) $ 199
Imaging Business (342) 83
Long-Term Care Business 500 --
Other (a) -- 35
--------- ---------
Total provision for doubtful accounts $ 151 $ 317
========= =========
CAPITAL EXPENDITURES:
Physician Supply Business $ 2,453 $ 1,550
Imaging Business 1,283 1,071
Long-Term Care Business 1,129 256
Other (a) 282 28
--------- ---------
Total capital expenditures $ 5,147 $ 2,905
========= =========
June 30, April 2,
1999 1999
--------- ---------
ASSETS:
Physician Supply Business $ 224,610 $236,452
Imaging Business 278,674 277,250
Long-Term Care Business 191,969 174,868
Other (a) 62,647 54,811
--------- ---------
Total assets $ 757,900 $743,381
========= =========
(a) Other includes the holding company and the international subsidiaries.
18
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (Restated)
(Unaudited)
(Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted)
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company has employment agreements with certain executive officers which
provide that in the event of their termination or resignation, under
certain conditions, the Company may be required to continue salary payments
and provide insurance for a period ranging from 12 to 36 months for the
Chief Executive Officer and from 3 to 12 months for other executives and to
repurchase a portion or all of the shares of common stock held by the
executives upon their demand at the fair market value at the time of
repurchase. The period of salary and insurance continuation and the level
of stock repurchases are based on the conditions of the termination or
resignation.
A series of related, putative securities class actions were filed against
PSS and two officers beginning on or about March 22, 1999. The allegations
are based on PSS' announcement that the SEC was reviewing its financial
reports for certain prior periods and that PSS would likely be required to
retroactively restate its financial statements to reflect the
pre-acquisition operating results of certain merger transactions that were
accounted for under the pooling of interest accounting method. The actions
were consolidated by Order dated July 28, 1999. A consolidated amended
complaint will be filed by the plaintiffs by September 24, 1999. The
lawsuits are in the earliest stages, and there can be no assurance that
this litigation will be ultimately resolved on terms that are favorable to
the Company.
PSS and certain of its current officers and directors were named as
defendants in a purported securities class action lawsuit filed on or about
May 28, 1998. The allegations are based upon a decline in the PSS stock
price following announcements by PSS in May 1998 regarding the Gulf South
merger that resulted in earnings below analyst's expectations. The Company
believes that the allegations contained in the complaints are without merit
and intends to defend vigorously against the claims. However, the lawsuit
is in the earliest stages, and there can be no assurances that this
litigation will ultimately be resolved on terms that are favorable to the
Company.
Although the Company does not manufacture products, the distribution of
medical supplies and equipment entails inherent risks of product liability.
The Company has not experienced any significant product liability claims
and maintains product liability insurance coverage. In addition, the
Company is party to various legal and administrative proceedings and claims
arising in the normal course of business. While any litigation contains an
element of uncertainty, management believes that the outcome of any
proceedings or claims which are pending or known to be threatened will not
have a material adverse effect on the Company's consolidated financial
position, liquidity, or results of operations.
NOTE 9 - SUBSEQUENT EVENTS
Subsequent to June 30, 1999, the Company acquired certain assets, including
accounts receivable, inventories, and equipment of two imaging supply and
equipment distributors. These transactions were accounted for under the
purchase method of accounting.
A summary of the details of the transactions follows:
Number of acquisitions.......................................... 2
Total consideration............................................. $16,318
Cash paid, net of cash acquired................................. 3,254
Goodwill recorded............................................... 3,415
Value of Noncompete Agreements.................................. 600
19
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (Restated)
(Unaudited)
(Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted)
NOTE 10 - RESTATEMENTS
The Company has restated its historical financial statements to include the
effect of certain items as discussed below. The effect of the restatements
is as follows:
Three Months Ended June 30, 1998
---------------------------------------------------------
Information
As Systems GSMS
Previously Accelerated Restructuring Immaterial As
Reported Depreciation Plan B Poolings Restated
---------- ------------ ------------- ---------- --------
Net sales $342,538 $ -- $ -- $25,024 $367,562
Net income 11,295 (917) (918) (592) 8,868
Earnings per share:
Basic $0.16 $(0.01) $(0.01) $(0.01) $0.13
Diluted 0.16 (0.01) (0.01) (0.01) 0.12
Information Systems Accelerated Depreciation
The $917 represents the incremental impact on depreciation expense, net of
tax, for the three months ended June 30, 1998 related to the replacement of
the information systems. Refer to Note 3, Charges Included in General and
Administrative Expenses, for a further discussion regarding the accelerated
depreciation.
GSMS Restructuring Plan B
Gulf South previously recorded $918 million (net of tax) of restructuring
costs and expenses during the period January 1, 1998 to April 3, 1998 and,
therefore, the amount was included in the retained earnings adjustment
recorded on April 4, 1998. However, the Company's historical consolidated
financial statements have been restated to reverse the $918 million charge
as certain recognition criteria were not met. The charge was recognized
when the criteria were met, which was during the first quarter of fiscal
1999.
Immaterial Poolings
The Company merged with certain imaging supply and equipment distributors
in stock mergers accounted for under the pooling-of-interests method of
accounting. Due to the immaterial effect of these acquisitions on prior
periods, the Company's previously issued financial statements included in
Form 10Q for the three months ended June 30, 1998 were not restated for the
immaterial Pooled Entities. During fiscal 1999, the Company made two
additional individually immaterial acquisitions accounted for as poolings
of interests. As such, the Company evaluated the aggregate impact of the
individually immaterial pooling of interest transactions on the Company's
current and prior period financial statements and concluded that the
aggregate impact was material to the Company's consolidated financial
position taken as a whole. As a result, the Company's consolidated
financial statements have been restated to include the historical financial
results of the individually immaterial pooling-of-interest transactions for
all periods prior to the date of the mergers, as shown above.
20
<PAGE>
ITEM 2. PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
PSS World Medical, Inc. (the "Company" or "PSS") is a specialty marketer
and distributor of medical products to physicians, alternate-site imaging
centers, long-term care providers, home care providers, and hospitals
through 110 service centers to customers in all 50 states and three
European countries. Since its inception in 1983, the Company has become a
leader in three of the market segments it serves with a focused, market
specific approach to customer service, a consultative sales force,
strategic acquisitions, strong arrangements with product manufacturers,
innovative systems, and a unique culture of performance.
