FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 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) dentification 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 November 15, 1999 a total of 70,922,428 shares of common stock,
par value $.01 per share, of the registrant were outstanding.
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
INDEX
PAGE NUMBER
--------------------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1999 and April 2, 1999 3
Condensed Consolidated Statements of Operations -
For the Three and Six Months Ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows -
For the Three and Six Months Ended September 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements -
September 30, 1999 and 1998 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings 29
Item 2. Changes in Securities and Use of Proceeds 29
Item 4. Submission of Matters to a Vote of Security Holders 30
Item 6. Exhibits and Reports on Form 8-K 31
SIGNATURES 33
</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>
September 30, April 2,
1999 1999
------------- ------------
(Unaudited) *
<S> <C> <C>
Current Assets:
Cash and cash equivalents......................................................... $ 35,908 $ 41,106
Marketable securities............................................................. 9,361 3
Accounts receivable, net.......................................................... 302,979 272,996
Inventories, net.................................................................. 157,159 153,626
Employee advances................................................................. 799 702
Prepaid expenses and other........................................................ 69,147 59,413
------------- ------------
Total current assets..................................................... 575,353 527,846
Property and equipment, net.......................................................... 56,793 48,167
Other Assets:
Intangibles, net.................................................................. 179,848 146,082
Other............................................................................. 22,910 21,286
------------- ------------
Total assets............................................................. $834,904 $743,381
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................................. $136,576 $112,966
Accrued expenses.................................................................. 50,035 48,704
Current maturities of long-term debt and capital lease obligations................ 1,625 1,062
Other............................................................................. 10,036 8,536
------------- ------------
Total current liabilities................................................ 198,272 171,268
Long-term debt and capital lease obligations, net of current portion................. 185,796 152,442
Other................................................................................ 6,666 3,111
------------- ------------
Total liabilities........................................................ 390,734 326,821
------------- ------------
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, 70,922,428 and
70,796,024 shares issued and outstanding at September 30, 1999 and April 2, 709 708
1999, respectively.............................................................
Additional paid-in capital........................................................ 349,589 349,460
Retained earnings................................................................. 97,310 70,211
Cumulative other comprehensive income............................................. (1,136) (1,177)
------------- ------------
446,472 419,202
Unearned ESOP shares.............................................................. (2,302) (2,642)
------------- ------------
Total shareholders' equity............................................... 444,170 416,560
------------- ------------
Total liabilities and shareholders' equity............................... $834,904 $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 Six Months Ended
---------------------------------------- ----------------------------------------
September 30, 1999 September 30, 1998 September 30, 1999 September 30, 1998
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Net sales $ 452,240 $ 387,366 $ 888,959 $ 754,928
Cost of goods sold 328,106 282,465 648,404 552,829
------------------- ------------------- ------------------- -------------------
Gross profit 124,134 104,901 240,555 202,099
General and administrative expenses 68,972 52,310 128,480 106,833
Selling expenses 36,408 29,773 70,754 56,469
------------------- ------------------- ------------------- -------------------
Income from operations 18,754 22,818 41,321 38,797
------------------- ------------------- ------------------- -------------------
Other income (expense):
Interest expense (2,862) (3,040) (6,373) (6,133)
Interest and investment income 477 1,397 928 3,145
Other income 8,294 1,258 9,685 2,020
------------------- ------------------- ------------------- -------------------
5,909 (385) 4,240 (968)
------------------- ------------------- ------------------- -------------------
Income before provision for income taxes 24,663 22,433 45,561 37,829
Provision for income taxes 9,874 9,126 18,462 15,654
------------------- ------------------- ------------------- -------------------
Net income $ 14,789 $ 13,307 $ 27,099 $ 22,175
=================== =================== =================== ===================
Earnings per share:
Basic $ 0.21 $ 0.19 $ 0.38 $ 0.31
=================== =================== =================== ===================
Diluted $ 0.21 $ 0.19 $ 0.38 $ 0.31
=================== =================== =================== ===================
Weighted average shares outstanding (in thousands):
Basic 70,905 70,439 70,889 70,412
=================== =================== =================== ===================
Diluted 71,129 71,413 71,178 71,412
=================== =================== =================== ===================
</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>
Six Months Ended
-------------------------------------------
September 30, September 30,
1999 1998
-------------------- -------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 27,099 $ 22,175
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 9,460 9,627
Provision for doubtful accounts 1,374 1,037
Gain on sale of fixed assets (33) (3)
Deferred compensation 132 222
Changes in operating assets and liabilities, net of effects from
business acquisitions:
Accounts receivable, net (22,097) (31,225)
Inventories 9,250 12,762
Prepaid expenses and other current assets (8,477) (4,180)
Other assets (5,561) (2,408)
Accounts payable, accrued expenses and other liabilities 7,281 (23,207)
-------------------- -------------------
Net cash provided by (used in) operating activities 18,428 (15,200)
-------------------- -------------------
Cash Flows From Investing Activities:
Purchases of marketable securities (9,165) (37,950)
Proceeds from sales and maturities of marketable securities 0 91,293
Proceeds from sale of fixed assets 38 58
Capital expenditures (12,033) (9,981)
Purchases of businesses, net of cash acquired (28,871) (44,470)
Payments on noncompete agreements (4,118) (1,412)
-------------------- -------------------
Net cash used in investing activities (54,149) (2,462)
-------------------- -------------------
Cash Flows From Financing Activities:
Proceeds from borrowings 33,500 0
Repayment of borrowings (2,889) (4,690)
Principal payments under capital lease obligations (163) (212)
Proceeds from issuance of common stock 34 1,582
-------------------- -------------------
Net cash provided by (used in) financing activities 30,482 (3,320)
-------------------- -------------------
Foreign currency translation adjustment 41 79
-------------------- -------------------
Net decrease in cash and cash equivalents (5,198) (20,903)
Cash and cash equivalents, beginning of period 41,106 81,483
==================== ===================
Cash and cash equivalents, end of period $ 35,908 $ 60,580
==================== ===================
</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 AND SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(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
mergers with various acquired companies previously accounted for as
immaterial pooling-of-interests transactions (the "Pooled Entities"). 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.
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.
NOTE 2 - BUSINESS ACQUISITIONS
Purchase Acquisitions
During the three months ended September 30, 1999, the Company acquired
certain assets and assumed certain liabilities of one physician supply and
equipment distributor and five imaging supply and equipment distributors. A
summary of the details of the transactions follows:
September 30, 1999
------------------
Number of acquisitions.................. 6
Total consideration..................... $ 34,724
Cash paid, net of cash acquired......... 15,520
Goodwill recorded....................... 19,045
Value of Noncompete Agreements.......... 3,755
6
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS SEPTEMBER 30, 1999 AND 1998 - Continued
(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 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 the Company's common stock and is recorded when earned
as additional purchase price. The maximum amount of remaining contingent
consideration is approximately $13.5 million (payable through fiscal 2003).
The first potential earn-out payment is payable in the fouth quarter of
effective in fiscal 2000.
The following table summarizes the adjustments recorded against goodwill
during the three months ended September 30, 1999:
Three Months Ended
September 30, 1999
------------------
Merger costs and expenses........... $ 383
Integration plan accrual............ 0
------------------
$ 383
==================
During the three months ended September 30, 1999, the Company recorded $443
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 reversed $60 of the lease termination accrual due to a
settlement of the lease obligation at a lower cost than was
originally estimated.
7
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS SEPTEMBER 30, 1999 AND 1998 - Continued
(Unaudited)
(Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted)
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 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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Merger costs and expenses..................... $ (618) $ (343) $ (246) $ 486
Restructuring costs and expenses.............. 7,706 516 8,219 2,511
Information systems accelerated depreciation.. -- 1,010 -- 2,509
------------- ------------- ------------- -------------
Total......................................... $ 7,088 $ 1,183 $ 7,973 $ 5,506
============= ============= ============= =============
</TABLE>
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 consisting 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 September 30, 1999
included $404 of merger charges expensed as incurred, which primarily
related to branch shutdown costs. In addition, the company reversed $1,022
of merger costs and expenses into income, which related to an over accrual
for lease termination costs. Refer to Note 4, Accrued Merger and
Restructuring Costs and Expenses, for further discussion regarding
the merger plan.
8
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS SEPTEMBER 30, 1999 AND 1998 - Continued
(Unaudited)
(Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted)
Restructuring Costs and Expenses
During the three months ended September 30, 1999, management approved and
adopted a formal plan to restructure the company ("Plan C"). Accordingly,
the Company recorded restructuring costs and expenses of $4,967 at the
commitment date of the restructuring plan adopted by management. Refer to
Note 4, Accrued Merger and Restructuring Costs and Expenses, for further
discussion regarding the restructuring plan. Restructuring costs and
expenses for the three months ended September 30, 1999 also included $2,739
of charges that were 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.
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 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 $2,717 and $4,242 at
September 30, 1999 and June 30, 1999, respectively. 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.
