XNAS:PSSI Quarterly Report 10-Q Filing - 6/29/2012

Effective Date 6/29/2012

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended June 29, 2012

or

 

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

For the transition period from              to             

Commission File Number: 0-23832

 

 

 

LOGO

PSS WORLD MEDICAL, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Florida   59-2280364

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

4345 Southpoint Blvd.

Jacksonville, Florida

  32216
(Address of principal executive offices)   (Zip Code)

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

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   x    Accelerated filer   ¨  
Non-accelerated filer   ¨    Smaller reporting company   ¨  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

The number of shares of common stock, par value $0.01 per share, of the registrant outstanding as of August 3, 2012 was 50,280,182 shares.

 

 

 


Table of Contents

PSS WORLD MEDICAL, INC. AND SUBSIDIARIES

JUNE 29, 2012

TABLE OF CONTENTS

 

Item

       Page
 

Information Regarding Forward-Looking Statements

   1
 

Part I—Financial Information

  

1.

 

Financial Statements:

  
 

Unaudited Condensed Consolidated Balance Sheets as of June 29, 2012 and March 30, 2012

   2
 

Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended June 29, 2012 and July 1, 2011

   3
 

Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 29, 2012 and July 1, 2011

   4
 

Unaudited Notes to Condensed Consolidated Financial Statements

   5

2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   25

3.

 

Quantitative and Qualitative Disclosures About Market Risk

   35

4.

  Controls and Procedures    35
 

Part II--Other Information

  

1A.

 

Risk Factors

   35

2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

   36

6.

 

Exhibits

   37
 

Signature

   38


Table of Contents

CAUTIONARY STATEMENTS

Forward-Looking Statements

Management may from time-to-time make written or oral statements with respect to the Company’s annual or long-term goals, including statements contained in this Quarterly Report on Form 10-Q, the Annual Report on Form 10-K for the fiscal year ended March 30, 2012, Current Reports on Form 8-K, and reports to shareholders that are “forward-looking statements” within the meaning, and subject to the protections of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical earnings and those currently anticipated or projected. Management cautions readers not to place undue reliance on any of the Company’s forward-looking statements, which speak only as of the date made.

Words such as “anticipates,” “expects,” “intends,” “plans,” “purpose,” “mission,” “believes,” “seeks,” “estimates,” “may,” “could,” and similar expressions identify forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q that involve risks and uncertainties include, without limitation:

 

 

Management’s expectation that the Company will complete the restructuring plan over the next several fiscal years;

 

 

Management’s expectation that future working capital needs, capital expenditures, and the overall growth in the business will be funded through a combination of cash flows from operating activities, borrowings under the revolving line of credit, cash proceeds from the sale of the businesses outlined in the Company’s strategic restructuring plan, proceeds from the Company’s debt offerings, capital markets, and/or other financing arrangements;

 

 

Management’s expectation that the reorganization of the Company’s global sourcing subsidiaries will have a sustained positive impact on the Company’s effective tax rate;

 

 

Management’s estimation and expectation of future payouts of long-term incentive compensation; and

 

 

Management’s belief that the outcome of legal 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.

In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, management has identified important factors that could affect the Company’s financial performance and could cause actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements about the Company’s goals or expectations. The Company’s future results could be adversely affected by a variety of factors, including those discussed in Item 1A-Risk Factors in the Company’s 2012 Form 10-K and this Form 10-Q. In addition, all forward-looking statements that are made by or attributable to the Company are qualified in their entirety by and should be read in conjunction with this cautionary notice and the risks described or referred to in Item 1A-Risk Factors of the Company’s 2012 Form 10-K and this Form 10-Q. The Company has no obligation to and does not undertake to update, revise, or correct any of the forward-looking statements after the date of this report, or after the respective dates on which such statements are made.


Table of Contents

PSS WORLD MEDICAL, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 29, 2012 AND MARCH 30, 2012

(Dollars in Thousands)

 

     June  29,
2012
     March  30,
2012
 
ASSETS      

Current Assets:

     

Cash and cash equivalents

   $ 107,414      $ 163,152  

Accounts receivable, net of allowance for doubtful accounts of $3,430 and $3,410 as of June 29, 2012 and March 30, 2012, respectively

     192,042        189,542  

Inventories

     174,434        147,198  

Prepaid expenses

     8,662        4,936  

Other current assets

     43,379        39,250  

Assets held for sale (a)

     280,029        277,378  
  

 

 

    

 

 

 

Total current assets

     805,960        821,456  

Property and equipment, net of accumulated depreciation of $139,637 and $134,235 as of June 29, 2012 and March 30, 2012, respectively

     83,413        80,151  

Other Assets:

     

Goodwill

     142,809        109,457  

Intangibles, net of accumulated amortization of $16,141 and $14,037 as of June 29, 2012 and March 30, 2012, respectively

     51,460        33,546  

Other assets

     110,708        111,360  
  

 

 

    

 

 

 

Total assets (a)

   $ 1,194,350      $ 1,155,970  
  

 

 

    

 

 

 
LIABILITIES AND EQUITY      

Current Liabilities:

     

Accounts payable

   $ 136,086      $ 118,719  

Accrued expenses

     45,095        37,436  

Other current liabilities

     14,005        8,015  

Liabilities held for sale (a)

     32,875        37,640  
  

 

 

    

 

 

 

Total current liabilities

     228,061        201,810  

Revolving line of credit and long-term debt, excluding current portion

     457,356        454,916  

Other noncurrent liabilities

     113,367        108,433  
  

 

 

    

 

 

 

Total liabilities (a)

     798,784        765,159  
  

 

 

    

 

 

 

Commitments and contingencies (Note 13)

     

Equity:

     

PSS World Medical Inc. shareholders’ equity:

     

Preferred stock, $0.01 par value; 1,000,000 shares authorized, no shares issued and outstanding

     —           —     

Common stock, $0.01 par value; 150,000,000 shares authorized, 50,262,665 and 50,312,323 shares issued and outstanding as of June 29, 2012 and March 30, 2012, respectively

     494        495  

Retained earnings

     391,601        386,633  
  

 

 

    

 

 

 

Total PSS World Medical, Inc. shareholders’ equity

     392,095        387,128  

Noncontrolling interest

     3,471        3,683  
  

 

 

    

 

 

 

Total equity

     395,566        390,811  
  

 

 

    

 

 

 

Total liabilities and equity

   $ 1,194,350      $ 1,155,970  
  

 

 

    

 

 

 

 

(a) See Footnote 4, Variable Interest Entity, for discussion of the assets and liabilities related to the Company’s consolidated variable interest entities. See Footnote 3, Discontinued Operations, for discussion of assets and liabilities held for sale.

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

 

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PSS WORLD MEDICAL, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 29, 2012 AND JULY 1, 2011

(In Thousands, Except Per Share Data)

 

     For the Three Months Ended  
     June 29,
2012
    July 1,
2011
 

Net sales

   $ 409,389     $ 380,491  

Cost of goods sold

     273,101       257,817  
  

 

 

   

 

 

 

Gross profit

     136,288       122,674  

General and administrative expenses

     79,680       71,947  

Selling expenses

     35,353       30,761  
  

 

 

   

 

 

 

Income from operations

     21,255       19,966  
  

 

 

   

 

 

 

Other income (expense):

    

Interest expense

     (8,504     (4,470

Interest income

     14       26  

Other income, net

     479       533  
  

 

 

   

 

 

 

Other expense, net

     (8,011     (3,911
  

 

 

   

 

 

 

Income from continuing operations before provision for income taxes

     13,244       16,055  

Provision for income taxes

     4,398       5,899  
  

 

 

   

 

 

 

Income from continuing operations

     8,846       10,156  

Income from discontinued operations, net of taxes

     1,883       3,989  
  

 

 

   

 

 

 

Net income

     10,729       14,145  

Net loss attributable to noncontrolling interest

     (15     (44
  

 

 

   

 

 

 

Net income attributable to PSS World Medical, Inc.

   $ 10,744     $ 14,189  
  

 

 

   

 

 

 

Earnings per common share—Basic:

    

Continuing operations

   $ 0.18     $ 0.19  

Discontinued operations

     0.04       0.07  
  

 

 

   

 

 

 

Attributable to PSS World Medical, Inc.

   $ 0.22     $ 0.26  
  

 

 

   

 

 

 

Earnings per common share—Diluted:

    

Continuing operations

   $ 0.18     $ 0.18  

Discontinued operations

     0.04       0.07  
  

 

 

   

 

 

 

Attributable to PSS World Medical, Inc.

   $ 0.21     $ 0.25  
  

 

 

   

 

 

 

Weighted average common shares outstanding:

    

Basic

     49,495       54,166  

Diluted

     50,263       57,388  

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

 

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PSS WORLD MEDICAL, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED JUNE 29, 2012 AND JULY 1, 2011

(Dollars in Thousands)

 

     Three Months Ended  
     June 29,
2012
    July 1,
2011
 

Cash Flows From Operating Activities:

    

Net income

   $ 10,729     $ 14,145  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Total income from discontinued operations

     (1,883     (3,989

Depreciation

     5,472       5,120  

Provision for deferred income taxes

     3,390       667  

Amortization of debt discount and issuance costs

     2,837       2,473  

Amortization of intangible assets

     2,180       1,616  

Noncash compensation expense

     1,506       2,154  

Provision for doubtful accounts

     398       279  

Provision for deferred compensation

     343       322  

Loss on sales of property and equipment

     2       1  

Changes in operating assets and liabilities, net of effects from business combinations and discontinued operations:

    

Accounts receivable, net

     7,828       9,197  

Inventories

     (19,183     (7,647

Prepaid expenses and other current assets

     (8,445     (7,258

Other assets

     (2,101     (2,065

Accounts payable

     14,089       11,536  

Accrued expenses and other liabilities

     10,231       (2,644

Net cash (used in) provided by operating activities, discontinued operations

     (4,543     10,927  
  

 

 

   

 

 

 

Net cash provided by operating activities

     22,850       34,834  
  

 

 

   

 

 

 

Cash Flows From Investing Activities:

    

Payments for business acquisitions, net of cash acquired

     (66,052     (210

Capital expenditures

     (4,000     (3,614

Other

     (113     (22

Net cash used in investing activities, discontinued operations

     (1,208     (1,086
  

 

 

   

 

 

 

Net cash used in investing activities

     (71,373     (4,932
  

 

 

   

 

 

 

Cash Flows From Financing Activities:

    

Purchase and retirement of common stock

     (7,474     (57,758

Excess tax benefits from stock-based compensation arrangements

     289       1,200  

Payment for debt issuance costs

     (40     —     

Proceeds from exercise of stock options

     10       292  

Proceeds from borrowings on the revolving line of credit

     —          30,183  

Repayments on the revolving line of credit

     —          (9,683

Payment of contingent consideration on business acquisitions

     —          (1,000

Payments under capital lease obligations

     —          (179

Net cash used in financing activities, discontinued operations

     —          (14
  

 

 

   

 

 

 

Net cash used in financing activities

     (7,215     (36,959
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (55,738     (7,057

Cash and cash equivalents, beginning of period

     163,152       29,348  
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 107,414     $ 22,291  
  

 

 

   

 

 

 

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

 

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PSS WORLD MEDICAL, INC. AND SUBSIDIARIES

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 29, 2012 AND JULY 1, 2011

(In Thousands, Except Share and Per Share Data, Unless Otherwise Noted)

 

1. BACKGROUND AND BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements have been omitted pursuant to the SEC rules and regulations. The unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments necessary to present fairly the financial position and results of operations for the periods indicated. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The accompanying unaudited condensed consolidated financial statements include the consolidated accounts of PSS World Medical, Inc. and its wholly-owned subsidiaries (the “Company”). The Company holds interests in variable interest entities (“VIE”) that are consolidated by the Company. See Footnote 4, Variable Interest Entity, for additional information. All significant intercompany balances and transactions have been eliminated in consolidation.