The Company, through its Physician Sales & Service division, is the leading
distributor of medical supplies, equipment and pharmaceuticals to
office-based physicians in the United States based on revenues, number of
physician-office customers, number and quality of sales representatives,
number of service centers, and exclusively distributed products. Physician
Sales & Service currently operates 56 medical supply distribution service
centers with approximately 750 sales representatives ("Physician Supply
Business") serving over 100,000 physician offices (representing
approximately 50% of all physician offices) in all 50 states. The Physician
Supply Business' primary market is the approximately 400,000 physicians who
practice medicine in approximately 200,000 office sites throughout the
United States.
The Company, through its wholly owned subsidiary Diagnostic Imaging, Inc.
("DI"), is the leading distributor of medical diagnostic imaging supplies,
chemicals, equipment, and service to the acute care and alternate-care
markets in the United States based on revenues, number of service
specialists, number of distribution centers, and number of sales
representatives. DI currently operates 38 imaging distribution service
centers with approximately 730 service specialists and 210 sales
representatives ("Imaging Business") serving over 15,000 customer sites in
41 states. The Imaging Business' primary market is the approximately
10,000 hospitals and other alternate-site imaging companies operating
approximately 40,000 office sites throughout the United States.
Through its wholly owned subsidiary Gulf South Medical Supply, Inc.
("GSMS"), the Company is a leading national distributor of medical supplies
and related products to the long-term care industry in the United States
based on revenues, number of sales representatives, and number of service
centers. GSMS currently operates 13 distribution service centers with
approximately 160 sales representatives ("Long-Term Care Business") serving
over 14,000 long-term care facilities in all 50 states. The Long-Term Care
Business' primary market is comprised of a large number of independent
operators, small to mid-sized local and regional chains, and several
national chains representing over 17,000 long-term care facilities.
In addition to its operations in the United States, the Company, through
its wholly owned subsidiary WorldMed International, Inc. ("WorldMed"),
operates three European service centers ("International Business")
distributing medical products to the physician office and hospital markets
in Belgium, France, Germany, Luxembourg, and the Netherlands.
INDUSTRY
According to industry estimates, the United States medical supply and
equipment segment of the health care industry represents a $34 billion
market comprised of distribution of medical products to hospitals, home
health care agencies, imaging centers, physician offices, dental offices,
and long-term care facilities. The Company's primary focus includes
distribution to the physician office, providers of imaging services, and
long-term care facilities that comprise $14 billion or approximately 40% of
the overall market.
21
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Revenues of the medical products distribution industry are estimated to be
growing as a result of a growing and aging population, increased health
care awareness, proliferation of medical technology and testing, and
expanding third-party insurance coverage. In addition, the physician market
is benefiting from the shift of procedures and diagnostic testing from
hospitals to alternate sites, particularly physician offices, despite a
migration of significantly lower hospital medical product pricing into the
physician office market.
The health care industry is subject to extensive government regulation,
licensure, and operating procedures. National health care reform has been
the subject of a number of legislative initiatives by Congress.
Additionally, the cost of a significant portion of medical care in the
United States is funded by government and private insurance programs. In
recent years, government-imposed limits on reimbursement of hospitals,
long-term care facilities, and other health care providers have impacted
spending budgets in certain markets within the medical products industry.
Recently, Congress has passed radical changes to reimbursements for nursing
homes and home care providers. The industry has struggled with these
changes and the ability of providers, distributors, and manufacturers to
adopt to the changes is not yet determined. These changes also effect some
distributors who directly bill the government for these providers.
Over the past few years, the health care industry has undergone significant
consolidation. Physician provider groups, long-term care facilities, and
other alternate-site providers along with the hospitals continue to
consolidate. The consolidation creates new and larger customers. However,
the majority of the market serviced by the Company remains a large number
of small customers with no single customer exceeding 10% of the
consolidated Company's revenues. However, the Long-Term Care Business
depends on a limited number of large customers for a significant portion of
its net sales and approximately 28% of the Long-Term Care Business
revenues for the 3 months ended June 30, 1999 represented sales to its top
five customers. Growth in the Long-Term Care Business, as well as
consolidation of the health care industry, may increase the Company's
dependence on large customers.
RESULTS OF OPERATIONS
The following is management's discussion and analysis of the results of
operations for the three months ended June 30, 1999 and 1998. The
accompanying financial statements give retroactive effect to the mergers
with Medical Imaging Systems, Inc. ("MIS") and TriStar Imaging Systems,
Inc. ("TriStar") acquired during fiscal 1999 and various acquired companies
previously accounted for as immaterial pooling-of-interests transactions
(the "Pooled Entities"). The Company's previously issued financial
statements included in Form 10Q for the three months ended June 30, 1998
were not restated for (1) the information systems accelerated depreciation,
(2) the reversal of GSMS restructuring charge, and (3) the immaterial
Pooled Entities (refer to Note 10 - Restatements). These transactions were
accounted for under the pooling-of-interests method of accounting, and
accordingly, the accompanying consolidated financial statements have been
retroactively restated as if PSS and the Pooled Entities had operated as
one entity since inception.
THREE MONTHS ENDED JUNE 30, 1999
VERSUS THREE MONTHS ENDED JUNE 30, 1998(restated)
Net Sales. Net sales for the three months June 30, 1999 totaled $436.7
million, an increase of $69.1 million, or 18.8%, over the three months
ended June 30, 1998 total of $367.6 million. The increase in sales can be
attributed to (i) net sales from the acquisition of companies during fiscal
year 1998 and 1999 accounted for as purchases; (ii) internal sales growth
of centers operating at least two years; (iii) the Company's focus on
diagnostic equipment sales; and (iv) incremental sales generated in
connection with exclusive and semi-exclusive vendor relationships.
22
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Net sales contributed from acquisitions completed during the three months
ended June 30, 1999 totaled approximately $1.3 million and $3.4 million for
the Imaging, and Long-Term Care Businesses, respectively. In addition,
Physician Supply Business, Imaging, and Long-term Care Business
acquisitions completed during the three months ended June 30, 1998 provided
approximately $0.6 million, $2.6 million, and $1.5 million, respectively,
in additional incremental sales to the three months ended June 30, 1999
results.
