PSS WORLD MEDICAL INC, 10-K/A, 2000-05-25

PSS WORLD MEDICAL INC
10-K/A, 2000-05-25
MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES

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UNITED STATES SECURITIES AND EXCHANGE

COMMISSION

Washington, D.C. 20549

FORM 10-K/A

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended April 2, 1999 Commission File Number 0-23832

PSS WORLD MEDICAL, INC.
(Exact name of Registrant as specified in its charter)

FLORIDA 59-2280364
(State of incorporation) (I.R.S. Employer
Identification No.)

4345 Southpoint Boulevard
Jacksonville, Florida 32216
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (904) 332-3000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value per share

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

Yes |X| No |_|

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. |_|

The aggregate market value of common stock, par value $0.01 per share (the
"Common Stock") held by nonaffiliates, based upon the closing sales price,
was approximately $625,074,653 as of July 12, 1999. In the determination of
this amount, affiliates include all of the Company's officers, directors
and persons known to the Company to be beneficial owners of more than five
percent of the Company's Common Stock. This amount should not be deemed
conclusive for any other purpose. As of July 12, 1999, a total of
70,858,533 shares of the Company's Common Stock were outstanding.

<PAGE>

Document Incorporated by Reference

The information called for by Part III is incorporated by reference to the
definitive Proxy Statement for the 1999 Annual Meeting of Stockholders of
the Registrant which was filed with the Securities and Exchange Commission
on August 2, 1999.

EXPLANATORY NOTE

This Amendment No. 3 (this "Amendment") on Form 10-K/A is being filed in
order to amend the Company's Annual Report on Form 10/K for the year ended
April 2, 1999 filed with the Securities and Exchange Commission (the
"Commission") on July 16, 1999 (as amended pursuant to the Form 10-K/A
filed on July 22, 1999 and the Form 10-K/A filed on October 28, 1999). This
Amendment is filed for the purpose of amending and restating Items 6, 7 and
8 of this filing.

The Company acquired Gulf South Medical Supply, Inc. ("Gulf South") on
March 27, 1998. After the merger, the Company recorded approximately $32.2
million of charges in Gulf South's results of operations for the three
months ended April 3, 1998 relating to the merger, restructuring the
business, and conforming the accounting policies of the businesses.
However, the Company continued to review historical records as it operated
the acquired business and determined that approximately $7.4 million of the
$32.2 million in charges belonged in Gulf South's results of operations for
the 12 months ended December 31, 1996 and 1997. Therefore, the historical
consolidated financial statements of the Company have been restated.

No portions of the Company's Annual Report on Form 10-K/A other than Items
6, 7 and 8 are amended by this Amendment.

PART I

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.

<PAGE>

Item 6. Selected Financial Data

The following selected financial data of the Company for fiscal years 1995
through 1999 have been derived from the Company's consolidated financial
statements which give retroactive effect to the mergers accounted for as
pooling of interests. The fiscal 1998 and 1997 consolidated financial
statements combine the December 31, 1997 and December 31, 1996 financial
statements of Gulf South with the April 3, 1998 and March 28, 1997
financial statements of PSS, respectively. Effective April 4, 1998, Gulf
South's fiscal year-end was changed to conform to the Company's year-end.
As such, Gulf South's results of operations for the period January 1, 1998
to April 3, 1998 are not included in any of the periods presented in the
accompanying consolidated statements of income. Accordingly, Gulf South's
results of operations for the three months ended April 3, 1998 are
reflected as an adjustment to shareholders' equity of the Company as of
April 4, 1998. The Company's fiscal 1999 consolidated financial statements
include the combined results of operations for the period from April 4,
1998 to April 2, 1999, of both PSS and Gulf South.

<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------------------------------
1995 1996 1997 1998 1999
-------- --------- ---------- ----------- -----------
(Restated) (Restated)
(Dollars in Thousands, Except Per Share Data)

Income Statement Data:

<S> <C> <C> <C> <C> <C>
Net sales $564,136 $719,214 $1,166,286 $1,381,786 $1,564,505
Gross profit 156,344 194,711 286,183 365,768 421,908
Selling and G&A expenses 135,320 159,578 269,136 333,689 348,055
Net income 7,465 10,706 13,259 15,299 43,741
======== ======== ========== ========== ==========
Earnings per share:
Basic N/A $0.17 $0.20 $0.22 $0.62
Diluted $0.12 $0.16 $0.20 $0.22 $0.61
======== ======== ========== ========== ==========
Weighted average shares outstanding
(h)
Basic N/A 55,813 66,207 69,575 70,548
Diluted 47,979 57,360 66,957 70,545 71,398
======== ======== ========== ========== ==========
Balance Sheet Data:

Working capital $ 88,011 $211,835 $ 267,754 $376,239 $355,277
Total assets 189,866 351,553 510,376 686,737 743,381
Long-term liabilities 39,927 10,622 8,459 138,178 155,553
Total equity 79,114 242,091 350,397 380,060 416,560
</TABLE>

3
<PAGE>
<TABLE>
<CAPTION>

Fiscal Year Ended
----------------------------------------
1997 1998 1999
------------ ---------- ----------
(Restated) (Restated)
(Dollars in thousands, except per share
data)

Other Financial Data:

<S> <C> <C> <C>
Income before provision for income taxes $ 19,883 $32,660 $ 73,681
Plus: Interest Expense 3,471 7,517 11,522
-------- -------- ---------
EBIT (a) 23,354 40,177 85,203
Plus: Depreciation and amortization 6,473 10,861 20,384
-------- -------- ---------
EBITDA (b) 29,827 51,038 105,587
Unusual Charges Included in Continuing Operations (i) 17,950 32,007 10,303
Cash Paid For Unusual Charges Included in Continuing Operations (22,906) (24,476) (29,134)
-------- -------- ---------
Adjusted EBITDA (c) 24,871 58,569 86,756

EBITDA Coverage (d) 8.6x 6.8x 9.2x
EBITDA Margin (e) 2.6% 3.7% 6.8%
Adjusted EBITDA Coverage (f) 7.2x 7.8x 7.5x
Adjusted EBITDA Margin (g) 2.1% 4.2% 5.5%

Cash (used in) provided by operating activities $(10,802) $27,936 $ (18,704)
Cash used in investing activities (74,843) (47,969) (28,914)
Cash provided by financing activities 56,427 65,209 7,471
</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) Adjusted to give effect to a three-for-one stock split in fiscal year 1996.
(i) Fiscal 1999 excludes $5,379 of information systems accelerated
depreciation.

4
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Restated)

The following discussion and analysis of the consolidated financial
condition and consolidated results of operations of PSS should be read in
conjunction with the more detailed information contained in the
Consolidated Financial Statements and Notes thereto included elsewhere in
this Form 10-K.

The historical consolidated financial statements for fiscal years 1997 and
1998 of the Company have been restated to record operating charges
previously included in Gulf South's results of operations for the period
January 1, 1998 to April 3, 1998. Refer to the notes to the consolidated
financial statements (Note 22, Restatements) for a further discussion
regarding the restatements.

All dollar amounts presented below are in thousands, except per share data.

Company Overview

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 111 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 and quality of sales
representatives, number of service centers, and exclusively distributed
products. Physician Sales & Service currently operates 56 medical supply
distribution service centers with approximately 730 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
37 imaging distribution service centers with approximately 750 service
specialists and 190 sales representatives ("Imaging Business") serving over
10,000 customer sites in 41 states. The Imaging Business' primary market is the
approximately 10,000 hospitals and other alternate-site imaging companies
operating approximately 40,000 office sites throughout the United States.

Through its wholly owned subsidiary Gulf South Medical Supply, Inc. ("GSMS"),
the Company has become 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 15 distribution service centers with approximately 160 sales
representatives ("Long-Term Care Business") serving over 14,000 long-term care
facilities in all 50 states. The Long-Term Care Business' primary market is
comprised of a large number of independent operators, small to mid-sized local
and regional chains, and several national chains representing over 10,000
long-term care companies.

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.

5
<PAGE>

COMPANY STRATEGY

The Company's objectives are to be the leading distributor and marketer of
medical products to office-based physicians, providers of imaging services, and
long-term care providers in the United States, and to enhance operating
performance. The key components of the Company's strategy to achieve these
objectives are to continue to:

Expand Operating Margins. The Company is pursuing several initiatives to
enhance its operating margins. With respect to sales, the Company is
focusing its efforts on higher-margin accounts and on sales of diagnostic
equipment, often on an exclusive or semi-exclusive basis, that involves
ongoing sales of higher-margin reagents and/or higher margin service
contracts. With respect to its product line, the Company seeks to generate
high sales volumes of selected products and to obtain such products on a
discounted basis from manufacturers. The Company has rationalized its
service center locations with the closure of nine Long-Term Care Business
centers, three Physician Supply Business centers, and seven Imaging
Business centers during fiscal 1999 to increase efficiency and eliminate
centers with below average performance. Finally, with respect to its
service center expansion program, the Company intends to emphasize
acquisitions over new-center development, thus avoiding the substantial
start-up losses associated with new-center development.

Pursue Strategic Acquisitions. The Company has made 49, 33, 4, and 4
acquisitions since fiscal year 1989 in its Physician Supply, Imaging,
Long-Term Care, and International Businesses, respectively (excludes
acquisitions made by the Company's subsidiaries and divisions prior to PSS
World Medical, Inc. ownership). After consummating a merger or acquisition,
the Company begins an intensive process of converting the acquired company
to its business model through information systems conversion, personnel
development and training, and service and product expansion. The Company
intends to continue to acquire local, regional, and other distributors in
new and existing markets where it can leverage its distribution
infrastructure, expand its geographic coverage, add service and sales
competence, and gain market share.

Utilize Sophisticated Information Systems. In 1994, the Company implemented
its Instant Customer Order Network ("ICONsm"), an ordering and customer
data system, with all its Physician Supply Business sales representatives.
ICONsm has increased time available to sales representatives for selling,
decreased operating expenses, and increased the Company's ability to
provide same-day delivery. During fiscal year 1997, the Physician Supply
Business developed and test marketed CustomerLink, an Internet-based system
for inventory management and purchasing. Since then, the Company has been
very active in developing ancillary systems that improve efficiencies
throughout its operations (see Information Systems discussion). The Company
has also developed Internet-based solutions for each of its businesses. The
Company believes its physician customers will be very late adopters of both
e-commerce and the Internet. However, $80,000 a day of Internet sales are
currently being processed by the Long-Term Care Business with approximately
40% of all that business sales processing through e-commerce. The Imaging
Business is currently implementing Internet access for its customers. The
Company will continue to pursue the development of sophisticated systems
that improve operational efficiency, reduces fixed and variable costs of
its infrastructure, improves access to the Company by its customers, and
reduces costs in the supply channel.

Provide Differentiated, High Quality Service. The Company believes its
success to date has been based largely on its ability to provide superior
customer service, including same-day, next-day, and scheduled delivery,
guaranteed service specialist response, and "no-hassle" returns. Unlike its
competitors, which generally ship products via common carrier, the Company
operates a fleet of over 1,500 delivery and service vehicles enabling it to
provide same-day or next day delivery and service to virtually all of its
customers.

Historically, the Company has differentiated itself from the competition
servicing the office-based physician market by providing consistent,
same-day delivery on a national basis. The Company again is distinguishing
itself from the competition by providing a metropolitan two-hour and a
four-hour rural technical service specialist deployment guarantee through
its Imaging Business. In addition, the Company's Long-Term Care Business
has increased next day or scheduled self-delivery on Company leased
vehicles from 8% to 50% of orders during fiscal 1999.

6
<PAGE>

Offer a Broad Product Line Emphasizing Exclusive Products. The Company
seeks to meet all of the medical products needs of office-based physicians,
providers of imaging services and providers of long-term care. The Company
currently stocks over 56,000 medical products in its Physician Supply
Business, over 8,000 imaging products in its Imaging Business, and over
20,000 medical products in its Long-Term Care Business. The Company also
seeks to establish exclusive distribution and marketing arrangements for
selected products. In the United States, PSS currently has exclusive or
semiexclusive marketing arrangements for certain products with Abbott,
Candela, Critikon, Hologic, Inc, Leisegang, Philips Medical Systems,
Siemens AG, Sonosight, Trex Medical Corporation, and other leading
manufacturers. The Company believes that its sophisticated selling efforts,
highly trained sales force, and large customer base provide manufacturers
with a unique sales channel through which to distribute new and existing
products and technology that require consultative selling.

Enhance Selling Capabilities. The Company believes its sales force and
managers are its most valuable corporate assets and focuses not only on the
recruitment of sales personnel with superior sales aptitude, but also on
the initial and continued development of its sales force and management
through training at The University, its in-house educational center. The
Company believes investment in personnel and training enable it to provide
high-quality service to its customers, offer sophisticated product lines,
and attract manufacturers that desire a means of rapidly bringing new
products and technology to market.

Company Growth

The Company has grown rapidly in recent years through mergers and acquisitions,
same-center growth and new-center development. The number of company service
centers has grown from two at the end of fiscal year 1984 to 110 as of April 2,
1999, including 56 Physician Supply Business service centers, 37 Imaging
Business service centers, 14 Long-Term Care Business Service centers and 3
International Business service centers. In order of priority, the Company's
growth has been accomplished through: (i) acquiring local and regional Imaging
Business medical products distributors; (ii) acquiring local and regional
Physician Supply Business medical-products distributors; (iii) acquiring Gulf
South Medical Supply, Inc. thereby forming the basis of the Company's Long-Term
Care Business; (iv) increasing sales from existing service centers; and (v)
opening start-up service centers.

The following table depicts the number of service centers, sales and service
representatives and states served by the Company for the fiscal years indicated.
See Item 2.--Properties for a list of the Company's service centers.

Fiscal Year Ended (4)
----------------------------------------
1995 1996 1997 1998 1999
Total Company: ---- ---- ---- ---- ----
Sales representatives............523 813 924 957 1,118
Service Specialists..............104 112 223 390 727
Service centers (1).............. 70 90 103 111 110
States served.................... 50 50 50 50 50
Physician Supply Business:
Sales representatives............455 692 720 703 731
Service centers (1).............. 54 64 61 61 56
States served.................... 48 50 50 50 50
Imaging Business (2):
Sales representatives............ 26 30 73 116 194
Service specialists..............104 112 223 390 727
Service centers.................. 7 8 21 25 37
States served.................... 9 9 16 27 41
Long-Term Care Business:
Sales representatives............ 42 91 107 110 170
Service centers (3).............. 9 18 19 22 14
States served.................... 50 50 50 50 50

7
<PAGE>
Fiscal Year Ended (4)
---------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
International Business:
Sales representatives............ -- -- 24 28 23
Service centers.................. -- -- 2 3 3
Countries served................. -- -- 5 5 5

(1) Excludes Taylor service centers prior to their acquisition.
(2) All Imaging Business data for periods prior to November 1996 reflect
pre-merger financial data of companies acquired through pooling-of-
interests transactions.
(3) All Long-Term Care Business data prior to fiscal 1999 is presented based on
a calendar year end.
(4) Excludes pre-acquisition data of companies acquired by PSS World Medical,
Inc. unless otherwise noted.

ACQUISITION PROGRAM

The Company views the acquisition of medical products distributors as an
integral part of its growth strategy. The Physician Supply Business has grown
from one service center located in Jacksonville, Florida, in 1983 to 56 at the
end of fiscal 1999. The Imaging Business and International Business began with
acquisitions in fiscal year 1997 and have grown primarily through acquisitions
to 37 and three service centers, respectively, to date. The Long-Term Care
Business was developed through the acquisition of Gulf South Medical Supply,
Inc. in March 1998 and has acquired four long-term care companies in fiscal year
1999. Since fiscal year 1995 the Company has accelerated its acquisition of
medical products distributors both in number and in size of the operations
acquired.

The following table sets forth the number of acquisitions of the Company and the
prior revenues of the companies acquired for the periods indicated (in
thousands):
<TABLE>
<CAPTION>

Fiscal Year Ended (1)
----------------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Number of acquisitions..................... 9 11 10 15 26
Prior year revenues for acquired companies (2) $37,600 $167,600 $241,700 $498,942 $294,428
</TABLE>

(1) Excludes pre-acquisition data of companies acquired by PSS World Medical,
Inc.
(2) Reflects 12-month trailing revenues for companies prior to their
acquisition by PSS World Medical, Inc. and is not necessarily reflective of
actual revenues under continued operations following an acquisition.

8
<PAGE>

OPERATING HIGHLIGHTS

The following table sets forth information regarding the Company's net sales by
business for the periods indicated (in millions):

Fiscal Year Ended
-------------------------------------
1997 1998 1999
-------- --------- --------

Net Sales

Physician Supply Business....... $ 610.4 $ 662.5 $ 677.4
Imaging Business................ 362.5 409.7 524.8
Long-Term Care Business......... 177.7 287.6 342.4
International Business.......... 15.7 22.0 19.9
-------- -------- --------
Total company.......... $1,166.3 $1,381.8 $1,564.5
======== ======== ========

Fiscal Year Ended
------------------------------------
1997 1998 1999
------- ------- -------
Percentage of Net Sales

Physician Supply Business............ 52.3% 48.0% 43.3%
Imaging Business..................... 31.1 29.7 33.5
Long-Term Care Business.............. 15.2 20.8 21.9
International Business............... 1.4 1.5 1.3
------- ------- -------
Total company...............100.0% 100.0% 100.0%
======= ======= =======

Fiscal Year Ended
-----------------------------------
1997 1998 1999
---------- ---------- -------
(Restated) (Restated)
Gross Margin Trends
Total Company 24.5% 26.5% 27.0%

Fiscal Year Ended
------------------------------------
1997 1998 1999
---------- ---------- -------
(Restated) (Restated)
Income From Operations

Physician Supply Business............$ 3.4 $16.9 $42.7
Imaging Business..................... 4.0 6.5 16.3
Long-Term Care Business.............. 9.1 14.0 17.2
International Business............... 0.5 (5.3) (2.3)
-------- --------- -------
Total company............... $17.0 $32.1 $73.9
======== ========= =======

The following table sets forth certain operating trends of the Company for the
periods indicated:

9
<PAGE>

Fiscal Year Ended
----------------------
1998 1999
--------- --------
(Restated)
Operating Trends:

Average Days Sales Outstanding................ 50.7 55.2
Average Inventory Turnover.................... 8.8x 8.2x

Accounts receivable, net of allowances, were $207.8 million and $271.8 million
at April 3, 1998 and April 2, 1999, respectively. Inventories were $125.5
million and $153.6 million and as of April 3, 1998 and April 2, 1999,
respectively.

The following table sets forth certain liquidity trends of the Company for the
periods presented (in millions):

Fiscal Year Ended
-------------------------
1998 1999
---------- ----------
(Restated)
Liquidity Trends:

Cash and Investments..................... $163.0 $ 41.1
Working Capital.......................... 376.2 355.3

RESULTS OF OPERATIONS

The table below sets forth for each of the fiscal years 1997 through 1999
certain financial information as a percentage of net sales. The following
financial information includes the pre-acquisition financial information of
companies acquired as poolings of interests. The fiscal 1998 and 1997
consolidated financial statements combine the December 31, 1997 and December 31,
1996 financial statements of Gulf South with the April 3, 1998 and March 28,
1997 financial statements of PSS, respectively. Effective April 4, 1998, Gulf
South's fiscal year-end was changed to conform to the Company's year-end. As
such, Gulf South's results of operations for the period January 1, 1998 to April
3, 1998 are not included in any of the periods presented in the accompanying
consolidated statements of income. Accordingly, Gulf South's results of
operations for the three months ended April 3, 1998 are reflected as an
adjustment to shareholders' equity of the Company as of April 4, 1998. The
Company's fiscal 1999 consolidated financial statements include the combined
results of operations for the period from April 4, 1998 to April 2, 1999, of
both PSS and Gulf South. Refer to Note 3, Gulf South's Results of Operations for
the Three Months Ended April 3, 1998, in the accompanying consolidated financial
statements for the results of Gulf South for the three months ended April 3,
1998.

Fiscal Year Ended
-------------------------------
1997 1998 1999
---------- ---------- ------
(Restated) (Restated)
Income Statement Data

Net sales............................. 100.0% 100.0% 100.0%
Gross profit ......................... 24.5 26.5 27.0
General and administrative expenses... 16.5 16.7 14.4
Selling expenses...................... 6.6 7.4 7.9
Operating income...................... 1.5 2.3 4.7
Net income............................ 1.1 1.1 2.8

Fiscal Year Ended April 2, 1999 Versus Fiscal Year Ended April 3, 1998(Restated)

Net Sales. Net sales for fiscal year 1999 totaled $1.56 billion, an increase of
$182.7 million, or 13.2%, over the fiscal year 1998 total of $1.38 billion. The
increase in sales can be attributed to (i) net sales from the acquisition of
companies during fiscal year 1998 and 1999 accounted for as purchases; (ii)
internal sales growth of centers

10
<PAGE>

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.