During the three months ended June 29, 2012, the Company’s Board of Directors approved a strategic restructuring plan (“the restructuring plan”) designed to transform the Company. The restructuring plan includes the sale of two businesses serving skilled nursing facilities within the Extended Care Business and specialty dental practices within the Physician Business. Additionally, the plan includes the integration of all distribution operations into one common distribution infrastructure, and the redesign of the Company’s shared services segment. As of June 29, 2012, the Company determined the two businesses met the held for sale criteria, and therefore, the results are presented separately as discontinued operations within the accompanying Unaudited Condensed Consolidated Balance Sheets, Unaudited Condensed Consolidated Statements of Operations, and the Unaudited Condensed Consolidated Statements of Cash Flows. See Footnote 3, Discontinued Operations, for additional information.

As part of the restructuring plan, the previously reported segments, Physician Business and Extended Care Business, have been realigned into three operating segments: Physician (including Laboratory), Dispensing, and Home Care & Hospice, which serve a diverse customer base. A fourth reporting segment, Shared Services, consists of departments that support the operating segments through the delivery of standardized service.

The Physician business provides products and services to primary care and front line caregivers, including those affiliated with or owned by health systems. The Laboratory business provides laboratory equipment, supplies and services to individual physician office laboratories, clinics and small hospital laboratories. The Dispensing business provides dispensing solutions to physician business practices which include repackaging of pharmaceutical products, dispensing software, and claims processing services to allow such practices to dispense medical products to their patients on-site. The Home Care & Hospice business provides products and services to caregivers to allow them to efficiently deliver care to patients in the home or hospice settings.

The unaudited condensed consolidated balance sheet as of March 30, 2012 has been derived from the Company’s audited consolidated financial statements for the fiscal year ended March 30, 2012, adjusted for discontinued operations. The financial statements and related notes included in this report should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended March 30, 2012.

The Company reports its year-end and quarter-end financial position, results of operations, and cash flows as of the Friday closest to calendar month end, determined using the number of business days. Fiscal years 2013 and 2012 each consist of 52 weeks or 253 selling days. The three months ended June 29, 2012 and July 1, 2011 each consisted of 64 selling days, respectively.

 

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The results of operations for the interim periods covered by this report may not be indicative of operating results for the full fiscal year or any other interim periods.

Reclassification

Certain items previously reported in financial statement captions and in the unaudited notes to the condensed consolidated financial statements have been reclassified to conform to the current financial statement presentation.

Recent Accounting Pronouncements

During the three months ended June 29, 2012, the Company adopted an Accounting Standards Update (“ASU”) that provides new guidance on the presentation of comprehensive income and requires changes in stockholders’ equity to be presented either (i) in a single continuous statement of comprehensive income, or (ii) in two separate consecutive statements. The ASU requires retrospective application. In December 2011, the FASB indefinitely deferred the effective date for amendments pertaining to the presentation of reclassification adjustments by component. The adoption of this standard did not have an effect on the Company’s statements of financial condition or results of operations, as the Company has no other comprehensive income items to disclose.

During the three months ended June 29, 2012, the Company adopted an ASU that amends guidance to simplify the method in which entities test goodwill for impairment. This ASU allows an entity to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. Additional disclosure requirements were included with this update, including an explanation of qualitative factors used in the goodwill analysis. The adoption of this standard did not have an effect on the Company’s statements of financial condition or results of operations.

Stock Repurchase Program

From time to time, the Company’s Board of Directors authorizes the purchase of its outstanding common shares. The Company is authorized to repurchase a determined amount of its total common stock, which can be made in the open market, privately negotiated transactions, and other transactions publicly disclosed through filings with the SEC.

The following table summarizes the common stock repurchases and Board of Directors authorizations during the period from March 30, 2012 to June 29, 2012:

 

(in thousands)    Shares  

Shares available for repurchase as of March 30, 2012

     437  

Shares repurchased

     (370
  

 

 

 

Shares available for repurchase as of June 29, 2012

     67  
  

 

 

 

During the three months ended June 29, 2012, the Company repurchased approximately 0.4 million shares of common stock at an average price of $20.21 per common share for $7,474, which reduced common stock and additional paid-in capital by approximately $4 and $7,470, respectively.

During fiscal year ended March 30, 2012, the Company’s additional paid-in capital balance was reduced to zero as a result of share repurchases. In accordance with ASC 505, Equity, retirements of the Company’s shares may be recorded to additional paid-in capital to the extent that previous net gains from sales or retirements of the same class of stock remain, and otherwise should be recorded to retained earnings. As of June 29, 2012 and March 30, 2012, retained earnings was reduced by $5,776 and $7,154, respectively, which represented share repurchases occurring after the additional paid-in capital balance had been reduced to zero.

 

2. PURCHASE BUSINESS COMBINATIONS

During the three months ended June 29, 2012, the Company completed acquisitions that were individually immaterial but material in the aggregate (the “2013 acquisitions”). Net sales attributable to the 2013 acquisitions since their respective acquisition dates were approximately $11,221. The combined purchase price of the 2013 acquisitions was $72,391, of which $3,900 was held in escrow and $6,000 was held by the Company to secure certain potential future adjustments or claims. Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill related to the 2013 acquisitions in the amount of $32,542 is tax deductible.

 

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As of June 29, 2012, the purchase accounting for the 2013 acquisitions and acquisitions made during fiscal year 2012 (“the 2012 acquisitions”) had not been finalized. Therefore, the fair value of the assets acquired and liabilities assumed as of the acquisition dates were revised and may continue to be adjusted in future periods.

During the three months ended June 29, 2012, the Company received cash payments of $339 for working capital adjustments related to prior year acquisitions and other acquisition-related adjustments. Additionally, the Company paid $1,000 in contingent consideration during the three months ended July 1, 2011 related to the earn-out component of a purchase agreement executed in fiscal year 2010. There were no contingent consideration payments during the three months ended June 29, 2012.

Opening Balance Sheets

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the dates of the 2013 and 2012 acquisitions, as adjusted:

 

     2013 acquisitions     2012 acquisitions  
     Opening
Balance
Sheet
    Measurement
Period
Adjustment
    Opening Balance
Sheet  As Adjusted
June 29, 2012
    Opening Balance
Sheet  As Adjusted
March 30, 2012
    Measurement
Period
Adjustment
    Opening Balance
Sheet  As Adjusted
June 29, 2012
 
(in thousands)                                     

Current assets (a)

   $ 20,022       —        $ 20,022     $ 7,188       (322   $ 6,866  

Assets held for sale

     —          —          —          40,570       21       40,591  

Goodwill

     33,072       (530     32,542       22,574       26       22,600  

Intangible assets

     19,980       —          19,980       10,020       —          10,020  

Noncurrent assets (b)

     4,756       —          4,756       4,741       —          4,741  

Accounts payable and other current liabilities

     (5,439     —          (5,439     (3,297     —          (3,297

Liabilities held for sale

     —          —          —          (11,755     —          (11,755

Noncurrent liabilities (c)

     —          —          —          (406     —          (406
  

 

 

     

 

 

   

 

 

     

 

 

 

Net assets acquired

   $ 72,391     $ (530   $ 71,861     $ 69,635     $ (275   $ 69,360  
  

 

 

     

 

 

   

 

 

     

 

 

 

 

(a) The following represents balances within Current assets as of June 29, 2012: 2013 acquisitions – accounts receivable $10,728, inventory $8,246, and other current assets $1,048; 2012 acquisitions – accounts receivable $3,765, inventory $1,603, current deferred income taxes $602, and other current assets $895.
(b) The following represents balances within Noncurrent assets as of June 29, 2012: 2013 acquisitions – property and equipment $4,721 and other noncurrent assets $35; 2012 acquisitions – property and equipment $40 and other noncurrent assets $4,701.
(c) The following represents balances within Noncurrent liabilities as of June 29, 2012: 2012 acquisitions – noncurrent deferred tax liabilities $380 and other noncurrent liabilities $26.

 

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The following table presents unaudited pro forma financial information as if the closing of the 2013 acquisitions had occurred on the first day of fiscal year 2012 (April 2, 2011) after giving effect to certain purchase accounting adjustments:

 

     For the Three Months Ended  
(in thousands)    June 29,
2012
     July 01,
2011
 

Net sales:

     

PSS World Medical, Inc. (as reported)

   $ 409,389      $ 380,491  

Supplemental Net Sales—2013 acquisitions (a)

     13,173        27,095  
  

 

 

    

 

 

 

Total Pro Forma Net Sales

   $ 422,562      $ 407,586  

Net income attributed to PSS World Medical, Inc.:

     

PSS World Medical, Inc. (as reported)

   $ 10,744      $ 14,189  

Supplemental Net Income—2013 acquisitions (a)

     284        531  
  

 

 

    

 

 

 

Total Pro Forma Net Income

   $ 11,028      $ 14,720  

Net income per common share:

     

Basic

   $ 0.22      $ 0.27  

Diluted

   $ 0.22      $ 0.26  

 

(a) Represents pro forma net sales and net income balances during the period which are not already included in the net sales and net income balances of PSS World Medical, Inc. (as reported). Therefore, Supplemental net sales and net income balances during the three months ended June 29, 2012 will represent a partial period based on the date of acquisition.

Pro forma information is not necessarily indicative of the results of operations that actually would have resulted had the 2013 acquisitions occurred on the date indicated above or that may result in the future and does not reflect potential synergies, integration costs or other such costs and savings.