Gross Profit. Gross profit for the three months ended June 30, 1999 totaled
$116.4 million, an increase of $19.2 million, or 19.8%, over the three
months ended June 30, 1998 total of $97.2 million. The increase in gross
profit dollars is primarily attributable to the sales growth described
above. Gross profit as a percentage of net sales was 26.7% and 26.4% for
the three months ended June 30, 1999 and 1998, respectively. Although there
has been considerable gross margin pressure from several industry
environmental factors, as well as internal pressure from an increasing mix
of Imaging Business revenues at a lower margins, the Company has
successfully maintained its overall gross margins. The increase in gross
margin as a percentage of sales is attributable to (i) an increase in the
sales mix of higher margin diagnostic equipment and service, (ii) an
increase in sales of higher margin private label products, and (iii) the
effect of negotiated lower product purchasing costs. This is offset by the
expansion of imaging revenues with lower gross profit margins.
Beginning in fiscal 1999 and continuing into fiscal 2000, the Company has
experienced margin pressures in the Long-Term Care Business as a result of
its large chain customers renegotiating prices due to the implementation of
PPS. The Company expects this trend to continue in the Long-Term Care
Business. The Company added a net addition of approximately 50 sales
representatives in fiscal 1999 to develop sales to independent and regional
customers to offset the impact of decreased margins in its chain customer
sales.
General and Administrative Expenses. General and administrative expenses
for the three months ended June 30, 1999 totaled $59.5 million, an increase
of $5.0 million, or 9.2%, from the three months ended June 30, 1998 total
of $54.5 million. General and administrative expenses as a percentage of
net sales decreased to 13.8% from 14.8% for the comparable prior year
period. The decrease in general and administrative expenses as a percentage
of net sales was a result of (i) a decrease in merger activity,
restructuring costs and expenses, and other special items as discussed
below, (ii) the continued leveraging of fixed costs of mature service
center operations, (iii) the elimination of below average performance
centers during fiscal 1999, and (iv) the increased contribution by the
Imaging Business which operates at lower general and administrative
expenses as a percentage of sales. This is offset by the increase of
general and administrative expenses as a percentage of sales by the Gulf
South division.
In addition to typical general and administrative expenses, this income
statement caption includes charges related to merger activity,
restructuring activity, and other special items. The following table
summarizes charges included in general and administrative expenses in the
accompanying consolidated statements of income:
June 30, 1999 June 30, 1998
------------- -------------
(Restated)
Merger costs and expenses.................... $ 372 $ 829
Restructuring costs and expenses............. 513 1,995
Information systems accelerated depreciation. -- 1,499
------------- -------------
Total charges................................ $ 885 $ 4,323
============= =============
23
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Merger Costs and Expenses
The Company's policy is to accrue merger costs and expenses at the
commitment date of an integration plan if certain criteria under
EITF 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity ("EITF 94-3") or
95-14, Recognition of Liabilities in Anticipation of a Business
Combination ("EITF 95-14"), are met. Merger costs and expenses
recorded at the commitment date primarily include charges for
direct transaction costs, involuntary employee termination costs,
branch shut-down costs, lease termination costs, and other exit
costs.
If the criteria described in EITF 94-3 or EITF 95-14 are not met,
the Company records merger costs and expenses as incurred. Merger
costs expensed as incurred include the following: (1) costs to
pack and move inventory from one facility to another or within a
facility in a consolidation of facilities, (2) relocation costs
paid to employees in relation to an acquisition accounted for
under the pooling-of-interests method of accounting, (3) systems
or training costs to convert the acquired companies to the current
existing information system, and (4) training costs related to
conforming the acquired companies operational policies to that of
the Company's operational policies. In addition, amounts incurred
in excess of the original amount accrued at the commitment date
are expensed as incurred.
Merger costs and expenses for the three months ended June 30, 1999
included merger charges expensed as incurred, which primarily
related to branch shutdown costs.
Merger costs and expenses for the three months ended June 30, 1998
included $200 of charges recorded at the commitment date of an
integration plan adopted by management and $629 of charges for
merger costs expensed as incurred. The merger costs expensed as
incurred primarily relate to direct transaction costs from the
merger with MIS and the Pooled Entities. Refer to Note 1, Basis of
Presentation, for further discussion regarding MIS and the
immaterial Pooled Entities.
Restructuring Costs and Expenses
Restructuring costs and expenses for the three months ended June
30, 1999 included $727 of charges for restructuring costs expensed
as incurred, which primarily relate to other exit costs. Other
exit costs include costs to pack and move inventory, costs to set
up new facilities, employee relocation costs, and other related
facility closure costs. In addition, the Company reversed $214 of
restructuring costs and expenses into income, which related to an
overaccrual for involuntary employee termination costs from
restructuring Plan A. Refer to Note 4, Accrued Merger and
Restructuring Costs and Expenses, for a further discussion
regarding the restructuring plan.
During the three months ended June 30, 1998, management approved
and adopted an additional Gulf South component to its formal plan
to restructure the Company. This restructuring plan identified two
additional distribution centers and two corporate offices to be
merged with existing facilities and identified three executives to
be involuntarily terminated. Accordingly, the Company recorded
restructuring costs and expenses of $1,503 at the commitment date
of the restructuring plan adopted by management. Such costs
include branch shutdown costs, lease termination costs,
involuntary employee termination costs of $281, $570, and $652,
respectively.
The remaining $492 of restructuring costs recorded during the
three months ended June 30, 1998 represent charges expensed as
incurred for other exit costs.
24
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Information Systems Accelerated Depreciation
In connection with the Gulf South merger during fiscal 1998,
management evaluated the adequacy of the combined companies'
information systems. The Company concluded that its existing
information systems were not compatible with those of Gulf South's
and not adequate to support the future internal growth of the
combined companies and expected growth resulting from future
acquisitions.
Pursuant to SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, the
Company evaluated the recoverability of the information system
assets. Based on the Company's analysis, impairment did not exist
at the division level; therefore, management reviewed the
depreciation estimates in accordance with Accounting Principles
Board ("APB") No. 20, Accounting Changes.
Effective April 4, 1998, the estimated useful lives of the PSS,
DI, and GSMS division information systems were revised to a range
of 12 to 15 months, which was the original estimate of when the
new systems implementation would be completed. For the three
months ended June 30, 1998, the $1,499 represents the incremental
impact on depreciation expense resulting from management's
decision to replace its information systems.
Selling Expenses. Selling expenses for the three months ended June 30, 1999
totaled $34.3 million, an increase of $7.6 million, or 28.5%, over the
three months ended June 30, 1998 total of $26.7 million. Selling expense as
a percentage of net sales was approximately 7.9% and 7.3% for the three
months ended June 30, 1999 and 1998, respectively. The Company utilizes a
variable commission plan, which pays commissions based on gross profit as a
percentage of net sales. During the later part of fiscal 1999, sales
commissions as a percent of net sales increased due (i) to the addition of
new sales representatives which are currently paid salary but in the future
will convert to a variable commission plan to increase or replace existing
low performance sales representatives, (ii) acquisition of sales
representatives at the Imaging Business that are in transition to the
Company's commission plan, and (iii) the short-term impact of the Long-Term
Care Business changing of its compensation plan for its sales
representatives.