9
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS SEPTEMBER 30, 1999 AND 1998 - Continued
(Unaudited)
(Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted)
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 X-Ray, Inc. ("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:
<TABLE>
<CAPTION>
Involuntary
Employee Lease Branch
Termination Termination Shutdown
Costs Costs Costs Total
------------ ------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance at June 30, 1999 $ 154 $ 477 $ 36 $ 667
Adjustments -- -- -- --
Additions -- -- -- --
Utilized (32) (48) (36) (116)
------------ ------------- -------------- --------------
Balance at September 30, 1999 $ 122 $ 429 $ 0 $ 551
============ ============= ============== ==============
</TABLE>
As of September 30, 1999, three employees have been terminated and the
remaining four employees are estimated to be terminated by the end of third
quarter of fiscal 2000. All of the seven identified distribution facilities
had been shut down by September 30, 1999. 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 for the three months ended September 30, 1999, which
related to four nonsignificant pooling-of-interests business combinations
completed during fiscal 1999, is as follows:
<TABLE>
<CAPTION>
Involuntary
Employee Lease Branch
Termination Termination Shutdown
Costs Costs Costs Total
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance at June 30, 1999 $ 74 $ 1,862 $ 26 $ 1,962
Adjustments -- (1,022) -- (1,022)
Additions -- -- -- --
Utilized -- (49) (1) (50)
------------- ------------- -------------- --------------
Balance at September 30, 1999 $ 74 $ 791 $ 25 $ 890
============= ============= ============== ==============
</TABLE>
The Imaging Business acquired TriStar Imaging Systems, Inc.("TriStar") in
October 1998, and management formalized and adopted an integration plan
in April 1999 to integrate the operations of the acquired company.
Approximately $800 of the $890 accrued merger costs and expenses at
September 30, 1999 relate to this integration plan. During the three months
ended September 30, 1999, management negotiated a settlement on two
leases which caused actual lease termination costs to be less than
management's original estimate. Therefore, an adjustment of ($1,022) was
made to the accrual to reflect the change in estimated costs and expenses
in the accompanying condensed consolidated statement of operations
during the three months ended September 30, 1999. Refer to Note 3-Charges
Included in General and Administrative Expenses. This integration plan
was completed during the second quarter of fiscal 2000 with all
facilities being shut down; however, lease termination payments will
extend through fiscal 2007.
10
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS SEPTEMBER 30, 1999 AND 1998 - Continued
(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
for the three months ended September 30, 1999 which related to
three nonsignificant purchase business combinations completed during
fiscal 1999 is as follows:
<TABLE>
<CAPTION>
Involuntary
Employee Lease
Relocation Termination Termination Branch
Costs Costs Costs Shutdown Costs Total
------------ ------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1999 $ 87 $ 526 $ 924 $ 76 $ 1,613
Adjustments -- -- -- -- --
Additions -- -- -- -- --
Utilized (1) (92) (202) (42) (337)
------------ ------------- ------------- --------------- --------------
Balance at September 30, 1999 $ 86 $ 434 $ 722 $ 34 $ 1,276
============ ============= ============= =============== ==============
</TABLE>
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
$747 of the $1,276 accrued merger costs and expenses at September 30, 1999
relate to these integration plans. Relocation costs are for five employees
of which two had been relocated as of September 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 September 30, 1999, nine employees have been terminated.
Management identified eight distribution facilities to be closed in which
all operations would be ceased due to duplicative functions, all of which
had been shut down by September 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 $529 of the $1,276 accrued merger costs
and expenses at September 30, 1999 relate to this integration plan. As of
September 30, 1999, all locations have been shut down and all employees
were terminated as a result of the plan. However, lease termination
payments will extend through fiscal 2004.
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.
11
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS SEPTEMBER 30, 1999 AND 1998 - Continued
(Unaudited)
(Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted)
Accrued restructuring costs and expenses related to Plans A and B,
classified as accrued expenses in the accompanying consolidated balance
sheets, were $2,492 and $3,139 at September 30, 1999 and June 30, 1999,
respectively. A summary of the restructuring plan activity for the three
months ended September 30, 1999 is as follows:
<TABLE>
<CAPTION>
Involuntary
Employee Lease Branch
Termination Termination Shutdown
Costs Costs Costs Total
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance at June 30, 1999 $ 1,259 $ 1,063 $ 817 $ 3,139
Adjustments -- -- -- --
Additions -- -- -- --
Utilized (98) (367) (182) (647)
------------- ------------- -------------- --------------
Balance at September 30, 1999 $ 1,161 $ 696 $ 635 $ 2,492
============= ============= ============== ==============
</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
September 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 September 30, 1999, all employees were terminated as a result of the
plan, with the related severance payments to be made in the third and
fourth quarters of fiscal 2000. As of September 30, 1999, all of the
locations were merged into existing locations.
Plan B
As of September 30, 1999, all of the six locations had been shut down.
As of September 30, 1999, all employees were terminated as a result of the
plan, with the related severance payments to be made in the third and
fourth quarters of fiscal 2000.
During the second quarter of fiscal 2000, management evaluated the
Company's overall cost structure and found implemented cost
reductions in order to meet internal profitability targets. In addition,
management decided to improve its distribution model and relocate the
corporate office for the GSMS division to Jacksonville, Florida where the
corporate offices for the DI and PSS divisions exist. The Company began
implementing the restructuring plan during the second quarter of fiscal
2000, which impacted all divisions ("Plan C"). Accrued restructuring costs
and expenses related to Plan C were $4,967 at September 30, 1999. A summary
of the restructuring plan activity for the three months ended September 30,
1999 is as follows:
<TABLE>
<CAPTION>
Involuntary
Employee Lease Branch
Termination Termination Shutdown
Costs Costs Costs Total
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance at June 30, 1999 $ 0 $ 0 $ 0 $ 0
Adjustments -- -- -- --
Additions 2,495 494 1,978 4,967
Utilized (451) (228) (962) (1,641)
------------- ------------- -------------- --------------
Balance at September 30, 1999 $ 2,044 $ 266 $ 1,016 $ 3,326
============= ============= ============== ==============
</TABLE>
12
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS SEPTEMBER 30, 1999 AND 1998 - Continued
(Unaudited)
(Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted)
Plan C
Plan C involved the shutdown of the Jackson, MS, corporate office of
Gulf Soiuth, merging 14 operating locations into existing locations,
and eliminating overlapping regional operations and management functions.
As of September 30, 1999, 8 locations were merged into existing
locations and the Gulf South corporate office had been integrated with the
Jacksonville corporate office. The plan also included the termination of
approximately 250 employees from operations, administration, and
management. As of September 30, 1999, 167 employees were terminated as a
result of the plan.
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 and six months ended September 30, 1999 and 1998, as
detailed in the following table:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------------------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income.......................... $ 14,789 $ 13,307 $ 27,099 $ 22,175
============= ============= ============= =============
Other comprehensive (expense) income,
net of tax:
Foreign currency translation
adjustment.................... 304 49 41 79
------------- ------------- ------------- -------------
Comprehensive income................ $ 15,093 $ 13,356 $ 27,140 $ 22,254
============= ============= ============= =============
</TABLE>
13
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS SEPTEMBER 30, 1999 AND 1998 - Continued
(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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ------------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net income........................................ $14,789 $13,307 $27,099 $22,175
============= ============== ============= ==============
Earnings per share:
Basic.......................................... $ 0.21 $ 0.19 $ 0.38 $ 0.31
============= ============== ============= ==============
Diluted........................................ $ 0.21 $ 0.19 $ 0.38 $ 0.31
============= ============== ============= ==============
Weighted average shares outstanding (in thousands):
Common shares.................................. 70,905 70,439 70,889 70,412
Assumed exercise of stock options and warrants. 224 974 289 1,000
------------- -------------- ------------- --------------
Diluted shares outstanding..................... 71,129 71,413 71,178 71,412
============= ============== ============= ==============
</TABLE>
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.