Net sales contributed from acquisitions completed in fiscal 1999 totaled
approximately $5.6 million, $74.4 million, and $8.4 million for the Physician
Supply, Imaging, and Long-Term Care Businesses, respectively. In addition,
Physician Supply Business and Imaging Business acquisitions completed during
fiscal 1998 provided approximately $7.0 million and $27.9 million, respectively,
in additional incremental sales to fiscal 1999.

The Company experienced a sequential decline in fourth quarter net sales in its
Long-Term Care Business due to the implementation of the Prospective Pay System
("PPS") for reimbursement of Medicare patients in long-term care facilities. The
Company does not expect this trend to continue unless long-term care facility
customers are financially impaired or reorganized due to the impact of the new
PPS reimbursement requirements.

Gross Profit. Gross profit for fiscal year 1999 totaled $421.9 million, an
increase of $56.1 million, or 15.3%, over the fiscal year 1998 total of $365.8
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
27.0% and 26.5% for fiscal years 1999 and 1998, respectively. Although there has
been considerable gross margin pressure from competition and a consolidating
customer base, as well as internal pressure from an increase of Imaging Business
revenues at a lower margin, 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
medical supplies by the Physician Supply Business, and (iii) the ability to
negotiate lower product purchasing costs which resulted from increased
purchasing volume subsequent to the Gulf South acquisition. This is offset by
the expansion of imaging revenues with lower gross profit margins.

During fiscal 1999, the Company 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
fiscal year 1999 totaled $224.7 million, a decrease of $6.6 million, or 2.9%,
from the fiscal year 1998 total of $231.3 million. General and administrative
expenses as a percentage of net sales, decreased to 14.4% for fiscal year 1999
from 16.7% for fiscal year 1998. The decrease in general and administrative
expenses as a percentage of net sales was a result of (i) a decrease in merger
activity, restructuring costs and expenses, and other special items as discussed
below, (ii) the continued leveraging of fixed costs of mature service center
operations, (iii) the elimination of below average performance centers during
fiscal 1999, and (iv) the increased contribution by the Imaging Business which
operates at lower general and administrative expenses as a percentage of sales.

In addition to typical general and administrative expenses, this line includes
charges related to merger activity, restructuring activity, and other special
items. The following table summarizes charges included in general and
administrative expenses in the accompanying consolidated statements of income:

1999 1998
------ -------

Merger costs and expenses.....................................$4,371 $14,066
Restructuring costs and expenses.............................. 4,922 3,691
Information systems accelerated depreciation.................. 5,379 --
Goodwill impairment charges................................... -- 5,807
Gulf South operational tax charge and professional fee accrual -- 5,986
Other charges................................................. 1,010 2,457
------ -------
Total charges............................................$15,682 $32,007
====== =======

11
<PAGE>

Merger Costs and Expenses

The Company's policy is to accrue merger costs and expenses at the
commitment date of an integration plan if certain criteria under EITF 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity ("EITF 94-3") or 95-14, Recognition of
Liabilities in Anticipation of a Business Combination ("EITF 95-14"), are
met. Merger costs and expenses recorded at the commitment date primarily
include charges for direct transaction costs, involuntary employee
termination costs, branch shut-down costs, lease termination costs, and
other exit costs.

If the criteria described in EITF 94-3 or EITF 95-14 are not met, the
Company records merger costs and expenses as incurred. Merger costs
expensed as incurred include the following: (1) costs to pack and move
inventory from one facility to another or within a facility in a
consolidation of facilities, (2) relocation costs paid to employees in
relation to an acquisition accounted for under the pooling-of-interests
method of accounting, (3) systems or training costs to convert the acquired
companies to the current existing information system, and (4) training
costs related to conforming the acquired companies operational policies to
that of the Company's operational policies. In addition, amounts incurred
in excess of the original amount accrued at the commitment date are
expensed as incurred.

Merger costs and expenses for fiscal 1999 include $2,818 of charges
recorded at the commitment date of an integration plan adopted by
management and $2,481 of charges for merger costs expensed as incurred. In
addition, during fiscal 1999, the Company reversed approximately $928 of
merger costs and expenses into income, of which approximately $777 related
to direct transaction costs (refer to Note 3, Gulf South's Results of
Operations for the Three Months Ended April 3, 1998).

Merger costs and expenses for fiscal 1998 include $4,055 of charges
recorded at the commitment date of an integration plan adopted by
management and $10,011 of charges for merger costs expensed as incurred.
The merger costs expensed as incurred primarily relate to direct
transaction costs related to the merger with Gulf South.

Restructuring Costs and Expenses

During fiscal 1998, due to the impact of the Gulf South merger, the Company
recorded restructuring costs and expenses of $3,691 related to the PSS and
DI divisions. See Note 3, Gulf South's Results of Operations for the Three
Months Ended April 3, 1998, which discusses the charges recorded by the
Gulf South division.

Refer to Note 5, Accrued Merger and Restructuring Costs and Expenses, for a
further discussion regarding the restructuring plan.

During the quarter ended June 30, 1998, management approved and adopted an
additional Gulf South component to its formal plan to restructure the
Company. This restructuring plan identified two additional distribution
centers and two corporate offices to be merged with existing facilities and
identified three executives to be involuntarily terminated. Accordingly,
the Company recorded restructuring costs and expenses of $1,503 at the
commitment date of the restructuring plan adopted by management. Such costs
include branch shutdown costs, lease termination costs, involuntary
employee termination costs of $281, $570, and $652, respectively.

The remaining $3,419 of restructuring costs recorded during fiscal 1999
represent charges expensed as incurred. Such costs include charges for
training costs related to conforming the acquired companies operational
policies to that of the Company's operational policies, direct transaction
costs, involuntary employee termination costs, and other exit costs of
$1,138, $227, $300, and $1,754, respectively. 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.

12
<PAGE>

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 12 to 15 months, which
was the original estimate of when the new systems implementation would be
completed. The $5,379 charge represents the incremental fiscal 1999 impact
on depreciation expense resulting from management's decision to replace its
information systems.

Goodwill Impairment Charges

During fiscal 1998, the Company determined that goodwill related to three
foreign (World Med) acquired companies and one domestic (PSS division)
acquired company, was not recoverable. As such, the goodwill of $5,807
related to the four entities was written-off during fiscal 1998.

Gulf South Operational Tax Charge and Professional Fee Accrual

The Company, in connection with the filing of its fiscal 1998 financial
statements, restated for certain operational tax compliance issues in the
financial statements of Gulf South for the years ended December 31, 1997,
1996, and 1995. As such, Gulf South recorded operational charges of $5,986,
$1,998, and $1,656 during fiscal 1998, 1997, and 1996, respectively,
primarily related to state and local, sales and use, and property taxes
that are normally charged directly to the customer at no cost to the
Company. In addition, as explained in Note 3, Gulf South's Results of
Operations for Three Months Ended April 3, 1998, $2,772 of such charges
were recorded by Gulf South during the quarter ended April 3, 1998.
Interest is included in the above charges as Gulf South did not timely
remit payments to tax authorities. The Company reviewed all available
information, including tax exemption notices received, and recorded charges
to expense during the period in which the tax noncompliance issues arose.

In addition, professional fees estimated to be incurred to resolve the tax
issues of $2,919 for fiscal 1998 were recorded in the accompanying
consolidated statements of income for the year ended April 3, 1998. These
professional fees were previously recorded by Gulf South in the period from
January 1, 1998 to April 3, 1998 and, therefore, reflected as an adjustment
to shareholders' equity on April 4, 1998 (refer to Note 1, Background and
Summary of Significant Accounting Policies). However, the Company's fiscal
1998 historical consolidated financial statements have been restated to
recognize the professional fees at the Holding Company in fiscal 1998,
rather than at the Gulf South divisional level.

Other Charges

During fiscal 1999, the Company incurred approximately $1,010 of costs
related to acquisitions not consummated.

13
<PAGE>

market price of the shares, and the shares became outstanding for the
earnings-per-share (EPS) computation. During fiscal 1998, the Company
released the remaining shares to the S&W ESOP participants. Accordingly,
approximately $2,457 of related expenses were recognized in fiscal 1998.
The Company did not incur any related costs during fiscal 1999.

Selling Expenses. Selling expenses for fiscal year 1999 totaled $123.3 million,
an increase of $20.9 million, or 20.4%, over the fiscal year 1998 total of
$102.4 million. Selling expense as a percentage of net sales was approximately
7.9% and 7.4% for fiscal years 1999 and 1998, respectively. The Company utilizes
a variable commission plan, which pays commissions based on gross profit as a
percentage of net sales. In fiscal 1999, sales commissions as a percent of net
sales increased due (i) to the addition of new sales representatives 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 fiscal year 1999 totaled $73.9 million,
an increase of $41.8 million, or 130.2%, over the fiscal year 1998 total of
$32.1 million. As a percentage of net sales, operating income for fiscal year
1999 increased to 4.7% from 2.3% for fiscal year 1998. As discussed in the
analysis of general and administrative expenses, 1998 operating results include
higher levels of operating charges related to merger activity, restructuring
costs and expenses, and other unusual items than 1999.

Interest Expense. Interest expense for fiscal year 1999 totaled $11.5 million,
an increase of $4.0 million, or 53.3%, over the fiscal year 1998 total of $7.5
million. The increase in interest expense in fiscal 1999 over the comparable
prior year period primarily reflects interest on the $125.0 million, 8.5% senior
subordinated debt that was outstanding for a full 12 months during fiscal 1999
versus five months outstanding during fiscal 1998.

Interest and Investment Income. Interest and investment income for fiscal 1999
totaled $4.7 million, a decrease of $0.5 million, or 9.6%, over the fiscal year
1998 total of $5.2 million.

Other Income. Other income for fiscal 1999 totaled $6.6 million, an increase of
$3.8 million, or 135.7%, over the fiscal year 1998 total of $2.8 million. Other
income consists of finance charges on customer accounts and financing
performance incentives. Other income for fiscal year 1999 includes a gain of
$0.4 million from the sale of property and equipment.

Provision for Income Taxes. Provision for income taxes for fiscal year 1999
totaled $29.9 million, an increase of $12.5 million, or 71.8%, over the fiscal
year 1998 total of $17.4 million. This increase primarily resulted from the
increase in taxable income due to the factors discussed above. The effective
income tax rate was 40.6% in fiscal year 1999 versus 53.2% in fiscal 1998. 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, both of which were higher in 1998 than
1999.

Net Income. Net income for fiscal year 1999 totaled $43.7 million, an increase
of $28.4 million, or 185.6%, over the fiscal year 1998 total of $15.3 million.
As a percentage of net sales, net income increased to 2.8% for fiscal year 1999
from 1.1% for fiscal year 1998 due primarily to the factors described above.

GULF SOUTH'S RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 3, 1998 AND
MARCH 31, 1997 (restated)

The Company acquired Gulf South on March 26, 1998 in a transaction accounted for
under the pooling-of-interests method of accounting. The financial statements
have been retroactively restated as if Gulf South and the Company had operated
as one entity since inception. As discussed in Note 1, Background and Summary of
Significant Accounting Policies, due to the consolidation method of the Company
and the differing year ends of PSS and Gulf South, Gulf South's results of
operations for the period January 1, 1998 to April 3, 1998 are not reflected in
the consolidated statements of operations for any periods presented. Rather they
have been recorded as an adjustment to equity during the first quarter of fiscal
1999. Following is management's discussion and analysis of the financial

14
<PAGE>

condition and results of operations of Gulf South for the three months ended
April 3, 1998 as compared to the three months ended March 31, 1997.

The following table summarizes Gulf South's results of operations for the three
months ended April 3, 1998 and the three months ended March 31, 1997 (in
thousands):

Three Months Three Months
Ended Ended
April 3, 1998 March 31, 1997
------------- --------------
(Restated) (Restated)
(Unaudited)

Net sales............................... $ 87,018 $ 64,609
Cost of goods sold...................... 73,108 48,027
-------- --------
Gross profit ....................... 13,910 16,582
General and administrative expenses..... 31,721 11,223
Selling expenses........................ 2,939 2,279
-------- --------
(Loss) income from operations........... (20,750) 3,080
Other income, net....................... 321 465
-------- --------
(Loss) income before for income taxes... (20,429) 3,545
(Benefit) provision for income taxes.... (5,395) 1,260
-------- --------
Net (loss) income....................... $(15,034) $ 2,285
======== ========

In connection with the merger with the Company, Gulf South recorded an allowance
for obsolete inventory of $1.9 million, a charge of $5.6 million to costs of
goods sold to reconcile Gulf South's financial statements to its underlying
books and records, merger costs and expenses of $5.7 million, restructuring
costs and expenses of $4.3 million, and other unusual items of $7.3 million
during the three months ended April 3, 1998. Management believes these charges
are either direct transaction costs or of a nonrecurring or unusual nature and
are not indicative of the future results of Gulf South. Management's discussion
and analysis addresses the comparative quarters and nature of these unusual
charges. The components of the $24.8 million of unusual charges are specifically
addressed below under the captions Gross Profit and General and Administrative
Expenses as well as Note 3, Gulf South's Results of Operations for the Three
Months Ended April 3, 1998, and Note 4, Charges Included in General and
Administrative Expenses, in the Notes to the Consolidated Financial Statements
included herein.

Net Sales. Net sales for the three months ended April 3, 1998 totaled $87.0
million, an increase of $22.4 million or 34.7% over net sales of $64.6 million
for the three months ended March 31, 1997. The increase in net sales was
attributable to the addition of national chain customers and the acquisition of
a medical supply company during the three months ended December 31, 1997 which
contributed approximately $5.8 million during the three months ended April 3,
1998. The acquisition was accounted for using the purchase method of accounting
and, accordingly, the results of the acquired company is included from the date
of acquisition.

Gross Profit. Gross profit for the three months ended April 3, 1998 totaled
$13.9 million, a decrease of $2.7 million or 16.3% over the three months ended
March 31, 1997 total of $16.6 million. Gross profit, as a percentage of net
sales was 16.0% and 25.7% for the three months ended April 3, 1998 and March 31,
1997, respectively. The decrease in gross profit as a percentage of net sales is
attributable to (i) an item to reconcile Gulf South's financial statements to
its underlying books and records, as discussed below, (ii) an allowance for
obsolete inventory charge, as discussed below, (iii) the increase in the portion
of the customer base represented by national chain customers which produce lower
gross profit as a percentage of sales but require lower distribution costs as a
percentage of sales, and (iv) the lower gross profit percentage of the company
acquired. Historically, management has raised the gross profit percentage of
acquired companies by reducing purchase costs as a result of increased purchase
volume.

During the three months ended April 3, 1998, a $1.9 million allowance for
obsolete inventory charge was recorded. This charge is directly related to a
change of plans, uses, and disposition efforts which new Gulf South management
had as compared to prior management. Gulf South previously disclosed in its
fiscal 1996 Form 10-K that they had generally been able to return any unsold or
obsolete inventory to the manufacturer, resulting in negligible inventory

15
<PAGE>

write-offs. Gulf South's prior management had a policy of keeping old or
overstocked inventory on the warehouse shelf until the inventory could
ultimately be sold. As such, this policy kept the inventory on the books with
what was deemed to be an appropriate obsolescence reserve.

New management, on the other hand, determined that it was not cost effective,
from an operational standpoint, to continue warehousing and financing such old
or overstocked inventory. Also, the Company does not normally allow product with
less than desirable box or labeling conditions to be shipped to its customers.
As such, consistent with the operational policies at the Company's other
divisions, management decided to dispose of certain inventories that did not
meet the Company's dating, box condition, or labeling requirements, or in which
excessive quantities existed.

This decision to significantly alter Gulf South's inventory retention and buying
policies, and, therefore, to dispose of the related inventories resulted in a
change in the ultimate valuation of the impacted inventories. This charge was
recognized in the period in which management made the decision to dispose of the
affected inventory, which was Gulf South's quarter ended April 3, 1998.

Additionally, during the quarter ending April 3, 1998, a $5.6 million charge was
recorded in general and administrative expenses. Through a review of accounting
records, management believes this charge is appropriately related to cost of
goods sold.

General and Administrative Expenses. General and administrative expenses for the
three months ended April 3, 1998 totaled $31.7 million, an increase of $20.5
million or 183.0% over the three months ended March 31, 1997 total of $11.2
million. As a percentage of net sales, general and administrative expenses were
36.5% and 17.4% for the three months ended April 3, 1998 and March 31, 1997,
respectively. The increase in general and administrative expenses as a
percentage of net sales is primarily attributable to (i) merger costs and
expenses, (ii) restructuring costs and expenses, (iii) other unusual items, (iv)
increased operating costs, (v) inefficiencies due to Gulf South's merger with
the Company, and (vi) loss of efficiencies resulting from the process of
integrating acquired distribution centers.

The following table summarizes the components of the charges included in general
and administrative expenses as outlined in (i), (ii), and (iii) above (in
thousands):

Three Months
Ended
April 3, 1998
Direct transaction costs related to the merger.....................$ 5,656
Restructuring costs and expenses................................... 4,281
Legal fees and settlements......................................... 2,700
Operational tax charge ............................................ 2,772
Goodwill impairment charge......................................... 1,664
Other .................................................. 273
--------
Total charges included in general & administrative expenses..$ 17,346
========

Direct Transaction Costs Related to the Merger. Direct transaction costs
primarily consist of professional fees, such as investment banking, legal, and
accounting, for services rendered through the date of the merger. As of April 2,
1999, all direct transaction costs were paid. Due to subsequent negotiations and
agreements between the Company and its service provider, actual costs paid were
less than costs originally billed and recorded. As a result, approximately $777
of costs were reversed against general and administrative expenses during the
quarter ended September 30, 1998.

Restructuring Costs and Expenses. In order to improve customer service, reduce
costs, and improve productivity and asset utilization, the Company decided to
realign and consolidate its operations with Gulf South. The restructuring costs
and expenses, which directly relate to the merger with PSS World Medical, Inc.,
were recorded

16
<PAGE>

during the three months ended April 3, 1998. During this time period,
management approved and committed to a plan to integrate and restructure the
business of Gulf South.

The Company recorded restructuring costs and expenses for lease terminations
costs, severance and benefits to terminate employees, facility closure, and
other costs to complete the consolidation of the operations. The following table
summarizes the components of the restructuring charge.

Lease termination costs.......................$ 977
Involuntary employee termination costs........ 1,879
Branch shutdown costs......................... 885
Other exit costs.............................. 540
-------
$ 4,281
=======

Legal Fees and Settlements. Gulf South recorded a $2,000 accrual for legal fees
specifically related to class action lawsuits, which Gulf South, the Company,
and certain present and former directors and officers were named as defendants.
These lawsuits are further discussed in Note 19, Commitments and Contingencies.
In addition, Gulf South recorded $700 in charges related to a customer supply
agreement.

Operational Tax Charge. Gulf South recorded an operational tax charge of $9,492,
of which $2,772 was recorded in the quarter ended April 3, 1998, for state and
local, sales and use, and property taxes that are normally charged directly to
the customer at no cost to the Company. Penalties and interest are included in
the above charge as Gulf South did not timely remit payments to tax authorities.
The Company reviewed all available information, including tax exemption notices
received, and recorded charges to expense, during the period in which the tax
noncompliance issues arose. See Note 4, Charges Included in General and
Administrative Expenses, for more discussion related to this issue.

Goodwill Impairment Charges. The $1,664 goodwill impairment charge relates
primarily to a prior Gulf South acquisition. During the quarter ended April 3,
1998, a dispute with the acquired company's prior owners and management resulted
in the loss of key employees and all operational information related to the
acquired customer base. This ultimately affected Gulf South's ability to conduct
business related to this acquisition, and impacted Gulf South's ability to
recover the value assigned to the goodwill asset.

Selling Expenses. Selling expenses for the three months ended April 3, 1998
totaled $2.9 million, an increase of $0.6 million or 26.1% over the three months
ended March 31, 1997 total of $2.3 million. As a percentage of sales, selling
expenses decreased to 3.4% for the three months ended April 3, 1998 from 3.5%
for the three months ended March 31, 1997. The decrease in selling expense as a
percentage of net sales is the result of the increase in the portion of the
customer base represented by national chain customers on which Gulf South does
not pay sales commissions.