 

3. DISCONTINUED OPERATIONS

During the three months ended June 29, 2012, the Company’s Board of Directors approved a strategic restructuring plan designed to transform the Company. The restructuring plan included the sale of two businesses serving skilled nursing facilities and specialty dental practices, the integration of all distribution operations into one common distribution infrastructure, and the redesign of the Company’s shared services segment. As of June 29, 2012, the Company determined that the businesses met the held for sale criteria, and therefore, the results are presented separately as discontinued operations within the accompanying Unaudited Condensed Consolidated Balance Sheets, Unaudited Condensed Consolidated Statements of Operations, and the Unaudited Condensed Consolidated Statements of Cash Flows.

 

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The assets and liabilities of discontinued operations included on the Unaudited Condensed Consolidated Balance Sheets as of June 29, 2012 and March 30, 2012 are as follows:

 

     June 29,
2012
     March 30,
2012
 
(in thousands)              

Accounts receivable, net

   $ 70,299      $ 68,158  

Inventories

     66,577        66,388  

Prepaid and other current assets

     6,973        7,068  

Property and equipment, net

     21,490        20,885  

Goodwill

     92,411        92,295  

Intangibles, net

     20,828        21,054  

Other noncurrent assets

     1,451        1,530  
  

 

 

    

 

 

 

Assets held for sale

   $ 280,029      $ 277,378  
  

 

 

    

 

 

 

Accounts payable

   $ 18,850      $ 27,814  

Accrued expenses

     8,033        4,317  

Other current liabilities

     4,655        4,026  

Other noncurrent liabilities

     1,337        1,483  
  

 

 

    

 

 

 

Liabilities held for sale

   $ 32,875      $ 37,640  
  

 

 

    

 

 

 

The following table summarizes the net sales and total income from discontinued operations for the three months ended June 29, 2012 and July 1, 2011:

 

     For the Three Months Ended  
     June 29,
2012
     July 1,
2011
 
(in thousands)              

Net sales

   $ 134,846      $ 133,191  

Income before provision for income taxes

     2,924        6,523  

Provision for income taxes

     1,041        2,534  
  

 

 

    

 

 

 

Income from discontinued operations, net of taxes

   $ 1,883      $ 3,989  
  

 

 

    

 

 

 

During the three months ended June 29, 2012, the Company incurred $3,025 of one-time costs associated with the strategic restructuring plan, including retention bonuses for employees and accounting, legal, and other professional fees.

 

4. VARIABLE INTEREST ENTITY

On June 25, 2010, the Company entered into an agreement with Pathway Health Services, Inc. (“Pathway”), a consulting services company within the extended care market, under which the Company purchased a $3,300 convertible note issued by Pathway. The note may be converted, at the Company’s discretion, into 73% of Pathway’s common stock. The Company also acquired a call option and issued a put option for Pathway’s common stock, both of which may be exercised if certain sales thresholds are met and time restrictions lapse. Under the agreement, the Company obtained a majority of seats and control of Pathway’s Board of Directors. The convertible note is considered a variable interest and the Company was determined to be the primary beneficiary of Pathway.

The Company has consolidated Pathway under the purchase method of accounting and recorded noncontrolling interest under current accounting guidance for consolidations. The consolidated assets and liabilities, operating results and cash flows of Pathway are not considered significant to the Company’s financial position, operating results, or cash flows. Pathway’s assets cannot be used to settle the Company’s obligations and Pathway’s creditors have no recourse to the general credit of the Company.

 

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During the three months ended June 29, 2012, the Company’s Board of Directors approved a strategic restructuring plan which includes the sale of two business units serving skilled nursing facilities and specialty dental practices. The Company’s variable interest in Pathway has been included in the disposal group as part of the restructuring plan. See Footnote 3, Discontinued Operations, for additional information on the Company’s fiscal year 2013 strategic restructuring plan and corresponding discontinued operations.

The Company also holds an additional variable interest in an entity not considered material for disclosure.

 

5. EARNINGS PER SHARE

Basic earnings per common share attributable to PSS World Medical, Inc. is computed by dividing Net income attributable to PSS World Medical, Inc. by the weighted average number of the Company’s common shares outstanding during the period. Diluted earnings per common share attributable to PSS World Medical, Inc. is computed by dividing Net income attributable to PSS World Medical, Inc. by the weighted average number of the Company’s common shares and common equivalent shares outstanding during the period adjusted for the potential dilutive effect of stock options and restricted stock using the treasury stock method and the potential dilutive effect of outstanding convertible senior notes. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect.

The following table sets forth computational data for the denominator in the basic and diluted earnings per common share calculation for the three months ended June 29, 2012 and July 1, 2011:

 

     For the Three Months Ended  
(in thousands)    June 29,
2012
     July 1,
2011
 

Denominator-weighted average shares outstanding used in computing basic earnings per common share

     49,495        54,166  

Assumed conversion of the 2008 Notes

     288        2,620  

Assumed vesting of restricted stock

     463        513  

Assumed exercise of stock options (a)

     17        89  
  

 

 

    

 

 

 

Denominator-weighted average shares outstanding used in computing diluted earnings per common share

     50,263        57,388  
  

 

 

    

 

 

 

 

(a) There were no anti-dilutive options outstanding as of June 29, 2012 and July 1, 2011.

The Company included shares underlying its 2008 Notes in its diluted weighted average shares outstanding during the three months ended June 29, 2012. Under the treasury stock method of accounting for share dilution, shares that would be issuable upon conversion were included, based upon the amount by which the average stock price for the period exceeded the conversion price of $21.22.

If the price of the Company’s common stock exceeds $28.29 per share, additional potential shares that may be issued related to outstanding warrants, using the treasury stock method, will also be included. Prior to conversion, certain outstanding purchased options are not considered for purposes of the dilutive earnings per share calculation as their effect is considered to be anti-dilutive.

 

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6. ACCRUED EXPENSES

Accrued expenses from continuing operations as of June 29, 2012 and March 30, 2012 were as follows:

 

     As of  
(in thousands)    June 29, 2012      March 30, 2012  

Accrued payroll

   $ 15,853      $ 14,913  

Accrued interest

     8,323        2,565  

Accrued annual incentive compensation

     3,494        1,184  

Other (a)

     17,425        18,774  
  

 

 

    

 

 

 

Accrued expenses

   $ 45,095      $ 37,436  
  

 

 

    

 

 

 

 

(a) Amounts within the “Other” category of total accrued expenses were not considered individually significant as of June 29, 2012 and March 30, 2012.

 

7. INCENTIVE AND STOCK-BASED COMPENSATION

Stock-based compensation represents the cost related to stock-based awards granted to employees and non-employee directors. The Company measures stock-based compensation at the grant date, based on the estimated fair value of the award, and recognizes the cost as compensation expense on a straight-line basis, net of estimated forfeitures, over the awards estimated vesting period. The Company’s stock-based compensation expense is recorded in General and administrative expenses on the Unaudited Condensed Consolidated Statements of Operations.

Restricted Stock Awards

The Company issues (i) restricted stock which vests based on the recipient’s continued service over time (“Time-Based Awards”) and (ii) restricted stock or restricted stock units which vest based on the Company achieving specified performance measurements (“Performance-Based Awards”).

Fiscal Year 2013 Issuances of Performance-Based Awards

On June 22, 2012, the Company’s Compensation Committee of the Board of Directors (the “Compensation Committee”) approved awards of performance-accelerated restricted stock units (“PARS Units”) and performance-based restricted stock units (“Performance Shares”) to certain of the Company’s executive officers. These awards were granted under the Company’s 2006 Incentive Plan.

PARS Units

The PARS Units will vest on the five-year anniversary of the grant date and convert to shares of common stock, subject to accelerated vesting after three years if the Company achieves an earnings per share growth target, the calculation of which will not be impacted by any change in generally accepted accounting principles promulgated by standard setting bodies. Upon vesting, the grantees may defer acceptance of the units to a later date, whereas the units will remain outstanding.

Performance Shares

The Performance Shares, which are denominated in terms of a target number of shares, may vest after three years in an amount up to 250% of the target number of shares for exceptional performance, but will be forfeited if performance falls below a designated threshold. A portion of the award will be measured on the Company’s net income from continuing operations, excluding the effect of any restructuring charges and exit costs and the impact of any changes in generally accepted accounting principles promulgated by standard setting bodies. The ultimate number of shares delivered to recipients and the related compensation cost recognized as expense will be based on actual performance.

 

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The remaining Performance Shares will be measured based on relative total shareholder return (“TSR”), or the Company’s stock price return as compared to companies in the Midcap 400 Index as of the beginning of the 3-year period running from fiscal year 2013 to fiscal year 2015.

The fair value of the TSR awards is calculated using a Monte Carlo simulation model on the date of grant. Compensation expense is recognized over the requisite service periods using the straight-line method regardless of the outcome of the market conditions, so long as the award holder remains an employee through the requisite service period.

The Monte Carlo simulation model utilized the following inputs and assumptions:

 

     As of
June 29, 2012
 

Term of award (in years)

     3  

Volatility

     28.1

Risk-free interest rate

     0.4

Expected dividend yield

     0.0

Actual TSR

     (18.9 )% 

Stock beta

     0.7  

Fair value

   $ 24.63  

Stock Award Modification

During the three months ended June 29, 2012, the Compensation Committee approved an amendment to the outstanding Performance Shares and PARS Units held by certain of the Company’s executive officers to provide that the calculation of the earnings per share targets and the Company’s level of achievement of such targets will be based on earnings per share from continuing operations, excluding the effect of any restructuring charges and exit costs. The earnings per share growth rates that must be achieved in order to earn the awards were not changed.

As a result of the change in performance targets, stock based compensation expenses decreased $901 ($559, net of tax), or $0.01 per diluted share during the three months ended June 29, 2012.

Activity for Stock-Based Awards

Outstanding stock-based awards granted under equity incentive plans as of June 29, 2012 and March 30, 2012 are as follows:

 

     Performance-Based Awards      Time-Based
Awards
     Stock
Options
 
     Performance
Shares
    PARS     TSR                      
(in thousands)    Units     Units     Shares     Units      Shares     Deferred
Units
     Shares  

Balance, March 30, 2012

     301       274       471       —           302       8        49  

Granted

     118       118       5       59        107       1        —     

Increase from change in estimate

     13       —          —          —           —          —           —     

Vested / Exercised

     (139     (88     (15     —           (11     —           (1

Forfeited

     —          —          —          —           (10     —           —     

Expired

     —          —          —          —           —          —           —     
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Balance, June 29, 2012

     293       304       461       59        388       9        48  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

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Total stock-based compensation expense included in income from continuing operations during the three months ended June 29, 2012 and July 1, 2011 was approximately $1,227 and $1,952, respectively, with related income tax benefits of $466 and $742, respectively. No stock-based compensation expense was included in income from discontinued operations.