14
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS SEPTEMBER 30, 1999 AND 1998 - Continued
(Unaudited)
(Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted)
The Company primarily evaluates the operating performance of its segments
based on net sales and income from operations. The following table presents
financial information about the Company's business segments:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------------------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Sales:
Physician Supply Business $ 179,716 $ 172,480 $ 353,147 $ 338,335
Imaging Business 172,514 121,496 335,845 235,959
Long-Term Care Business 92,089 88,456 184,292 170,953
Other (a) 7,921 4,934 15,675 9,681
------------- ------------- ------------- -------------
Total net sales $ 452,240 $ 387,366 $ 888,959 $ 754,928
============= ============= ============= =============
Income From Operations:
Physician Supply Business $ 12,827 $ 12,514 $ 24,668 $ 22,978
Imaging Business 6,967 5,537 14,405 8,962
Long-Term Care Business (588) 7,396 2,145 12,028
Other (a) (452) (2,629) 103 (5,171)
------------- ------------- ------------- -------------
Total income from operations $ 18,754 $ 22,818 $ 41,321 $ 38,797
============= ============= ============= =============
Charges Included in General and
Administrative Expenses:
Physician Supply Business $ 1,218 $ 865 $ 1,230 $ 1,732
Imaging Business 1,492 531 1,814 1,945
Long-Term Care Business 3,437 (332) 3,988 1,692
Other (a) 941 119 941 137
------------- ------------- ------------- -------------
Total charges included in general
and administrative expenses $ 7,088 $ 1,183 $ 7,973 $ 5,506
============= ============= ============= =============
Depreciation:
Physician Supply Business $ 996 $ 1,640 $ 1,981 $ 3,766
Imaging Business 866 516 1,551 1,522
Long-Term Care Business 465 288 811 661
Other (a) 35 75 100 175
------------- ------------- ------------- -------------
Total depreciation $ 2,362 $ 2,519 $ 4,443 $ 6,124
============= ============= ============= =============
Amortization of Intangible and Other Assets:
Physician Supply Business $ 545 $ 923 $ 1,063 $ 1,477
Imaging Business 1,431 618 2,697 1,167
Long-Term Care Business 621 495 1,161 859
Other (a) 16 -- 96 --
------------- ------------- ------------- -------------
Total amortization of intangible and
other assets $ 2,613 $ 2,036 $ 5,017 $ 3,503
============= ============= ============= =============
Provision for Doubtful Accounts:
Physician Supply Business $ 273 $ 115 $ 266 $ 314
Imaging Business 585 59 243 141
Long-Term Care Business 357 307 857 307
Other (a) 8 239 8 275
------------- ------------- ------------- -------------
Total provision for doubtful accounts $ 1,223 $ 720 $ 1,374 $ 1,037
============= ============= ============= =============
Capital Expenditures:
Physician Supply Business $ 3,515 $ 4,200 $ 5,968 $ 5,750
Imaging Business 2,397 2,242 3,680 3,313
Long-Term Care Business 723 559 1,852 815
Other (a) 251 75 533 103
------------- ------------- ------------- -------------
Total capital expenditures $ 6,886 $ 7,076 $ 12,033 $ 9,981
============= ============= ============= =============
September 30, April 2,
1999 1999
Assets:
Physician Supply Business $ 250,757 $ 236,452
Imaging Business 332,578 277,250
Long-Term Care Business 195,695 174,868
Other (a) 55,810 54,811
------------- -------------
Total assets $ 834,840 $ 743,381
============= =============
</TABLE>
(a) Other includes the holding company and the international subsidiaries.
15
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS SEPTEMBER 30, 1999 AND 1998 - Continued
(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. The plaintiffs have
voluntarily dismissed those actions without prejudice, subject to approval
by the Court.
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.
16
<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 105 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 54 medical supply distribution service
centers with approximately 737 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 35 imaging distribution service
centers with approximately 750 service specialists and 220 sales
representatives ("Imaging Business") serving over 16,000 customer sites in
42 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 141 sales representatives ("Long-Term Care Business") serving
over 10,000 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.
17
<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 34.7% of the Long-Term Care Business
revenues for the three months ended September 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 and six months ended September 30, 1999 and 1998.
The accompanying financial statements give retroactive effect to the
mergers with various acquired companies previously accounted for as
immaterial pooling-of-interests transactions (the "Pooled Entities"). 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 AND SIX MONTHS ENDED SEPTEMBER 30, 1999 VersUs three AND SIX months ended
SEPTEMBER 30, 1998
Net Sales. Net sales for the three months ended September 30, 1999 totaled
$452.2 million, an increase of $64.8 million, or 16.7%, over the three
months ended September 30, 1998 total of $387.4 million. Net sales for the
six months ended September 30, 1999 totaled $889.0 million, an increase of
$134.1 million, or 17.8%, over the six months ended September 30, 1998
total of $754.9 million. The increase in sales can be attributed to (i) net
sales from the acquisition of companies during fiscal years 1999 and 2000
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.
18
<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 September 30, 1999 totaled approximately $4.8 million and $0.8
million for the Imaging and Physician Supply Businesses, respectively. In
addition, an Imaging Business acquisition completed during the three months
ended September 30, 1998 provided approximately $16.7 million
in additional incremental sales to the three months ended
September 30, 1999 results.
Gross Profit. Gross profit for the three months ended September 30, 1999
totaled $124.1 million, an increase of $19.2 million, or 18.3%, over the
three months September 30, 1998 total of $104.9 million. Gross profit for
the six months ended September 30, 1999 totaled $240.6 million, an increase
of $38.5 million, or 19.1%, over the six months ended September 30, 1998
total of $202.1 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 27.4% and 27.1% for the three
months ended September 30, 1999 and 1998, respectively, and 27.1% and 26.8%
for the six months ended September 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 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,
(iii) the effect of negotiated lower product purchasing costs which
resulted, and (iv) the elimination of lower margin acquired Imaging
Business revenues. This is offset by the expansion of imaging revenues
with lower gross profit margins and lower sequential margins in the
Long-Term Care Business.
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 September 30, 1999 totaled $69.0 million, an
increase of $16.7 million, or 31.9%, from the three months ended September
30, 1998 total of $52.3 million. General and administrative expenses as a
percentage of net sales increased to 15.3% from 13.5% for the comparable
prior year period. General and administrative expenses for the six months
ended September 30, 1999 totaled $128.5 million, an increase of $21.7
million, or 20.3%, from the six months ended September 30, 1998 total of
$106.8 million. General and administrative expenses as a percentage of net
sales increased to 14.5% from 14.2% for the comparable prior year period.
The increase in general and administrative expenses as a percentage of net
sales was primarily a result of restructuring costs and expenses recorded
during the three months ended September 30, 1999.
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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Merger costs and expenses.................... $ (618) $ (343) $ (246) $ 486
Restructuring costs and expenses............. 7,706 516 8,219 2,511
Information systems accelerated depreciation. -- 1,010 -- 2,509
------------- ------------- ------------- -------------
Total charges................................ $ 7,088 $ 1,183 $ 7,973 $ 5,506
============= ============= ============= =============
</TABLE>
19
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Merger Costs and Expenses
Merger costs and expenses for the three months ended September 30, 1999
included $404 of merger charges expensed as incurred, which primarily
related to branch shutdown costs. In addition, the company reversed $1,022
of merger costs and expenses into income, which related to an over accrual
for lease termination from Tristar's merger plan. Refer to Note 4, Accrued
Merger and Restructuring Costs and Expenses, for further discussion
regarding the merger plan.
Merger costs and expenses for the three months ended September 30, 1998
included $434 of charges for merger costs expensed as incurred, which
relate to direct transaction costs from the merger with TriStar. In
addition, the Company reversed $777 of accrued merger costs and expenses
into income, which related to direct transaction costs in connection with
the Gulf South merger. Due to subsequent negotiations and in an agreement
between the Company and its service provider, actual costs paid were less
than originally estimated, billed, and recorded resulting in the reversal.
Restructuring Costs and Expenses
During the three months ended September 30, 1999, management approved and
adopted a formal plan to restructure the company ("Plan C"). Accordingly,
the Company recorded restructuring costs and expenses of $4,031 at the
commitment date of the restructuring plan adopted by management. Refer to
Note 4, Accrued Merger and Restructuring Costs and Expenses, for further
discussion regarding the restructuring plan. Restructuring costs and
expenses for the three months ended September 30, 1999 also included $3,675
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.
Restructuring costs and expenses for the three months ended September 30,
1998 include $118 of charges for training costs related to conforming the
acquired companies operation policies to that of the Company's operational
policies. The remaining $398 of restructuring costs and expenses recorded
are charges for 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.
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 and six months ended
September 30, 1998, $1,011 and $2,509, respectively, represent the
incremental impact on depreciation expense resulting from management's
decision to replace its information systems.
20
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Selling Expenses. Selling expenses for the three months ended September 30,
1999 totaled $36.4 million, an increase of $6.6 million, or 22.1 %, over
the three months ended September 30, 1998 total of $29.8 million. Selling
expense as a percentage of net sales was approximately 8.1% and 7.7% for
the three months ended September 30, 1999 and 1998, respectively. Selling
expenses for the six months ended September 30, 1999 totaled $70.8 million,
an increase of $14.3 million, or 25.3%, over the six months ended September
30, 1998 total of $56.5 million. Selling expense as a percentage of net
sales was approximately 8.0% and 7.5% for the six months ended September
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 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 September 30,
1999 totaled $18.8 million, a decrease of $4.0 million, or 17.5%, over the
three months ended September 30, 1998 total of $22.8 million. As a
percentage of net sales, operating income decreased to 4.1% from 5.9% from
the comparable prior year period. Operating income for the six months ended
September 30, 1999 totaled $41.3 million, an increase of $2.5 million, or
6.4%, over the six months ended September 30, 1998 total of $38.8 million.
As a percentage of net sales, operating income decreased to 4.6% from 5.1%
from the comparable prior year period. As discussed in the analysis of
general and administrative expenses, the three and six months ended
September 30, 1999 operating results include higher levels of operating
charges related to merger activity, restructuring costs and expenses,
compared to the three and six months ended September 30, 1998. Excluding
merger and restructuring costs and expenses, operating income improved due
to increased gross profit as a percentage of sales offset by additional
expenses.
Interest Expense. Interest expense for the three months ended September 30,
1999 totaled $2.9 million, an decrease of $0.1 million, or 3.3%, over the
three months ended September 30, 1998 total of $3.0 million. Interest
expense for the six months ended September 30, 1999 totaled $6.4 million,
an increase of $0.3 million, or 4.9%, over the six months ended September
30, 1998 total of $6.1 million.