(Loss) Income from Operations. Loss from operations for the three months ended
April 3, 1998 totaled $(20.8) million, a decrease of $23.9 million or 771.0%
over the three months ended March 31, 1997 income from operations of $3.1
million. Operating income decreased primarily due to (i) significant 1998
charges to cost of sales and general and administrative expenses, (ii)
infrastructure investments made in connection with the strategic objectives of
the Company, and (iii) the lower gross profit percentage of companies acquired,
each discussed above.

Provision For Income Taxes. Gulf South recorded an income tax benefit for income
taxes for the three months ended April 3, 1998, of $5.4 million compared to a
tax provision of $1.3 million for the three months ended March 31, 1997. The
1998 benefit primarily resulted from the $25.1 million in unusual charges
related to merger and restructuring costs, asset impairment charges, and other
unusual operating charges recorded during the three months ended April 3, 1998.
The effective rate of Gulf South's tax benefit during 1998 was lower than the
statutory rate, primarily due to the nondeductible nature of certain Gulf
South direct transaction costs.

Net (Loss) Income. Net loss for the three months ended April 3, 1998 totaled
$(15.0) million, a decrease of $17.3 million or 752.2% over the three months
ended March 31, 1997 net income of $2.3 million. The decrease

17
<PAGE>

in net income is primarily attributable to the factors discussed in Gross
Profit and Charges Included in General and Administrative Expenses above.

Fiscal Year Ended April 3,1998 Versus Fiscal Year Ended March 28,1997 (restated)

Net Sales. Net sales for fiscal year 1998 totaled $1.38 billion, an increase of
$215.5 million, or 18.5%, over the fiscal year 1997 total of $1.17 billion. The
increase in net sales was attributable to: (i) net sales from the acquisitions
of the companies during fiscal year 1998 and 1997, accounted for as purchases,
(ii) internal sales growth of centers operating at least two years; (iii) the
Company's focus on diagnostic equipment sales; (iv) incremental sales generated
in connection with the Abbott Agreement.

Net sales contributed from acquisitions completed in fiscal 1998 totaled
approximately $4.7 million and $56.6 million for the Physician Supply and
Imaging Businesses, respectively.

Gross Profit. Gross profit for fiscal year 1998 totaled $365.8 million, an
increase of $79.6 million, or 27.8%, over the fiscal year 1997 total of $286.2
million. The increase in gross profit dollars is primarily attributable to the
sales growth described above. Gross profit as a percentage of net sales was
26.5% and 24.5% for fiscal years 1998 and 1997, respectively.

General and Administrative Expenses. General and administrative expenses for
fiscal year 1998 totaled $231.3 million, an increase of $38.7 million, or 20.1%,
over the fiscal year 1997 total of $192.6 million. General and administrative
expenses as a percentage of net sales was 16.7% and 16.5% for fiscal years 1998
and 1997, respectively.

1998 1997
------- -------
Merger costs and expenses.......................................$13,986 $14,506
Restructuring costs and expenses................................ 3,691 --
Goodwill impairment charges..................................... 5,807 --
Gulf South operational tax charge and professional fee accrual.. 5,986 1,998
Other charges................................................... 2,457 1,446
------- -------
Total charges...................................................$31,927 $17,950
======= =======

Merger Costs and Expenses

18
<PAGE>

Merger costs and expenses for fiscal 1998 include $4,055 of charges
recorded at the commitment date of an integration plan adopted by
management and $9,931 of charges for merger costs expensed as incurred. The
merger costs expensed as incurred primarily relate to direct transaction
costs related to the merger with Gulf South.

Merger costs and expenses for fiscal 1997 include $6,287 of charges
recorded at the commitment date of an integration plan adopted by
management and $8,219 for merger costs expensed as incurred. Refer to Note
5, Accrued Merger and Restructuring Costs and Expenses.

Restructuring Costs and Expenses

Goodwill Impairment Charges

Gulf South Operational Tax Charge and Professional Fee Accrual

The Company, in connection with the filing of its Fiscal 1998 Financial
Statements, restated for certain operational tax compliance issues in the
Financial Statements of Gulf South for the years ended December 31, 1997,
1996, and 1995. As such, Gulf South recorded operational charges of $5,986,
$1,998, and $1,656 during fiscal 1998, 1997, and 1996, respectively,
primarily related to state and local, sales and use, and property taxes
that are normally charged directly to the customer at no cost to the
Company. In addition, as explained in Note 3, Gulf South's Results of
Operations for Three Months Ended April 3, 1998, $2,772 of such charges
were recorded by Gulf South during the quarter ended April 3, 1998.
Interest is included in the above charges as Gulf South did not timely
remit payments to tax authorities. The Company reviewed all available
information, including tax exemption notices received, and recorded charges
to expense during the period in which the tax noncompliance issues arose.

In addition, professional fees estimated to be incurred to resolve the tax
issues of $2,919 for fiscal 1998 were recorded in the accompanying
consolidated statements of income for the year ended April 3, 1998. These
professional fees were previously recorded by Gulf South in the period from
January 1, 1998 to April 3, 1998 and, therefore, reflected as an adjustment
to shareholders' equity on April 4, 1998 (refer to Note 1, Background and
Summary of Significant Accounting Policies). However, the Company's fiscal
1998 historical consolidated financial statements have been previously
restated to recognize the professional fees at the Holding Company in
fiscal 1998, rather than at the Gulf South divisional level.

Other Charges

The other charges recorded in 1998 and 1997 relate to the ESOP cost of an
acquired company. S&W sponsored a leveraged employee stock ownership plan
("S&W ESOP") that covered all employees with one year of service. The
Company accounted for this ESOP in accordance with SOP 93-6, Employers
Accounting for Employee Stock Ownership Plans. Accordingly, the debt of the
ESOP was recorded as debt of the Company, and the shares pledged as
collateral were reported as unearned ESOP shares in the balance sheet. As
shares were released from collateral, the Company reported compensation
expense equal to the then current market price of the shares, and the
shares became outstanding for the earnings-per-share (EPS) computation.
During fiscal 1998, the Company released the remaining shares to the S&W
ESOP participants. Accordingly, approximately $2,457 and $1,446 of related
expenses were recognized in fiscal 1998 and 1997, respectively.

19
<PAGE>

Selling Expenses. Selling expenses for fiscal year 1998 totaled $102.4 million,
an increase of $25.9 million, or 33.9%, over the fiscal year 1997 total of $76.5
million. Selling expense as a percentage of net sales was approximately 7.4% and
6.6% for fiscal years 1998 and 1997, respectively. The Company utilizes a
variable commission plan, which pays commissions based on gross profit as a
percentage of net sales.

Operating Income. Operating income for fiscal year 1998 totaled $32.1 million,
an increase of $15.1 million, or 88.8%, over the fiscal year 1997 total of $17.0
million. As a percentage of net sales, operating income for fiscal year 1998
increased to 2.3% from 1.5% for fiscal year 1997.

Interest Expense. Interest expense for fiscal year 1998 totaled $7.5 million, an
increase of $4.0 million, or 114.3%, over the fiscal year 1997 total of $3.5
million. The increase in interest expense reflects interest on the $125.0
million 8.5% senior subordinated debt that was outstanding the last five months
of fiscal 1998.

Interest and Investment Income. Interest and investment income for fiscal year
1998 totaled $5.2 million, an increase of $1.0 million, or 23.8%, over the
fiscal year 1997 total of $4.2 million.

Other Income. Other income for fiscal year 1998 totaled $2.8 million, an
increase of $0.7 million, or 33.3%, over the fiscal 1997 total of $2.1 million.

Provision for Income Taxes. Provision for income taxes for fiscal year 1998
totaled $17.4 million, an increase of $10.8 million, or 163.6%, over the fiscal
year 1997 total of $6.6 million. This increase primarily resulted from the
impact of factors discussed above. The effective income tax rate was 53.2% in
fiscal year 1998 versus 33.3% in fiscal 1997. The effective tax rate was higher
in 1998 and is generally higher than the Company's statutory rate due to the
nondeductible nature of certain merger related costs and the effect of the
Company's foreign subsidiary, both of which increased in 1998.

Net Income. Net income for fiscal year 1998 totaled $15.3 million, an increase
of $2.0 million, or 15.0%, over the fiscal year 1997 total of $13.3 million. As
a percentage of net sales, net income remained constant at 1.1% for fiscal year
1998 and 1997.

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 (used in) provided by operating activities was $(10.8) million, $27.9
million, and $(18.7) million, in fiscal years 1997, 1998, and 1999,
respectively. The decrease in fiscal 1999 operating cash flow over prior years
was primarily attributable to: (i) $29.1 million cash paid for merger and
restructuring accruals established in the current and prior years, (ii) accounts
receivable and inventory growth in the Imaging division, (iii) approximately $10
million of accounts payable funding in excess of normal operations, and (iv)
working capital requirements of the best practices and distribution upgrades at
Gulf South. These amounts were offset by continued leveraging of fixed operating
costs.

Net cash used in investing activities was $74.8 million, $48.0 million, and
$28.9 million, in fiscal years 1997, 1998, and 1999, respectively. These funds
were primarily utilized to finance the acquisition of new service centers and
capital expenditures including the use of the net proceeds from sales and
maturities of marketable securities. The increase in capital expenditures in
fiscal year 1999 is primarily attributable to new computer systems being
implemented across all the Company's divisions.

Net cash provided by financing activities was $56.4 million, $65.2 million, and
$7.5 million for fiscal years 1997, 1998, and 1999, respectively. Fiscal 1997
cash provided by Gulf South Medical Supply's net proceeds from a public offering
of approximately $91.5 million of its common stock was partially offset by the
use of cash to pay off debt

20
<PAGE>

assumed through fiscal 1997 acquisitions. Fiscal 1998 cash provided by the
issuance of the $125.0 million senior subordinated notes was partially
offset by cash used to retire debt of acquired companies.

The Company had working capital of $355.3 million and $376.2 million as of April
2, 1999 and April 3, 1998, respectively. Accounts receivable, net of allowances,
were $271.8 million and $207.8 million at April 2, 1999 and April 3, 1998,
respectively. The average number of days sales in accounts receivable
outstanding was approximately 55.2 and 50.7 days for the years ended April 2,
1999 and April 3, 1998, respectively. For the year ended April 2, 1999, the
Company's Physician Supply, Imaging, and Long-Term Care Businesses had days
sales in accounts receivable of approximately 55.0, 47.4, and 64.2 days,
respectively.

Inventories were $153.6 million and $125.5 million as of April 2, 1999 and April
3, 1998, respectively. The Company had annualized inventory turnover of 8.2x and
8.8x times for the years ended April 2, 1999 and April 3, 1998. For the year
ended April 2, 1999, the Company's Physician Supply, Imaging, and Long-Term Care
Businesses had annualized inventory turnover of 8.3x, 8.8x, and 7.6x,
respectively. Inventory financing historically has been achieved through
negotiating extended payment terms from suppliers.

The Company has historically been able to finance its liquidity needs for
expansion through lines of credit provided by banks and proceeds from the public
and private offering of stock and debt. In May 1994, the Company completed an
initial public offering of Common Stock resulting in proceeds of approximately
$15.8 million. In November 1995, the Company completed a secondary offering of
Common Stock. The Company used approximately $58.2 million and $26.9 million of
the total secondary offering net proceeds of $142.9 million to repay Company
debt and debt assumed through acquisitions in fiscal years 1996 and 1997,
respectively. Management used the remaining proceeds in connection with
acquisitions for the Imaging, Physician Supply, and International Businesses,
and general corporate purposes, including capital expenditures during fiscal
years 1997 and 1998.

On October 7, 1997, the Company issued, in a private offering under Rule 144A of
the Securities Act of 1933, an aggregate principal amount of $125.0 million of
its 8.5% senior subordinated notes due in 2007 (the "Private Notes") with net
proceeds to the Company of $119.5 million after deduction for offering costs.
The Private Notes are unconditionally guaranteed on a senior subordinated basis
by all of the Company's domestic subsidiaries. On February 10, 1998, the Company
closed its offer to exchange the Private Notes for senior subordinated notes
(the "Notes") of the Company with substantially identical terms to the Private
Notes (except that the Notes do not contain terms with respect to transfer
restrictions). Interest on the Notes accrues from the date of original issuance
and is payable semiannually on April 1 and October 1 of each year, commencing on
April 1, 1998, at a rate of 8.5% per annum. The semiannual payments of
approximately $5.3 million will be funded by the operating cash flow of the
Company. No other principal payments on the Notes are required over the next
five years. The Notes contain certain restrictive covenants that, among other
things, limit the Company's ability to incur additional indebtedness. Provided,
however, that no event of default exist, additional indebtedness may be incurred
if the Company maintains a consolidated fixed charge coverage ratio, after
giving effect to such additional indebtedness, of greater than 2.0 to 1.0.

On February 11, 1999, the Company entered into a $140.0 million senior revolving
credit facility with a syndicate of financial institutions with NationsBank,
N.A. as principal agent. Borrowings under the credit facility are available for
working capital, capital expenditures, and acquisitions, and are secured by the
common stock and assets of the Company and its subsidiaries. The credit facility
expires February 10, 2004 and borrowings bear interest at certain floating rates
selected by the Company at the time of borrowing. The credit facility contains
certain affirmative and negative covenants, the most restrictive of which
require maintenance of a maximum leverage ratio of 3.5 to 1.0, maintenance of
consolidated net worth of $337.0 million, and maintenance of a minimum fixed
charge coverage ratio of 2.0 to 1.0. In addition, the covenants limit additional
indebtedness and asset dispositions, require majority lender approval on
acquisitions with a total purchase price greater than $75.0 million, and
restrict payments of dividends. The Company was not in compliance with its
covenants at April 2, 1999, due to failure to meet certain timely filing
requirements and exceeding capital expenditures limitations by $2.2 million in
the quarter ended April 2, 1999. However, a limited waiver was obtained by the
Company from the lending group.

As of April 2, 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

21
<PAGE>

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 December 31, 1998, the Company did not hold any derivative financial or
commodity instruments. The Company is subject to interest rate risk and certain
foreign currency risk relating to its operations in Europe; however, the Company
does not consider its exposure in such areas to be material. The Company's
interest rate risk is related to its Senior Subordinated Notes, which bear
interest at a fixed rate of 8.5%, and borrowings under its Credit Facility,
which bear interest at variable rates, at the Company's option, at either the
lender's base rate (7.75% at April 2, 1999) or the LIBOR rate plus 1.125% (6.19%
at April 2, 1999).

YEAR 2000 READINESS DISCLOSURE

The following disclosure is a "Year 2000 Readiness Disclosure" within the
context of the Year 2000 Information and Readiness Disclosure Act to the extent
allowed by that Act.

Year 2000 Problem

Many computer programs and hardware with embedded technology use only two digits
to identify a year in a date field within a program (e.g., "98" or "02"). These
programs or hardware may fail to distinguish dates in the "2000s" from dates in
the "1900s" due to the two digit date fields. If uncorrected, such programs and
hardware with date sensitive operations may malfunction or fail to operate after
1999 (and possibly before the year 2000 in some instances).

Company's Year 2000 Program and Systems

The Company has developed, and is implementing, a Year 2000 program to address
both information technology ("IT") and non-IT systems. The Company's business
applications reside on a group of mini computers, servers and personal
computers. The Company also uses laptop computers that serve as sales force and
service technician automation tools. The Company's IT systems include computer
and data network hardware, internally developed software, and software purchased
or licensed from external vendors. The Company's non-IT systems include
equipment which uses date-sensitive embedded technology. Principal non-IT
systems include telecommunications and warehouse equipment. The Company
initiated a Year 2000 compliance program during May 1998, and the progress of
this program has been communicated regularly to the Audit Committee of the
Company's Board of Directors. The Company's approach to address the Year 2000
compliance program includes the following phases: inventory, assessment,
planning, remediation, testing, and implementation, third party risk management,
and business continuity planning.

Company's State of Year 2000 Readiness

The Company believes that its existing systems are substantially Year 2000
compliant, except that the Company lacks sufficient information to determine the
Year 2000 status of recently acquired companies. The recently acquired companies
are scheduled to be converted to Company's substantially compliant systems
before the end of September 1999. The Company substantially completed inventory,
assessment, and plans for remediation of its critical IT systems during the
quarter ended December 1998. Remediation and testing of these critical systems
included upgrading, replacing, or modifying non-compliant components, and was
substantially completed during the quarter ended March 1999. Implementation of
these remediation efforts is now substantially complete, and has been
substantially complete since the quarter ended June 1999. As a precaution
against possible errors or omissions to our remediation efforts, ongoing testing
of all systems, critical and non-critical is targeted to continue through the
end of September 1999. Additional remediation will occur as licensors offer
remedies to Year 2000 issues or in the event undetected system non-compliance
issues are uncovered.

22
<PAGE>

As stated above, recent acquisitions of companies by the Imaging Business have
added to our remediation efforts. The Company does not fully know the state of
Year 2000 readiness of the acquired companies. As a result, seven acquired
service centers are targeted to be integrated into the imaging division's
distribution IT system as branches prior to the end of September 1999.
Currently, the Imaging Business has 30 of 37 service centers and its corporate
location systems converted to its new system, which the Company believes is Year
2000 compliant. The progress of these integrations will be closely monitored,
the Year 2000 readiness of these branches will be assessed, and contingency
plans will be modified accordingly.

The Company is also in the process of completing an inventory and assessment of
its non-critical IT and all non-IT systems. Remediation efforts of non-critical
systems include the development and implementation of ICONWeb, a new enhanced
version of the Physician Supply Business sales force automation software, and
the remediation of the Accuscan software that Gulf South provides its customers
to monitor and order inventory. The new ICONWeb software, which includes
enhanced functionality, is currently being piloted and is targeted for complete
implementation prior to the end of November 1999. Remediated software has been
implemented at approximately 90% of the customers currently using Accuscan. The
remaining customers are targeted for implementation prior to the end of
September 1999. The Company estimates that it will complete inventories,
assessments, planning, remediation, and testing of all other non-critical IT and
all non-IT systems by the end of September 1999.

Costs for Company's Year 2000 Program

The total costs of addressing the Company's Year 2000 readiness issues are not
expected to be material to the Company's financial condition or results of
operations. Since initiation of its program in calendar year 1998, the Company
has expensed approximately $0.5 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
$0.3 million, supplier and customer compliance costs of $0.1 million and all
other costs of $0.1 million. The Company currently estimates that the total of
such costs for addressing its internal Year 2000 readiness, on a worldwide
basis, will approximate $1.7 million in the aggregate on a pretax basis. These
costs are being expensed as they are incurred, except for purchases of computer
hardware and other equipment, which are capitalized as property and equipment
and depreciated over the equipment's estimated useful lives in accordance with
the Company's normal accounting policies. All costs are being funded through
operating cash flows. No projects material to the financial condition, or
results of operations of the Company have been deferred or delayed as a result
of the Year 2000 program. A large part of the Year 2000 effort has been
accomplished through the redeployment of existing resources. The cost of such
redeployment or of internal management time has not been specifically
quantified. As reported previously, concurrent with the Year 2000 modifications
and upgrades to existing systems, the Company is currently replacing a majority
of its internal information systems hardware and software with new systems ("New
Systems") that the Company believes are Year 2000 compliant. The aforementioned
amounts specifically exclude the costs associated with the implementations, but
not the testing of these "New Systems" which are being installed primarily to
integrate operations and achieve additional information technology
functionality.

Both internal and external resources are being used to identify, correct and
test the Company's systems for Year 2000 compliance. A Year 2000 program manager
has been assigned to coordinate the Company's Year 2000 compliance program at
all of the Company's divisions. To assist the Company in meeting its Year 2000
responsibilities, the Company has contracted with external consultants
specializing in Year 2000 readiness assessments. The goal of these consultants
was to assist the Company in evaluating the Year 2000 programs, processes and
progress of its U.S. divisions, and to help identify any remaining areas of
effort advisable. The Company's original cost estimates for testing, third party
Year 2000 risks, and contingency planning were revised as a result of the
consultant's independent assessment of the scope of the Company's program. These
consultants will be engaged through the end of calendar year 1999. The Company's
Year 2000 efforts will be assessed and reported to executive management as part
of this ongoing engagement. In addition, the Company has engaged its attorneys
and other outside consultants to assist or examine selected critical areas. The
Company has consulted insurance professionals and is exploring possible
mitigation of Year 2000 risks through purchasing insurance. Budgeted costs for
these ongoing engagements are estimated at $0.8 million and are included in the
total costs estimates above. With respect to non-IT system issues, the Company
is unable to estimate its remediation costs since it does not have available
information upon which to measure the cost of Year 2000 compliance in this area.
While the total costs to become Year 2000 compliant in the non-IT system area
are not known at this time, management does not believe

23
<PAGE>

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

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.