Operating Income. Operating income for the three months ended June 30, 1999
totaled $21.7 million, an increase of $5.7 million, or 35.6%, over the
three months ended June 30, 1998 total of $16.0 million. As a percentage of
net sales, operating income increased to 5.0% from 4.4% from the comparable
prior year period. As discussed in the analysis of general and
administrative expenses, the three months ended June 30, 1998 operating
results include higher levels of operating charges related to merger
activity, restructuring costs and expenses, and other unusual items than
the three months ended June 30, 1999.
Interest Expense. Interest expense for the three months ended June 30, 1999
totaled $3.5 million, an increase of $0.4 million, or 12.9%, over the three
months ended June 30, 1998 total of $3.1 million. The increase in interest
expense over the comparable prior year period primarily results from
borrowings under the $140.0 million senior revolving credit facility to
fund the acquisition of companies during the five months ended June 30,
1999.
Interest and Investment Income. Interest and investment income for the
three months ended June 30, 1999 totaled $.05 million, a decrease of $1.2
million, or 70.6%, over the three months ended June 30, 1998 total of $1.7
million. This change primarily resulted from a lower level of invested
capital due to the use of cash and investments to fund capital expenditures
and business acquisitions during fiscal 1999.
Other Income. Other income for the three months ended June 30, 1999 totaled
$1.4 million, an increase of $0.6 million, or 75.0%, over the three months
ended June 30, 1998 total of $0.8 million. Other income consists of finance
charges on customer accounts and financing performance incentives.
25
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Provision for Income Taxes. Provision for income taxes for the three months
ended June 30, 1999 totaled $8.6 million, an increase of $2.1 million, or
32.3%, over the three months ended June 30, 1998 total of $6.5 million.
This increase primarily resulted from the increase in taxable income due to
the factors discussed above. The effective income tax rate was 41.1% and
42.4% for the three months ended June 30, 1999 and 1998, respectively. The
effective tax rate is generally higher than the Company's statutory rate
due to the to the nondeductible nature of certain merger related costs and
the impact of the Company's foreign subsidiary.
Net Income. Net income for the three months ended June 30, 1999 totaled
$12.3 million, an increase of $3.4 million, or 38.2%, over the three months
ended June 30, 1998 total of $8.9 million. As a percentage of net sales,
net income increased to 2.8% from 2.4% for the comparable prior year period
primarily due to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
As the Company's business grows, its cash and working capital requirements
will also continue to increase as a result of the need to finance
acquisitions and anticipated growth of the Company's operations. This
growth will be funded through a combination of cash flow from operations,
revolving credit borrowings and proceeds from any future public offerings.
Net cash provided by (used in) operating activities was $16.7 million and
($20.1) million for the three months ended June 30 1999 and 1998,
respectively. The increase in fiscal 1999 operating cash flow over prior
years was primarily attributable to: (i) an increase in net income for the
period, (ii) a reduction in cash paid for merger and restructuring accruals
established in the current and prior years, iii) a reduction in accounts
receivable growth from acquisitions, iv) reduced inventory levels and iv)
the completion of working capital requirements of the best practices and
distribution upgrades at Gulf South.
Net cash (used in) provided by investing activities was ($27.8) million and
$37.2 million for the three months ended June 30, 1999 and 1998,
respectively. These funds were primarily utilized to finance the
acquisition of new service centers and capital expenditures. Cash flows
from investing activities during the three months ended June 30, 1998,
include approximately $48.2 million of net proceeds from sales and
maturities of marketable securities. The increase in capital expenditures
in fiscal year 1999 is primarily attributable to new computer systems being
implemented across all the Company's divisions.
Net cash provided by (used in) financing activities was $9.2 million and
($1.9) million for the three months ended June 30, 1999 and 1998,
respectively. During the three months ended June 30, 1999, the Company
borrowed $11.0 million from its revolving credit facility to fund business
acquisitions.
The Company had working capital of $363.7 million and $356.6 million as of
June 30, 1999 and April 2, 1999, respectively. Accounts receivable, net of
allowances, were $278.8 million and $273.0 million at June 30, 1999 and
April 2, 1999, respectively. The average number of days sales in accounts
receivable outstanding was approximately 56.9 and 56.0 days for the three
months ended June 30, 1999 (annualized) and the year ended April 2, 1999,
respectively. For the three months ended June 30, 1999, the Company's
Physician Supply, Imaging, and Long-Term Care Businesses had annualized
days sales in accounts receivable of approximately 56.5, 49.9, and 69.1
days, respectively.
26
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Inventories were $132.7 million and $153.6 million as of June 30, 1999 and
April 2, 1999, respectively. The Company had inventory turnover of 9.0x and
8.1x times for the three months ended June 30, 1999 (annualized) and the
year ended April 2, 1999, respectively. For the three months ended June 30,
1999, the Company's Physician Supply, Imaging, and Long-Term Care
Businesses had annualized inventory turnover of 8.9x, 9.3x, and 8.6x,
respectively. Inventory financing historically has been achieved through
negotiating extended payment terms from suppliers.
The following table presents EBITDA and other financial data for the three
months ended June 30, 1999 and 1998 (in thousands):
Three Months Ended
-------------- -------------
June 30, 1999 June 30, 1998
-------------- -------------
(Restated)
Other Financial Data:
Income before provision for income taxes $ 20,898 $ 15,396
Plus: Interest Expense 3,511 3,093
-------------- -------------
EBIT (a) 24,409 18,489
Plus: Depreciation and amortization 4,485 5,072
-------------- -------------
EBITDA (b) 28,894 23,561
Unusual Charges Included in Continuing
Operations (h) 885 4,323
Cash Paid For Unusual Charges Included
in Continuing Operations (3,384) (4,394)
-------------- -------------
Adjusted EBITDA (c) 26,395 23,490
EBITDA Coverage (d) 8.2x 7.6x
EBITDA Margin (e) 6.6% 6.4%
Adjusted EBITDA Coverage (f) 7.5x 7.6x
Adjusted EBITDA Margin (g) 6.0% 6.4%
Cash provided by (used in) operating activities $16,686 ($20,127)
Cash (used in) provided by investing activities (27,848) 37,196
Cash provided by (used in) financing activities 9,210 (1,925)
_____________
(a) EBIT represents income before income taxes plus interest expense.