As of June 29, 2012, there was $14,049 of unrecognized compensation cost related to non-vested restricted stock and restricted stock units granted under the stock incentive plans. The compensation cost related to these non-vested awards is expected to be recognized over a weighted average period of 1.6 years.

 

8. DEBT

Outstanding debt consists of the following, in order of seniority:

 

     As of  
(in thousands)    June 29, 2012      March 30, 2012  

2012 Notes

   $ 250,000      $ 250,000  

2008 Notes

     207,356        204,916  
  

 

 

    

 

 

 

Total debt

     457,356        454,916  

Less: Current portion of long-term debt

     —           —     
  

 

 

    

 

 

 

Long-term debt

   $ 457,356      $ 454,916  
  

 

 

    

 

 

 

2012 Notes

On February 24, 2012, the Company issued $250.0 million aggregate principal 6.375% senior notes, which mature on March 1, 2022 (the “2012 Notes”). Interest on the notes is payable semi-annually in arrears on March 1 and September 1, beginning September 1, 2012. The 2012 Notes are fully and unconditionally guaranteed on a joint and several basis by certain of the Company’s domestic subsidiaries (the “Guarantor Subsidiaries”). Refer to Footnote 14, Condensed Consolidating Financial Information, for further information regarding the Guarantor Subsidiaries.

The gross carrying value of the Company’s 2012 Notes as of June 29, 2012 and March 30, 2012 was $250,000 and the fair value, which is estimated using a third party valuation model, was approximately $255,625 and $257,500, respectively.

2008 Notes

In August 2008, the Company issued $230.0 million principal amount 3.125% senior convertible notes, which mature on August 1, 2014 (the “2008 Notes”). Interest on the notes is payable semi-annually in arrears on February 1 and August 1 of each year. The notes will be convertible into cash up to the principal amount of the notes and shares of the Company’s common stock for any conversion value in excess of the principal amount under certain circumstances. The ability of note holders to convert is assessed on a quarterly basis and is dependent on the trading price of the Company’s stock during the last 30 trading days of each quarter (“Contingent Conversion Trigger”). The Contingent Conversion Trigger was not met during the three months ended June 29, 2012; therefore, the notes may not be converted. As of June 29, 2012, the if-converted value did not exceed the principal amount of the 2008 Notes.

As of June 29, 2012 and March 30, 2012, the fair value of the 2008 Notes was approximately $268,088 and $302,174, respectively.

 

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The principal balances, unamortized discounts and net carrying amounts of the liability components and the equity components for the Company’s 2008 Notes as of June 29, 2012 and March 30, 2012 are as follows:

 

     Liability Component      Equity
Component
 
(in thousands)        Principal          Unamortized     Net
    Carrying    
     Carrying
Amount
 

2008 Notes

   Balance      Discount     Amount      Pretax (a)  

As of June 29, 2012

   $ 230,000      $ (22,644   $ 207,356      $ 55,636  

As of March 30, 2012

   $ 230,000      $ (25,084   $ 204,916      $ 55,636  

 

(a) The Company recognized a deferred tax liability of $20,523 related to the issuance of the 2008 Notes.

Revolving Line of Credit

The Company maintains an asset-based revolving line of credit (the “RLOC”) under a credit agreement (the “Credit Agreement”) with the following features and key terms: (i) a five-year term, maturing on November 16, 2016; (ii) a facility size of $300.0 million, with increased borrowing capacity of up to $100.0 million via an accordion feature; and (iii) conditional covenants based on the Company’s borrowing availability and fixed charge coverage ratio requirements. Availability depends on a borrowing base calculation consisting of accounts receivable and inventory, subject to satisfaction of certain eligibility requirements, and certain other reserves. Borrowings under the RLOC bear interest at the bank’s base rate or at LIBOR plus applicable margins. Additionally, the RLOC incurs fees at a fixed rate of 0.25% for any unused portion of the facility.

Under the RLOC, the Company and certain of its subsidiaries are subject to certain covenants, including but not limited to, limitations on: (i) selling or transferring assets, (ii) making certain permitted investments, and (iii) incurring additional indebtedness and liens. However, these covenants may not apply if the Company maintains sufficient Availability under the credit facility and satisfies fixed charge coverage ratios.

Borrowings under the RLOC are anticipated to fund future requirements for working capital, capital expenditures, acquisitions, repurchases of the Company’s common stock, and the issuance of letters of credit, if necessary.

The Company had no outstanding borrowings under the RLOC as of June 29, 2012 and March 30, 2012. After reducing availability for outstanding borrowings and letter of credit commitments, the Company has sufficient assets based on eligible accounts receivable and inventory to borrow $272.5 million under the RLOC. During the three months ended June 29, 2012, the Company had no borrowings under the RLOC, and as a result, had no average daily interest rate for the period.

During the three months ended June 29, 2012, the Company’s Board of Directors approved a strategic restructuring plan. The restructuring plan will include the sale of two businesses serving skilled nursing facilities and specialty dental practices. The sale of the businesses are expected to increase the Company’s available cash balances, while reducing the Company’s assets used to calculate its borrowing base under the RLOC. The Company estimates availability under the RLOC would be approximately $201.1 million as of June 29, 2012 as adjusted for the sale of these two businesses.

 

9. FAIR VALUE MEASUREMENTS

The Company records and discloses certain financial and non-financial assets and liabilities at their fair value. The fair value of an asset is the price at which the asset could be sold in an orderly transaction between unrelated, knowledgeable and willing parties able to engage in the transaction. A liability’s fair value is defined as the estimate amount that would be paid to transfer the liability to a new obligor in a transaction between such parties, not the amount that would be paid to settle the liability with the creditor.

 

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Assets and liabilities recorded at fair value are measured using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

 

Level 1:    Inputs using unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access.
Level 2:    Inputs or other than quoted prices in markets that are observable for the asset or liability, either directly or indirectly.
Level 3:    Inputs that are both significant to the fair value measurement and unobservable.

As of June 29, 2012 and March 30, 2012, the fair value of the Company’s financial assets and/or liabilities are measured using Level 1 or Level 3 inputs. The following table presents the Company’s assets and liabilities which are measured at fair value on a recurring basis as of June 29, 2012 and March 30, 2012, by level within the fair value hierarchy:

 

(in thousands)                     

June 29, 2012

   Level 1      Level 3      Total  

Assets:

        

Conversion option on VIE convertible note (a)

   $ —         $ 663      $ 663  

Liabilities:

        

Deferred compensation (b)

   $ 94,300      $ —         $ 94,300  

Contingent consideration (c)

     —           400        400  
  

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 94,300      $ 400      $ 94,700  

 

March 30, 2012

   Level 1      Level 3      Total  

Assets:

        

Conversion option on VIE convertible note (a)

   $ —         $ 701      $ 701  

Liabilities:

        

Deferred compensation (b)

   $ 94,394      $ —         $ 94,394  

Contingent consideration (c)

     —           493        493  
  

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 94,394      $ 493      $ 94,887  

 

(a) Represents the Company’s conversion option to acquire 73% of the outstanding common stock in the Company’s consolidated variable interest entity (“VIE”), which is located in Assets held for sale on the Company’s Unaudited Condensed Consolidated Balance Sheets. See Footnote 4, Variable Interest Entity, for further information. The conversion option was calculated using an internal model that utilizes as its basis, unobservable inputs, including estimated interest rates based upon the estimated market interest rate which the VIE would have paid on a high-yield note in the open market. Significant increases (decreases) in any of those inputs would result in a significantly lower (higher) fair value measurement. The unobservable inputs are not considered to be interrelated. The remaining investment in Pathway has been eliminated in consolidation.
(b) Represents the Company’s obligation to pay benefits under its non-qualified deferred compensation plans, which is included in Other noncurrent liabilities on the Company’s Unaudited Condensed Consolidated Balance Sheets. The obligation to pay benefits is based on participants’ allocation percentages to plan investments. The investments are measured using quoted market prices.
(c) Represents the estimated fair value of the additional variable cash consideration payable in connection with the Company’s acquisitions that are contingent upon the achievement of certain performance milestones. The Company estimated the fair value using expected future cash flows over the period in which the obligations are expected to be settled, and applied a discount rate that appropriately captures a market participant’s view of the risk associated with the obligation. Significant increases (decreases) to values of the unobservable inputs would result in a significantly lower (higher) fair value measurement. The unobservable inputs are not considered to be interrelated. The liabilities are included in Liabilities held for sale on the Company’s Unaudited Condensed Consolidated Balance Sheets, depending on the period of expected payout.

 

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The following table summarizes the change in the fair value for Level 3 instruments for the three months ended June 29, 2012:

 

(in thousands)    Level 3
Instruments
 

Assets:

  

Balance as of March 30, 2012

   $ 701  

Fair value adjustment included in earnings

     (38
     

 

 

 

Balance as of June 29, 2012

   $ 663  
     

 

 

 

Liabilities:

  

Balance as of March 30, 2012

   $ 493  

Settlement adjustment

     (133

Fair value adjustment included in earnings

     40  
     

 

 

 

Balance as of June 29, 2012

   $ 400  
     

 

 

 

The carrying amounts of the Company’s current financial instruments, including cash and cash equivalents, short-term trade receivables, and accounts payable, approximate their fair values due to the short-term nature of these assets and liabilities.

 

10. SUPPLEMENTAL CASH FLOW INFORMATION

The Company’s supplemental disclosures for the three months ended June 29, 2012 and July 1, 2011 are as follows:

 

     For the Three Months Ended  
(in thousands)    June 29,
2012
     July 1,
2011
 

Cash paid for:

     

Interest

   $ 192      $ 151  

Income taxes, net

   $ 923      $ 8,179  

During the three months ended June 29, 2012, the amount of cash paid for income taxes decreased primarily due to the carryover of residual payments made during fiscal year 2012.

During the three months ended June 29, 2012 and July 1, 2011, the Company had no material non-cash transactions.

 

11. SEGMENT INFORMATION

The Company’s reportable segments are strategic businesses that offer products and services to different segments of the healthcare industry, and are the basis on which management regularly evaluates the Company. These segments are managed separately based on the unique product and service offerings required by the markets they serve. The Company evaluates the operating performance of its segments based mainly on net sales and income from operations.

During the three months ended June 29, 2012, the Company’s Board of Directors approved a strategic restructuring plan designed to transform the Company. The restructuring plan includes the sale of two businesses serving skilled nursing facilities within the Extended Care Business and specialty dental practices within the Physician Business. As part of the restructuring plan, the previously reported Physician Business and Extended Care Business segments have been realigned into three operating segments: Physician (including Laboratory), Dispensing, and Home Care & Hospice, which serve a diverse customer base. A fourth segment, Shared Services, consists of departments that support the operating segments through the delivery of standardized service.