Interest and Investment Income. Interest and investment income for the
three months ended September 30, 1999 totaled $0.5 million, a decrease of
$0.9 million, or 64.3%, over the three months ended September 30, 1998
total of $1.4 million. Interest and investment income for the six months
ended September 30, 1999 totaled $0.9 million, a decrease of $2.2 million,
or 71.0%, over the six months ended September 30, 1998 total of $3.1
million. These decreases primarily resulted from lower levels 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 September 30, 1999
totaled $8.3 million, an increase of $7.0 million, or 538.5%, over the
three months ended September 30, 1998 total of $1.3 million. Other income
for the six months ended September 30, 1999 totaled $9.7 million, an
increase of $7.7 million, or 385.0%, over the six months ended September
30, 1998 total of $2.0 million. Normally, other income primarily consists
of finance charges on customer accounts and financing performance
incentives. Included in other income for the three months ended
September 30, 1999, was approximately $6.5 million relating to a
favorable medical x-ray film antitrust settlement claim.
Provision for Income Taxes. Provision for income taxes for the three months
ended September 30, 1999 totaled $9.9 million, an increase of $0.8 million,
or 8.8%, over the three months ended September 30, 1998 total of $9.1
million. The effective income tax rate was 40.0% and 40.7% for the three
months ended September 30, 1999 and 1998, respectively. Provision for
income taxes for six months ended September 30, 1999 totaled $18.5 million,
an increase of $2.8 million, or 17.8%, over the six months ended September
30, 1998 total of $15.7 million. The effective income tax rate was 40.5%
and 41.4% for the six months ended September 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.
21
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Net Income. Net income for the three months ended September 30, 1999
totaled $14.8 million, an increase of $1.5 million, or 11.3%, over the
three months ended September 30, 1998 total of $13.3 million. As a
percentage of net sales, net income decreased to 3.3% from 3.4% for the
comparable prior year period primarily due to the factors described above.
Net income for the six months ended September 30, 1999 totaled $27.1
million, an increase of $4.9 million, or 22.1%, over the six months ended
September 30, 1998 total of $22.2 million. As a percentage of net sales,
net income increased to 3.0% from 2.9% 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 $18.4 million and
($15.2) million for the six months ended September 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 expenses
established as accruals and payables in the current and prior years,
(iii) a reduction in accounts receivable growth from acquisitions, (iv)
reduced inventory levels, and the completion of working capital
requirements of the best practices and distribution upgrades at Gulf South.
Net cash used in investing activities was ($54.1) million and ($2.5)
million for the three months ended September 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 for the six months ended June 30, 1998, include
approximately $53.3 million of net proceeds from sales and maturities of
marketable securities. The increase in capital expenditures in fiscal years
1999 and 2000 over prior fiscal years is primarily attributable to new
computer systems being implemented across all the Company's divisions.
Net cash provided by (used in) financing activities was $30.5 million and
($3.3) million for the six months ended September 30, 1999 and 1998,
respectively. During the six months ended September 30, 1999, the Company
borrowed $33.5 million from its revolving credit facility to fund business
acquisitions.
The Company had working capital of $377.1 million and $356.6 million as of
September 30, 1999 and April 2, 1999, respectively. Accounts receivable,
net of allowances, were $303.0 million and $273.0 million at September 30,
1999 and April 2, 1999, respectively. The average number of days sales in
accounts receivable outstanding was approximately 58.3 and 56.0 days for
the six months ended September 30, 1999 (annualized) and the year ended
April 2, 1999, respectively. For the six months ended September 30, 1999,
the Company's Physician Supply, Imaging, and Long-Term Care Businesses had
annualized days sales in accounts receivable of approximately 57.3, 51.7,
and 71.4 days, respectively.
Inventories were $157.2 million and $153.6 million as of September 30, 1999
and April 2, 1999, respectively. The Company had inventory turnover of 8.3x
and 8.1x times for the six months ended September 30, 1999 (annualized) and
the year ended April 2, 1999, respectively. For the six months ended
September 30, 1999, the Company's Physician Supply, Imaging, and Long-Term
Care Businesses had annualized inventory turnover of 8.0x, 8.5x, and 8.7x,
respectively. Inventory financing historically has been achieved through
negotiating extended payment terms from suppliers.
22
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
The following table presents EBITDA and other financial data for the three
and six months ended September 30, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Other Financial Data:
Income before provision for income taxes $ 24,663 $ 22,433 $ 45,560 $ 37,829
Plus: Interest Expense 2,862 3,040 6,373 6,133
------------- ------------- ------------- -------------
EBIT (a) 27,525 25,473 51,933 43,962
Plus: Depreciation and amortization 4,975 6,116 9,460 9,627
------------- ------------- ------------- -------------
EBITDA (b) 32,500 31,589 61,393 53,589
Unusual Charges Included in Continuing Operations (h) 7,088 173 7,973 2,997
Cash Paid For Unusual Charges Included in Continuing
Operations (5,662) (8,604) (9,046) (12,998)
------------- ------------- ------------- -------------
Adjusted EBITDA (c) $ 33,926 $ 23,158 $ 60,320 $ 43,588
EBITDA Coverage (d) 11.4x 10.4x 9.6x 8.7x
EBITDA Margin (e) 7.2% 8.2% 6.9% 7.1%
Adjusted EBITDA Coverage (f) 11.9x 7.6x 9.5x 7.1x
Adjusted EBITDA Margin (g) 7.5% 6.0% 6.8% 5.8%
Cash provided by (used in) operating activities $ 18.4 $ (15.2)
Cash used in by investing activities (54.1) (2.5)
Cash provided by (used in) financing activities 30.5 (3.3)
</TABLE>
(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.
(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) The three and six months ended September 30, 1998 excludes $1,010 and
$2,509, respectively, of information systems accelerated depreciation.
23
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
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 in compliance with the debt covenants under the Notes and
credit facility as of September 30, 1999.
As of September 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of September 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 plus 0.25%
(8.50% at September 30, 1999) or LIBOR plus 1.25% (6.86% at September 30,
1999).
24
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
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 implemented, 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. Acquisitions
have continued, and recently acquired companies have either been tested for
compliance or are scheduled to be converted to the Company's substantially
compliant systems before the end of 1999. The conversions of these
acquisitions have been progressing as scheduled, however the Company will
monitor the progress of these conversions and exercise alternatives to
conversion as necessary. 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 substantially complete since the quarter ended June
1999. As a precaution against possible errors or omissions to our
remediation efforts, the Company tested substantially all systems, critical
and non-critical. These tests were substantially completed in the quarter
ended September 1999.
25
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
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 most recently acquired companies. As a
result, three acquired service centers are targeted to be integrated into
the imaging division's distribution IT system as branches prior to the end
of 1999, and three are targeted for integration early in the year 2000. Two
of the service centers targeted for 2000, have been tested for compliance,
the third is an anticipated acquisition that is scheduled for testing once
the acquisition is complete. Currently, the Imaging Business has 31 of 36
service centers and its corporate location systems converted to its new
system, which the Company believes is Year 2000 compliant. The conversion
of these acquisitions have progressed as scheduled. The number of
acquisitions to convert to the imaging division's distribution system has
not decreased significantly because new acquisitions have kept pace with
conversions. The progress of these integrations will continue to be closely
monitored, the Year 2000 readiness of these branches will be assessed, and
contingency plans will be modified accordingly.
The Company has completed an inventory and assessment of its non-critical
IT and all non-IT systems. Remediation efforts of non-critical systems have
included 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, has been successfully implemented at 18 of
52 branches, and is targeted for complete implementation by mid December
1999. Remediated software has been implemented for the customers currently
using Accuscan. The Company has substantially completed inventories,
assessments, planning , remediation, and testing of all other non-critical
IT and all non-IT systems.
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 $1.3 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 $0.8 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.
26
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
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 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 has explored 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.
27
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
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.
Other Year 2000 Risks and Contingency Planing
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 has
alerted 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.
28
<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. The plaintiffs have voluntarily
dismissed those actions without prejudice, subject to approval by the
court.
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.
29
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the Company's shareholders was held on September 15,
1999.
(a) The following persons were elected to serve as Class III directors for
a three-year term and received the number of votes as set opposite their names:
Name For Withheld
Hugh M. Brown 55,727,606 1,615,421
Donna C.E. Williamson 55,732,116 1,610,911
Charles R. Scott 55,706,625 1,636,402
(b) The following are the results of the vote on the proposal to approve
the Company's 1999 Long-Term Incentive Plan:
For Against Abstain
444,667,449 12,180,917 494,661
30
<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 81/2% Senior Subordinated Note due 2007, including Form of
Guarantee (Private Notes).(2)
4.4 Form of 81/2% 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)
10.12 PSS World Medical, Inc. 1999 Long-Term Incentive Plan
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)
31
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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.
32
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on November 15, 1999.
PSS WORLD MEDICAL, INC.
/s/ DAVID A. SMITH
----------------------------
David A. Smith
Executive Vice President and
Chief Financial Officer
33
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PSS WORLD MEDICAL, INC.
1999 LONG-TERM INCENTIVE PLAN
ARTICLE 1
PURPOSE
1.1 GENERAL. The purpose of the PSS World Medical, Inc. 1999 Long-Term
Incentive Plan (the "Plan") is to promote the success, and enhance the value, of
PSS World Medical, Inc. (the "Company"), by linking the personal interests of
its employees, officers and directors to those of the Company's shareholders and
by providing its employees, officers and directors with an incentive for
outstanding performance. The Plan is further intended to provide flexibility to
the Company in its ability to motivate, attract, and retain the services of
employees, officers and directors upon whose judgment, interest, and special
effort the successful conduct of the Company's operation is largely dependent.