The Company is subject to risk should Government or private payers (including
insurers) fail to become Year 2000 compliant and, therefore, be unable to make
full or timely reimbursement to the Company's customers. For example, if the
Federal government were unable to make payments under the Medicaid or Medicare
programs due to Year 2000 failures, the Company's customers that derive a
significant portion of their revenues from these government programs could be
adversely affected. Such a situation could have a material adverse affect on the
Company's cash flows, financial position, or results of operations by reducing
the ability of customers to pay for products purchased from the Company. Since
the Company's Year 2000 plan is dependent in part upon these suppliers,
customers and other key third parties being Year 2000 compliant, there can be no
assurance that the Company's efforts to assess third parties' Year 2000
readiness will be able to prevent a material adverse effect on the Company's
business, financial position, or results of operations in future periods should
a significant number of third parties experience business disruptions as a
result of their lack of Year 2000 compliance. Additionally, third party failures
to adequately address the Year 2000 issue could significantly disrupt the
Company's operations and possibly lead to litigation against the Company. The
costs and expenses associated with any such failure or litigation, or with any
disruptions in the economy in general as a result of the Year 2000, are not
presently estimable but could have a material adverse effect on the Company's
business and results of operations.

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 is alerting
customers of their need to address Year 2000 problems, specifically their need
to address risks associated with non-compliant IT and non-IT equipment that they
may have been or are relying on. If the Company were to experience significant
Year 2000 problems due to a failure in its systems or a third party's systems,
the Company would revert to interim manual methods of conducting business. In
developing contingency plans, the Company will be prioritizing its systems and
affected operations, and developing emergency measures to address potential
systems failures that could significantly affect the Company's business
operations. Likewise, the Company's contingency plans will address Year 2000
risks associated with Year 2000 potential failures experienced by third parties.
Additionally, the Company is in the process of updating its information
technology disaster recovery plan to include Year 2000 contingencies that may
arise.

Risks to achieving Year 2000 compliance include the availability of resources,
the Company's ability to discover and correct potential Year 2000 problems which
could have a serious impact on specific systems, equipment or

24
<PAGE>

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.

25
<PAGE>

Item 8. Financial Statements and Supplementary Data

INDEX TO the CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

Page

Financial Statements:

<S> <C>
Report of Independent Certified Public Accountants--PSS World Medical, Inc.......................... F-2

Consolidated Balance Sheets--April 2, 1999 and April 3, 1998 (Restated)............................. F-3

Consolidated Statements of Income for the Years Ended April 2, 1999, April 3, 1998 (Restated), and
March 28, 1997 (Restated).................................................................... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended April 2, 1999, April 3, 1998
(Restated), and March 28, 1997 (Restated).................................................... F-5

Consolidated Statements of Cash Flows for the Years Ended April 2, 1999, April 3, 1998 (Restated),
and March 28, 1997 (Restated)................................................................ F-6

Notes to Consolidated Financial Statements (Restated)........................................... F-7

Schedule II--Valuation and Qualifying Accounts for the Years Ended March 28, 1997, April 3, 1998
(Restated) and April 2, 1999 (Restated)...................................................... F-44

</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
PSS World Medical, Inc.:

We have audited the accompanying consolidated balance sheets (restated) of PSS
World Medical, Inc. (a Florida corporation) and subsidiaries as of April 2, 1999
and April 3, 1998, and the related consolidated statements of income (restated),
shareholders' equity (restated), and cash flows (restated) for each of the three
years in the period ended April 2, 1999. These financial statements and the
schedule (restated) referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of PSS World
Medical, Inc. and subsidiaries as of April 2, 1999 and April 3, 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended April 2, 1999 in conformity with generally accepted accounting
principles.

As explained in Notes 17 and 21 to the financial statements, the Company has
restated certain of its previous financial statements and has given retroactive
effect to recording $7.4 million of pretax charges in the results of operations
for Gulf South Medical Supply, Inc., a subsidiary of PSS World Medical, Inc.,
for the 12 months ended December 31, 1997 and 1996. These charges, which were
previously recorded in Gulf South Medical Supply, Inc.'s results of operations
for the three months ended April 3, 1998, primarily relate to a provision for
doubtful accounts, an allowance for obsolete inventory, legal expenses, and an
inventory write-off.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule (restated) listed in the
index to the consolidated financial statements, is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, based on our audits, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.

Arthur Andersen LLP

Jacksonville, Florida
May 24, 2000

F-2
<PAGE>

PSS WORLD MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

April 2, 1999 and April 3, 1998

(Dollars in Thousands, Except Share Data)

ASSETS

<TABLE>
<CAPTION>
1999 1998
--------- ----------
(Restated)
Current Assets:
<S> <C> <C>
Cash and cash equivalents......................................................... $ 41,106 $ 81,483
Marketable securities............................................................. 3 81,550
Accounts receivable, net.......................................................... 271,781 207,795
Inventories, net.................................................................. 153,626 125,453
Employee advances................................................................. 702 442
Prepaid expenses and other........................................................ 59,327 48,015
--------- ---------
Total current assets..................................................... 526,545 544,738

Property and equipment, net.......................................................... 48,167 31,473
Other Assets:
Intangibles, net.................................................................. 147,383 91,909
Other............................................................................. 21,286 18,617
--------- ---------
Total assets............................................................. $ 743,381 $ 686,737
========= =========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
Accounts payable.................................................................. $ 112,966 $ 109,790
Accrued expenses.................................................................. 48,704 48,081
Current maturities of long-term debt and capital lease obligations................ 1,062 3,570
Other............................................................................. 8,536 7,058
--------- ---------
Total current liabilities................................................ 171,268 168,499
Long-term debt and capital lease obligations, net of current portion................. 152,442 134,057
Other................................................................................ 3,111 4,121
--------- ---------
Total liabilities........................................................ 326,821 306,677
Commitments and contingencies (Notes 1, 2, 8, 9, 16, 19, and 21) --------- ---------

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, 70,796,024 and
70,171,909 shares issued and outstanding at April 2, 1999 and April 3, 1998, 708 702
respectively...................................................................
Additional paid-in capital........................................................ 349,460 341,987
Retained earnings................................................................. 70,211 41,504
Cumulative other comprehensive income............................................. (1,177) (1,296)
--------- ---------
419,202 382,897
Unearned ESOP shares.............................................................. (2,642) (2,837)
--------- ---------
Total shareholders' equity............................................... 416,560 380,060
--------- ---------
Total liabilities and shareholders' equity............................... $743,381 $686,737
========= =========
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

F-3
<PAGE>

PSS WORLD MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended April 2, 1999, April 3, 1998, and March 28, 1997

(Dollars in Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ----------
(Restated) (Restated)

<S> <C> <C> <C>
Net sales......................................................... $1,564,505 $1,381,786 $1,166,286
Cost of goods sold................................................ 1,142,597 1,016,018 880,103
----------- ----------- ----------
Gross profit.......................................... 421,908 365,768 286,183
General and administrative expenses............................... 224,733 231,336 192,643
Selling expenses.................................................. 123,322 102,353 76,493
----------- ----------- ----------
Income from operations................................ 73,853 32,079 17,047
Other income (expense):
Interest expense............................................... (11,522) (7,517) (3,471)
Interest and investment income................................. 4,732 5,249 4,245
Other income................................................... 6,618 2,849 2,062
----------- ----------- ----------
(172) 581 2,836
----------- ----------- ----------
Income before provision for income taxes.......................... 73,681 32,660 19,883
Provision for income taxes........................................ 29,940 17,361 6,624
----------- ----------- ----------
Net income $ 43,741 $ 15,299 $ 13,259
=========== =========== ==========
Earnings per share:
Basic.......................................................... $0.62 $0.22 $0.20
=========== =========== ==========
Diluted........................................................ $0.61 $0.22 $0.20
=========== =========== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-4
<PAGE>

PSS WORLD MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

For the Years Ended April 2, 1999, April 3, 1998 (Restated),
and March 28, 1997 (Restated)

(Dollars in Thousands, Except Share Data)

<TABLE>
<CAPTION>
Cumulative
Common Stock Additional Other Unearned
---------------------- Paid-In Retained Comprehensive ESOP
Shares Amount Capital Earnings Income Shares Totals
---------- --------- --------- -------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 29, 1996............... 64,051,168 $641 $222,068 $14,046 $ -- $(2,378) $234,377
Comprehensive income:
Net income........................... -- -- -- 13,259 -- -- 13,259
Cumulative foreign currency
translation adjustment............ -- -- -- -- (93) -- (93)
Total comprehensive income........... 13,166
Issuance of common stock............. 4,580,934 46 98,359 -- -- (4,034) 94,371
Employee benefits and other.......... -- -- 3,482 (1,100) -- 1,413 3,795
---------- --------- --------- --------- -------------- ---------- ----------
Balance at March 28, 1997............... 68,632,102 687 323,909 26,205 (93) (4,999) 345,709
---------- --------- --------- --------- -------------- ---------- ----------
Comprehensive income:
Net income........................... -- -- -- 15,299 -- -- 15,299
Cumulative foreign currency
translation adjustment............ -- -- -- -- (1,203) -- (1,203)
Total comprehensive income........... 14,096
Issuance of common stock............. 1,539,807 15 15,946 -- -- -- 15,961
Employee benefits and other.......... -- -- 2,132 -- -- 2,162 4,294
---------- --------- --------- --------- -------------- ---------- ----------
Balance at April 3, 1998................ 70,171,909 702 341,987 41,504 (1,296) (2,837) 380,060
---------- --------- --------- --------- -------------- ---------- ----------
Gulf South results of operations and
issuance of common stock,
January 1, 1998 to April 3, 1998
(Notes 1 and 3)................... 202,685 2 2,594 (15,034) -- -- (12,438)
---------- --------- --------- --------- -------------- ---------- ----------
Balance at April 4, 1998................ 70,374,594 704 344,581 26,470 (1,296) (2,837) 367,622
---------- --------- --------- --------- -------------- ---------- ----------
Comprehensive income:
Net income........................... -- -- -- 43,741 -- -- 43,741
Cumulative foreign currency
translation adjustment............ -- -- -- -- 119 -- 119
Total comprehensive income........... 43,860
Issuance of common stock............. 421,430 4 4,267 -- -- -- 4,271
Employee benefits and other.......... -- -- 612 -- -- 195 807
------------ --------- ---------- ---------- -------------- ---------- ----------
Balance at April 2, 1999................ 70,796,024 $708 $349,460 $70,211 $(1,177) $(2,642) $416,560
============ ========= ========== ========== ============== ========== ==========

</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-5
<PAGE>

PSS WORLD MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended April 2, 1999, April 3, 1998 (Restated),
and March 28, 1997 (Restated)

(Dollars in Thousands)
<TABLE>
<CAPTION>

1999 1998 1997
---------- ---------- ----------
(Restated) (Restated)

Cash Flows From Operating Activities:
<S> <C> <C> <C>
Net income............................................................... $ 43,741 $ 15,299 $ 13,259
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization......................................... 20,384 10,861 6,473
Provision for doubtful accounts....................................... 5,181 5,707 6,380
Provision (benefit) for deferred income taxes......................... 10,901 (4,083) (7,332)
Merger and other nonrecurring costs and expenses...................... 4,873 22,340 4,879
(Gain) on sale of fixed assets........................................ (836) -- --
Deferred compensation expense......................................... 365 630 --
Unrealized loss (gain) on marketable securities....................... 288 3 (457)
Changes in operating assets and liabilities, net of effects from
business acquisitions:
Accounts receivable, net........................................... (43,848) (16,339) (14,818)
Inventories, net................................................... 1,275 (2,090) (1,714)
Prepaid expenses and other assets.................................. (4,916) (10,464) (7,247)
Other assets....................................................... (2,265) (2,486) (4,784)
Accounts payable, accrued expenses, and other liabilities.......... (53,847) 8,558 (5,441)
----------- ---------- ----------
Net cash (used in) provided by operating activities............. (18,704) 27,936 (10,802)
----------- ---------- ----------
Cash Flows From Investing Activities:
Purchases of marketable securities....................................... (50,813) (318,166) (256,824)
Proceeds from sales and maturities of marketable securities.............. 125,098 309,628 205,117
Proceeds from sale of property and equipment............................. 1,586 -- --
Capital expenditures..................................................... (24,774) (10,519) (7,171)
Purchases of businesses, net of cash acquired............................ (75,453) (22,481) (11,985)
Payments on noncompete agreements........................................ (4,558) (6,431) (3,980)
----------- ---------- ----------
Net cash used in investing activities........................... (28,914) (47,969) (74,843)
----------- ---------- ----------
Cash Flows From Financing Activities:
Proceeds from public debt offering, net of debt issuance costs........... -- 119,459 --
Proceeds from borrowings................................................. 24,000 4,349 6,131
Repayments of borrowings................................................. (20,337) (56,014) (42,180)
Repayments on revolving line of credit................................... -- (5,000) --
Principal payments under capital lease obligations....................... (366) (306) (795)
Proceeds from issuance of common stock................................... 4,174 2,721 94,371
Distributions to former S corporation shareholders....................... -- -- (1,100)
----------- ---------- ----------
Net cash provided by financing activities....................... 7,471 65,209 56,427
----------- ---------- ----------
Foreign currency translation adjustment..................................... 119 (1,203) (93)
----------- ---------- ----------
Gulf South decrease in cash and cash equivalents for the three months ended (349) -- --
April 3, 1999 ----------- ---------- ----------

Net (decrease) increase in cash and cash equivalents........................ (40,377) 43,973 (29,311)
Cash and cash equivalents, beginning of year................................ 81,483 37,510 66,821
----------- ---------- ----------
Cash and cash equivalents, end of year...................................... $ 41,106 $ 81,483 $ 37,510
=========== ========== ==========
Supplemental Disclosures:
Cash paid for:
Interest.............................................................. $ 11,026 $ 5,195 $ 1,237
=========== ========== ==========
Income taxes.......................................................... $ 18,192 $ 21,170 $ 10,000
=========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-6
<PAGE>

PSS WORLD MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

april 2, 1999, APRIL 3, 1998, and MARCH 28, 1997

(Dollars in Thousands, Except Share Data, Unless Otherwise Noted)

1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company and Nature of Business

Physician Sales & Service, Inc. was incorporated in 1983 in Jacksonville,
Florida. On March 26, 1998, the corporate name of Physician Sales &
Service, Inc. was changed to PSS World Medical, Inc. (the "Company"
or "PSS").

The Company, through its Physician Sales & Service, Inc. division
("Physician Supply Business") is a distributor of medical supplies,
equipment and pharmaceuticals to primary care and other office-based
physicians in the United States. As of April 2, 1999, the Company operated
56 service centers distributing to over 100,000 physician office sites in
all 50 states.

In November 1996, PSS established a new subsidiary, Diagnostic Imaging,
Inc. ("DI" or "Imaging Business"). DI is a distributor of medical
diagnostic imaging supplies, chemicals, equipment, and service to the acute
and alternate care markets in the United States. As of April 2, 1999, DI
operated 37 imaging division service centers distributing to approximately
15,000 medical imaging sites in 41 states.

In March 1996, PSS established two new subsidiaries, WorldMed
International, Inc. ("WorldMed Int'l") and WorldMed, Inc. These
subsidiaries were established to manage and develop PSS' European medical
equipment and supply distribution market. As of April 2, 1999, the European
operation included three service centers distributing to acute and
alternate care sites in Belgium, Germany, France, Holland, and Luxembourg.

In March 1998, the Company entered the long-term care market for the
distribution of medical supplies and other products with its acquisition of
Gulf South Medical Supply, Inc. ("Gulf South" or "Long-Term Care
Business"). As of April 2, 1999, Gulf South, a wholly owned subsidiary of
PSS, operated 14 long-term care distribution service centers serving over
14,000 long-term care facilities in all 50 states.

Basis of Presentation

The accompanying consolidated financial statements give retroactive effect
to the mergers (the "Mergers") with X-Ray of Georgia ("X-Ray Georgia"), S&W
X-Ray, Inc. ("S&W"), Gulf South, and various immaterial businesses acquired
during fiscal 1999, 1998, and 1997 (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, X-Ray Georgia, S&W,
Gulf South, and the Pooled Entities had operated as one entity since
inception.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries using the year-ends discussed below. All
intercompany accounts and transactions have been eliminated. Results of
operations of companies acquired in purchase business transactions are
included in the accompanying consolidated financial statements from the
dates of acquisition.

F-7
<PAGE>

Fiscal Year

The Company's fiscal year ends on the Friday closest to March 31 of each
year. Prior to April 4, 1998, Gulf South's year-end was December 31. The
fiscal 1998 and 1997 consolidated financial statements combine the December
31, 1997 and December 31, 1996 financial statements of Gulf South with the
April 3, 1998 and March 28, 1997 financial statements of PSS, respectively.
Effective April 4, 1998, Gulf South's fiscal year-end was changed to
conform to the Company's year-end. As such, Gulf South's results of
operations for the period January 1, 1998 to April 3, 1998 are not included
in any of the periods presented in the accompanying consolidated statements
of income. Accordingly, Gulf South's results of operations for the three
months ended April 3, 1998 are reflected as an adjustment to shareholders'
equity of the Company as of April 4, 1998. The Company's fiscal 1999
consolidated financial statements include the combined results of
operations for the period from April 4, 1998 to April 2, 1999, of both PSS
and Gulf South.

Fiscal years 1999, 1998, and 1997, consist of 52, 53, and 52 weeks,
respectively.

Use of Estimates

In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, marketable securities, short-term trade receivables,
and accounts payable approximate their fair values due to the short-term
nature of these assets and liabilities. The fair value of the senior
subordinated debt is estimated using quoted market prices. The carrying
value of the Company's senior subordinated debt at April 2, 1999 and April
3, 1998 was $125,000 and the market value was $120,925 and $128,413,
respectively. The carrying value of the Company's other long-term debt was
$27,442 and $9,057, at April 2, 1999 and April 3, 1998, respectively, which
approximates fair value.

Cash and Cash Equivalents

Cash and cash equivalents generally consist of cash held at banks,
short-term government obligations, commercial paper, and money market
instruments. The Company invests its excess cash in high-grade investments
and, therefore, bears minimal risk. These instruments have original
maturity dates not exceeding three months.

Marketable Securities

The Company classifies its marketable securities either as trading
securities or held-to-maturity and carries such securities at fair market
value or amortized cost, respectively. Marketable securities include
obligations of states and political subdivisions, preferred stock,
corporate debt securities, and other equity securities, generally with an
original maturity greater than three months. Changes in net unrealized
gains and losses on trading securities are included in interest and
investment income in the accompanying consolidated statements of income.
Gains and losses are based on the specific identification method of
determining cost.

Concentration of Credit Risk

The Company's trade accounts receivables are exposed to credit risk.
Although the majority of the market served by the Company is comprised of
numerous individual accounts, none of which is individually significant,
the Company's subsidiary Gulf South depends on a limited number of large
customers. Approximately 38% and 37% of Gulf South's revenues for the years
ended April 2, 1999 and December 1997, respectively, represented sales to
its top five customers. The Company monitors the creditworthiness of its

F-8
<PAGE>

customers on an ongoing basis and provides reserves for estimated bad debt
losses and sales returns. The Company had allowances for doubtful accounts
of approximately $6,918 and $10,837 as of April 2, 1999 and April 3, 1998,
respectively. Provisions for doubtful accounts were approximately $5,181,
$5,707, and $6,380, for fiscal years ended 1999, 1998, and 1997,
respectively.

Inventories

Inventories are comprised principally of medical and related products and
are stated at the lower of cost (first-in, first-out) or market. Market is
defined as net realizable value.

A companywide physical inventory observation is performed semiannually. Any
inventory that is impaired for any reason is disposed of or written down to
fair market value at this time. Management reviews all branch inventory
valuations and makes further adjustment if necessary.

Slow moving inventory is tracked using a report that details items that
have not moved in the last 60, 90, or 120 days and an appropriate reserve
is established. Once slow moving inventory has been identified, the
branches transfer inventory to other branches with a market for that
inventory. If management determines the inventory is not salable, the
inventory is written off against the inventory obsolescence reserve.

The Company allows the customers to return products under its "no hassle
customer guarantee," and customers are issued credit memos. The Company
records an allowance for estimated sales returns and allowances at the end
of each period. Sales returns and allowances are estimated based on past
history.

Property and Equipment

Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from three to thirty years.
Leasehold improvements are amortized over the lease terms or the estimated
useful lives, whichever is shorter. Gain or loss upon retirement or
disposal of property and equipment is recorded in other income in the
accompanying consolidated statements of income.

The Company evaluates the recoverability of long-lived assets not held for
sale by measuring the carrying amount of the assets against the estimated
undiscounted future cash flows. At the time such evaluations indicate that
the future undiscounted cash flows of certain long-lived assets are not
sufficient to recover the carrying value of such assets, the assets are
adjusted to their fair values.