(b) EBITDA represents EBIT plus depreciation and amortization. EBITDA is not a
measure of performance or financial condition under generally accepted
accounting principles ("GAAP"). EBITDA is not intended to represent cash
flow from operations and should not be considered as an alternative measure
to income from operations or net income computed in accordance with GAAP,
as an indicator of the Company's operating performance, as an alternative
to cash flow from operating activities, or as a measure of liquidity. In
addition, EBITDA does not provide information regarding cash flows from
investing and financing activities which are integral to assessing the
effects on the Company's financial position and liquidity as well as
understanding the Company's historical growth. The Company believes that
EBITDA is a standard measure of liquidity commonly reported and widely used
by analysts, investors, and other interested parties in the financial
markets. However, not all companies calculate EBITDA using the same method
and the EBITDA numbers set forth above may not be comparable to EBITDA
reported by other companies.
(c) Adjusted EBITDA represents EBITDA plus unusual charges included in
continuing operations less cash paid for unusual charges included in
continuing operations.
(d) EBITDA coverage represents the ratio of EBITDA to interest expense.
27
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
(e) EBITDA margin represents the ratio of EBITDA to net sales.
(f) Adjusted EBITDA coverage represents the ratio of Adjusted EBITDA to
interest expense.
(g) Adjusted EBITDA margin represents the ratio of Adjusted EBITDA to net
sales.
(h) June 30, 1998 excludes $1,499 of information systems accelerated
depreciation.
On October 7, 1997, the Company issued, in a private offering under Rule
144A of the Securities Act of 1933, an aggregate principal amount of $125.0
million of its 8.5% senior subordinated notes due in 2007 (the "Private
Notes") with net proceeds to the Company of $119.5 million after deduction
for offering costs. The Private Notes are unconditionally guaranteed on a
senior subordinated basis by all of the Company's domestic subsidiaries. On
February 10, 1998, the Company closed its offer to exchange the Private
Notes for senior subordinated notes (the "Notes") of the Company with
substantially identical terms to the Private Notes (except that the Notes
do not contain terms with respect to transfer restrictions). Interest on
the Notes accrues from the date of original issuance and is payable
semiannually on April 1 and October 1 of each year, commencing on April 1,
1998, at a rate of 8.5% per annum. The semiannual payments of approximately
$5.3 million will be funded by the operating cash flow of the Company. No
other principal payments on the Notes are required over the next five
years. The Notes contain certain restrictive covenants that, among other
things, limit the Company's ability to incur additional indebtedness.
Provided, however, that no event of default exist, additional indebtedness
may be incurred if the Company maintains a consolidated fixed charge
coverage ratio, after giving effect to such additional indebtedness, of
greater than 2.0 to 1.0.
On February 11, 1999, the Company entered into a $140.0 million senior
revolving credit facility with a syndicate of financial institutions with
NationsBank, N.A. as principal agent. Borrowings under the credit facility
are available for working capital, capital expenditures, and acquisitions,
and are secured by the common stock and assets of the Company and its
subsidiaries. The credit facility expires February 10, 2004 and borrowings
bear interest at certain floating rates selected by the Company at the time
of borrowing. The credit facility contains certain affirmative and negative
covenants, the most restrictive of which require maintenance of a maximum
leverage ratio of 3.5 to 1.0, maintenance of consolidated net worth of
$337.0 million, and maintenance of a minimum fixed charge coverage ratio of
2.0 to 1.0. In addition, the covenants limit additional indebtedness and
asset dispositions, require majority lender approval on acquisitions with a
total purchase price greater than $75.0 million, and restrict payments of
dividends. The Company was not in compliance with its covenants at June 30,
1999, due to failure to meet certain timely filing requirements and
exceeding capital expenditures limitations by $2.2 million in the quarter
ended April 2, 1999. However, a limited waiver was obtained by the Company
from the lending group.
As of June 30, 1999, the Company has not entered into any material working
capital commitments that require funding. The Company believes that the
expected cash flows from operations, available borrowing under the credit
facility, and capital markets are sufficient to meet the Company's
anticipated future requirements for working capital, capital expenditures,
and acquisitions for the foreseeable future.
28
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of June 30, 1999, the Company did not hold any derivative financial or
commodity instruments. The Company is subject to interest rate risk and
certain foreign currency risk relating to its operations in Europe;
however, the Company does not consider its exposure in such areas to be
material. The Company's interest rate risk is related to its Senior
Subordinated Notes, which bear interest at a fixed rate of 8.5%, and
borrowings under its Credit Facility, which bear interest at variable
rates, at the Company's option, at either the lender's base rate (7.75% at
June 30, 1999) or the LIBOR rate plus 1.125% (6.19% at June 30, 1999).
YEAR 2000 READINESS DISCLOSURE
The following disclosure is a "Year 2000 Readiness Disclosure" within the
context of the Year 2000 Information and Readiness Disclosure Act to the
extent allowed by that Act.
Year 2000 Problem
Many computer programs and hardware with embedded technology use only two
digits to identify a year in a date field within a program (e.g., "98" or
"02"). These programs or hardware may fail to distinguish dates in the
"2000s" from dates in the "1900s" due to the two digit date fields. If
uncorrected, such programs and hardware with date sensitive operations may
malfunction or fail to operate after 1999 (and possibly before the year
2000 in some instances).
Company's Year 2000 Program and Systems
The Company has developed, and is implementing, a Year 2000 program to
address both information technology ("IT") and non-IT systems. The
Company's business applications reside on a group of mini computers,
servers and personal computers. The Company also uses laptop computers that
serve as sales force and service technician automation tools. The Company's
IT systems include computer and data network hardware, internally developed
software, and software purchased or licensed from external vendors. The
Company's non-IT systems include equipment which uses date-sensitive
embedded technology. Principal non-IT systems include telecommunications
and warehouse equipment. The Company initiated a Year 2000 compliance
program during May 1998, and the progress of this program has been
communicated regularly to the Audit Committee of the Company's Board of
Directors. The Company's approach to address the Year 2000 compliance
program includes the following phases: inventory, assessment, planning,
remediation, testing, and implementation, third party risk management, and
business continuity planning.