Shared Services allocates a portion of its costs to the operating segments that use the support services provided, based on an estimation of the direct costs to provide those services. For those operating segments that use shared services, the allocation of shared operating costs is generally proportionate to the revenues of the respective segment.

 

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The following tables present financial information about the Company’s business segments:

 

     For the Three Months Ended  
     June 29,     July 1,  
(in thousands)    2012     2011  

Net Sales:

    

Physician (including Laboratory)

   $ 359,664     $ 335,157  

Dispensing

     22,525       19,614  

Home Care & Hospice

     26,852       25,272  

Shared Services

     348       448  
  

 

 

   

 

 

 

Total net sales

   $ 409,389     $ 380,491  
  

 

 

   

 

 

 

Income (Loss) from Operations:

    

Physician (including Laboratory)

   $ 27,795     $ 27,707  

Dispensing

     1,445       732  

Home Care & Hospice

     2,187       2,549  

Shared Services

     (10,172     (11,022
  

 

 

   

 

 

 

Total income from operations

   $ 21,255     $ 19,966  
  

 

 

   

 

 

 

Interest expense

   $ (8,504     (4,470

Interest income

     14       26  

Other income, net

     479       533  
  

 

 

   

 

 

 

Income from Continuing Operations Before Provision for Income Taxes

   $ 13,244     $ 16,055  
  

 

 

   

 

 

 
     As of  
     June 29,
2012
    March 30,
2012
 

Total Assets:

    

Physician (including Laboratory)

   $ 508,528     $ 447,724  

Dispensing

     116,721       88,700  

Home Care & Hospice

     73,187       73,784  

Shared Services

     215,885       268,384  

Assets held for sale

     280,029       277,378  
  

 

 

   

 

 

 

Total assets

   $ 1,194,350     $ 1,155,970  
  

 

 

   

 

 

 

 

12. INCOME TAXES

The Company’s provision for income taxes and effective tax rate for the three months ended June 29, 2012 and July 1, 2011 are presented in the following table:

 

     For the Three Months Ended  
     June 29,
2012
    July 1,
2011
       
            Effective            Effective        
(dollars in millions)    Amount      Rate     Amount      Rate     Decrease  

Total Company

   $ 4.4        33.2   $ 5.9        36.7   $ (1.5

The effective rate for the three months ended June 29, 2012 and July 1, 2011 was impacted by a reorganization of the Company’s non-U.S. global sourcing subsidiaries. This reorganization increased the responsibilities and contributions of the non-U.S. subsidiaries, proportionally increasing their income and reducing the income of the U.S. subsidiaries. As the non-U.S. subsidiaries are generally subject to tax at rates lower than the U.S. subsidiaries, an increase in the proportion of the Company’s taxable earnings originating outside the U.S. favorably impacts the effective tax rate.

 

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13. COMMITMENTS AND CONTINGENCIES

Litigation

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, the Company, after consultation with legal counsel, believes that the outcome of such other 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.

Commitments and Other 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 pay severance to the executive officers in amounts ranging from one-fourth to two times their base salary and target annual bonus. In the event that a termination or resignation follows or is in connection with a change in control, the Company may be required to pay severance to the executive officers in amounts ranging from three-fourths to three times their base salary and target annual bonus. The Company may also be required to continue welfare benefit plan coverage for the executive officers following a termination or resignation for a period ranging from one month to two years.

On June 29, 2012, the Company amended the employment agreements of certain executive officers. The amendments to the employment agreements are included as exhibits to this report with material terms of the amendments set forth in the Form 8-K filed on July 5, 2012.

If a supply agreement related to the Company’s store brands, including Select Medical Products and other specialty brand products (collectively known as “store brand” or “store brands”) between a vendor and the Company were to be terminated, then the Company may be required to purchase from the vendor all remaining finished and unfinished products and product-materials ordered or held by the vendor. As of June 29, 2012, the Company had no material obligation to purchase remaining products or materials due to a termination of a supply agreement with a vendor who supplies store brand products to the Company.

 

14. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The 2012 Notes of the Company (the “Parent”) are fully and unconditionally guaranteed on a joint and several senior unsecured basis by certain of its domestic subsidiaries (the “Guarantor Subsidiaries”). The guarantees made by the Guarantor Subsidiaries will rank senior in right of payment to all of their existing and future obligations expressly subordinated or junior in right of payment to the notes, equal with all of their existing and future unsecured unsubordinated obligations, and will be effectively subordinated to any of their existing and future secured obligations to the extent of the value of the assets securing such obligations.

The following tables present the condensed consolidating financial information of the Parent, the Guarantor Subsidiaries, and the subsidiaries that are not guarantors (the “Non-Guarantor Subsidiaries”) as of June 29, 2012 and March 30, 2012 and for the years ended June 29, 2012 and July 1, 2011.

 

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UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET

JUNE 29, 2012

(Dollars in Thousands)

 

     Parent      Guarantor
Subsidiaries(a)
     Non-
Guarantor
Subsidiaries
     Eliminations     Consolidated  

ASSETS

             

Current Assets:

             

Cash and cash equivalents

   $ 55,178      $ 10,833      $ 41,403      $ —        $ 107,414  

Accounts receivable, net

     131,057        60,985        19,221        (19,221     192,042  

Inventories

     126,988        44,228        3,218        —          174,434  

Intercompany receivable, net (b)

     359,896        —           —           (359,896     —     

Prepaid expenses and other current assets

     43,039        8,303        699        —          52,041  

Assets held for sale

     27,814        252,620        2,274        (2,679     280,029  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     743,972        376,969        66,815        (381,796     805,960  

Property and equipment, net

     39,357        43,957        99        —          83,413  

Other Assets:

             

Goodwill

     31,374        111,435        —           —          142,809  

Intangibles, net

     9,798        41,662        —           —          51,460  

Investment in subsidiaries

     175,738        27,234        —           (202,972     —     

Other assets

     95,250        15,423        35        —          110,708  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,095,489      $ 616,680      $ 66,949      $ (584,768   $ 1,194,350  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND EQUITY

             

Current Liabilities:

             

Accounts payable

   $ 111,590      $ 23,951      $ 9,648      $ (9,103   $ 136,086  

Accrued expenses

     26,745        18,309        41        —          45,095  

Intercompany payable, net (b)

     —           333,319        26,617        (359,936     —     

Other current liabilities

     5,492        8,513        —           —          14,005  

Liabilities held for sale

     4,732        37,716        3,192        (12,765     32,875  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     148,559        421,808        39,498        (381,804     228,061  

Revolving line of credit and long-term debt, excluding current portion

     457,356        —           —           —          457,356  

Other noncurrent liabilities

     94,008        19,359        —           —          113,367  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     699,923        441,167        39,498        (381,804     798,784  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Equity:

             

PSS World Medical Inc. shareholders’ equity:

             

Total PSS World Medical, Inc. shareholders’ equity

     395,566        174,934        27,451        (205,856     392,095  

Noncontrolling interest

     —           579        —           2,892       3,471  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     395,566        175,513        27,451        (202,964     395,566  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 1,095,489      $ 616,680      $ 66,949      $ (584,768   $ 1,194,350  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

(a) Subsequent to June 29, 2012, the Company acquired a company that it intends to include as a Guarantor Subsidiary in future reporting periods.
(b) Intercompany payables and receivables have been reclassified to their net presentation in the respective columns.

 

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UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET

MARCH 30, 2012

(Dollars in Thousands)

 

     Parent      Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
     Eliminations     Consolidated  

ASSETS

            

Current Assets:

            

Cash and cash equivalents

   $ 117,448      $ 13,529     $ 32,175      $ —        $ 163,152  

Accounts receivable, net

     137,214        22,591       29,737        —          189,542  

Inventories

     113,635        33,310       253        —          147,198  

Intercompany receivable, net (a)

     290,404        —          —           (290,404     —     

Prepaid expenses and other current assets

     39,483        4,590       113        —          44,186  

Assets held for sale

     26,975        250,522       2,526        (2,645     277,378  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total current assets

     725,159        324,542       64,804        (293,049     821,456  

Property and equipment, net

     39,854        40,189       108        —          80,151  

Other Assets:

            

Goodwill

     31,319        78,138       —           —          109,457  

Intangibles, net

     10,435        23,111       —           —          33,546  

Investment in subsidiaries

     184,218        23,942       —           (208,160     —     

Other assets

     95,951        15,373       36        —          111,360  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,086,936      $ 505,295     $ 64,948      $ (501,209   $ 1,155,970  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

LIABILITIES AND EQUITY

            

Current Liabilities:

            

Accounts payable

   $ 122,254      $ (4,121   $ 586      $ —        $ 118,719  

Accrued expenses

     20,211        17,176       49        —          37,436  

Intercompany payable, net (a)

     —           253,925       37,043        (290,968     —     

Other current liabilities

     2,667        5,348       —           —          8,015  

Liabilities held for sale

     4,025        36,456       3,095        (5,936     37,640  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total current liabilities

     149,157        308,784       40,773        (296,904     201,810  

Revolving line of credit and long-term debt, excluding current portion

     454,916        —          —           —          454,916  

Other noncurrent liabilities

     92,052        16,381       —           —          108,433  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities

     696,125        325,165       40,773        (296,904     765,159  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Equity:

            

PSS World Medical Inc. shareholders’ equity:

            

Total PSS World Medical, Inc. shareholders’ equity

     390,811        179,536       24,175        (207,394     387,128  

Noncontrolling interest

     —           594       —           3,089       3,683  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total equity

     390,811        180,130       24,175        (204,305     390,811  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 1,086,936      $ 505,295     $ 64,948      $ (501,209   $ 1,155,970  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

(a) Intercompany payables and receivables have been reclassified to their net presentation in the respective columns.

 

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UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 29, 2012

(Dollars in Thousands)

 

     Parent     Guarantor
Subsidiaries  (a)
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net sales

   $ 298,160     $ 100,212     $ 23,144     $ (12,127   $ 409,389  

Cost of goods sold

     211,307       51,375       18,693       (8,274     273,101  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     86,853       48,837       4,451       (3,853     136,288  

General and administrative expenses

     54,293       24,271       1,116       —          79,680  

Selling expenses

     26,457       8,896       —          —          35,353  

Equity earnings of subsidiaries

     5,962       3,276       —          (9,238     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     12,065       18,946       3,335       (13,091     21,255  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

          

Interest expense

     (8,493     (11     —          —          (8,504

Interest income

     354       (340     —          —          14  

Other income, net

     295       185       (1     —          479  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net

     (7,844     (166     (1     —          (8,011
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations before provision for income taxes

     4,221       18,780       3,334       (13,091     13,244  

(Benefit) provision for income taxes

     (9,005     13,403       —          —          4,398  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     13,226       5,377       3,334       (13,091     8,846  

Income (loss) from discontinued operations, net of taxes

     1,155       585       (58     201       1,883  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     14,381       5,962       3,276       (12,890     10,729  

Net loss attributable to noncontrolling interest

     —          (15     —          —          (15
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to PSS World Medical, Inc.