Intangibles

Noncompete agreements are amortized on a straight-line basis over the lives
of the agreements, which range from 3 to 15 years. The Company has
classified as goodwill the cost in excess of the fair value of net
identifiable assets purchased in business acquisitions that are accounted
for as purchase transactions. Goodwill is being amortized over 15 to 30
years using the straight-line method, including any contingent
consideration paid.

The Company periodically evaluates intangible assets to determine if there
is impairment. Based on these evaluations, there was an adjustment to the
carrying value of certain intangible assets in fiscal year 1998 (refer to
Note 4, Charges Included in General and Administrative Expenses).

Self-Insurance Coverage

The Company maintains a minimum premium program for employee health and
dental costs. This plan includes coverage for stop loss based on maximum
individual costs of $125 per claimant and approximately $3 per year, per
participant for all plan participants, in the aggregate. Claims that have
been incurred but not reported are recorded based on estimates of claims
provided by the third party administrator and are included in the accrued
expenses in the accompanying consolidated balance sheets.

F-9
<PAGE>

Contingent Loss Accruals

In determining the accrual necessary for probable loss contingencies as
defined by Statement of Financial Accounting Standards ("SFAS") No. 5,
Accounting for Contingencies, the Company includes estimates for
professional fees, such as engineering, legal, accounting, and consulting,
and other related costs to be incurred, unless such fees and related costs
are not probable of being incurred or are not reasonably estimable.

Income Taxes

The Company uses the asset and liability method in accounting for income
taxes. Deferred income taxes result primarily from the net tax effect of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes.

Shareholders' Equity

Gulf South completed a public offering in June 1996 pursuant to which Gulf
South received net proceeds of approximately $91,500 from the sale of
3,890,733 shares of its common stock. A portion of the net proceeds from
the offering were used to repay the outstanding balance under Gulf South's
revolving credit facility, with the remaining balance used for general
corporate purposes, including the subsequent acquisitions.

The Company realizes an income tax benefit from the exercise or early
disposition of certain stock options. This benefit results in a decrease in
current income taxes payable and a direct increase in additional paid-in
capital (refer to Note 10, Income Taxes).

During fiscal year 1998, the Company committed to release the remaining
shares to the S&W ESOP participants. Approximately $2.5 million of related
expense was recognized during fiscal year 1998 (refer to Note 15, Employee
Benefit Plans).

Other Comprehensive Income

During 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, Reporting Comprehensive Income, which requires that changes in
comprehensive income be shown in a financial statement that is displayed
with the same prominence as other financial statements. The Company adopted
this statement in fiscal 1999. Cumulative other comprehensive income
has been separately disclosed in the accompanying consolidated statements
of shareholders'equity.

Revenue Recognition

Substantially all revenues are recorded when products are shipped or
services are provided to customers. Revenues from service contracts are
recognized in earnings over the respective term of the contract.

Foreign Currency Translation

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.

Stock-Based Compensation

The Company accounts for its stock-based compensation plans using the
intrinsic value method. The Company adopted the disclosure only provisions
of SFAS No. 123, Accounting for Stock-Based Compensation. In accordance
with SFAS No. 123, for footnote disclosure purposes only, the Company
computes its earnings and earnings per share on a pro forma basis as if the
fair value method had been applied.

F-10
<PAGE>

Earnings Per Common Share

Basic and diluted earnings per common share are presented in accordance
with SFAS No. 128, Earnings Per Share. Basic earnings per common share is
computed by dividing net income by the weighted average number of shares
outstanding. Diluted earnings per common share includes the dilutive effect
of stock options (refer to Note 12, Earnings Per Share).

Statements of Cash Flows

The Company's noncash investing and financing activities were as follows:

1999 1998 1997
-------- -------- -------
Business acquisitions:
Fair value of assets acquired............$56,815 $48,924 $37,148
Liabilities assumed...................... 39,930 32,684 39,258
Notes payable issued..................... -- -- 25,321
Noncompetes issued....................... 3,950 7,574 4,300
Tax benefits related to stock option plans.. 759 1,505 3,449
Capital lease obligations incurred.......... -- 325 --

Reclassification

Certain amounts for prior years have been reclassified to conform to the
current year presentation.

Recent Accounting Pronouncements

The Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information during fiscal 1999. This statement
establishes standards for the reporting of information about operating
segments in annual and interim financial statements and requires
restatement of prior year information. Operating segments are defined as
components of an enterprise for which separate financial information is
available that is evaluated regularly by the chief operating decision
maker(s) in deciding how to allocate resources and in assessing
performance. SFAS No. 131 also requires disclosures about products and
services, geographic areas and major customers. The adoption of SFAS No.
131 did not affect results of operations or financial position but did
affect the disclosure of segment information, as presented in Note 17,
Segment Information.

The Company will adopt AICPA Statement of Position ("SOP") 98-5, Reporting
on the Costs of Start-Up Activities, during fiscal 2000. This SOP requires
that costs of start-up and organization activities previously capitalized
be expensed and reported as a cumulative effect of a change in accounting
principle and requires that such costs subsequent to adoption be expensed
as incurred. Management does not anticipate that the new SOP will have a
material impact on future results of operations.

During fiscal 1998, the FASB issued SFAS No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits. This statement revises
employers' disclosures about pension and other postretirement benefit
plans. The Company adopted this statement in fiscal 1999. There was no
change in the measurement or recognition of the Company's benefit plans.

During 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. This statement is effective for the Company's fiscal year 2002.
The Company is in the process of evaluating the disclosure requirements
under this standard.

F-11
<PAGE>

2. Business Acquisitions

On March 26, 1998, the Company completed its merger with Gulf South. The
Company issued 28,810,747 shares of its common stock for all of the
outstanding common stock of Gulf South, which was valued at $662.6 million
at the time of merger. Each share of Gulf South common stock was exchanged
for 1.75 shares of PSS common stock. In addition, outstanding Gulf South
stock options were converted at the same exchange factor into stock options
to purchase 2,206,461 shares of PSS common stock. This merger constituted a
tax-free reorganization and has been accounted for as a pooling of
interests; therefore, the historical financial statements of the Company
have been restated as discussed in Note 1, Background and Summary of
Significant Accounting Policy.

On September 23, 1997, the Company acquired S&W in a merger pursuant to
which the Company issued 1,737,458 shares of common stock to the former
shareholders of S&W in exchange for all of the outstanding shares of
capital stock of S&W valued at $26.0 million at the time of the merger. The
merger constituted a tax-free reorganization and has been accounted for as
a pooling of interests, and accordingly, the Company's consolidated
financial statements have been restated to include the accounts and
operations of S&W for all periods prior to the merger.

On December 20, 1996, the Company acquired X-Ray Georgia in a merger
pursuant to which the Company issued 593,672 shares of common stock to the
former shareholders of X-Ray Georgia in exchange for all of the outstanding
shares of capital stock of X-Ray Georgia valued at $11.0 million at the
time of the merger. The merger constituted a tax-free reorganization and
has been accounted for as a pooling of interests, and accordingly, the
Company's consolidated financial statements have been restated to include
the accounts and operations of X-Ray Georgia for all periods prior to the
merger.

Other Pooled Entities

The Company merged with certain other medical supply and equipment
distributors and imaging supply and equipment distributors in stock mergers
accounted for under the pooling-of-interests method of accounting. Due to
the aggregate impact of these individually immaterial pooling-of-interest
transactions on the Company's prior period financial statements, the
consolidated financial statements have been retroactively restated to
include the pooling-of-interest transactions as if the companies had
operated as one entity since inception, as shown below. The number of
companies acquired and the number of shares of common stock issued are as
follows.

Fiscal Year
----------------------------------
1999 1998 1997
------- ------- ---------

Number of acquisitions.................. 2 4 4
Number of shares of common stock issued. 608,000 490,000 1,737,000

The results of operations for the acquired companies through their
respective acquisition dates and the combined amounts presented in the
consolidated financial statements follow:

Fiscal Year Ended April 2, 1999
------------------------------------
Other
Pooled
Entities PSS Combined
-------- ---------- -----------
Net sales.............................. $51,643 $1,512,862 $1,564,505
Gross profit........................... 4,914 416,994 421,908
Net income............................. (1,098) 44,839 43,741
Other changes in shareholders' equity.. 70 (11,828) (11,758)

F-12
<PAGE>
<TABLE>
<CAPTION>

Fiscal Year Ended April 3, 1998
--------------------------------------------------------------------------------------
Gulf South
As Impact of Other
Originally Restatement Gulf South Pooled
Published (See Note 22) Restated S&W Entities PSS Combined
---------- ----------- ---------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $287,582 $ -- $287,582 $38,003 $92,722 $963,479 $1,381,786
Gross profit......... 74,353 (668) 73,685 8,756 14,598 268,729 365,768
Net income........... 12,114 (2,253) 9,861 (2,095) 581 6,952 15,299
Other changes in
shareholders'equity 753 -- 753 2,790 (243) 15,752 19,052

</TABLE>

<TABLE>
<CAPTION>
Fiscal Year Ended March 28, 1997
-------------------------------------------------------------------------------------

Gulf South
As Impact of Other
Originally Restatement Gulf South X-Ray of Pooled
Published (See Note 22) Restated Georgia S&W Entities PSS Combined
----------- ------------ ---------- -------- ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $177,710 $ -- $177,710 $33,182 $72,034 $225,522 $657,838 $1,166,286
Gross profit......... 48,052 (1,290) 46,762 5,784 16,782 34,531 182,324 286,183
Net income........... 9,072 (2,264) 6,808 938 54 2,024 3,435 13,259
Other changes in
shareholders' 93,651 -- 93,651 (1,100) 1,321 1,427 2,774 98,073
equity

</TABLE>

Purchase Acquisitions

During fiscal 1999, the Company acquired certain assets and assumed certain
liabilities of 3 medical supply and equipment distributors, 15 imaging
supply and equipment distributors, and 4 long-term health care
distributors. In addition, the Company acquired the common stock of 2
imaging supply and equipment distributors. A summary of the details of the
transactions follow:

Fiscal Year
----------------------------------
1999 1998 1997
-------- -------- --------
Number of acquisitions.............. 25 13 9
Issuance of shares of common stock.. -- 933,000 3,000
Total consideration.................$115,183 $35,739 $36,613
Cash paid, net of cash acquired..... 75,453 22,481 11,985
Issuance of note payable............ -- -- 25,321
Goodwill recorded................... 58,368 33,745 40,625
Noncompete payments................. 3,950 2,982 220

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 value of the common stock issued in connection with these purchases is
generally determined based on an average market price of the shares over a
ten-day period before a definitive agreement is signed and the proposed
transaction is announced. The excess of the purchase price over the
estimated fair value of the net assets acquired has been recorded as
goodwill and is amortized over 15 to 30 years.

The accompanying consolidated financial statements reflect the preliminary
allocation of the purchase price. The allocation of the purchase price,
performed using values and estimates available as of the date of the
financial statements, has not been finalized due to certain pre-acquisition
contingencies identified by the

F-13
<PAGE>

Company and the nature of the estimates required in the establishment of
the Company's merger integration plans. Accordingly, goodwill associated
with these acquisitions may increase or decrease in fiscal 2000.

In addition, the terms of certain of the Company's recent acquisition
agreements provide for additional consideration to be paid if the acquired
entity's results of operations exceed certain targeted levels. Targeted
levels are generally set above the historical experience of the acquired
entity at the time of acquisition. Such additional consideration is to be
paid in cash or with shares of the Company's common stock and is recorded
when earned as additional purchase price. The maximum amount of remaining
contingent consideration is approximately $7.8 million (payable through
fiscal 2001). The first potential earn-out payment is effective in fiscal
2000.

The following table summarizes the adjustments recorded against goodwill
during fiscal 1999. There were no such adjustments in fiscal 1998.

April 2, 1999
--------------
Merger costs and expenses .............................. $ 1,038
Reversal of excess accrued merger costs and expenses.... (1,343)
Deferred tax assets of acquired companies............... (2,644)
--------------
$(2,949)

Merger costs and expenses

During fiscal 1999, the Company recorded approximately $545 of merger
integration costs and expenses directly to goodwill as incurred as these
costs were contemplated at the time of acquisition. In addition, the
Company recorded approximately $493 of merger costs and expenses related to
other acquisitions directly to goodwill for costs that were in excess of
the original integration plan accrual estimated by management. Such merger
costs and expenses are recorded directly to goodwill only if it is within
one year from the date of the acquisition and such expenses were
contemplated at the time of the acquisition. If merger costs and expenses
are incurred subsequent to one year from the date of the acquisition, or
were not contemplated at the time of the acquisition, such expenses are
recorded in general and administrative expenses.

Reversal of excess accrued merger costs and expenses

During fiscal 1999, the Company reversed approximately $1,343 of certain
accrued merger costs and expenses that management determined to be
unnecessary due to changes in integration plans or estimates. Management
evaluates integration plans at each period end and determines if revisions
to the accruals are appropriate. Such revisions to the original estimates
are made directly to goodwill.

Deferred tax assets of acquired companies

This adjustment represents a true-up of the deferred tax assets and
liabilities per the financial statements and the tax return, as a result of
additional information received on the deductibility of certain
pre-acquisition expenditures.

3. GULF SOUTH'S RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 3, 1998
(RESTATED)

As discussed in Note 1, Background and Summary of Significant Accounting
Policies, due to the Company's consolidation method and the differing
year-ends of PSS and Gulf South, Gulf South's results of operations for the
three months ended April 3, 1998 are not reflected in the accompanying
consolidated statements of income for any periods presented. Rather, the
results of operations have been recorded as an adjustment to shareholders'
equity during the first quarter of fiscal 1999. Therefore, the results of
Gulf South's operations for the period January 1, 1998 to April 3, 1998 are
summarized below for additional disclosure. Certain

F-14
<PAGE>

adjustments have been made to the results of Gulf South's operations as
compared to the amounts disclosed in the Company's previous filing. These
adjustments are includeD in the discussion in Note 22, Restatements.

Three Months
Ended
April 3, 1998
-------------
(Restated)

Net sales......................................... $ 87,018
Cost of goods sold................................ 73,108
-------------
Gross profit............................. 13,910
General and administrative expenses............... 31,721
Selling Expenses.................................. 2,939
-------------
Loss from operations..................... (20,750)
Other income, net................................. 321
-------------
Loss before benefit for income taxes.............. (20,429)
Benefit for income taxes.......................... 5,395
-------------
Net loss.......................................... $(15,034)
=============

During the three months ended April 3, 1998, Gulf South recorded $24,825 of
charges related to the disposition of reconciling items, merger and
restructuring costs and expenses, goodwill impairment charge, and other
operating charges. These charges are included in cost of goods sold and
general and administrative expenses above. The following table summarizes
the components of the $24,825 in charges.

Three Months
Ended
April 3, 1998
-------------
(Restated)
Cost of goods sold:

Reconciling items................................................$ 5,590
Increase allowance for obsolete inventory........................ 1,889
-------------
Total charges included in costs of goods sold........... 7,479
-------------
General and administrative expenses:
Direct transaction costs related to the merger................... 5,656
Restructuring costs and expenses................................. 4,281
Legal fees and settlements....................................... 2,700
Operational tax charge........................................... 2,772
Goodwill impairment charge....................................... 1,664
Other............................................................ 273
------------
Total charges included in general & administrative expenses. 17,346
------------
Total charges...............................................$ 24,825
============

Cost of Goods Sold:

Reconciling Items

During the quarter ending April 3, 1998, a $5.6 million charge was recorded
in general and administrative expenses. Through a review of accounting
records, management believes this charge is appropriately related to cost
of goods sold.

F-15
<PAGE>

Increase Allowance for Obsolete Inventory

The charge relates directly to a change of plans, uses, and disposition
efforts which new Gulf South management had as compared to prior
management. This decision to significantly alter Gulf South's inventory
retention and buying policies, and, therefore, to dispose of the related
inventories, resulted in a change in the ultimate valuation of the impacted
inventories. This charge was recognized in the period in which management
made the decision to dispose of the affected inventory, which was Gulf
South's quarter ended April 3, 1998.

General and Administrative Expenses:

Direct Transaction Costs Related to the Merger

Direct transaction costs primarily consist of professional fees, such as
investment banking, legal, and accounting, for services rendered through
the date of the merger. As of April 2, 1999, all direct transaction costs
were paid. Due to subsequent negotiations and agreements between the
Company and its service provider, actual costs paid were less than costs
originally billed and recorded. As a result, approximately $777 of costs
were reversed against general and administrative expenses during the
quarter ended September 30, 1998.

Restructuring Costs and Expenses

In order to improve customer service, reduce costs, and improve
productivity and asset utilization, the Company decided to realign and
consolidate its operations with Gulf South. The restructuring costs and
expenses, which directly relate to the merger with PSS World Medical, Inc.,
were recorded during the three months ended April 3, 1998. During this time
period, management approved and committed to a plan to integrate and
restructure the business of Gulf South.

The Company recorded restructuring costs and expenses for costs for lease
terminations, severance and benefits to terminate employees, facility
closure, and other costs to complete the consolidation of the operations.
The following table summarizes the components of the restructuring charge.

Involuntary employee termination costs....................$1,879
Lease termination costs................................... 977
Branch shutdown costs..................................... 885
Other exit costs.......................................... 540
------
$4,281
======

Refer to Note 5, Accrued Merger and Restructuring Costs and Expenses, and
Note 18, Quarterly Results of Operations, for a more detailed discussion
regarding accrued restructuring costs and expenses.

Legal Fees and Settlements

Gulf South recorded a $2,000 accrual for legal fees specifically related to
class action lawsuits, which Gulf South, the Company, and certain present
and former directors and officers were named as defendants. These lawsuits
are further discussed in Note 19, Commitments and Contingencies. In
addition, Gulf South recorded $700 in charges related to a customer supply
agreement.

Operational Tax Charge

Gulf South recorded an operational tax charge of $9,492, of which $2,772
was recorded in the quarter ended April 3, 1998, for state and local, sales
and use, and property taxes that are normally charged directly to the
customer at no cost to the Company. Penalties and interest are included in
the above charge as Gulf South did not timely remit payments to tax
authorities. The Company reviewed all available information, including tax
exemption notices received, and recorded charges to expense during the
period in which the tax noncompliance issues arose. See Note 4, Charges
Included in General and Administrative Expenses, and Note 22, Restatements,
for more detailed discussion related to this issue.

F-16
<PAGE>

Goodwill Impairment Charge

The $1,664 goodwill impairment charge relates primarily to a prior Gulf
South acquisition. During the quarter ended April 3, 1998, a dispute with
the acquired company's prior owners and management resulted in the loss of
key employees and all operational information related to the acquired
customer base. This ultimately affected Gulf South's ability to conduct
business related to this acquisition, and impacted Gulf South's ability to
recover the value assigned to the goodwill asset.

4. CHARGES INCLUDED IN GENERAL and ADMINISTRATIVE EXPENSES

In addition to typical general and administrative expenses, this line
includes charges related to merger activity, restructuring activity, and
other special items. The following table summarizes charges included in
general and administrative expenses in the accompanying consolidated
statements of income:

<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Merger costs and expenses............................................ $ 4,371 $14,066 $14,506
Restructuring costs and expenses..................................... 4,922 3,691 --
Information systems accelerated depreciation......................... 5,379 -- --
Goodwill impairment charges.......................................... -- 5,807 --
Gulf South operational tax charge and professional fee accrual....... -- 5,986 1,998
Other charges........................................................ 1,010 2,457 1,446
------- ------- -------
Total charges........................................................ $15,682 $32,007 $17,950
======= ======= =======
</TABLE>

Merger Costs and Expenses

F-17
<PAGE>

Restructuring Costs and Expenses

Refer to Note 5, Accrued Merger and Restructuring Costs and Expenses, for a
further discussion regarding the restructuring plan.

Information Systems Accelerated Depreciation

Goodwill Impairment Charges

During fiscal 1998, the Company determined that goodwill related to three
foreign (World Med Int'l) acquired companies and one domestic (PSS
division) acquired company, was not recoverable. As such, the goodwill of
$5,807 related to the four entities was written-off during fiscal 1998.

Gulf South Operational Tax Charge and Professional Fee Accrual

F-18
<PAGE>

fiscal 1998, 1997, and 1996, respectively, primarily related to state
and local, sales and use, and property taxes that are normally
charged directly to the customer at no cost to the Company. In
addition, as explained in Note 3, Gulf South's Results of
Operations for Three Months Ended April 3, 1998, $2,772 of such charges
were recorded by Gulf South during the quarter ended April 3, 1998.
Interest is included in the above charges as Gulf South did not timely
remit payments to tax authorities. The Company reviewed all available
information, including tax exemption notices received, and recorded charges
to expense, during the period in which the tax noncompliance issues arose.