Company's State of Year 2000 Readiness
The Company believes that its existing systems are substantially Year 2000
compliant, except that the Company lacks sufficient information to
determine the Year 2000 status of recently acquired companies. The recently
acquired companies are scheduled to be converted to the Company's
substantially compliant systems before the end of September 1999. The
Company substantially completed inventory, assessment, and plans for
remediation of its critical IT systems during the quarter ended December
1998. Remediation and testing of these critical systems included upgrading,
replacing, or modifying non-compliant components, and was substantially
completed during the quarter ended March 1999. Implementation of these
remediation efforts is now substantially complete, and has been
29
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
substantially complete since the quarter ended June 1999. As a precaution
against possible errors or omissions to our remediation efforts, ongoing
testing of all systems, critical and non-critical is targeted to continue
through the end of September 1999. Additional remediation will occur as
licensors offer remedies to Year 2000 issues or in the event undetected
system non-compliance issues are uncovered.
As stated above, recent acquisitions of companies by the Imaging Business
have added to our remediation efforts. The Company does not fully know the
state of Year 2000 readiness of the acquired companies. As a result, seven
acquired service centers are targeted to be integrated into the imaging
division's distribution IT system as branches prior to the end of September
1999. Currently, the Imaging Business has 30 of 37 service centers and its
corporate location systems converted to its new system, which the Company
believes is Year 2000 compliant. The progress of these integrations will be
closely monitored, the Year 2000 readiness of these branches will be
assessed, and contingency plans will be modified accordingly.
The Company is also in the process of completing an inventory and
assessment of its non-critical IT and all non-IT systems. Remediation
efforts of non-critical systems include the development and implementation
of ICONWeb, a new enhanced version of the Physician Supply Business sales
force automation software, and the remediation of the Accuscan software
that Gulf South provides its customers to monitor and order inventory. The
new ICONWeb software, which includes enhanced functionality, is currently
being piloted and is targeted for complete implementation prior to the end
of November 1999. Remediated software has been implemented at approximately
90% of the customers currently using Accuscan. The remaining customers are
targeted for implementation prior to the end of September 1999. The Company
estimates that it will complete inventories, assessments, planning,
remediation, and testing of all other non-critical IT and all non-IT
systems by the end of September 1999.
Costs for Company's Year 2000 Program
The total costs of addressing the Company's Year 2000 readiness issues are
not expected to be material to the Company's financial condition or results
of operations. Since initiation of its program in calendar year 1998, the
Company has expensed approximately $0.7 million on a worldwide basis in
costs on a pretax basis to address its Year 2000 readiness issues. These
expenditures include information system replacement and embedded technology
upgrade costs of $0.4 million, supplier and customer compliance costs of
$0.1 million and all other costs of $0.2 million. The Company currently
estimates that the total of such costs for addressing its internal Year
2000 readiness, on a worldwide basis, will approximate $1.7 million in the
aggregate on a pretax basis. These costs are being expensed as they are
incurred, except for purchases of computer hardware and other equipment,
which are capitalized as property and equipment and depreciated over the
equipment's estimated useful lives in accordance with the Company's normal
accounting policies. All costs are being funded through operating cash
flows. No projects material to the financial condition, or results of
operations of the Company have been deferred or delayed as a result of the
Year 2000 program. A large part of the Year 2000 effort has been
accomplished through the redeployment of existing resources. The cost of
such redeployment or of internal management time has not been specifically
quantified. As reported previously, concurrent with the Year 2000
modifications and upgrades to existing systems, the Company is currently
replacing a majority of its internal information systems hardware and
software with new systems ("New Systems") that the Company believes are
Year 2000 compliant. The aforementioned amounts specifically exclude the
costs associated with the implementations, but not the testing of these
"New Systems" which are being installed primarily to integrate operations
and achieve additional information technology functionality.
Both internal and external resources are being used to identify, correct
and test the Company's systems for Year 2000 compliance. A Year 2000
program manager has been assigned to coordinate the Company's Year 2000
compliance program at all of the Company's divisions. To assist the Company
in meeting its Year 2000 responsibilities, the Company has contracted with
external consultants specializing in Year 2000 readiness assessments. The
goal of these consultants was to assist the Company in evaluating the
30
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Year 2000 programs, processes and progress of its U.S. divisions, and to
help identify any remaining areas of effort advisable. The Company's
original cost estimates for testing, third party Year 2000 risks, and
contingency planning were revised as a result of the consultant's
independent assessment of the scope of the Company's program. These
consultants will be engaged through the end of calendar year 1999. The
Company's Year 2000 efforts will be assessed and reported to executive
management as part of this ongoing engagement. In addition, the Company has
engaged its attorneys and other outside consultants to assist or examine
selected critical areas. The Company has consulted insurance professionals
and is exploring possible mitigation of Year 2000 risks through purchasing
insurance. Budgeted costs for these ongoing engagements are estimated at
$0.8 million and are included in the total costs estimates above. With
respect to non-IT system issues, the Company is unable to estimate its
remediation costs since it does not have available information upon which
to measure the cost of Year 2000 compliance in this area. While the total
costs to become Year 2000 compliant in the non-IT system area are not known
at this time, management does not believe that such costs will have a
material adverse effect on the business, financial position, or results of
operations of the Company.
Third Party Year 2000 Risks and Potential Worst Case Scenario
The Company could be adversely affected if critical manufacturers,
suppliers, customers, banks, payers, utilities, transportation companies,
or other business partners fail to properly remediate their systems to
achieve Year 2000 compliance. As planned, the Company has initiated
communications, which include soliciting written responses to
questionnaires, inquiries and follow-up meetings, with critical
manufacturers, suppliers, customers and other business partners to
determine the extent to which any Year 2000 issues affecting such third
parties would affect the Company. Such communications are ongoing and are
expected to continue through the end of calendar year 1999, with action
plans developed and implemented as necessary. The Company has established a
plan for ongoing monitoring of critical manufacturers, suppliers,
customers, and other business partners during calendar year 1999. However,
many critical manufacturers, suppliers, customers and other business
partners have as yet, either declined to provide the requested assurances
or have limited the scope of assurances to which they are willing to
commit. Naturally, most third parties are unwilling to guarantee that they
will achieve Year 2000 compliance. Some of the significant customers of the
Long Term Care division have indicated that they have not completed the
remediation and implementation of the systems at all of their nursing home
centers. They believe that these efforts will be completed prior to year
end, but have created alternative plans to revert to manual procedures for
administering patient care. They believe that such reversions to manual
procedures will not significantly affect their operations. Currently, these
customers operate many of their existing centers manually without
automated patient care systems.