Accordingly, the Plan permits the grant of incentive awards from time to time to
selected employees, officers and directors.
ARTICLE 2
EFFECTIVE DATE
2.1 EFFECTIVE DATE. The Plan shall be effective as of the date upon
which it shall be approved by the shareholders of the Company (the "Effective
Date").
ARTICLE 3
DEFINITIONS
3.1 DEFINITIONS. When a word or phrase appears in this Plan with the
initial letter capitalized, and the word or phrase does not commence a sentence,
the word or phrase shall generally be given the meaning ascribed to it in this
Section or in Section 1.1 unless a clearly different meaning is required by the
context. The following words and phrases shall have the following meanings:
(a) "Award" means any Option, Stock Appreciation Right,
Restricted Stock Award, Performance Unit Award, Dividend Equivalent
Award, or Other Stock-Based Award, or any other right or interest
relating to Stock or cash, granted to a Participant under the Plan.
(b) "Award Agreement" means any written agreement, contract,
or other instrument or document evidencing an Award.
(c) "Board" means the Board of Directors of the Company.
(d) "Change in Control" means and includes each of the
following:
(i) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 30% or more of the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this subsection (i), the following acquisitions shall not
constitute a Change of Control: (A) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, or (B) any acquisition by
any corporation pursuant to a transaction which complies with clauses
(A), (B) and (C) of subsection (iii) of this definition; or
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(ii) Individuals who, as of the Effective Date,
constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to the Effective Date
whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors
or other actual or threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board; or
(iii) Consummation of a reorganization, merger, share
exchange or consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a "Business
Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and outstanding Company Voting
Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 80% of, respectively, the then
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or
all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such Business Combination of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person (excluding any
corporation resulting from such Business Combination or any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly
or indirectly, 30% or more of the combined voting power of the then
outstanding voting securities of such corporation except to the extent
that such ownership existed prior to the Business Combination, and (C)
at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of
the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination.
(e) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(f) "Committee" means the committee of the Board
described in Article 4.
(g) "Company" means PSS World Medical, Inc., a Florida
corporation.
(h) "Covered Employee" means a covered employee as defined in
Code Section 162(m)(3).
(i) "Disability" shall have the meaning provided in the
Company's applicable disability plan or, in the absence of such a
definition, shall mean any illness or other physical or mental
condition of a Participant that renders the Participant incapable of
performing his customary and usual duties for the Company, or any
medically determinable illness or other physical or mental condition
resulting from a bodily injury, disease or mental disorder which, in
the judgment of the Committee, is permanent and continuous in nature.
The Committee may require such medical or other evidence as it deems
necessary to judge the nature and permanency of the Participant's
condition. Notwithstanding the above, with respect to an Incentive
Stock Option, Disability shall mean Permanent and Total Disability as
defined in Section 22(e)(3) of the Code.
(j) "Dividend Equivalent" means a right granted to a
Participant under Article 11.
(k) "Effective Date" has the meaning assigned such term
in Section 2.1.
(l) "Fair Market Value", on any date, means (i) if the Stock
is listed on a securities exchange or is traded over the Nasdaq
National Market, the closing price of the shares of Common Stock on
such date on such exchange or over such system on such date or, in the
absence of reported sales on such date, the closing price on the
immediately preceding date on which sales were reported, or (ii) if the
Stock is not listed on a securities exchange or traded over the Nasdaq
National Market, the mean between the bid and offered prices as quoted
by Nasdaq for such date, provided that if it is determined that the
fair market value is not properly reflected by such Nasdaq quotations,
Fair Market Value will be determined by such other method as the
Committee determines in good faith to be reasonable.
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<PAGE>
(m) "Incentive Stock Option" means an Option that is
intended to meet the requirements of Section 422 of the Code or any
successor provision thereto.
(n) "Non-Qualified Stock Option" means an Option that is not
an Incentive Stock Option.
(o) "Option" means a right granted to a Participant under
Article 7 of the Plan to purchase Stock at a specified price during
specified time periods. An Option may be either an Incentive Stock
Option or a Non-Qualified Stock Option.
(p) "Other Stock-Based Award" means a right, granted to a
Participant under Article 12, that relates to or is valued by reference
to Stock or other Awards relating to Stock.
(q) "Parent" means a corporation which owns or beneficially
owns a majority of the outstanding voting stock or voting power of the
Company. For Incentive Stock Options, the term shall have the same
meaning as set forth in Code Section 424(e).
(r) "Participant" means a person who, as an employee, officer
or director of the Company or any Parent or Subsidiary, has been
granted an Award under the Plan.
(s) "Performance Unit" means a right granted to a Participant
under Article 9, to receive cash, Stock, or other Awards, the payment
of which is contingent upon achieving certain performance goals
established by the Committee.
(t) "Plan" means the PSS World Medical, Inc.
1999 Long-Term Incentive Plan, as amended from time to time.
(u) "Restricted Stock Award" means Stock granted to a
Participant under Article 10 that is subject to certain restrictions
and to risk of forfeiture.
(v) "Retirement" means a Participant's termination of
employment with the Company, Parent or Subsidiary after attaining any
normal or early retirement age specified in any pension, profit sharing
or other retirement program sponsored by the Company, or, in the event
of the inapplicability thereof with respect to the person in question,
as determined by the Committee in its reasonable judgment.
(w) "Stock" means the $0.01 par value common stock of the
Company and such other securities of the Company as may be substituted
for Stock pursuant to Article 14.
(x) "Stock Appreciation Right" or "SAR" means a right granted
to a Participant under Article 8 to receive a payment equal to the
difference between the Fair Market Value of a share of Stock as of the
date of exercise of the SAR over the grant price of the SAR, all as
determined pursuant to Article 8.
(y) "Subsidiary" means any corporation, limited liability
company, partnership or other entity of which a majority of the
outstanding voting stock or voting power is beneficially owned directly
or indirectly by the Company. For Incentive Stock Options, the term
shall have the meaning set forth in Code Section 424(f).
(z) "1933 Act" means the Securities Act of 1933, as amended
from time to time.
(aa)"1934 Act" means the Securities Exchange Act of 1934, as
amended from time to time.
36
<PAGE>
ARTICLE 4
ADMINISTRATION
4.1 COMMITTEE. The Plan shall be administered by a committee (the
"Committee") appointed by the Board (which Committee shall consist of two or
more directors) or, at the discretion of the Board from time to time, the Plan
may be administered by the Board. It is intended that the directors appointed to
serve on the Committee shall be "non-employee directors" (within the meaning of
Rule 16b-3 promulgated under the 1934 Act) and "outside directors" (within the
meaning of Code Section 162(m) and the regulations thereunder). However, the
mere fact that a Committee member shall fail to qualify under either of the
foregoing requirements shall not invalidate any Award made by the Committee
which Award is otherwise validly made under the Plan. The members of the
Committee shall be appointed by, and may be changed at any time and from time to
time in the discretion of, the Board. During any time that the Board is acting
as administrator of the Plan, it shall have all the powers of the Committee
hereunder, and any reference herein to the Committee (other than in this Section
4.1) shall include the Board.
4.2 ACTION BY THE COMMITTEE. For purposes of administering the Plan,
the following rules of procedure shall govern the Committee. A majority of the
Committee shall constitute a quorum. The acts of a majority of the members
present at any meeting at which a quorum is present, and acts approved
unanimously in writing by the members of the Committee in lieu of a meeting,
shall be deemed the acts of the Committee. Each member of the Committee is
entitled to, in good faith, rely or act upon any report or other information
furnished to that member by any officer or other employee of the Company or any
Parent or Subsidiary, the Company's independent certified public accountants, or
any executive compensation consultant or other professional retained by the
Company to assist in the administration of the Plan.
4.3 AUTHORITY OF COMMITTEE. The Committee has the exclusive power,
authority and discretion to:
(a) Designate Participants;
(b) Determine the type or types of Awards to be granted to
each Participant;
(c) Determine the number of Awards to be granted and the
number of shares of Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award granted
under the Plan, including but not limited to, the exercise price, grant
price, or purchase price, any restrictions or limitations on the Award,
any schedule for lapse of forfeiture restrictions or restrictions on
the exercisability of an Award, and accelerations or waivers thereof,
based in each case on such considerations as the Committee in its sole
discretion determines;
(e) Accelerate the vesting or lapse of restrictions of any
outstanding Award, based in each case on such considerations as the
Committee in its sole discretion determines;
(f) Determine whether, to what extent, and under what
circumstances an Award may be settled in, or the exercise price of an
Award may be paid in, cash, Stock, other Awards, or other property, or
an Award may be canceled, forfeited, or surrendered;
(g) Prescribe the form of each Award Agreement, which
need not be identical for each Participant;
(h) Decide all other matters that must be determined in
connection with an Award;
(i) Establish, adopt or revise any rules and regulations
as it may deem necessary or advisable to administer the Plan;
(j) Make all other decisions and determinations that may be
required under the Plan or as the Committee deems necessary or
advisable to administer the Plan; and
(k) Amend the Plan or any Award Agreement as provided herein.
4.4. DECISIONS BINDING. The Committee's interpretation of the Plan,
any Awards granted under the Plan, any Award Agreement and all decisions and
determinations by the Committee with respect to the Plan are final, binding, and
conclusive on all parties.