     14,381       5,977       3,276       (12,890     10,744  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Subsequent to June 29, 2012, the Company acquired a company that it intends to include as a Guarantor Subsidiary in future reporting periods.

 

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JULY 1, 2011

(Dollars in Thousands)

 

     Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net sales

   $ 286,843     $ 90,297     $ 3,351     $ —        $ 380,491  

Cost of goods sold

     205,798       51,409       610       —          257,817  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     81,045       38,888       2,741       —          122,674  

General and administrative expenses

     50,972       20,050       925       —          71,947  

Selling expenses

     23,838       6,923       —          —          30,761  

Equity (loss) earnings of subsidiaries

     3,995       1,847       —          (5,842     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     10,230       13,762       1,816       (5,842     19,966  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

          

Interest expense

     (4,325     (145     —          —          (4,470

Interest income

     343       (317     —          —          26  

Other income, net

     313       228       (8     —          533  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net

     (3,669     (234     (8     —          (3,911
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations before provision for income taxes

     6,561       13,528       1,808       (5,842     16,055  

(Benefit) provision for income taxes

     (6,444     12,343       —          —          5,899  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations

     13,005       1,185       1,808       (5,842     10,156  

Income from discontinued operations, net of taxes

     1,119       2,810       39       21       3,989  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     14,124       3,995       1,847       (5,821     14,145  

Net loss attributable to noncontrolling interest

     —          (28     (16     —          (44
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to PSS World Medical, Inc.

   $ 14,124     $ 4,023     $ 1,863     $ (5,821   $ 14,189  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED JUNE 29, 2012

(Dollars in Thousands)

 

     Parent     Guarantor
Subsidiaries  (a)
    Non-Guarantor
Subsidiaries
     Eliminations     Consolidated  

Cash Flows From Operating Activities:

           

Net cash (used in) provided by operating activities

   $ (62,893   $ 76,515     $ 9,190      $ 38     $ 22,850  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Cash Flows From Investing Activities:

           

Payments for business combinations, net of cash acquired

     —          (66,052     —           —          (66,052

Capital expenditures

     (2,697     (1,303     —           —          (4,000

Other

     (29     (84     —           —          (113

Net cash used in investing activities, discontinued operations

     (30     (1,178     —           —          (1,208
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net cash used in investing activities

     (2,756     (68,617     —           —          (71,373
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Cash Flows From Financing Activities:

           

Purchase and retirement of common stock

     (7,474     —          —           —          (7,474

Excess tax benefits from stock-based compensation arrangements

     289       —          —           —          289  

Payment for debt issuance costs

     (40     —          —           —          (40

Proceeds from exercise of stock options

     10       —          —           —          10  

Intercompany dividend

     10,594       (10,594     —           —          —     

Net cash (used in) provided by financing activities, discontinued operations

     —          —          38        (38     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     3,379       (10,594     38        (38     (7,215
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (62,270     (2,696     9,228        —          (55,738

Cash and cash equivalents, beginning of period

     117,448       13,529       32,175        —          163,152  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 55,178     $ 10,833     $ 41,403      $ —        $ 107,414  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

(a) Subsequent to June 29, 2012, the Company acquired a company that it intends to include as a Guarantor Subsidiary in future reporting periods.

 

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Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED JULY 1, 2011

(Dollars in Thousands)

 

     Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash Flows From Operating Activities:

          

Net cash provided by (used in) operating activities

   $ 19,791     $ 15,043     $ (34   $ 34     $ 34,834  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows From Investing Activities:

          

Payments for business combinations, net of cash acquired

     (70     (140     —          —          (210

Capital expenditures

     (1,342     (2,272     —          —          (3,614

Other

     (22     —          —          —          (22

Net cash used in investing activities, discontinued operations

     (6     (1,075     (5     —          (1,086
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (1,440     (3,487     (5     —          (4,932
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows From Financing Activities:

          

Purchase and retirement of common stock

     (57,758     —          —          —          (57,758

Excess tax benefits from stock-based compensation arrangements

     1,200       —          —          —          1,200  

Proceeds from exercise of stock options

     292       —          —          —          292  

Proceeds from borrowings on the revolving line of credit

     30,183       —          —          —          30,183  

Repayments on the revolving line of credit

     (9,683     —          —          —          (9,683

Payment of contingent consideration on business acquisitions

     —          (1,000     —          —          (1,000

Payments under capital lease obligations

     (9     (170     —          —          (179

Intercompany dividend

     9,293       (9,293     —          —          —     

Net cash used in financing activities, discontinued operations

     —          (14     34       (34     (14
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (26,482     (10,477     34       (34     (36,959
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (8,131     1,079       (5     —          (7,057

Cash and cash equivalents, beginning of period

     13,901       3,568       11,879       —          29,348  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 5,770     $ 4,647     $ 11,874     $ —        $ 22,291  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE COMPANY

PSS World Medical, Inc. (the “Company” or “PSSI”), a Florida corporation, began operations in 1983. The Company markets and distributes medical products and services to front-line caregivers throughout the United States. With approximately 4,000 team members, PSSI is a leader in the markets it serves with innovative approaches to customer service and operational excellence. Its stated purpose is to strengthen the clinical success and financial health of caregivers by solving their biggest problems, and its stated mission is to improve caregivers’ financial performance by 20%. The Company is focused to accelerate growth in four markets – Physician, Laboratory, Dispensing, and Home Care & Hospice – with products and solutions that deliver high quality, cost effective, and convenient patient care. The Company has full service distribution centers strategically located to efficiently serve all 50 states throughout the United States.

During the three months ended June 29, 2012, the Company’s Board of Directors approved a strategic restructuring plan designed to transform the Company by focusing on four lines of business – physician, laboratory, dispensing, and home care and hospice. Prior to this, the Company conducted business through two operating segments, the Physician Business and the Extended Care Business. The restructuring plan includes the sale of two businesses serving skilled nursing facilities within the Extended Care Business and specialty dental practices within the Physician Business. Additionally, the plan includes the integration of all distribution operations into one common distribution infrastructure, and the redesign of the shared services segment. The transformation is designed to accelerate revenue growth and reduce operating costs as a percentage of net sales, while streamlining decision making and execution, and improving customer service. The Company expects to complete the restructuring plan over the next several fiscal years.

As a result of the strategic restructuring, the Company conducts business through three operating segments, Physician (including Laboratory), Dispensing, and Home Care & Hospice, which serve a diverse customer base. A fourth segment, Shared Services, supports the operating segments through the delivery of standardized service. For information on comparative segment net sales, segment profit and loss, and related financial information, refer to Footnote 11, Segment Information, of the unaudited condensed consolidated financial statements.

EXECUTIVE OVERVIEW

During the first quarter of fiscal year 2013, net sales from continuing operations increased 7.6% and net sales from discontinued operations increased 1.2% compared to the same period in the prior fiscal year.

Net sales in the Physician (including Laboratory) business during the three months ended June 29, 2012 increased 7.3% compared to the same period in the prior fiscal year. The increase in net sales was attributable to revenue generated from acquisitions, as well as growth of disposables and lab diagnostics, including store brands equipment and pharmaceuticals.

Net sales in the Dispensing business during the three months ended June 29, 2012 increased 14.8% compared to the same period of the prior fiscal year. The increase is attributable to revenue generated from acquisitions.

Net sales in the Home Care & Hospice business during the three months ended June 29, 2012 increased 6.3% compared to the same period in the prior fiscal year. The increase is attributable to continued focus on the expansion of the store brands product category, resulting in new customer sales, as well customer conversions from branded products to the Company’s store brands.

Consolidated general and administrative expenses from continuing operations increased $7.8 million, or 10.8% compared to the first quarter of the prior fiscal year, mainly attributable to additional expenses incurred from acquisitions completed during the current and prior fiscal years, as well as investments made to advance the Company’s long-term business plan.

 

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Consolidated selling expenses from continuing operations increased $4.6 million, or 8.1% compared to the first quarter of the prior fiscal year, due to an increase in commission expenses. Commissions are generally paid to sales representatives based on gross profit dollars and gross margin, which increased 11.1% and 105 basis points, respectively.

Cash flow provided by operating activities during the three months ended June 29, 2012 was $22.9 million. The Company’s cash flows from operating activities, along with available cash balances and borrowings on its revolving line of credit, funded the repurchase of approximately 0.4 million common shares, investments in capital projects, and acquisitions during the three months ended June 29, 2012.

The following significantly impacted the Company’s financial and operating results during the three months ended June 29, 2012.

Restructuring Plan

During the three months ended June 29, 2012, the Company’s Board of Directors approved a strategic restructuring plan designed to transform the Company by focusing on four lines of business – physician, laboratory, dispensing, and home care and hospice. The transformation is designed to accelerate revenue growth and reduce operating costs as a percentage of net sales, while streamlining decision making and execution, and improving customer service.

The restructuring plan includes the sale of two businesses serving skilled nursing facilities and specialty dental practices, the integration of all distribution operations into one common distribution infrastructure, and the redesign of the shared services segment. Current results of operations may not be indicative of future results.

Acquisitions

During the three months ended June 29, 2012, the Company made strategic acquisitions in the dispensing and laboratory markets. The total purchase price of the acquisitions was $72.4 million, of which $6.0 million was held by the Company to secure certain potential future adjustments or claims, and $0.3 million was paid for working capital adjustments related to prior year acquisitions and other acquisition-related adjustments. Refer to Footnote 2, Purchase Business Combinations, for additional information.

NET SALES

The following table summarizes net sales period over period:

 

     For the Three Months Ended  
     June 29,      July 1,      Percent  
(dollars in millions)    2012      2011      Change  

Physician (including Laboratory)

   $ 359.7      $ 335.2        7.3

Dispensing

     22.5        19.6        14.8  

Home Care & Hospice

     26.9        25.3        6.3  

Shared Services

     0.3        0.4        (22.6
  

 

 

    

 

 

    

Total Company

   $ 409.4      $ 380.5        7.6
  

 

 

    

 

 

    

 

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Physician (including Laboratory)

Management evaluates the Physician (including Laboratory) business by product category. The following table summarizes the growth rate by product category period over period:

 

     For the Three Months Ended  
     June 29,      July 1,      Percent  
(dollars in millions)    2012      2011      Change  

Branded (a)

   $ 180.8      $ 175.7        2.9

Store brand products and services (b)

     59.9        54.3        10.3  

Pharmaceuticals

     76.7        75.7        1.3  

Equipment (c)

     29.0        27.1        6.8  

Other (including 2013 acquisitions)

     13.3        2.4        496.8  
  

 

 

    

 

 

    

Total

   $ 359.7      $ 335.2        7.3
  

 

 

    

 

 

    

Selling days

     64        64     

 

(a) Branded products are comprised of disposables and lab diagnostics from branded manufacturers.
(b) Store brand products and services are comprised of the Company’s brands of disposables, lab diagnostics, equipment and laboratory consulting services.
(c) Equipment from branded manufacturers.