The Company is subject to risk should Government or private payers
(including insurers) fail to become Year 2000 compliant and, therefore, be
unable to make full or timely reimbursement to the Company's customers. For
example, if the Federal government were unable to make payments under the
Medicaid or Medicare programs due to Year 2000 failures, the Company's
customers that derive a significant portion of their revenues from these
government programs could be adversely affected. Such a situation could
have a material adverse affect on the Company's cash flows, financial
position, or results of operations by reducing the ability of customers to
pay for products purchased from the Company. Since the Company's Year 2000
plan is dependent in part upon these suppliers, customers and other key
third parties being Year 2000 compliant, there can be no assurance that the
Company's efforts to assess third parties' Year 2000 readiness will be able
to prevent a material adverse effect on the Company's business, financial
position, or results of operations in future periods should a significant
number of third parties experience business disruptions as a result of
their lack of Year 2000 compliance. Additionally, third party failures to
adequately address the Year 2000 issue could significantly disrupt the
Company's operations and possibly lead to litigation against the Company.
The costs and expenses associated with any such failure or litigation, or
with any disruptions in the economy in general as a result of the Year
2000, are not presently estimable but could have a material adverse effect
on the Company's business and results of operations.
31
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Other Year 2000 Risks and Contingency Planning
Management of the Company believes that its Year 2000 compliance program
will be effective in avoiding significant adverse consequences due to Year
2000 problems with its systems. The Company has, however, begun mitigating
identified risks, and is developing contingency plans to address situations
that may arise where the Company's systems or third party systems
experience Year 2000 problems. As part of this effort, the Company has been
assessing the viability of its entire supply chain and is developing
contingency plans to provide alternatives in the event Year 2000 related
issues arise. Current contingency alternatives center on human resource
issues, substitute sources of utilities, inventory management, and the
development of a rapid response capability and a monitoring process for
critical communications during the transition into the Year 2000. The
Company is developing and executing employee awareness plans to assist with
the implementation of the Company's Year 2000 efforts. The Company is
alerting customers of their need to address Year 2000 problems,
specifically their need to address risks associated with non-compliant IT
and non-IT equipment that they may have been or are relying on. If the
Company were to experience significant Year 2000 problems due to a failure
in its systems or a third party's systems, the Company would revert to
interim manual methods of conducting business. In developing contingency
plans, the Company will be prioritizing its systems and affected
operations, and developing emergency measures to address potential systems
failures that could significantly affect the Company's business operations.
Likewise, the Company's contingency plans will address Year 2000 risks
associated with Year 2000 potential failures experienced by third parties.
Additionally, the Company is in the process of updating its information
technology disaster recovery plan to include Year 2000 contingencies that
may arise.
Risks to achieving Year 2000 compliance include the availability of
resources, the Company's ability to discover and correct potential Year
2000 problems which could have a serious impact on specific systems,
equipment or facilities, and the ability of the Company's significant
vendors, payers and customers to make their systems Year 2000 compliant.
Even with contingency plans in place, there can be no assurance that
Company will avoid experiencing problems relating to Year 2000 problems.
All statements contained herein that are not historical facts, including,
but not limited to, statements regarding anticipated growth in revenue,
gross margins and earnings, statements regarding the Company's current
business strategy, the Company's projected sources and uses of cash, and
the Company's plans for future development and operations, are based upon
current expectations. These statements are forward-looking in nature and
involve a number of risks and uncertainties. Actual results may differ
materially. Among the factors that could cause results to differ materially
are the following: the availability of sufficient capital to finance the
Company's business plans on terms satisfactory to the Company; competitive
factors; the ability of the Company to adequately defend or reach a
settlement of outstanding litigations and investigations involving the
Company or its management; changes in labor, equipment and capital costs;
changes in regulations affecting the Company's business; future
acquisitions or strategic partnerships; general business and economic
conditions; successful implementation of the Company's Year 2000 compliance
plan; and other factors described from time to time in the Company's
reports filed with the Securities and Exchange Commission. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which statements are made pursuant to the
Private Securities Litigation Reform Act of 1995 and, as such, speak only
as of the date made.
32
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A series of related, putative securities class actions were filed against
PSS and two officers in the United States District Court for the Middle
District of Florida, Jacksonville Division, beginning on or about March 22,
1999 seeking to recover indeterminate damages, interest, costs and
attorneys' fees for a class of stock purchasers between June 16, 1998 and
March 10, 1999. The claims are based on alleged violations of Section 10(b)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
Rule 10b-5 and "control person" liability arising out of PSS' announcement
that the SEC was reviewing its financial reports for certain prior periods
and that PSS would likely be required to retroactively restate its
financial statements to reflect the pre-acquisition operating results of
certain merger transactions that were accounted for under the pooling of
interest accounting method. The actions were consolidated by Order dated
July 28, 1999 and are styled Panopoulos v. PSS World Medical, Inc. et al.,
Consolidated Case No. 99-268-civ-J-21B. A consolidated amended complaint
will be filed by September 24, 1999. The lawsuits are in the earliest
stages, and there can be no assurance that this litigation will be
ultimately resolved on terms that are favorable to PSS.
PSS and certain of its current officers and directors are named as
defendants in a purported securities class action lawsuit entitled Jack
Hirsch v. PSS World Medical, Inc., et al., Civil Action No.
98-502-cv-J-21A. The action, which was filed on or about May 28, 1998, is
pending in the United States District Court for the Middle District of
Florida, Jacksonville Division. An amended complaint was filed on December
11, 1998. The plaintiff alleges, for himself and for a purported class of
similarly situated stockholders who allegedly purchased the Company's stock
between December 23, 1997 and May 8, 1998, that the defendants engaged in
violations of certain provisions of the Exchange Act, and Rule 10b-5
promulgated thereunder. The allegations are based upon a decline in the PSS
stock price following announcement by PSS in May 1998 regarding the Gulf
South merger that resulted in earnings below analyst's expectations. The
plaintiff seeks indeterminate damages, including costs and expenses. PSS
believes that the allegations contained in the complaint are without merit
and intends to defend vigorously against the claims. The defendants filed
their motions to dismiss on January 25, 1999 and are pending. However, the
lawsuit is in the earliest stages, and there can be no assurance that this
litigation will be ultimately resolved on terms that are favorable to PSS.