In addition, professional fees estimated to be incurred of $2,919 to
resolve the tax issues for fiscal 1998 were recorded in the accompanying
consolidated statements of income for the year ended April 3, 1998.

Other Charges

During fiscal 1999, the Company incurred approximately $1,010 of costs
related to acquisitions not consummated.

The other charges recorded in fiscal 1998 and 1997 relate to the ESOP cost
of an acquired company. S&W sponsored a leveraged employee stock ownership
plan ("S&W ESOP") that covered all employees with one year of service. The
Company accounted for this ESOP in accordance with SOP 93-6, Employers
Accounting for Employee Stock Ownership Plans. Accordingly, the debt of the
ESOP was recorded as debt of the Company, and the shares pledged as
collateral were reported as unearned ESOP shares in the balance sheet. As
shares were released from collateral, the Company reported compensation
expense equal to the then current market price of the shares, and the
shares became outstanding for the earnings-per-share (EPS) computation.
During fiscal 1998, the Company released the remaining shares to the S&W
ESOP participants. Accordingly, approximately $2,457 and $1,446 of related
expenses were recognized in fiscal 1998 and 1997, respectively.

5. 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 4, Charges
Included in General and Administrative Expenses). Involuntary employee
termination costs are employee severance costs and termination benefits.
Lease termination costs are lease cancellation fees and forfeited deposits.
Branch shutdown costs include costs related to facility closure costs.
Employee relocation costs are moving costs of employees of an acquired
company in transactions accounted for under the purchase method of
accounting.

Accrued merger costs and expenses, classified as accrued expenses in the
accompanying consolidated balance sheets, were $4,084 and $4,327, at April
2, 1999 and April 3, 1998, respectively. The discussion and rollforward of

F-19
<PAGE>

the accrued merger costs and expenses below summarize the significant and
nonsignificant integration plans adopted by management for business
combinations accounted for under the purchase method of accounting and
pooling-of-interests method of accounting. Integration plans are considered
to be significant if the charge recorded to establish the accrual is in
excess of 5% of consolidated pretax income.

Significant Pooling-of-Interests Business Combination Plan

The Company formalized and adopted an integration plan in December 1997 to
integrate the operations of S&W with the Imaging Business. The following
accrued merger costs and expenses were recognized in the accompanying
consolidated statements of operations at the commitment date. A summary of
the merger activity related to the S&W merger is as follows:

Involuntary
Employee Lease Branch
Termination Termination Shutdown
Costs Costs Costs Total
------------ ----------- ----------- ---------

<S> <C> <C> <C> <C>
Balance at March 28, 1997........................ $ -- $ -- $ -- $ --
Additions..................................... 160 540 873 1,573
Utilized...................................... (4) -- (412) (416)
------------ ----------- ----------- ---------
Balance at April 3, 1998......................... 156 540 461 1,157
Adjustments................................... -- -- -- --
Additions..................................... -- -- -- --
Utilized...................................... (2) -- (350) (352)
------------ ----------- ----------- ---------
Balance at April 2, 1999......................... $154 $540 $111 $ 805
============ =========== =========== =========
</TABLE>

Involuntary employee termination costs are costs for seven employees,
including severance and benefits, who represent duplicative functions in
the accounting, purchasing, human resource, and computer support
departments at locations where facilities were combined into existing
facilities. As of April 2, 1999, one employee has been terminated and the
remaining six employees are estimated to be terminated by the end of second
quarter of fiscal 2000. Management identified seven distribution facilities
to be closed in which all operations would be ceased due to duplicative
functions, six of which had been shut down by April 2, 1999, with the final
location estimated to be shut down in the second quarter of fiscal 2000.
Included in branch shutdown costs are costs related to contractual
obligations that existed prior to the merger date but will provide no
ongoing value to the Company.

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
April 2, 1999 because the information system conversion must be completed
prior to consolidating distribution facilities. The lease termination costs
will be paid through fiscal 2002.

Nonsignificant Poolings-of-Interests Business Combination Plans

The following accrued merger costs and expenses were recognized in the
accompanying consolidated statements of operations at the date in which the
integration plan was formalized and adopted by management. A summary of the
merger activity related to eight nonsignificant pooling-of-interests
business combinations completed during fiscal 1997 through 1999,
respectively, is as follows:

F-20
<PAGE>
<TABLE>
<CAPTION>

Involuntary
Employee Lease Branch
Termination Termination Shutdown
Costs Costs Costs Total
-------- --------- --------- --------

<S> <C> <C> <C> <C>
Balance at March 28, 1997........................ $ 2 $ 436 $ 1,544 $ 1,982
Additions..................................... 164 150 1,247 1,561
Utilized...................................... (1) (333) (2,273) (2,607)
-------- --------- --------- --------
Balance at April 3, 1998......................... 165 253 518 936
Adjustments................................... (144) 11 311 178
Additions..................................... 74 1,868 376 2,318
Utilized...................................... (21) (248) (969) (1,238)
-------- --------- --------- --------
Balance at April 2, 1999......................... $ 74 $ 1,884 $ 236 $ 2,194
======== ========= ========= ========
</TABLE>

Actual involuntary employee termination costs were less than management's
estimate and lease termination and branch shutdown costs were greater than
management's estimate recorded to establish the accrued merger costs and
expenses. Therefore, adjustments were made to the accruals to reflect the
changes in estimated costs and expenses in the accompanying statement of
operations for the year ended April 2, 1999. Refer to Note 4, Charges
Included in General and Administrative Expenses.

The Imaging Business acquired Tristar Imaging Systems, Inc. in October
1998, and management formalized and adopted an integration plan in April
1999 to integrate the operations of the acquired company. Approximately
$2,064 of the $2,194 accrued merger costs and expenses at April 2, 1999
relate to this integration plan. Management anticipates this integration
plan will be completed during fiscal 2000; however, lease termination
payments will extend through fiscal 2007.

Significant Purchase Business Combination Plan

The Company formalized and adopted an integration plan in September 1997 to
integrate the operations of General X-Ray, Inc. ("GXI") with the Imaging
Business. The following accrued merger costs and expenses were recognized
and additional goodwill was recorded at the commitment date. A summary of
the GXI merger accruals is as follows (in thousands):

Involuntary
Employee Lease Branch
Relocation Termination Termination Shutdown
Costs Costs Costs Costs Total
---------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at March 28, 1997.......... $ -- $ -- $ -- $ -- $ --
Additions....................... 225 205 1,150 920 2,500
Utilized........................ (63) (8) (60) (135) (266)
--------- ---------- ----------- --------- ---------
Balance at April 3, 1998........... 162 197 1,090 785 2,234
Adjustments..................... (125) (85) (883) (32) (1,125)
Additions....................... -- -- -- -- --
Utilized........................ (37) (112) (207) (753) (1,109)
--------- ---------- ----------- --------- ---------
Balance at April 2, 1999........... $ -- $ -- $ -- $ -- $ --
========= ========== =========== ========= =========
</TABLE>

The Company identified nine distribution facilities to be closed and all
operations would be ceased due to duplicative functions. Relocation costs
were recorded related to the transfer of approximately 15 GXI employees.
Involuntary employee termination costs are costs for 19 employees,
including severance and benefits, who represent duplicative functions as
service and operations leaders, customer service representatives, and
accounting personnel at locations where facilities would be combined. As of
April 2, 1999, all employees have been terminated and relocated, and the
plan has been completed.

F-21
<PAGE>

Certain intervening events occurred that modified the execution of the GXI
integration plan. Due to growth from a subsequent acquisition and
improvement in the operating results for a distribution facility previously
identified to be closed, certain merger accruals were not utilized.
Therefore, an adjustment was recorded during the second quarter of fiscal
1999 to reverse $1,125 of excessive accruals against goodwill.

Nonsignificant Purchase Business Combination Plans

The following accrued merger costs and expenses were recognized and
additional goodwill was recorded at the date in which the integration plans
were formalized and adopted by management. A summary of the merger activity
related to six nonsignificant purchase business combinations during fiscal
1998 and 1999 is as follows:

<TABLE>
<CAPTION>
Involuntary
Employee Employee Lease Branch
Relocation Termination Termination Shutdown
Costs Costs Costs Costs Total
---------- ----------- ----------- --------- ---------

<S> <C> <C> <C> <C> <C>
Balance at March 28, 1997................ $ -- $ -- $ -- $ -- $ --
Additions............................. -- -- -- -- --
Utilized.............................. -- -- -- -- --
---------- ----------- ----------- --------- ---------
Balance at April 3, 1998................. -- -- -- -- --
Additions from Gulf South subsidiary... -- 102 100 250 452
---------- ----------- ----------- --------- ---------
Balance at April 4, 1998................. -- 102 100 250 452
Adjustments........................... -- (102) (55) (135) (292)
Additions............................. 155 556 423 496 1,630
Utilized.............................. (38) (11) (58) (598) (705)
---------- ----------- ----------- --------- ---------

Balance at April 2, 1999................. $117 $545 $410 $ 13 $1,085
========== =========== =========== ========= =========
</TABLE>

The additions from the Gulf South subsidiary represents the additions of
the accrued merger costs and expenses recorded by Gulf South during the
unconsolidated period January 1 to April 3, 1998. No amounts were utilized
during this period. Refer to Note 1, Background and Summary of Significant
Accounting Policies, for a discussion regarding the different year-ends of
Gulf South and the Company.

During the fourth quarter of fiscal 1999, management determined that actual
merger costs to be incurred were less than management's estimate recorded
to establish the accrued merger costs and expenses. Therefore, an
adjustment to reduce goodwill of $292 was recorded to eliminate the
excessive accruals.

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
$964 of the $1,085 accrued merger costs and expenses at April 2, 1999
relate to these integration plans. Management anticipates these integration
plans will be completed during fiscal 2000; however, lease termination
payments will extend through fiscal 2003.

Summary of Accrued Restructuring Costs and Expenses

Primarily as a result of the impact of the Gulf South merger, in order to
improve customer service, reduce costs, and improve productivity and asset
utilization, the Company decided to realign and consolidate its operations.
Accordingly, the Company began implementing a restructuring plan during the
fourth quarter of fiscal 1998 which impacted all divisions ("Plan A").
Subsequently, the Company adopted a second restructuring plan during the
first quarter of fiscal 1999 related to the Gulf South division ("Plan B")
to further consolidate its operations.

The Company recorded a total accrual of $7,971 related to Plan A.
Approximately $3,691 of the $7,971 total restructuring charge was related
to the PSS and DI divisions and was recorded in the accompanying

F-22
<PAGE>

consolidated statement of operations for the fiscal 1998. The additions
from the Gulf South represent restructuring costs and expenses of $4,281
recorded by Gulf South during the unconsolidated period January 1 to April
3, 1998. No amounts were utilized during this period. This charge is not
included in the accompanying consolidated statements of operations; rather
it is included in the retained earnings adjustment recorded on April 4,
1998. Refer to Note 1, Background and Summary of Accounting Policies, for a
discussion regarding the different year-ends of Gulf South and the Company.

During the first quarter of fiscal 1999, the Company established an
additional accrual of $1,503 related to Plan B.

Accrued restructuring costs and expenses, classified as accrued expenses in
the accompanying consolidated balance sheets, were $3,818 million and
$3,691 million, at April 2, 1999 and April 3, 1998, respectively. A summary
of the restructuring plan activity is as follows:

Involuntary
Employee Lease Branch Other
Termination Termination Shutdown Exit
Costs Costs Costs Costs Total
----------- ----------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at March 28, 1997................... $ -- $ -- $ -- $ -- $ --
Additions................................ 1,570 1,389 627 105 3,691
Utilized................................. -- -- -- -- --
----------- ----------- --------- -------- --------
Balance at April 3, 1998.................... 1,570 1,389 627 105 3,691
Additions from Gulf South subsidiary..... 1,880 406 1,455 540 4,281
----------- ----------- --------- -------- --------
Balance at April 4, 1998.................... 3,450 1,795 2,082 645 7,972
Additions................................ 652 570 281 -- 1,503
Utilized................................. (2,500) (1,045) (1,467) (645) (5,657)
----------- ----------- --------- -------- --------
Balance at April 2, 1999.................... $1,602 $1,320 $ 896 $ -- $3,818
=========== =========== ========= ======== ========
</TABLE>

Plan A

Restructuring Plan A impacted all divisions, and involved merging 18
locations into existing locations and eliminating overlapping regional
operations and management functions. The plan also included the termination
of approximately 270 employees from operations, administration, and
management. As of April 2, 1999, 231 employees were terminated as a result
of the plan. Management anticipates terminating the remaining 39 employees
by the end of the fourth quarter of fiscal 2000. Furthermore, branch
shutdown costs include the costs to implement Best Practice Warehousing at
the Gulf South division in order to provide efficient, consistent, standard
service to Gulf South customers similar to the Company's established
standards. Best Practice Warehousing involves removal of all products,
tearing down racking, rebuilding racking, and relocating bins and products
within the warehouse to achieve greater efficiencies in order filling. The
amount of costs was estimated based upon the size of the warehouse.

Plan B

Restructuring Plan B related only to the Gulf South division, and involved
merging six additional locations into existing locations. At April 2, 1999,
two of the six locations had been shut down and the remaining four
locations are scheduled to be shut down in fiscal 2000. As a result of the
consolidation of the duplicate facilities, lease termination costs will be
incurred through fiscal 2000. The plan also included the termination of
three employees from operations and management. As of April 2, 1999, all
employees were terminated as a result of the plan, with the related
severance payments to be made in fiscal 2000.

F-23
<PAGE>

6. MARKETABLE SECURITIES

At April 3, 1998, the Company held investments in marketable securities
that were classified as either trading or held-to-maturity, depending on
the security and management's intent.

Securities classified as trading at April 3, 1998 consisted of obligations
of states and political subdivisions, preferred stock, and other equity
securities. The investments are carried at their fair values based upon the
quoted market prices, with changes in unrealized gains or losses included
in interest and investment income. At April 3, 1998, securities classified
as trading consisted of the following:

Changes in
Fair Unrealized
Value Gain (Loss)
-------- -----------
April 2, 1999:
Other equity securities...........................$ 3 $ (573)
======== ===========
April 3, 1998:
Obligations of states and political subdivisions..$ 11,000 $ --
Preferred stock................................... 25,000 (3)
Other equity securities........................... 576 --
-------- -----------
$36,576 $ (3)
======== ===========

Securities classified as held-to-maturity consist of corporate debt
securities for which the Company has the positive intent and ability to
hold to maturity. Held-to-maturity securities are stated at cost with
corresponding premiums or discounts amortized over the life of the
investment to interest income. All commercial paper is due within one year
and are classified as current in the accompanying consolidated balance
sheets. The fair value of commercial paper was $44,974, which is based on
quoted market prices and approximates amortized cost at April 3, 1998.

7. PROPERTY AND EQUIPMENT

Property and equipment, stated at cost, are summarized as follows:

1999 1998
-------- ---------
Land............................................. $ 1,996 $ 838
Building 4,186 3,268
Equipment........................................ 62,430 40,627
Furniture, fixtures, and leasehold improvements.. 12,233 8,487
-------- ---------
80,845 53,220
Accumulated depreciation......................... (32,678) (21,747)
-------- ---------
$48,167 $31,473
======== =========

Equipment includes equipment acquired under capital leases with a cost of
$488 and $434 and related accumulated depreciation of $233 and $171 at
April 2, 1999 and April 3, 1998, respectively. Depreciation expense,
included in general and administrative expenses in the accompanying
consolidated statements of income, aggregated approximately $12,209,
$5,629, and $3,856 for fiscal 1999, 1998, and 1997, respectively.

F-24
<PAGE>

8. INTANGIBLES

Intangibles, stated at cost, consist of the following:

1999 1998
-------- -------
Goodwill $134,196 $78,656
Noncompete agreements and other........ 27,257 22,295
-------- -------
161,453 100,951
Accumulated amortization............... (14,070) (9,042)
-------- -------
$147,383 $91,909
======== =======

Future minimum payments required under noncompete agreements at April 2,
1999 are as follows:

Fiscal Year:
2000............................................. $2,421
2001............................................. 1,074
2002............................................. 713
2003............................................. 292
2004............................................. 74
Thereafter....................................... 340
------
$4,914
======

Amortization expense, included in general and administrative expenses in
the accompanying consolidated statements of income, aggregated
approximately $7,289, $5,062, and $2,617 for fiscal 1999, 1998, and 1997,
respectively.

9. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

Long-term debt and capital lease obligations consist of the following:

April 2, 1999 April 3, 1998
------------- -------------
Senior subordinated notes.............. $125,000 $125,000
Senior revolving credit................ 24,000 --
Capital lease obligations.............. 496 532
Long-term debt of acquired companies... 96 7,675
Other notes 3,912 4,420
------------- -------------
153,504 137,627
Less current maturities................ (1,062) (3,570)
------------- -------------
$152,442 $134,057
============= =============

Senior Subordinated Notes

During October 1997, the Company issued 8.5% unsecured senior subordinated
notes due in 2007 (the "Notes") in the amount of $125,000. Interest on the
Notes accrues from their date of original issuance and is payable
semi-annually on April 1 and October 1 of each year, commencing on April 1,
1998, at a rate of 8.5% per annum. The Notes are subject to certain
covenants, including restrictions on indebtedness, investments, payments of
dividends, purchases of treasury stock, and sales of assets and maintaining
a fixed charge coverage ratio of 2.0 to 1.0.

F-25
<PAGE>

Senior Revolving Credit

The Company entered into a $140,000 senior revolving credit facility with a
syndicate of financial institutions with NationsBank, N.A. as principal
agent in February 1999. Borrowings under the credit facility are available
for working capital, capital expenditures, and acquisitions and are secured
by the common stock of the subsidiaries and assets of the Company and its
subsidiaries. The credit facility expires February 10, 2004 and borrowings
bear interest at variable rates, at the Company's option, at either the
lender's base rate or the LIBOR rate plus 1.125%. The interest rates at
April 2, 1999 were 7.75% and 6.19%, respectively. The amount outstanding
under the credit facility at April 2, 1999 was $24,000.

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, maintenance of consolidated net worth of $337.0 million,
and maintenance of a minimum fixed charge coverage ratio of 2.0 to 1. In
addition, the covenants limit additional indebtedness and asset
dispositions, require majority lender approval on acquisitions with a total
purchase price greater than $75,000, and restrict payments of dividends.
The Company was not in compliance with its covenants at April 2, 1999, due
to failure to meet certain timely filing requirements. However, a limited
waiver was obtained by the Company from the lending group.

Capital Lease Obligations

As of April 2, 1999, future minimum payments, by fiscal year and in the
aggregate, required under capital leases are approximately as follows:

Fiscal Year:
2000...........................................................$ 361
2001........................................................... 98
2002........................................................... 64
2003........................................................... 38
-------
Net minimum lease payments........................................ 561
Less amount representing interest................................. (65)
-------
Present value of net minimum lease payments under capital leases.. 496
Less amounts due in one year...................................... (321)
-------
Amounts due after one year............................$ 175
=======

Long-Term Debt of Acquired Companies

Approximately $5,150 of long-term debt of acquired companies outstanding at
April 3, 1998 relates to the Other Pooled Entities. Refer to Note 1,
Background and Summary of Significant Accounting Policies, for a further
discussion regarding the Other Pooled Entities. All debt has been repaid
subsequent to the date of merger.

Other Notes

At April 2, 1999, other notes consist of various debt maintained by
WorldMed Int'l, including a working capital line of credit, a mortgage on
facilities in Leuven, Belgium, and debt to acquire certain international
business service centers. Interest rates on the related notes range from
4.9% to 6.15%, respectively.