37
<PAGE>
ARTICLE 5
SHARES SUBJECT TO THE PLAN
5.1. NUMBER OF SHARES. Subject to adjustment as provided in Section
14.1, the aggregate number of shares of Stock reserved and available for Awards
or which may be used to provide a basis of measurement for or to determine the
value of an Award (such as with a Stock Appreciation Right or Performance Unit
Award) shall be 2,270,000, of which not more than 33% may be granted as Awards
of Restricted Stock or unrestricted Stock Awards.
5.2. LAPSED AWARDS. To the extent that an Award is canceled,
terminates, expires or lapses for any reason, any shares of Stock subject to the
Award will again be available for the grant of an Award under the Plan and
shares subject to SARs or other Awards settled in cash will be available for the
grant of an Award under the Plan.
5.3. STOCK DISTRIBUTED. Any Stock distributed pursuant to an Award may
consist, in whole or in part, of authorized and unissued Stock, treasury Stock
or Stock purchased on the open market.
5.4. LIMITATION ON AWARDS. Notwithstanding any provision in the Plan to
the contrary (but subject to adjustment as provided in Section 14.1), the
maximum number of shares of Stock with respect to one or more Options and/or
SARs that may be granted during any one calendar year under the Plan to any one
Participant shall be 200,000. The maximum fair market value (measured as of the
date of grant) of any Awards other than Options and SARs that may be received by
any one Participant (less any consideration paid by the Participant for such
Award) during any one calendar year under the Plan shall be $3,000,000.
ARTICLE 6
ELIGIBILITY
6.1. GENERAL. Awards may be granted only to individuals who are
employees, officers, directors of the Company or a Parent or Subsidiary.
ARTICLE 7
STOCK OPTIONS
7.1. GENERAL. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
(a) EXERCISE PRICE. The exercise price per share of Stock
under an Option shall be determined by the Committee, provided that the
exercise price for any Option shall not be less than the Fair Market
Value as of the date of the grant.
(b) TIME AND CONDITIONS OF EXERCISE. The Committee shall
determine the time or times at which an Option may be exercised in
whole or in part. The Committee also shall determine the performance or
other conditions, if any, that must be satisfied before all or part of
an Option may be exercised. The Committee may waive any exercise
provisions at any time in whole or in part based upon factors as the
Committee may determine in its sole discretion so that the Option
becomes exerciseable at an earlier date.
(c) PAYMENT. The Committee shall determine the methods by
which the exercise price of an Option may be paid, the form of payment,
including, without limitation, cash, shares of Stock, or other property
(including "cashless exercise" arrangements), and the methods by which
shares of Stock shall be delivered or deemed to be delivered to
Participants; provided, however, that if shares of Stock are used to
pay the exercise price of an Option, such shares must have been held by
the Participant for at least six months.
(d) EVIDENCE OF GRANT. All Options shall be evidenced by a
written Award Agreement between the Company and the Participant. The
Award Agreement shall include such provisions, not inconsistent with
the Plan, as may be specified by the Committee.
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7.2. INCENTIVE STOCK OPTIONS. The terms of any Incentive Stock
Options granted under the Plan must comply with the following additional rules:
(a) EXERCISE PRICE. The exercise price per share of Stock
shall be set by the Committee, provided that the exercise price for any
Incentive Stock Option shall not be less than the Fair Market Value as
of the date of the grant.
(b) EXERCISE. In no event may any Incentive Stock Option be
exercisable for more than ten years from the date of its grant.
(c) LAPSE OF OPTION. An Incentive Stock Option shall lapse
under the earliest of the following circumstances; provided, however,
that the Committee may, prior to the lapse of the Incentive Stock
Option under the circumstances described in paragraphs (3), (4) and (5)
below, provide in writing that the Option will extend until a later
date, but if Option is exercised after the dates specified in
paragraphs (3), (4) and (5) below, it will automatically become a
Non-Qualified Stock Option:
(1) The Incentive Stock Option shall lapse as of the
option expiration date set forth in the Award Agreement.
(2) The Incentive Stock Option shall lapse ten years
after it is granted, unless an earlier time is set in the
Award Agreement.
(3) If the Participant terminates employment for any
reason other than as provided in paragraph (4) or (5) below,
the Incentive Stock Option shall lapse, unless it is
previously exercised, three months after the Participant's
termination of employment; provided, however, that if the
Participant's employment is terminated by the Company for
cause (as determined by the Company) or by the Participant
without the consent of the Company, the Incentive Stock Option
shall (to the extent not previously exercised) lapse
immediately.
(4) If the Participant terminates employment by
reason of his Disability, the Incentive Stock Option shall
lapse, unless it is previously exercised, one year after the
Participant's termination of employment.
(5) If the Participant dies while employed, or during
the three-month period described in paragraph (3) or during
the one-year period described in paragraph (4) and before the
Option otherwise lapses, the Option shall lapse one year after
the Participant's death. Upon the Participant's death, any
exercisable Incentive Stock Options may be exercised by the
Participant's beneficiary, determined in accordance with
Section 13.6.
Unless the exercisability of the Incentive Stock Option is
accelerated as provided in Article 13, if a Participant exercises an
Option after termination of employment, the Option may be exercised
only with respect to the shares that were otherwise vested on the
Participant's termination of employment.
(d) INDIVIDUAL DOLLAR LIMITATION. The aggregate Fair Market
Value (determined as of the time an Award is made) of all shares of
Stock with respect to which Incentive Stock Options are first
exercisable by a Participant in any calendar year may not exceed
$100,000.00.
(e) TEN PERCENT OWNERS. No Incentive Stock Option shall be
granted to any individual who, at the date of grant, owns stock
possessing more than ten percent of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary unless
the exercise price per share of such Option is at least 110% of the
Fair Market Value per share of Stock at the date of grant and the
Option expires no later than five years after the date of grant.
(f) EXPIRATION OF INCENTIVE STOCK OPTIONS. No Award of an
Incentive Stock Option may be made pursuant to the Plan after the day
immediately prior to the tenth anniversary of the Effective Date.
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(g) RIGHT TO EXERCISE. During a Participant's lifetime, an
Incentive Stock Option may be exercised only by the Participant or, in
the case of the Participant's Disability, by the Participant's guardian
or legal representative.
(h) DIRECTORS. The Committee may not grant an Incentive Stock
Option to a non-employee director. The Committee may grant an Incentive
Stock Option to a director who is also an employee of the Company or
Parent or Subsidiary but only in that individual's position as an
employee and not as a director.
ARTICLE 8
STOCK APPRECIATION RIGHTS
8.1. GRANT OF SARs. The Committee is authorized to grant SARs to
Participants on the following terms and conditions:
(a) RIGHT TO PAYMENT. Upon the exercise of a Stock
Appreciation Right, the Participant to whom it is granted has the
right to receive the excess, if any, of:
(1) The Fair Market Value of one share of Stock on the
date of exercise; over
(2) The grant price of the Stock Appreciation Right as
determined by the Committee, which shall not be less than the
Fair Market Value of one share of Stock on the date of grant in
the case of any SAR related to an Incentive Stock Option.
(b) OTHER TERMS. All awards of Stock Appreciation Rights shall
be evidenced by an Award Agreement. The terms, methods of exercise,
methods of settlement, form of consideration payable in settlement, and
any other terms and conditions of any Stock Appreciation Right shall be
determined by the Committee at the time of the grant of the Award and
shall be reflected in the Award Agreement.
ARTICLE 9
PERFORMANCE UNITS
9.1. GRANT OF PERFORMANCE UNITS. The Committee is authorized to grant
Performance Units to Participants on such terms and conditions as may be
selected by the Committee. The Committee shall have the complete discretion to
determine the number of Performance Units granted to each Participant. All
Awards of Performance Units shall be evidenced by an Award Agreement.
9.2. RIGHT TO PAYMENT. A grant of Performance Units gives the
Participant rights, valued as determined by the Committee, and payable to, or
exercisable by, the Participant to whom the Performance Units are granted, in
whole or in part, as the Committee shall establish at grant or thereafter. The
Committee shall set performance goals and other terms or conditions to payment
of the Performance Units in its discretion which, depending on the extent to
which they are met, will determine the number and value of Performance Units
that will be paid to the Participant.
9.3. OTHER TERMS. Performance Units may be payable in cash, Stock, or
other property, and have such other terms and conditions as determined by the
Committee and reflected in the Award Agreement.
ARTICLE 10
RESTRICTED STOCK AWARDS
10.1. GRANT OF RESTRICTED STOCK. The Committee is authorized to make
Awards of Restricted Stock to Participants in such amounts and subject to such
terms and conditions as may be selected by the Committee. All Awards of
Restricted Stock shall be evidenced by a Restricted Stock Award Agreement.
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10.2. ISSUANCE AND RESTRICTIONS. Restricted Stock shall be subject to
such restrictions on transferability and other restrictions as the Committee may
impose (including, without limitation, limitations on the right to vote
Restricted Stock or the right to receive dividends on the Restricted Stock).
These restrictions may lapse separately or in combination at such times, under
such circumstances, in such installments, upon the satisfaction of performance
goals or otherwise, as the Committee determines at the time of the grant of the
Award or thereafter.