Although PSS does not manufacture products, the distribution of medical
supplies and equipment entails inherent risks of product liability. PSS is
a party to various legal and administrative legal proceedings and claims
arising in the normal course of business. However, PSS has not experienced
any significant product liability claims and maintains product liability
insurance coverage. While any litigation contains an element of
uncertainty, management believes that, other than as discussed above, the
outcome of any proceedings or claims which are pending or known to be
threatened will not have a material adverse effect on the Company's
consolidated financial position, liquidity, or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
33
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
3.1 Amended and Restated Articles of Incorporation dated March 15, 1994,
as amended.(12) 3.2 Amended and Restated Bylaws dated March 15, 1994.(1)
4.1 Form of Indenture, dated as of October 7, 1997, by and among the Company,
the Subsidiary Guarantors named therein, and SunTrust Bank, Central
Florida, National Association, as Trustee.(2)
4.2 Registration Rights Agreement, dated as of October 7, 1997, by and among
the Company, the Subsidiary Guarantors named therein, BT Alex. Brown
Incorporated, Salomon Brothers Inc.and NationsBanc Montgomery Securities,
Inc.(2)
4.3 Form of 8 1/2% Senior Subordinated Note due 2007, including Form of
Guarantee (Private Notes).(2)
4.4 Form of 8 1/2% Senior Subordinated Note due 2007, including Form of
Guarantee (Exchange Notes).(2)
4.5 Shareholder Protection Rights Agreement, dated as of April 20, 1998,
between PSS World Medical, Inc. and Continental Stock Transfer & Trust
Company, as Rights Agent.(11)
10.1 Registration Rights Agreement between the Company and Tullis-Dickerson
Capital Focus, LP, dated as of March 16, 1994.(3)
10.2 Employment Agreement for Patrick C. Kelly.(14)
10.3 Incentive Stock Option Plan dated May 14, 1986.(3)
10.4 Shareholders Agreement dated March 26, 1986, between the Company, the
Charthouse Co., Underwood, Santioni and Dunaway.(3)
10.5 Shareholders Agreement dated April 10, 1986, between the Company and
Clyde Young.(3)
10.6 Shareholders Agreement between the Company and John D. Barrow.(3)
10.7 Amended and Restated Directors Stock Plan.(7)
10.8 Amended and Restated 1994 Long-Term Incentive Plan.(7)
10.9 Amended and Restated 1994 Long-Term Stock Plan.(7)
10.10 1994 Employee Stock Purchase Plan.(4)
10.11 1994 Amended Incentive Stock Option Plan.(3)
10.13 Distributorship Agreement between Abbott Laboratories and Physician Sales
& Service, Inc.(Portions omitted as confidential--Separately filed with
Commission).(5)
10.14 Stock Purchase Agreement between Abbott Laboratories and Physician Sales
& Service, Inc.(5)
34
<PAGE>
Exhibit
Number Description
10.15 Amendment to Employee Stock Ownership Plan.(7)
10.15a Amendment and Restatement of the Physician Sales and Service, Inc.
Employee Stock Ownership and Savings Plan.(8)
10.15b First Amendment to the Physician Sales and Service, Inc. Employee Stock
Ownership and Savings Plan.(7)
10.16 Third Amended and Restated Agreement and Plan of Merger By and Among
Taylor Medical, Inc. and Physician Sales & Service, Inc. (including
exhibits thereto).(6)
10.17 Agreement and Plan of Merger by and Among Physician Sales & Service, Inc.
PSS Merger Corp., and Treadway Enterprises, Inc.(8)
10.18 Amended and Restated Agreement and Plan of Merger, dated as of August 22,
1997, among the Company, Diagnostic Imaging, Inc., PSS Merger Corp. and
S&W X-ray, Inc.(9)
10.19 Agreement and Plan of Merger dated December 14, 1997 by and among the
Company, PSS Merger Corp. and Gulf South Medical Supply, Inc.(10)
10.20 Credit Agreement dated as of February 11, 1999 among the Company, the
several lenders from time to time hereto and NationsBank, N.A., as Agent
and Issuing Lender.(14)
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-4, Registration No. 333-39679.
(3) Incorporated by Reference from the
Company's Registration Statement on Form S-1, Registration No. 33-76580.
(4) Incorporated by Reference to the Company's Registration Statement on Form
S-8, Registration No. 33-80657.
(5) Incorporated by Reference to the Company's Annual Report on Form 10-K for
the fiscal year ended March 30, 1995.
(6) Incorporated by Reference to the Company's Annual Report on Form 10-K for
the fiscal year ended March 29, 1996.
(7) Incorporated by Reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1996.
(8) Incorporated by Reference to the Company's Current Report on Form 8-K,
filed January 3, 1997.
(9) Incorporated by Reference from Annex A to the Company's Registration
Statement on Form S-4, Registration No. 333-33453.
(10) Incorporated by Reference from Annex A to the Company's Registration
Statement on Form S-4, Registration No. 333-44323.
(11) Incorporated by Reference to the Company's Current Report on Form 8-K,
filed April 22, 1998.
(12) Incorporated by Reference to the Company's Current Report on Form 8-K,
filed April 8, 1998.
(13) Incorporated by Reference to the Company's Annual Report on Form 10-K for
the fiscal year ended April 3, 1998.
(14) Incorporated by Reference to the Company's Current Report on Form 8-K,
filed February 23, 1999.
(b) Reports on Form 8-K
None.
35
<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 on August 16, 1999.
PSS WORLD MEDICAL, INC.
/s/ DAVID A. SMITH
-----------------------
David A. Smith
Executive Vice President and
Chief Financial Officer
37
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFRENCE TO SUCH FINACIAL STATEMENTS.
</LEGEND>
<CIK> 0000920527
<NAME> PSS WORLD MEDICAL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-03-1999
<PERIOD-END> JUN-30-1999
<CASH> 38,891
<SECURITIES> 9,170
<RECEIVABLES> 283,821
<ALLOWANCES> 5,042
<INVENTORY> 132,666
<CURRENT-ASSETS> 67,523
<PP&E> 85,663
<DEPRECIATION> 32,020
<TOTAL-ASSETS> 757,900
<CURRENT-LIABILITIES> 163,352
<BONDS> 125,000
0
0
<COMMON> 708
<OTHER-SE> 427,972
<TOTAL-LIABILITY-AND-EQUITY> 757,900
<SALES> 436,719
<TOTAL-REVENUES> 436,719
<CGS> 320,298
<TOTAL-COSTS> 320,298
<OTHER-EXPENSES> 94,673
<LOSS-PROVISION> 151
<INTEREST-EXPENSE> 3,511
<INCOME-PRETAX> 20,898
<INCOME-TAX> 8,588
<INCOME-CONTINUING> 12,310
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,310
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.17
</TABLE>