F-26
<PAGE>

As of April 2, 1999, future minimum payments of long-term debt, excluding
capital lease obligations, are approximately as follows:

Fiscal Year:
2000.............................................$ 741
2001............................................. 645
2002............................................. 645
2003............................................. 645
2004............................................. 24,645
Thereafter....................................... 125,687
-----------
Total...................................$ 153,008
===========

10. INCOME TAXES

The provisions for income taxes are detailed below:

1999 1998 1997
Current tax provision: ------- ------- -------
Federal............................. $16,253 $17,928 $11,441
State............................... 2,786 3,516 2,515
------- ------- -------
Total current.............. 19,039 21,444 13,956
------- ------- -------
Deferred tax provision (benefit):
Federal............................. 9,306 (3,486) (6,259)
State............................... 1,595 (597) (1,073)
------- ------- -------
Total deferred............. 10,901 (4,083) (7,332)
------- ------- -------
Total income tax provision. $29,940 $17,361 $ 6,624
======= ======= =======

The difference between income tax computed at the federal statutory rate
and the actual tax provision is shown below:
<TABLE>
<CAPTION>

1999 1998 1997
---------- ---------- --------
(Restated) (Restated)
<S> <C> <C> <C>
Income before provision for taxes.................................. $73,681 $32,660 $19,883
========== ========== ========

Tax provision at the 35% statutory rate............................ $25,788 $11,431 $ 6,959
---------- ---------- --------
Increase (decrease) in taxes:
State income tax, net of federal benefit........................ 2,847 1,886 766
Effect of foreign subsidiary.................................... 310 2,179 (174)
Merger costs and expenses....................................... (250) 1,958 721
Goodwill amortization........................................... 969 512 15
Meals and entertainment......................................... 454 207 180
Nontaxable interest income...................................... (374) (688) (1,102)
Change in valuation allowance for deferred taxes................ -- -- (900)
Income of S corporations........................................ 68 (287) (750)
Other, net...................................................... 128 163 909
---------- ---------- --------
Total increase (decrease) in taxes..................... 4,152 5,930 (335)
---------- ---------- --------
Total income tax provision............................. $29,940 $17,361 $ 6,624
========== ========== ========

Effective tax rate................................................. 40.6% 53.2% 33.3%
========== ========== ========

</TABLE>

F-27
<PAGE>

Deferred income taxes for fiscal 1999 and 1998 reflect the impact of
temporary differences between the financial statement and tax bases of
assets and liabilities. The tax effect of temporary differences which
create deferred tax assets and liabilities at April 2, 1999 and April 3,
1998 are detailed below:
<TABLE>
<CAPTION>

1999 1998
-------- --------
(Restated)
Deferred tax assets:

<S> <C> <C>
Allowance for doubtful accounts and sales returns............................ $ 5,398 $ 5,393
Merger, restructuring and other nonrecurring costs and expenses.............. 4,406 5,886
Accrued expenses............................................................. 4,276 2,574
Net operating loss carryforwards............................................. 3,380 1,228
Operational tax reserve...................................................... 2,980 2,614
Inventory uniform cost capitalization........................................ 1,536 1,640
Reserve for inventory obsolescence........................................... 1,272 1,226
Accrued professional fees.................................................... 1,014 1,135
Goodwill impairment charges.................................................. 551 627
Excess book depreciation and amortization over tax depreciation and
amortization.............................................................. -- 214
Other........................................................................ 1,075 479
-------- ---------
Gross deferred tax assets........................................... 25,888 23,016
-------- ---------
Deferred tax liabilities:
Excess of tax depreciation and amortization over book depreciation and
amortization.............................................................. (288) --
Other........................................................................ (107) (223)
-------- ---------
Gross deferred tax liabilities...................................... (395) (223)
-------- ---------
Net deferred tax assets......................................................... $25,493 $22,793
======== =========
</TABLE>

The income tax benefit related to the exercise or early disposition of
certain stock options reduces taxes currently payable and is credited
directly to additional paid-in capital. Such amounts were $759, $1,505, and
$3,449 for fiscal 1999, 1998, and 1997, respectively.

At April 2, 1999, the Company had net operating loss carryforwards for
income tax purposes arising from mergers of approximately $8,688 which
expire from 2000 to 2019. The utilization of the net operating loss
carryforwards is subject to limitation in certain years.

All deferred tax assets as of April 2, 1999 and April 3, 1998 are
considered to be realizable due to the projected future taxable income.
Therefore, no valuation allowance has been recorded as of April 2, 1999 and
April 3, 1998.

F-28
<PAGE>

11. EARNINGS PER SHARE

In accordance with SFAS No. 128, Earnings Per Share, the calculation of
basic net earnings per common share and diluted earnings per common share
is presented below (share amounts in thousands, except per share data):

1999 1998 1997
-------- --------- --------
(Restated) (Restated)

Net income (loss)..................... $43,741 $15,299 $13,259
======== ========= ========
Earnings per share:
Basic.............................. $0.62 $0.22 $0.20
======== ========= ========

Diluted............................ $0.61 $0.22 $0.20
======== ========= ========

Weighted average shares outstanding:

Common shares...................... 70,548 69,575 66,207
Assumed exercise of stock options.. 850 970 750
-------- --------- --------
Diluted shares outstanding......... 71,398 70,545 66,957
======== ========= ========

12. RELATED-PARTY TRANSACTION

During fiscal 1998, the Company loaned its Chairman of the Board and Chief
Executive Officer $3,000 to consolidate debt incurred in relation to
certain real estate activities, as well as to provide the cash needed to
pay-off personal debt. During fiscal 1999, the principal amount of the loan
increased approximately $585. The loan is unsecured, bears interest at the
applicable federal rate for long-term obligations (5.74% and 6.55% at April
2, 1999 and April 3, 1998, respectively), and is due September 2007. The
outstanding principal, included in other assets in the accompanying
consolidated balance sheets, at April 2, 1999 and April 3, 1998 was
approximately $2,736 and $2,715, respectively. Accrued interest was
approximately $146 and $45 at April 2, 1999 and April 3, 1998,
respectively. Interest income, included in interest and investment income
in the accompanying consolidated statements of income for fiscal 1999 and
1998 was approximately $165 and $103, respectively. Principal payments for
fiscal 1999 and 1998, were approximately $564 and $285, respectively.
Interest payments for fiscal 1999 and 1998, were approximately $65 and $58,
respectively.

13. STOCK-BASED COMPENSATION PLANS

1999 Broad-Based Employee Stock Plan

Under the Company's 1999 Broad-Based Employee Stock Plan, 500,000 shares of
the Company's common stock are reserved for sale to nonofficer employees.
Grants under this plan are in the form of nonqualified stock options or
restricted stock. Options may be granted at prices not less than the fair
market value of the common stock on the date such option is granted and are
exercisable five years from the date of grant. Any option may be
exercisable no later than ten years from the date of grant. According to
Rule 144, unregistered stock options must be held for a minimum of two
years subsequent to the date of exercise prior to selling the common stock.

F-29
<PAGE>

Information regarding this plan is summarized below (share amounts in
thousands):

Weighted
Average
Shares Price
-------- ---------
Balance, April 3, 1998..................... -- $ --
Granted................................. 453 9.73
Exercised............................... -- --
Forfeited............................... -- --
-------- ---------
Balance, April 2, 1999..................... 453 $9.73
======== =========
As of April 2, 1999, the range of exercise prices and the weighted-average
remaining contractual life of outstanding options was $8.97 to $10.66 and
6.25 years, respectively, and approximately 47,160 shares of common stock
are available for issuance under the plan. The weighted-average per share
fair value of options granted was $4.36 in fiscal 1999.

Incentive Stock Option Plan

Under the Company's qualified 1986 Incentive Stock Option Plan, 6,570,000
shares of the Company's common stock are reserved for sale to officers and
key employees. Options may be granted at prices not less than fair market
value at the date of grant and are exercisable during periods of up to five
years from that date. The exercisability of the options is not subject to
future performance.

Information regarding this plan is summarized below (share amounts in
thousands):

Weighted
Average
Shares Price
-------- --------

Balance, March 29, 1996...................... 722 $2.94
Granted................................... -- --
Exercised................................. (346) 2.83
Forfeited................................. (12) 3.28
-------- --------
Balance, March 28, 1997...................... 364 3.05
Granted................................... -- --
Exercised................................. (248) 2.77
Forfeited................................. (3) 2.10
-------- --------
Balance, April 3, 1998....................... 113 3.67
Granted................................... -- --
Exercised................................. (110) 3.67
Forfeited................................. (3) 3.67
-------- --------
Balance, April 2, 1999....................... -- $ --
======== ========

All options are fully vested at the date of grant; therefore, all
outstanding options at the end of each period are exercisable. As of April
2, 1999, there were no remaining outstanding options. This plan has expired
and will require shareholder vote to renew this plan and issue any of the
approximate 1,180,502 shares of common stock that remains in the plan.

Long-Term Stock Plan

In March 1994, the Company adopted the 1994 Long-Term Stock Plan under
which the Compensation Committee of the Board of Directors has discretion
to grant nonqualified stock options and restricted stock to any employee of

F-30
<PAGE>

the Company. A total of 2,190,000 shares of the Company's common stock have
been reserved for issuance under this plan. The exercise price of options
granted under this plan may not be less than the fair market value of the
Company's common stock on the date of grant.

Information regarding the stock option component of this plan is summarized
below (share amounts in thousands):

Weighted
Average
Shares Price
-------- --------
Balance, March 29, 1996..................... 615 $14.17
Granted.................................. 217 23.90
Exercised................................ (27) 13.35
Forfeited................................ (3) 5.79
-------- --------
Balance, March 28, 1997..................... 802 16.52
Granted.................................. 898 14.53
Exercised................................ (112) 13.20
Forfeited................................ (43) 14.89
-------- --------
Balance, April 3, 1998...................... 1,545 16.19
Granted.................................. 476 13.27
Exercised................................ (66) 13.76
Forfeited................................ (5) 16.78
-------- --------
Balance, April 2, 1999...................... 1,950 $14.80
======== ========

All options are fully vested at the date of grant; therefore, all
outstanding options at the end of each period are exercisable. The
weighted-average per share fair value of options granted was $6.84, $5.60,
and $11.08 in fiscal 1999, 1998, and 1997, respectively. As of April 2,
1999, the range of exercise prices and the weighted-average remaining
contractual life of outstanding options were $5.29 to $28.86 and 6.37
years, respectively. As of April 2, 1999, there were no remaining shares
available for grant under this plan, and the Company does not intend to
issue any more options under this plan.

Long-Term Incentive Plan

In March 1994, the Company adopted the 1994 Long-Term Incentive Plan which
provides officers with performance awards, consisting of cash or registered
shares of common stock, or a combination thereof, based primarily upon the
Company's total shareholder return as ranked against the companies
comprising the NASDAQ Composite Index over a three-year period. The maximum
payable under this plan to an eligible employee, whether in the form of
cash or common stock, may not exceed $1 million per fiscal year.

The plan also provides for nonqualified stock options or restricted stock
to be granted at the full discretion of the Compensation Committee. The
exercise price of options granted under this plan may not be less than the
fair market value of the Company's common stock on the date of grant, and
accordingly, no compensation expense is recorded on the date the stock
options are granted. The aggregate number of shares of common stock,
including shares reserved for issuance pursuant to the exercise of options,
which may be granted or issued may not exceed 730,000 shares.

No cash or restricted stock was issued during fiscal 1999. During fiscal
1998, the Company has accrued approximately $407 related to awards granted
under this plan and approximately $832 of cash payments were made.

F-31
<PAGE>

Information regarding the stock option component of the plan is summarized
below (share amounts in thousands):
Weighted
Average
Shares Price
-------- --------

Balance, March 29, 1996................... 319 $14.88
Granted................................ 68 23.94
Exercised.............................. (61) 14.88
Forfeited.............................. (5) 23.94
-------- --------
Balance, March 28, 1997................... 321 16.78
Granted................................ 97 16.92
Exercised.............................. -- --
Forfeited.............................. -- --
-------- --------
Balance, April 3, 1998.................... 418 15.90
Granted................................ -- --
Exercised.............................. -- --
Forfeited.............................. -- --
-------- --------
Balance, April 2, 1999.................... 418 $14.83
======== ========

All options are fully vested at the date of grant; therefore, all
outstanding options at the end of each period are exercisable. The
weighted-average per share fair value of options granted was $5.72 and
$11.08 in fiscal 1998 and 1997, respectively. As of April 2, 1999, the
range of exercise prices and the weighted-average remaining contractual
life of outstanding options were $14.75 to $14.88, and 6.86 years,
respectively. As of April 2, 1999, there were approximately 6,800 shares
available for grant under this plan.

Directors' Stock Plan

In March 1994, the Company adopted the Directors' Stock Plan under which
nonemployee directors receive an annual grant of an option to purchase
shares of the Company's common stock. During fiscal 1999, the Plan was
amended to increase the number of option grants from 1,500 to 3,000 and to
increase the number of shares available for grant. A total of 400,000
shares of the Company's common stock have been reserved for issuance under
this plan. The exercise price of options granted under this plan may not be
less than the fair market value of the Company's common stock on the date
of grant.

F-32
<PAGE>

Information regarding the stock option component of this plan is summarized
below (share amounts in thousands):
Weighted
Average
Shares Price
-------- --------

Balance, March 29, 1996............... 45 $10.12
Granted............................ 32 23.94
Exercised.......................... (3) 5.48
Forfeited.......................... -- --
-------- --------
Balance, March 28, 1997............... 74 13.44
Granted............................ 50 14.75
Exercised.......................... -- --
Forfeited.......................... -- --
-------- --------
Balance, April 3, 1998................ 124 15.70
Granted............................ 135 13.71
Exercised.......................... (6) 5.48
Forfeited.......................... (1) 5.48
-------- --------
Balance, April 2, 1999................ 252 $13.69
======== ========

All options are fully vested at the date of grant; therefore, all
outstanding options at the end of each period are exercisable. The
weighted-average per share fair value of options granted was $7.37, $5.72,
and $13.22 in fiscal years 1999, 1998, and 1997, respectively. As of April
2, 1999, the range of exercise prices and the weighted-average remaining
contractual life of outstanding options were $5.48 to $15.81 and 8.35
years, respectively. At April 2, 1999, approximately 135,000 shares were
available for grant under this plan.

Gulf South's Stock Option Plans

Under Gulf South's Stock Option Plans of 1997 and 1992, 850,000 and
1,300,000 shares, respectively, of common stock have been reserved for
grant to key management personnel and to members of the former Board of
Directors. The options granted have ten-year terms with vesting periods of
either three or five years from either the date of grant or the first
employment anniversary date. At April 2, 1999, approximately 301,000 and
791,000 shares were available for grant under the 1997 and 1992 plans,
respectively. However, shareholder approval must be received for any of the
remaining shares to be issued under this plan.

A summary of the Gulf South's stock option activity and related information
is as follows (share amounts in thousands):

F-33
<PAGE>

Weighted
Average
Shares Price
-------- --------
Balance, January 1, 1996.................... 976 $ 4.57
Granted.................................. 355 16.53
Exercised................................ (216) 2.68
Forfeited................................ (20) 9.57
-------- --------
Balance, December 31, 1996.................. 1,095 8.57
Granted.................................. 833 11.89
Exercised................................ (144) 2.90
Forfeited................................ (149) 13.38
-------- --------
Balance, December 31, 1997.................. 1,635 10.39
Granted.................................. 788 19.89
Exercised................................ (203) 13.02
Forfeited................................ (13) 12.07
-------- --------
Balance, April 3, 1998...................... 2,207 13.55
Granted.................................. -- --
Exercised................................ (239) 11.46
Forfeited................................ (24) 17.07
-------- --------
Balance, April 2, 1999...................... 1,944 $13.77
======== ========

All options are fully vested at the date of grant; therefore, all
outstanding options at the end of each period are exercisable. The
weighted-average fair values of options granted during calendar year 1997
and 1996 were $5.83 and $5.94, respectively. As of April 2, 1999, the range
of exercise prices and the weighted-average remaining contractual life of
outstanding options for the 1997 plan were $4.71 to $21.69 and 8.54 years,
respectively. As of April 2, 1999, the range of exercise prices and the
weighted-average remaining contractual life of outstanding options for the
1992 plan were $0.012 to $28.00 and 6.3 years, respectively.

The Company granted warrants for 787,500 shares of its common stock on
January 2, 1997 at an exercise price of $14.80 in connection with the
purchase of Gateway. All of the warrants were exercisable upon the date of
grant and expire January 2, 2002.

Unregistered Stock Options

During fiscal 1999, the Company issued 255,747 unregistered stock options
to nonofficer employees. The exercise price of options granted was $13.00,
which was equal to the fair market value of the Company's common stock on
the date of grant.

F-34
<PAGE>

Fair Value of Stock Options

Under SFAS No. 123, pro forma information regarding net income and earnings
per share has been determined as if the Company had accounted for its
employee stock options under the fair value method. The fair value of stock
options granted has been estimated using a Black-Scholes option pricing
model.

The fair value of PSS' stock options (1999 Broad-Based Employee Stock Plan,
Incentive Stock Option Plan, Long-Term Stock Plan, Long-Term Incentive
Plan, and Directors' Stock Plan) granted during fiscal 1999, 1998, and 1997
have been estimated based on the following weighted average assumptions:
risk-free interest rates ranging from 5.1% to 6.8%, expected option life
ranging from 2.5 to 7 years; expected volatility of 56.0%, 55.0%, and
55.0%, respectively; and no expected dividend yield. Using these
assumptions, the estimated fair values of options granted for fiscal 1999,
1998, and 1997 were approximately $9,091, $4,814, and $2,897, respectively,
and such amounts would be included in compensation expense.

The fair value of Gulf South's stock options granted during fiscal 1998 and
1997, have been estimated based on the following weighted average
assumptions: risk-free interest rates of 6.0%, and 6.5%, respectively;
expected option life of three years; expected volatility of 65.2%, and
41.8%, respectively; and no expected dividend yield. Using these
assumptions, the estimated fair values of options granted for fiscal 1998
and 1997 were approximately $1,568, and $633, respectively, and such
amounts would be included in compensation expense.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.

Pro forma net income and net income per share for the fiscal years ended
1999, 1998, and 1997, assuming the Company had accounted for the plans
under the fair value approach, are as follows (in thousands, except per
share data):

1999 1998 1997
-------- -------- --------
Net income: (Restated) (Restated)
As reported................ $43,741 $15,299 $13,259
Pro forma.................. 38,287 11,470 11,141
Earnings per share:
As reported:
Basic................... $0.62 $0.22 $0.20
Diluted................. 0.61 0.22 0.20
Pro forma:
Basic................... 0.54 0.16 0.17
Diluted................. 0.54 0.16 0.17

Because the fair value method of accounting has not been applied to options
granted prior to March 31, 1996, the resulting pro forma compensation cost
may not be representative of that to be expected in future years.

14. EMPLOYEE BENEFIT PLANS

The Company has an employee stock ownership plan ("ESOP") available to all
employees with at least one year of service. Effective January 1, 1996, the
Company amended the plan to allow participants to direct the investment of
a portion of their plan balances. Prior to this change, the trustees
directed the investment of the participants' balances. As of plan years
ended March 31, 1999 and April 3, 1998, the ESOP owns approximately
2,123,000 and 1,999,000 shares of the Company's common stock, respectively.
Company contributions to the plan were approximately $108, $134, and $160
for fiscal 1999, 1998, and 1997, respectively, and are made at the
discretion of the Company.

F-35
<PAGE>

The Company also has an employee stock purchase plan available to employees
with at least one year of service. The plan allows eligible employees to
purchase company stock over-the-counter through payroll deductions.

A company acquired in fiscal 1999 sponsored a leveraged employee stock
ownership plan ("Tristar ESOP"). The Company accounted for this ESOP in
accordance with SOP 93-6. Accordingly, the debt of the ESOP was recorded as
debt of the Company, and the shares pledged as collateral were reported as
unearned ESOP shares in the balance sheet. As shares were released from
collateral, the Company reported compensation expense equal to the then
current market price of the shares, and the shares became outstanding for
the earnings-per-share (EPS) computation.

The Tristar ESOP shares were as follows:
<TABLE>
<CAPTION>

April 2, 1999 April 3, 1998 March 28, 1997
------------- ------------- --------------
<S> <C> <C> <C>
Allocated shares...................................... 76,972 25,934 --
Shares released for allocation........................ 12,524 51,038 25,934
Unreleased shares..................................... 169,840 182,364 233,402
------------- ------------- --------------
Total ESOP shares......................... 259,336 259,336 259,336
------------- ------------- --------------
Fair value of unreleased shares....................... $ 1,523 $ 5,835 $ 3,371
============= ============= ==============
</TABLE>

Approximately $221, $824, and $469, of related expense was recognized in
fiscal 1999, 1998, and 1997, respectively.

S&W sponsored a leveraged employee stock ownership plan ("S&W ESOP") that
covered all employees with one year of service. The Company accounted for
this ESOP in accordance with SOP 93-6. Accordingly, the debt of the ESOP
was recorded as debt of the Company, and the shares pledged as collateral
were reported as unearned ESOP shares in the balance sheet. As shares were
released from collateral, the Company reported compensation expense equal
to the then current market price of the shares, and the shares became
outstanding for the earnings-per-share (EPS) computation.

The S&W ESOP shares were as follows:

April 3, 1998 March 28, 1997
------------- --------------
Allocated shares..................... 398,727 278,490
Shares released for allocation....... 162,769 120,237
Unreleased shares.................... -- 162,769
------------- --------------
Total ESOP shares........ 561,496 561,496
------------- --------------
Fair value of unreleased shares...... $ -- $1,512,495
============= ==============

During fiscal 1998, the Company released the remaining shares to the S&W
ESOP participants, and it is management's intention to terminate this plan.
Accordingly, approximately $2.5 million of related expense was recognized
in fiscal 1998.