Overall, net sales during the three months ended June 29, 2012 were positively impacted by revenue from acquisitions and continued success with the Company’s Reach initiative resulting in the addition of new customers during the period.

Net sales of branded products increased during the three months ended June 29, 2012 due to an increase in net sales of lab diagnostics when compared to the same period in the prior fiscal year.

Net sales of store brand products and services increased during the three months ended June 29, 2012 due to continued focus on the expansion of the store brands product category, resulting in new customer sales, as well as customers conversions from branded products to the Company’s store brands.

Net sales of equipment increased during the three months ended June 29, 2012 primarily due to an increase in net sales of cardiology equipment when compared to the same period in the prior fiscal year.

Net sales of products and services in the other category increased during the three months ended June 29, 2012 due to acquisitions of companies serving the laboratory customer segment.

Dispensing

Net sales during the three months ended June 29, 2012 were positively impacted by acquisitions of companies providing physician pharmaceutical dispensing products and services during the current quarter and the prior fiscal year and by internal growth.

 

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Home Care & Hospice

Management evaluates the Home Care & Hospice business by customer category. The following table summarizes the change in net sales period over period:

 

     For the Three Months Ended  
     June 29,      July 1,      Percent  
(dollars in millions)    2012      2011      Change  

Home Care

     16.7        15.2        9.7

Hospice

     9.6        9.7        (0.9

Other

     0.6        0.4        46.2  
  

 

 

    

 

 

    

Total

   $ 26.9      $ 25.3        6.3
  

 

 

    

 

 

    

Selling days

     64        64     

Overall, net sales during the three months ended June 29, 2012 increased when compared to the same period in the prior fiscal year due to continued focus on the expansion of the store brands product category, resulting in new customer sales, as well as customer conversions from branded products to the Company’s store brands.

GROSS PROFIT

Gross profit dollars for the Physician (including Laboratory) business increased $9.9 million and gross margin increased 62 basis points during the three months ended June 29, 2012, when compared to the same period in the prior fiscal year. The increase in gross profit dollars was a result of an increase in net sales. The increase in gross margin was a result of net sales growth in the Company’s store brand products, which generally have higher gross margins than the Company’s other product categories.

Gross profit dollars for the Dispensing business increased $3.2 million and gross margin increased 841 basis points during the three months ended June 29, 2012, when compared to the same period in the prior fiscal year. The increase in gross profit dollars was a result of an increase in net sales. The increase gross margin was due to an increase in efficiency of providing dispensing services.

Gross profit dollars for the Home Care & Hospice business increased $0.5 million while gross margin was flat during the three months ended June 29, 2012, when compared to the same period in the prior fiscal year. The increase in gross profit dollars was a result of an increase in net sales and growth in net sales of the Company’s store brand products.

GENERAL AND ADMINISTRATIVE EXPENSES

 

     For the Three Months Ended  
      June 29, 2012     July 1, 2011        
(dollars in millions)    Amount      % of
Net
Sales
    Amount      % of
Net
Sales
    Increase
(Decrease)
 

Physician (including Laboratory) (a)

   $ 55.7        15.5   $ 49.6        14.8   $ 6.1  

Dispensing (a)

     7.8        34.5       6.0        30.8       1.8  

Home Care & Hospice (a)

     6.1        22.9       5.3        21.1       0.8  

Shared Services (b)

     10.1        2.5       11.0        2.9       (0.9
  

 

 

      

 

 

      

 

 

 

Total Company (b)

   $ 79.7        19.5   $ 71.9        18.9   $ 7.8  
  

 

 

      

 

 

      

 

 

 

 

(a) General and administrative expenses as a percentage of net sales is calculated based on reportable segment net sales.
(b) General and administrative expenses as a percentage of net sales is calculated based on consolidated net sales from continuing operations.

 

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Physician (including Laboratory)

General and administrative expenses increased $6.1 million during the three months ended June 29, 2012, when compared to the same period in the prior fiscal year. This increase was attributable to (i) an increase in cost to deliver of $1.3 million due to an increase in warehouse expense related to the growth in net sales, and additional expenses from acquired companies; (ii) an increase in payroll and payroll-related expenses of $1.3 million as a result of acquisitions; (iii) an increase in allocated corporate expenses of $0.5 million; (iv) an increase in depreciation and amortization expense of $0.4 million due to the addition of property and equipment and intangible assets related to acquisitions; (v) an increase in marketing expense of $0.4 million; and (vi) an increase in legal fees of $0.4 million related to acquisitions.

Dispensing

General and administrative expenses increased $1.8 million during the three months ended June 29, 2012, when compared to the same period in the prior fiscal year. The increase was attributable to (i) an increase in payroll and payroll-related expenses of $0.7 million as a result of acquisitions; (ii) an increase in cost to deliver of $0.4 million due to an increase in warehouse expense related to the growth in net sales, and additional expenses from acquisitions, and (iii) an increase in depreciation and amortization expense of $0.4 million due to the addition of property and equipment and intangible assets related to acquisitions.

Home Care & Hospice

General and administrative expenses increased $0.8 million during the three months ended June 29, 2012, when compared to the same period in the prior fiscal year. The increase was attributable to an increase in cost to deliver of $0.5 million due to an increase in warehouse expense related to the growth in net sales and an increase in home shipments overall mix.

Shared Services

General and administrative expenses decreased $0.9 million during the three months ended June 29, 2012, when compared to the same period in the prior fiscal year. This decrease was attributable to a decrease in incentive and stock-based compensation expense of $1.8 million related to payout estimates based on performance and the modification of the Performance Shares for certain of the Company’s executive officers, partially offset by an increase in medical expenses of $1.0 million.

SELLING EXPENSES

The following table summarizes selling expenses as a percentage of net sales period over period:

 

     For the Three Months Ended  
     June 29,     July 1,        
     2012     2011        
(dollars in millions)    Amount      % of
Net
Sales
    Amount      % of
Net
Sales
    Increase  

Physician (including Laboratory)

   $ 31.5        8.8   $ 27.8        8.3   $ 3.7  

Dispensing

     3.0        13.2       2.2        11.3       0.8  

Home Care & Hospice

     0.9        3.2       0.8        3.1       0.1  
  

 

 

      

 

 

      

 

 

 

Total Company

   $ 35.4        8.6   $ 30.8        8.1   $ 4.6  
  

 

 

      

 

 

      

 

 

 

Selling expenses are principally driven by commission expenses, which are generally paid to sales representatives based on gross profit dollars, gross margin, and other measures of profitability. The change in selling expenses for the Physician (including Laboratory), Dispensing, and Home Care & Hospice businesses was relatively consistent with the change in gross profit dollars and gross margin during the three months ended June 29, 2012.

 

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PROVISION FOR INCOME TAXES

The following table summarizes the provision for income taxes period over period:

 

     For the Three Months Ended  
     June 29,
2012
    July 1,
2011
       
            Effective            Effective        
(dollars in millions)    Amount      Rate     Amount      Rate     Decrease  

Total Company

   $ 4.4        33.2   $ 5.9        36.7   $ (1.5

The effective rate for the three months ended June 29, 2012 was impacted by a reorganization of the Company’s non-U.S. global sourcing subsidiaries. This reorganization, completed during the third quarter of fiscal year 2012, increased responsibilities and contributions of the non-U.S. subsidiaries, proportionally increasing their income and reducing the income of the U.S. subsidiaries. As the non-U.S. subsidiaries are generally subject to tax at rates lower than the U.S. subsidiaries, an increase in the proportion of the Company’s taxable earnings originating outside the U.S. favorably impacts the effective tax rate. The Company expects this tax reorganization to continue to have a sustained positive impact on its effective tax rate; however, the Company cannot determine what impact, if any, the strategic restructuring plan may have on the tax rate in future periods.

 

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LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Capital Resources Highlights

Cash flows from operations are impacted by segment profitability and changes in operating working capital. Management monitors operating working capital performance through the following metrics:

 

     As of  
     June 29,
2012
    July 1,
2011
 

Days Sales Outstanding: (a)

    

Physician (including Laboratory)

     39.7       38.7  

Dispensing (g)

     66.7       —     

Home Care

     39.6       40.6  

Days On Hand: (b)

    

Physician (including Laboratory)

     55.4       55.2  

Dispensing (g)

     36.4       —     

Home Care

     70.7       69.6  

Days in Accounts Payable: (c)

    

Physician (including Laboratory)

     38.6       37.6  

Dispensing (g)

     21.7       —     

Home Care

     27.3       27.9  

Cash Conversion Days: (d)

    

Physician (including Laboratory)

     56.5       56.2  

Dispensing (g)

     81.4       —     

Home Care

     83.0       82.3  

Inventory Turnover: (e)

    

Physician (including Laboratory)

     6.5x        6.5x   

Dispensing (g)

     9.9x        —     

Home Care

     5.1x        5.2x   

Return on Committed Capital (f)

    

Total Company

     31.7     34.1

 

(a) Days sales outstanding (“DSO”) is average accounts receivable divided by average daily net sales. Average accounts receivable is the sum of accounts receivable, net of the allowance for doubtful accounts, at the beginning and end of the most recent four quarters divided by five. Average daily net sales are net sales for the most recent four quarters divided by 360.
(b) Days on hand (“DOH”) is average inventory divided by average daily cost of goods sold (“COGS”). Average inventory is the sum of inventory at the beginning and end of the most recent four quarters divided by five. Average daily COGS is COGS for the most recent four quarters divided by 360.
(c) Days in accounts payable (“DIP”) is average accounts payable divided by average daily COGS. Average accounts payable is the sum of accounts payable at the beginning and end of the most recent four quarters divided by five.
(d) Cash conversion days is the sum of DSO and DOH, less DIP.
(e) Inventory turnover is 360 divided by DOH.
(f) Return on committed capital (“ROCC”) is defined as return divided by average committed capital. Return is calculated as net income plus (i) provision for income taxes, (ii) amortization, and (iii) interest expense; less interest income for the current quarterly period. Average committed capital is calculated as total assets, less (i) cash, (ii) goodwill and intangibles, and (iii) liabilities, excluding current and long-term debt, for the current and previous quarterly periods, divided by two.
(g) Metrics for the Dispensing segment as of July 1, 2011 were omitted, as the first dispensing acquisition was completed in the third quarter of fiscal year 2011.