10.3. FORFEITURE. Except as otherwise determined by the Committee at
the time of the grant of the Award or thereafter, upon termination of employment
during the applicable restriction period or upon failure to satisfy a
performance goal during the applicable restriction period, Restricted Stock that
is at that time subject to restrictions shall be forfeited and reacquired by the
Company; provided, however, that the Committee may provide in any Award
Agreement that restrictions or forfeiture conditions relating to Restricted
Stock will be waived in whole or in part in the event of terminations resulting
from specified causes, and the Committee may in other cases waive in whole or in
part restrictions or forfeiture conditions relating to Restricted Stock.
10.4. CERTIFICATES FOR RESTRICTED STOCK. Restricted Stock granted under
the Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing shares of Restricted Stock are registered in the name
of the Participant, certificates must bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such Restricted Stock.
ARTICLE 11 DIVIDEND EQUIVALENTS
11.1 GRANT OF DIVIDEND EQUIVALENTS. The Committee is authorized to
grant Dividend Equivalents to Participants subject to such terms and conditions
as may be selected by the Committee. Dividend Equivalents shall entitle the
Participant to receive payments equal to dividends with respect to all or a
portion of the number of shares of Stock subject to an Award, as determined by
the Committee. The Committee may provide that Dividend Equivalents be paid or
distributed when accrued or be deemed to have been reinvested in additional
shares of Stock, or otherwise reinvested.
ARTICLE 12
OTHER STOCK-BASED AWARDS
12.1. GRANT OF OTHER STOCK-BASED AWARDS. The Committee is authorized,
subject to limitations under applicable law, to grant to Participants such other
Awards that are payable in, valued in whole or in part by reference to, or
otherwise based on or related to shares of Stock, as deemed by the Committee to
be consistent with the purposes of the Plan, including without limitation shares
of Stock awarded purely as a "bonus" and not subject to any restrictions or
conditions, convertible or exchangeable debt securities, other rights
convertible or exchangeable into shares of Stock, and Awards valued by reference
to book value of shares of Stock or the value of securities of or the
performance of specified Parents or Subsidiaries. The Committee shall determine
the terms and conditions of such Awards.
ARTICLE 13
PROVISIONS APPLICABLE TO AWARDS
13.1. STAND-ALONE, TANDEM, AND SUBSTITUTE AWARDS. Awards granted under
the Plan may, in the discretion of the Committee, be granted either alone or in
addition to, in tandem with, or in substitution for, any other Award granted
under the Plan. If an Award is granted in substitution for another Award, the
Committee may require the surrender of such other Award in consideration of the
grant of the new Award. Awards granted in addition to or in tandem with other
Awards may be granted either at the same time as or at a different time from the
grant of such other Awards.
13.2. EXCHANGE PROVISIONS. The Committee may at any time offer to
exchange or buy out any previously granted Award for a payment in cash, Stock,
or another Award (subject to Section 14.1), based on the terms and conditions
the Committee determines and communicates to the Participant at the time the
offer is made, and after taking into account the tax, securities and accounting
effects of such an exchange.
13.3. TERM OF AWARD. The term of each Award shall be for the period as
determined by the Committee, provided that in no event shall the term of any
Incentive Stock Option or a Stock Appreciation Right granted in tandem with the
Incentive Stock Option exceed a period of ten years from the date of its grant
(or, if Section 7.2(e) applies, five years from the date of its grant).
41
<PAGE>
13.4. FORM OF PAYMENT FOR AWARDS. Subject to the terms of the Plan and
any applicable law or Award Agreement, payments or transfers to be made by the
Company or a Parent or Subsidiary on the grant or exercise of an Award may be
made in such form as the Committee determines at or after the time of grant,
including without limitation, cash, Stock, other Awards, or other property, or
any combination, and may be made in a single payment or transfer, in
installments, or on a deferred basis, in each case determined in accordance with
rules adopted by, and at the discretion of, the Committee.
13.5. LIMITS ON TRANSFER. No right or interest of a Participant in any
unexercised or restricted Award may be pledged, encumbered, or hypothecated to
or in favor of any party other than the Company or a Parent or Subsidiary, or
shall be subject to any lien, obligation, or liability of such Participant to
any other party other than the Company or a Parent or Subsidiary. No unexercised
or restricted Award shall be assignable or transferable by a Participant other
than by will or the laws of descent and distribution or, except in the case of
an Incentive Stock Option, pursuant to a domestic relations order that would
satisfy Section 414(p)(1)(A) of the Code if such Section applied to an Award
under the Plan; provided, however, that the Committee may (but need not) permit
other transfers where the Committee concludes that such transferability (i) does
not result in accelerated taxation, (ii) does not cause any Option intended to
be an incentive stock option to fail to be described in Code Section 422(b), and
(iii) is otherwise appropriate and desirable, taking into account any factors
deemed relevant, including without limitation, state or federal tax or
securities laws applicable to transferable Awards.
13.6 BENEFICIARIES. Notwithstanding Section 13.5, a Participant may, in
the manner determined by the Committee, designate a beneficiary to exercise the
rights of the Participant and to receive any distribution with respect to any
Award upon the Participant's death. A beneficiary, legal guardian, legal
representative, or other person claiming any rights under the Plan is subject to
all terms and conditions of the Plan and any Award Agreement applicable to the
Participant, except to the extent the Plan and Award Agreement otherwise
provide, and to any additional restrictions deemed necessary or appropriate by
the Committee. If no beneficiary has been designated or survives the
Participant, payment shall be made to the Participant's estate. Subject to the
foregoing, a beneficiary designation may be changed or revoked by a Participant
at any time provided the change or revocation is filed with the Committee.
13.7. STOCK CERTIFICATES. All Stock certificates delivered under the
Plan are subject to any stop-transfer orders and other restrictions as the
Committee deems necessary or advisable to comply with federal or state
securities laws, rules and regulations and the rules of any national securities
exchange or automated quotation system on which the Stock is listed, quoted, or
traded. The Committee may place legends on any Stock certificate to reference
restrictions applicable to the Stock.
13.8 ACCELERATION UPON DEATH OR DISABILITY OR RETIREMENT.
Notwithstanding any other provision in the Plan or any Participant's Award
Agreement to the contrary, upon the Participant's death or Disability during his
employment or service as a director, or upon the Participant's Retirement, all
outstanding Options, Stock Appreciation Rights, and other Awards in the nature
of rights that may be exercised shall become fully exercisable and all
restrictions on outstanding Awards shall lapse. Any Option or Stock Appreciation
Rights Awards shall thereafter continue or lapse in accordance with the other
provisions of the Plan and the Award Agreement. To the extent that this
provision causes Incentive Stock Options to exceed the dollar limitation set
forth in Section 7.2(d), the excess Options shall be deemed to be Non-Qualified
Stock Options.
13.9. ACCELERATION UPON A CHANGE IN CONTROL. Except as otherwise
provided in the Award Agreement, upon the occurrence of a Change in Control, all
outstanding Options, Stock Appreciation Rights, and other Awards in the nature
of rights that may be exercised shall become fully exercisable and all
restrictions on outstanding Awards shall lapse; provided, however that such
acceleration will not occur if, in the opinion of the Company's accountants,
such acceleration would preclude the use of "pooling of interest" accounting
treatment for a Change in Control transaction that (a) would otherwise qualify
for such accounting treatment, and (b) is contingent upon qualifying for such
accounting treatment. To the extent that this provision causes Incentive Stock
Options to exceed the dollar limitation set forth in Section 7.2(d), the excess
Options shall be deemed to be Non-Qualified Stock Options.
42
<PAGE>
13.10. ACCELERATION UPON CERTAIN EVENTS NOT CONSTITUTING A CHANGE IN
CONTROL. In the event of the occurrence of any circumstance, transaction or
event not constituting a Change in Control (as defined in Section 3.1) but which
the Board of Directors deems to be, or to be reasonably likely to lead to, an
effective change in control of the Company of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of the 1934 Act, the
Committee may in its sole discretion declare all outstanding Options, Stock
Appreciation Rights, and other Awards in the nature of rights that may be
exercised to be fully exercisable, and/or all restrictions on all outstanding
Awards to have lapsed, in each case, as of such date as the Committee may, in
its sole discretion, declare, which may be on or before the consummation of such
transaction or event. To the extent that this provision causes Incentive Stock
Options to exceed the dollar limitation set forth in Section 7.2(d), the excess
Options shall be deemed to be Non-Qualified Stock Options.
13.11. ACCELERATION FOR ANY OTHER REASON. Regardless of whether an
event has occurred as described in Section 13.8, 13.9 or 13.10 above, the
Committee may in its sole discretion at any time determine that all or a portion
of a Participant's Options, Stock Appreciation Rights, and other Awards in the
nature of rights that may be exercised shall become fully or partially
exercisable, and/or that all or a part of the restrictions on all or a portion
of the outstanding Awards shall lapse, in each case, as of such date as the
Committee may, in its sole discretion, declare. The Committee may discriminate
among Participants and among Awards granted to a Participant in exercising its
discretion pursuant to this Section 13.11.
13.12 EFFECT OF ACCELERATION. If an Award is accelerated under Section
13,8, 13.9 or 13.10, the Committee may, in its sole discretion, provide (i) that
the Award will expire after a designated period of time after such acceleration
to the extent not then exercised, (ii) that the Award will be settled in cash
rather than Stock, (iii) that the Award will be assumed by another party to the
transaction giving rise to the acceleration or otherwise be equitably converted
in connection with such transaction, or (iv) any combination of the foregoing.