PSS EDP Program

Effective July 1, 1997, the Company adopted the PSS EDP Program ("EDP"),
which is available to executives, management, and salespeople. This plan
has two components: a deferred compensation plan and a stock option
program. EDP is an unfunded plan. The Company has purchased life insurance
as a means to finance the benefits that become payable under the plan.

F-36
<PAGE>

Under the deferred compensation plan, participants can elect to defer up to
10% of their total compensation. The Company will match up to a range of
125.0% to 10%, 5% of the first 10% of income deferred by executives,
management, and salespeople. The Company match for fiscal 1999 was $638.
Participants are guaranteed to earn interest on the amount deferred and the
Company match at a rate declared annually by the Board of Directors (5.13%
for the plan years ended March 31, 1999 and 1998, respectively). The
interest rate shall never be less than the 90-day U.S. Treasury Bill rate.

Under the stock option plan, participants are granted stock options to
purchase common stock of the Company. The number of stock options granted
is function of participant's annual deferral amount plus the Company match.
The grant price of the option is determined annually to reflect an exercise
price which allows the annual deferral amount to be supplemented by the
growth of the PSS stock in excess of the declared interest rate projected
to compound for four years. Thus, the option price is not less than the
fair market value of the common stock on the date such option is granted.

Participant contributions are always 100% vested. The Company match and the
stock options vest as follows:

# of Years Vesting %
----------------- ---------------
Less than 4 years 0%
4 years 20%
5 years 40%
6 years 60%
7 years 80%
8 years 100%
Death or disability 100%

After the options are 100% vested, participants can exercise up to 25% of
vested options in any calendar year.

At age 60, or age 55 with 10 years of participation in EDP, the retirement
benefit is distributed to participants in five equal installments. The
retirement benefit is distributed in a lump sum upon death and over five
years upon disability.

During fiscal 1999, the Company matched approximately $638 of employee
deferrals. At April 2, 1999 and April 3, 1998, approximately $2,497 and
$526, respectively, is recorded in other long-term assets in the
accompanying consolidated balance sheets. In addition, $2,490 and $611,
respectively of deferred compensation is included in other long-term
liabilities in the accompanying consolidated balance sheets.

15. OPERATING LEASE COMMITMENTS

The Company leases various facilities and equipment under operating leases
which expire at various dates through 2005. Certain lease commitments
provide that the Company pay taxes, insurance, and maintenance expenses
related to the leased assets.

Rent expense approximated $19,905, $19,019, and $8,083 for fiscal 1999,
1998, and 1997, respectively. As of April 2, 1999, future minimum payments,
by fiscal year and in the aggregate, required under noncancelable operating
leases are as follows:

F-37
<PAGE>

Fiscal Year:
2000..................................... $19,998
2001..................................... 15,966
2002..................................... 12,849
2003..................................... 7,908
2004..................................... 5,014
Thereafter............................... 2,935
--------
Total........................... $64,670
========

16. 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. See Note 1, Background and Summary of Significant
Accounting Policies, for descriptive information about the Company's
business segments. International business and other follow the accounting
policies of the segments described in the summary of significant accounting
policies. 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 (in thousands):
<TABLE>
<CAPTION>

April 2, 1999 April 3, 1998 March 28, 1997
------------- ------------- --------------
(Restated) (Restated)
NET SALES:

<S> <C> <C> <C>
Physician Supply Business $ 677,353 $ 662,543 $ 610,358
Imaging Business 524,823 409,660 362,511
Long-Term Care Business 342,405 287,582 177,710
Other (a) 19,924 22,001 15,707
------------- ------------- --------------
Total net sales $1,564,505 $1,381,786 $1,166,286
============= ============= ==============

INCOME FROM OPERATIONS:

Physician Supply Business $ 42,727 $ 16,871 $ 3,358
Imaging Business 16,305 6,486 4,048
Long-Term Care Business 17,186 14,032 9,143
Other (a) (2,365) (5,310) 498
------------- ------------- --------------
Total income from operations $ 73,853 $ 32,079 $ 17,047
============= ============= ==============

DEPRECIATION:

Physician Supply Business $ 6,844 $ 3,287 $ 3,309
Imaging Business 3,614 1,010 172
Long-Term Care Business 1,429 934 375
Other (a) 322 398 --
------------- ------------- --------------
Total depreciation $ 12,209 $ 5,629 $ 3,856
============= ============= ==============

AMORTIZATION OF INTANGIBLE ASSETS AND OTHER ASSETS:

Physician Supply Business $ 2,953 $ 2,444 $ 2,380
Imaging Business 3,460 1,545 121
Long-Term Care Business 1,762 1,243 116
------------- ------------- --------------
Total amortization of intangible assets $ 8,175 $ 5,232 $ 2,617
============= ============= ==============

F-38
<PAGE>

April 2, 1999 April 3, 1998 March 28, 1997
------------- ------------- --------------
(Restated) (Restated)
PROVISION FOR DOUBTFUL ACCOUNTS:

Physician Supply Business $ 1,627 $ 605 $ 2,463
Imaging Business 846 539 578
Long-Term Care Business 2,485 4,422 3,339
Other (a) 223 141 --
------------- ------------- --------------
Total provision for doubtful accounts $ 5,181 $ 5,707 $ 6,380
============= ============= ==============

CAPITAL EXPENDITURES:

Physician Supply Business $ 15,149 $ 4,468 $ 5,635
Imaging Business 6,735 4,565 419
Long-Term Care Business 2,890 1,659 1,117
Other (a) -- (173) --
------------- ------------- --------------
Total capital expenditures $ 24,774 $ 10,519 $ 7,171
============= ============= ==============

ASSETS:

Physician Supply Business $ 236,452 $ 320,216
Imaging Business 277,250 158,698
Long-Term Care Business 174,868 191,789
Other (a) 54,811 16,034
------------- -------------
Total assets $ 743,381 $ 686,737
============= =============
</TABLE>

(a) Other includes the holding company and the international
subsidiaries.

17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following table presents summarized unaudited quarterly results of
operations for the Company for fiscal years 1998 and 1999. The Company
believes all necessary adjustments have been included in the amounts stated
below to present fairly the following selected information when read in
conjunction with the consolidated financial statements of the Company.
Future quarterly operating results may fluctuate depending on a number of
factors, including the timing of acquisitions of service centers, the
timing of the opening of start-up service centers, and changes in
customer's buying patterns of supplies, diagnostic equipment and
pharmaceuticals. Results of operations for any particular quarter are not
necessarily indicative of results of operations for a full year or any
other quarter.
<TABLE>
<CAPTION>

As Restated Fiscal Year 1998 Fiscal Year 1999
---------------------------------------- ----------------------------------------
(In Thousands, Except Per Share Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Data) -------- -------- -------- --------- -------- -------- -------- --------

<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... $315,313 $344,242 $353,642 $368,589 $367,562 $387,366 $399,547 $410,030
Gross profit................... 80,974 90,353 94,110 100,331 97,198 104,901 109,685 110,124
General and administrative 46,790 54,209 53,307 77,030 54,523 52,310 53,913 63,987
expenses....................
Net income (loss).............. 7,056 7,138 8,669 (7,564) 8,868 13,307 13,822 7,744
Basic earnings (loss) per share $0.10 $0.10 $0.12 $(0.11) $0.13 $0.19 $0.20 $0.11
Diluted earnings (loss) per $0.10 $0.10 $0.12 $(0.11) $0.12 $0.19 $0.19 $0.11
share

Adjustments Fiscal Year 1998 Fiscal Year 1999
---------------------------------------- ----------------------------------------
(In Thousands, Except Per Share Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Data) -------- -------- -------- --------- -------- -------- -------- --------

Net sales...................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Gross profit................... (167) (167) (167) (167) 0 0 0 0
General and administrative 699 (68) (69) 2,459 0 0 0 0
expenses....................
Net income (loss).............. (528) (60) (61) (1,604) (0) (0) (0) (0)
Basic earnings (loss) per share $(0.01) $(0.00) $(0.00) $(0.02) $(0.00) $(0.00) $(0.00) $(0.00)
Diluted earnings (loss) per $(0.01) $(0.00) $(0.00) $(0.02) $(0.00) $(0.00) $(0.00) $(0.00)
share

F-39
<PAGE>

As Previously Reported Fiscal Year 1998 Fiscal Year 1999
---------------------------------------- ----------------------------------------
(In Thousands, Except Per Share Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Data) -------- -------- -------- --------- -------- -------- -------- --------

Net sales...................... $315,313 $344,242 $353,642 $368,589 $367,562 $387,366 $399,547 $410,030
Gross profit................... 81,141 90,520 94,277 100,498 97,198 104,901 109,685 110,124
General and administrative 46,091 54,277 53,376 74,571 54,523 52,310 53,913 63,987
expenses....................
Net income (loss).............. 7,584 7,198 8,730 (5,960) 8,868 13,307 13,822 7,744
Basic earnings (loss) per share $0.11 $0.10 $0.12 $(0.08) $0.13 $0.19 $0.20 $0.11
Diluted earnings (loss) per $0.11 $0.10 $0.12 $(0.08) $0.12 $0.19 $0.19 $0.11
share

</TABLE>

Refer to Note 22, Restatements, for a further discussion of the adjustments
presented above.

18. 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 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 is 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. These
actions were consolidated and subsequently dismissed without prejudice.

PSS and certain 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 which 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 lawsuits
are in early 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.

19. ABBOTT LABORATORIES DISTRIBUTION AGREEMENT

On March 27, 1995, the Company signed a Distribution Agreement with Abbott
Laboratories providing for the exclusive distribution of certain Abbott
diagnostic products. The Abbott Agreement, effective April 1, 1995, has a
five-year term, although it may be terminated earlier if the Company fails
to meet certain performance objectives. Simultaneous with the closing of
the Abbott Agreement, Abbott purchased 825,000 unregistered, restricted
shares of PSS common stock. A three-year irrevocable proxy to the PSS Board
of Directors and a perpetual stand still agreement were provided by Abbott
in the Stock Purchase Agreement.

F-40
<PAGE>

20. SUBSEQUENT EVENTS

Subsequent to year-end, the Company acquired certain assets, including
accounts receivable, inventories, and equipment of the following medical
supplies and equipment distributors accounted for under the purchase method
of accounting.

2000
-------

Number of acquisitions............. 20
Total consideration................ $93,782
Cash paid.......................... 52,285
Goodwill recorded.................. 53,114
Noncompete payments................ 7,235

Contingent consideration of approximately $5.7 million is not included in
total consideration above.

Subsequent to year-end, cuts in Medicare reimbursement resulting from
the Balance Budget Act Amendment of 1997 coupled with Medicare
implementation of a prospective payment system ("PPS") have adversely
affected the long-term care industry. The industry in general has faced
significant financial pressure due to PPS, resulting in bankruptcy of
certain long-term care providers. As a result, GSMS has i) recorded bad
debt charges of approximately $10.7 million (unaudited) for the year
ended March 31, 2000, ii) renegotiated contracts with customers that
decreased both sales prices and gross profit, iii) restructured
facilities to more efficiently distribute products, and iv) renegotiated
product costs with vendors to mitigate the impact on gross profit
resulting from customer negotiations. Overall, this has reduced
profitability of the long-term care business.

On September 30, 1999, DI entered into a three year distributorship
agreement with an imaging supply vendor. The agreement stipulates that,
among other things, in the event of termination of the agreement due to a
change in control of DI, the Company will pay liquidated damages to the
vendor in the amount of the lesser of $6 million or $250,000 times the
number of months remaining under the agreement.

On January 24, 2000, the Company announced that its physician and imaging
businesses experienced product delivery problems with two equipment
suppliers.

Further, on January 26, 2000, the Company announced that it hired
Donaldson, Lufkin and Jenrette to assist the Company with strategic
alternatives to maximize shareholder value.

21. RESTATEMENTS

Gulf South Medical Supply - Three Months Ended April 3, 1998
--------------------------------------------------------------------------
Allowance Allowance
As for for Cost of
Previously Obsolete Inventory Doubtful Legal Goods As
Reported Inventory Write-off Accounts Expenses Sold Restated
---------- ---------- --------- ---------- --------- ---------- ---------

<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $87,018 $ -- $ -- $ -- $ -- $ -- $87,018
Gross profit 17,816 1,473 211 -- -- (5,590) 13,910
General and administrative
expenses 43,020 -- -- (4,832) (877) (5,590) 31,721
Net loss (19,550) 899 129 2,952 536 -- (15,034)

</TABLE>

F-41
<PAGE>

Fiscal Year Ended April 3, 1998
--------------------------------------------------------------------------
Allowance Allowance
As for for Cost of
Previously Obsolete Inventory Doubtful Legal Goods As
Reported Inventory Write-off Accounts Expenses Sold Restated
---------- ---------- --------- ---------- --------- ---------- ---------

<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $1,381,786 $ -- $ -- $ -- $ -- $ -- $1,381,786
Gross profit 366,436 (183) (211) -- -- (274) 365,768
General and
administrative expenses 228,315 -- -- 2,418 877 (274) 231,336
Net income 17,552 (111) (129) (1,477) (536) -- 15,299
Earnings per share:
Basic $0.25 $(0.00) $(0.00) $(0.02) $(0.01) $0.00 $0.22
Diluted 0.25 (0.00) $(0.00) (0.02) (0.01) 0.00 0.22

</TABLE>

Fiscal Year Ended March 28, 1997
------------------------------------------------
Allowance Allowance
As for for
Previously Obsolete Doubtful As
Reported Inventory Accounts Restated
----------- --------- --------- ----------
Net sales $1,166,286 $ -- $ -- $1,166,286
Gross profit 287,473 (1,290) -- 286,183
General and
administrative expenses 190,228 -- 2,415 192,643
Net income 15,523 (788) (1,476) 13,259
Earnings per share:
Basic $0.23 $(0.01) $(0.02) $0.20
Diluted 0.23 (0.01) (0.02) 0.20

Allowance for Obsolete Inventory

Gulf South's results of operations for the period January 1, 1998 to April
3, 1998 included an allowance for obsolete inventory charge of $1,473.
Through subsequent review of accounting records, management believes the
allowance for obsolete inventory charge relates to prior fiscal periods.
The Company has reversed the $1,473 charge included in Gulf South's January
1, 1998 to April 3, 1998 period and recorded charges of $183 and $1,290 in
Gulf South's 12 months ended December 31, 1997 and 1996, respectively.

Inventory Write-off

Gulf South's results of operations for the period January 1, 1998 to April
3, 1998 included a $211 charge to write-off inventory to fair value.
Through subsequent review of accounting records, management believes the
write-off relates to a prior fiscal period. The Company has reversed the
$211 charge included in Gulf South's January 1, 1998 to April 3, 1998
period and recorded a charge of $211 in Gulf South's 12 months ended
December 31, 1997.

Allowance for Doubtful Accounts

Gulf South's results of operations for the period January 1, 1998 to April
3, 1998 included an allowance for doubtful accounts charge of $4,833.
Through subsequent review of accounting records, management believes the
allowance for doubtful accounts charge relates to prior fiscal periods. The
Company has reversed the $4,833 charge included in Gulf South's January 1,
1998 to April 3, 1998 period and recorded charges of $2,418 and $2,415 in
Gulf South's 12 months ended December 31, 1997 and 1996, respectively.

Legal Expenses

Gulf South's results of operations for the period January 1, 1998 to April
3, 1998 included a $877 charge related to a customer supply agreement.
Through subsequent review of accounting records, management believes the
charge relates to a prior fiscal period. The Company has reversed the $877

F-42
<PAGE>

charge included in Gulf South's January 1, 1998 to April 3, 1998 period and
recorded a charge of $877 in Gulf South's 12 months ended December 31,
1997.

Cost of Goods Sold

During the quarter ending April 3, 1998, a $5,590 charge was recorded in
general and administrative expenses. Through a review of accounting
records, management believes this charge is appropriately related to cost
of goods sold.

Reclassification of Expenses to Costs of Goods Sold

The Company reclassified $274 from general and administrative expenses to
costs of goods sold during Gulf South's 12 months ended December 31, 1996.

Benefit for Income Taxes

Due to the accounting changes discussed above, and changes in the
deductible treatment of certain other items, the benefit for income taxes
has been adjusted as compared to the unaudited amounts previously
published.

F-43
<PAGE>

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED MARCH 28, 1997 (RESTATED), APRIL 3, 1998 (RESTATED),
AND APRIL 2, 1999

(Dollars in Thousands)
<TABLE>
<CAPTION>
Additions
---------------------------
Balance Provision
at Charged Transfers Balance
Valuation Allowance for Beginning to From at End of
Accounts Receivable of Period Expense Acquisitions Write-offs Period
- ------------------------------------- ---------- ---------- ------------- ---------- ---------

<S> <C> <C> <C> <C> <C>
Year ended March 28, 1997 $ 4,035 $6,380 $ 881 $ 2,996 $ 8,300
Year ended April 3, 1998 8,300 5,707 449 3,619 10,837
Gulf South January 1, 1998 to April 3,
1998 activity 10,837 731(a) -- 1,578 9,990
Year ended April 2, 1999 9,990 5,181 332 8,585 6,918

Additions
---------------------------
Balance Provision
at Charged Transfers Balance
Valuation Allowance for Beginning to From at End of
Accounts Receivable of Period Expense Acquisitions Write-offs Period
- ------------------------------------- ---------- ---------- ------------- ---------- ---------

Year ended March 28, 1997 $ 775 $2,494 $1,938 $ 731 $4,476
Year ended April 3, 1998 4,476 1,421 1,203 2,531 4,569
Gulf South January 1, 1998 to April 3,
1998 activity 4,569 1,818(a) -- 160 6,227
Year ended April 2, 1999 6,227 801 1,019 5,136 2,911

Charged
To
Balance General
at & Balance
Gulf South Operational Beginning Admin. at End of
Tax Charge Reserve of Period Expense Utilizations Period
- ------------------------------------- ---------- ---------- ------------- ----------

Year ended March 28, 1997 $1,656 $1,998 $ -- $3,654
Year ended April 3, 1998 3,654 3,067 -- 6,721
Gulf South January 1, 1998 to April 3,
1998 activity 6,721 2,771(a) -- 9,492
Year ended April 2, 1999 9,492 -- 1,646 7,846

</TABLE>

(a) Amount represents activity recorded by Gulf South during the
quarter ended April 3, 1998, and therefore is not reflected in any
of the consolidated statements of operations presented. See Notes
1 and 3 for further discussion of the impact of the change in Gulf
South's year-end.

F-44
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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
May 25, 2000.

PSS WORLD MEDICAL, INC.

By: /s/ David A. Smith
-----------------------------------------
David A. Smith
Executive Vice President, Chief Financial Officer, and Secretary

F-45
<PAGE>

Exhibit 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

As independent certified public accountants, we hereby consent to the
incorporation by reference of our report dated May 24, 2000 included in this
Form 10-K/A into the Company's previously filed Registration Statement File Nos.
33-80657, 33-90464, 333-15043, 333-15107, 333-64185, 33-85004, 33-97756,
33-99046, 33-97754, 333-30427, and 333-64187.

ARTHUR ANDERSEN LLP

Jacksonville, Florida
May 24, 2000

F-46
<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K/A
FOR THE YEAR ENDED APRIL 2, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000920527
<NAME> PSS WORLD MEDICAL, INC.
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Apr-02-1999
<PERIOD-START> Apr-04-1998
<PERIOD-END> Apr-02-1999
<CASH> 41,106
<SECURITIES> 3
<RECEIVABLES> 278,699
<ALLOWANCES> 6,918
<INVENTORY> 153,626
<CURRENT-ASSETS> 526,545
<PP&E> 80,845
<DEPRECIATION> 32,678
<TOTAL-ASSETS> 743,381
<CURRENT-LIABILITIES> 171,268
<BONDS> 152,442
0
0
<COMMON> 708
<OTHER-SE> 415,852
<TOTAL-LIABILITY-AND-EQUITY> 743,381
<SALES> 1,564,505
<TOTAL-REVENUES> 1,564,505
<CGS> 1,142,597
<TOTAL-COSTS> 1,142,597
<OTHER-EXPENSES> 348,055
<LOSS-PROVISION> 5,181
<INTEREST-EXPENSE> 11,522
<INCOME-PRETAX> 73,681
<INCOME-TAX> 29,940
<INCOME-CONTINUING> 43,741
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,741
<EPS-BASIC> 0.62
<EPS-DILUTED> 0.61

</TABLE>