The Committee's determination need not be uniform and may be different for
different Participants whether or not such Participants are similarly situated.
13.13. PERFORMANCE GOALS. The Committee may determine that any Award
granted pursuant to this Plan to a Participant (including, but not limited to,
Participants who are Covered Employees) shall be determined solely on the basis
of (a) the achievement by the Company or a Parent or Subsidiary of a specified
target return, or target growth in return, on equity or assets, (b) the
Company's stock price, (c) the Company's total shareholder return (stock price
appreciation plus reinvested dividends) relative to a defined comparison group
or target over a specific performance period, (d) the achievement by a business
unit of the Company, Parent or Subsidiary of a specified target, or target
growth in, net income or earnings per share, or (e) any combination of the goals
set forth in (a) through (d) above. If an Award is made on such basis, the
Committee has the right for any reason to reduce (but not increase) the Award,
notwithstanding the achievement of a specified goal. If an Award is made on such
basis, the Committee shall establish goals prior to the beginning of the period
for which such performance goal relates (or such later date as may be permitted
under Code Section 162(m) or the regulations thereunder). Any payment of an
Award granted with performance goals shall be conditioned on the written
certification of the Committee in each case that the performance goals and any
other material conditions were satisfied.
13.14. TERMINATION OF EMPLOYMENT. Whether military, government or other
service or other leave of absence shall constitute a termination of employment
shall be determined in each case by the Committee at its discretion, and any
determination by the Committee shall be final and conclusive. A termination of
employment shall not occur in a circumstance in which a Participant transfers
from the Company to one of its Parents or Subsidiaries, transfers from a Parent
or Subsidiary to the Company, or transfers from one Parent or Subsidiary to
another Parent or Subsidiary.
ARTICLE 14
CHANGES IN CAPITAL STRUCTURE
14.1. GENERAL. In the event a stock dividend is declared upon the
Stock, the authorization limits under Section 5.1 and 5.4 shall be increased
proportionately, and the shares of Stock then subject to each Award shall be
increased proportionately without any change in the aggregate purchase price
therefor. In the event the Stock shall be changed into or exchanged for a
different number or class of shares of stock or securities of the Company or of
another corporation, whether through reorganization, recapitalization,
reclassification, share exchange, stock split-up, combination of shares, merger
or consolidation, the authorization limits under Section 5.1 and 5.4 shall be
adjusted proportionately, and there shall be substituted for each such share of
Stock then subject to each Award the number and class of shares into which each
outstanding share of Stock shall be so exchanged, all without any change in the
aggregate purchase price for the shares then subject to each Award, or, subject
to Section 15.2, there shall be made such other equitable adjustment as the
Committee shall approve.
43
<PAGE>
ARTICLE 15
AMENDMENT, MODIFICATION AND TERMINATION
15.1. AMENDMENT, MODIFICATION AND TERMINATION. The Board or the
Committee may, at any time and from time to time, amend, modify or terminate the
Plan without shareholder approval; provided, however, that the Board or
Committee may condition any amendment or modification on the approval of
shareholders of the Company if such approval is necessary or deemed advisable
with respect to tax, securities or other applicable laws, policies or
regulations.
15.2 AWARDS PREVIOUSLY GRANTED.At any time and from time to time, the
Committee may amend, modify or terminate any outstanding Award without approval
of the Participant; provided, however, that, subject to the terms of the
applicable Award Agreement, such amendment, modification or termination shall
not, without the Participant's consent, reduce or diminish the value of such
Award determined as if the Award had been exercised, vested, cashed in or
otherwise settled on the date of such amendment or termination; and provided
further that the original term of any Option may not be extended and, except as
otherwise provided in the anti-dilution provision of the Plan, the exercise
price of any Option may not be reduced. No termination, amendment, or
modification of the Plan shall adversely affect any Award previously granted
under the Plan, without the written consent of the Participant.
ARTICLE 16
GENERAL PROVISIONS
16.1. NO RIGHTS TO AWARDS. No Participant or any eligible participant
shall have any claim to be granted any Award under the Plan, and neither the
Company nor the Committee is obligated to treat Participants or eligible
participants uniformly.
16.2. NO STOCKHOLDER RIGHTS. No Award gives the Participant any of the
rights of a shareholder of the Company unless and until shares of Stock are in
fact issued to such person in connection with such Award.
16.3. WITHHOLDING. The Company or any Parent or Subsidiary shall have
the authority and the right to deduct or withhold, or require a Participant to
remit to the Company, an amount sufficient to satisfy federal, state, and local
taxes (including the Participant's FICA obligation) required by law to be
withheld with respect to any taxable event arising as a result of the Plan. With
respect to withholding required upon any taxable event under the Plan, the
Committee may, at the time the Award is granted or thereafter, require or permit
that any such withholding requirement be satisfied, in whole or in part, by
withholding from the Award shares of Stock having a Fair Market Value on the
date of withholding equal to the minimum amount (any not any greater amount)
required to be withheld for tax purposes, all in accordance with such procedures
as the Committee establishes.
16.4. NO RIGHT TO CONTINUED SERVICE. Nothing in the Plan or any Award
Agreement shall interfere with or limit in any way the right of the Company or
any Parent or Subsidiary to terminate any Participant's employment or status as
an officer or director at any time, nor confer upon any Participant any right to
continue as an employee, officer or director of the Company or any Parent or
Subsidiary.
l6.5. UNFUNDED STATUS OF AWARDS. The Plan is intended to be an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or any Award Agreement shall give the Participant any rights that
are greater than those of a general creditor of the Company or any Parent or
Subsidiary.
44
<PAGE>
16.6. INDEMNIFICATION. To the extent allowable under applicable law,
each member of the Committee shall be indemnified and held harmless by the
Company from any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by such member in connection with or resulting from any
claim, action, suit, or proceeding to which such member may be a party or in
which he may be involved by reason of any action or failure to act under the
Plan and against and from any and all amounts paid by such member in
satisfaction of judgment in such action, suit, or proceeding against him
provided he gives the Company an opportunity, at its own expense, to handle and
defend the same before he undertakes to handle and defend it on his own behalf.
The foregoing right of indemnification shall not be exclusive of any other
rights of indemnification to which such persons may be entitled under the
Company's Certificate of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.
16.7. RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall
be taken into account in determining any benefits under any pension, retirement,
savings, profit sharing, group insurance, welfare or benefit plan of the Company
or any Parent or Subsidiary unless provided otherwise in such other plan.
16.8. EXPENSES. The expenses of administering the Plan shall be
borne by the Company and its Parents or Subsidiaries.
16.9. TITLES AND HEADINGS. The titles and headings of the Sections in
the Plan are for convenience of reference only, and in the event of any
conflict, the text of the Plan, rather than such titles or headings, shall
control.
16.10. GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
16.11. FRACTIONAL SHARES. No fractional shares of Stock shall be issued
and the Committee shall determine, in its discretion, whether cash shall be
given in lieu of fractional shares or whether such fractional shares shall be
eliminated by rounding up.
16.12. GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company
to make payment of awards in Stock or otherwise shall be subject to all
applicable laws, rules, and regulations, and to such approvals by government
agencies as may be required. The Company shall be under no obligation to
register under the 1933 Act, or any state securities act, any of the shares of
Stock paid under the Plan. The shares paid under the Plan may in certain
circumstances be exempt from registration under the 1933 Act, and the Company
may restrict the transfer of such shares in such manner as it deems advisable to
ensure the availability of any such exemption.
16.13. GOVERNING LAW. To the extent not governed by federal law, the
Plan and all Award Agreements shall be construed in accordance with and governed
by the laws of the State of Florida.
16.14 ADDITIONAL PROVISIONS. Each Award Agreement may contain such
other terms and conditions as the Committee may determine; provided that such
other terms and conditions are not inconsistent with the provisions of this
Plan.
The foregoing is hereby acknowledged as being the
PSS World Medical,Inc.1999 Long-Term Incentive Plan as adopted by the Board of
Directors of the Company on June 21, 1999.
PSS World Medical, Inc.
By: __________________________
Its: ___________________________
45
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q/A
FOR THE THREE MONTHS ENDED JUNE 30, 1998 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> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 35,908
<SECURITIES> 9,361
<RECEIVABLES> 302,979
<ALLOWANCES> 0
<INVENTORY> 157,159
<CURRENT-ASSETS> 575,353
<PP&E> 92,988
<DEPRECIATION> 36,195
<TOTAL-ASSETS> 834,904
<CURRENT-LIABILITIES> 198,272
<BONDS> 125,000
0
0
<COMMON> 709
<OTHER-SE> 443,461
<TOTAL-LIABILITY-AND-EQUITY> 834,904
<SALES> 452,240
<TOTAL-REVENUES> 452,240
<CGS> 328,106
<TOTAL-COSTS> 328,106
<OTHER-EXPENSES> 104,157
<LOSS-PROVISION> 1,223
<INTEREST-EXPENSE> 2,862
<INCOME-PRETAX> 24,663
<INCOME-TAX> 9,874
<INCOME-CONTINUING> 14,789
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,789
<EPS-BASIC> 0.21
<EPS-DILUTED> 0.21
</TABLE>