 

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In addition to cash flow, the Company monitors other components of liquidity and capital structure, including the following:

 

     As of  
(dollars in millions)    June 29,
2012
    March 30,
2012
 

Capital Structure:

    

2012 Notes(a)

   $ 250.0     $ 250.0  

2008 Notes(a)

     207.4       204.9  

Cash and cash equivalents

     (107.4     (163.2
  

 

 

   

 

 

 

Net debt

     350.0       291.7  

Total equity

     395.6       390.8  
  

 

 

   

 

 

 

Total Capital

   $ 745.6     $ 682.5  
  

 

 

   

 

 

 

Operating Working Capital:

    

Accounts receivable, net

   $ 192.0     $ 189.5  

Inventories

     174.4       147.2  

Accounts payable

     (136.1     (118.7
  

 

 

   

 

 

 

Operating Working Capital

   $ 230.3     $ 218.0  
  

 

 

   

 

 

 

 

(a) Outstanding debt is presented in order of seniority.

Cash Flows from Operating Activities

Net cash provided by operating activities was $22.9 million and $34.8 million for the three months ended June 29, 2012 and July 1, 2011, respectively. The decline in cash provided by operating activities was the result of an increase in operating working capital of $12.3 million.

As of June 29, 2012, the Company has a deferred income tax liability of $17.3 million (tax-effected) related to interest deductions taken for tax purposes on its 2004 Notes. The liability will be fully deferred for the next two years and paid ratably from fiscal year 2014 to fiscal year 2018 in accordance with the American Recovery and Reinvestment Act of 2009.

Cash Flows from Investing Activities

Net cash used in investing activities was $71.4 million and $4.9 million during the three months ended June 29, 2012 and July 1, 2011, respectively, and included the following:

 

   

Capital expenditures totaled $4.0 million and $3.6 million during the three months ended June 29, 2012 and July 1, 2011, respectively, of which approximately $3.9 million and $3.0 million, respectively, related primarily to the development and enhancement of the Company’s ERP and supply chain systems, electronic commerce platforms, and internal productivity software. Capital expenditures related to distribution center expansions and enhancements were approximately $0.1 million and $0.2 million during the three months ended June 29, 2012 and July 1, 2011, respectively.

 

   

Payments for business acquisitions, net of cash acquired, were $66.1 million and $0.2 million during the three months ended June 29, 2012 and July 1, 2011, respectively. See Footnote 2, Purchase Business Combinations, for additional information.

 

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Cash Flows from Financing Activities

Net cash used in financing activities was $7.2 million and $37.0 million during the three months ended June 29, 2012 and July 1, 2011, respectively, and was impacted by the following factors:

 

   

The Company repurchased approximately 0.4 million shares of common stock at an average price of $20.21 per common share for approximately $7.5 million, during the three months ended June 29, 2012. The Company repurchased approximately 2.1 million shares of common stock at an average price of $28.02 per common share for approximately $57.8 million, during the three months ended July 1, 2011.

 

   

The Company did not borrow on its RLOC during the three months ended June 29, 2012. The Company borrowed $30.2 million and repaid $9.7 million on its RLOC during three months ended July 1, 2011.

 

   

The Company paid no contingent consideration during the three months ended June 29, 2012 related to earn-outs acquisitions. The Company paid $1.0 million in contingent consideration during the three months ended July 1, 2011 related to earn-outs from prior period acquisitions.

Capital Resources

The Company closely monitors the capital and credit markets. While market conditions have improved, volatility remains that may restrict access to capital and the costs associated with issuing or refinancing debt may increase relative to the Company’s current position. While the Company believes it is well positioned, there can be no guarantee the recent disruptions in the overall economy and the financial markets will not adversely impact the business and results of operations.

The Company finances its business through cash from operating activities, the proceeds from the 2012 Notes and 2008 Notes offerings, and the $300.0 million RLOC. The ability to generate sufficient cash from operating activities is dependent on the continued demand for the Company’s products and services and its access to those products and services from suppliers. The Company’s capital structure provides the financial resources to support the Company’s core business strategies and revenue growth. The RLOC, which is an asset-based agreement, is collateralized by the Company’s accounts receivable and inventory. The Company’s long-term priorities for use of its capital include programs to grow sales, make fold-in and strategic acquisitions, and repurchase of its common stock.

As the Company’s business grows, its cash and working capital requirements are expected to increase. The Company expects the overall growth in the business will be funded through a combination of cash flows from operating activities, borrowings under the RLOC, cash proceeds from the sale of the businesses outlined in the Company’s strategic restructuring plan, proceeds from the issuance of its 2012 Notes, capital markets, and/or other financing arrangements.

During the three months ended June 29, 2012, the Company’s Board of Directors approved a strategic restructuring plan. The restructuring plan will include the sale of two businesses serving skilled nursing facilities within the Extended Care Business and specialty dental practices within the Physician Business. The sale of the businesses are expected to increase the Company’s available cash balances, while reducing the Company’s assets used to calculate its borrowing base under the RLOC. The Company estimates availability under the RLOC would be approximately $201.1 million as of June 29, 2012 as adjusted for the sale of these two businesses.

As of June 29, 2012, the Company has not entered into any material working capital commitments that require funding, other than the items discussed below and the obligations included in the future contractual obligations table included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 30, 2012.

Based on prevailing market conditions, liquidity requirements, contractual restrictions, and other factors, the Company may seek to retire a portion of its outstanding equity through cash purchases and/or reduce its debt. The Company may also seek to issue additional equity or debt to meet its future liquidity requirements. Such transactions may occur in the open market, privately negotiated transactions, or otherwise. The amounts involved could be material.

 

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Convertible Note Hedge Transactions

In connection with the offering of the 2008 Notes, the Company also entered into convertible note hedge transactions with respect to its common stock (the “purchased options”) with a major financial institution (the “counterparty”). The Company paid an aggregate amount of $54.1 million to the counterparty for the purchased options. The purchased options cover, subject to anti-dilution adjustments substantially identical to those in the notes, approximately 10.8 million shares of common stock at a strike price that corresponds to the initial conversion price of the notes, also subject to adjustment, and are exercisable at each conversion date of the notes. The purchased options will expire upon the earlier of (i) the last day the notes remain outstanding or (ii) the second scheduled trading day immediately preceding the maturity date of the notes.

The purchased options are intended to reduce the potential dilution upon conversion of the notes in the event that the market value per share of the common stock, as measured under the notes, at the time of exercise is greater than the conversion price of the notes.

The purchased options are separate transactions, entered into by the Company with the counterparty, and are not part of the terms of the notes. Holders of the notes will not have any rights with respect to the purchased options.

Warrant Transactions

The Company also entered into warrant transactions (the “warrants”), whereby the Company sold to the counterparty warrants in an aggregate amount of $25.4 million to acquire, subject to anti-dilution adjustments, up to 10.8 million shares of common stock at a strike price of $28.29 per share of common stock, also subject to adjustment. The warrants will expire after the purchased options in approximately ratable portions on a series of expiration dates commencing on November 3, 2014.

The warrants are separate transactions, entered into by the Company with the counterparties, and are not part of the terms of the 2008 Notes. Holders of the 2008 Notes do not have any rights with respect to the warrants.

The combination of the purchased options and warrants will generally have the effect of increasing the conversion price of the 2008 Notes to approximately $28.29 per share, representing a 68.5% premium based on the closing sale price of the Company’s common stock of $16.79 per share on August 4, 2008.

Impact on Diluted Weighted Average Shares

In accordance with ASC 260, Earnings Per Share, and the Company’s stated policy of settling the principal amount in cash, the Company was required to include shares underlying the 2008 Notes in its diluted weighted average shares outstanding since the average stock price per share for the period exceeded $21.22 (the conversion price for the senior convertible notes). Only the number of shares that would be issuable under the treasury stock method of accounting for share dilution was included, which was based upon the amount by which the average stock price exceeded the conversion price. If the average stock price of the Company’s common stock exceeds $28.29 per share as outlined in the terms of the agreement, it will also include the effect of the additional potential shares that may be issued related to the warrants, which may negatively impact the Company’s diluted weighted average shares and diluted earnings per share.

The purchased options are not included in the calculation of diluted earnings per share prior to the conversion of the 2008 Notes, as their effect is considered anti-dilutive. As of June 29, 2012, the purchased options were “out of the money” and would not have been convertible into shares of the Company’s common stock. The exercise of the purchased options is restricted to each conversion date of the 2008 Notes.

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

Critical Accounting Estimates are disclosed in the Annual Report on Form 10-K for the fiscal year ended March 30, 2012 filed on May 29, 2012 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There have been no material changes in the Company’s Critical Accounting Estimates, as disclosed in the Annual Report.

 

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Recent Accounting Pronouncements

During the three months ended June 29, 2012, the Company adopted an Accounting Standards Update (“ASU”) that provides new guidance on the presentation of comprehensive income and requires changes in stockholders’ equity to be presented either (i) in a single continuous statement of comprehensive income, or (ii) in two separate consecutive statements. The ASU requires retrospective application. In December 2011, the FASB indefinitely deferred the effective date for amendments pertaining to the presentation of reclassification adjustments by component. The adoption of this standard did not have an effect on the Company’s statements of financial condition or results of operations, as the Company has no other comprehensive income items to disclose.

During the three months ended June 29, 2012, the Company adopted an ASU that amends guidance to simplify the method in which entities test goodwill for impairment. This ASU allows an entity to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. Additional disclosure requirements were included with this update, including an explanation of qualitative factors used in the goodwill analysis. The adoption of this standard did not have an effect on the Company’s statements of financial condition or results of operations.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company believes there has been no material change in its exposure to market risk from that discussed in Item 7A in the Annual Report on Form 10-K for the fiscal year ended March 30, 2012 filed on May 29, 2012.

 

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 240.13a-15(e) and 240.15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report (the “Evaluation Date”). Based on the evaluation, the Principal Executive Officer and the Principal Financial Officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, is accumulated and communicated to the Company’s management, including the Company’s Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting that occurred during the three months ended June 29, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

 

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this Quarterly Report on Form 10-Q, investors should carefully consider the factors discussed in Part I, Item 1A, Risk Factors, in the Company’s Annual Report on Form 10-K for the fiscal year ended March 30, 2012, filed on May 29, 2012. Such factors could have a material adverse effect on

 

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the Company’s financial position, results of operations, or cash flows. The Company has potential exposure to risks other than those described in the Company’s Annual Report on Form 10-K. Additional risks and uncertainties not currently known to management, or risks that management currently deem to be immaterial, could have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

The Company believes there have been no material changes from the risk factors disclosed in Part I, Item 1A, Risk Factors, in the Company’s Annual Report on Form 10-K for the fiscal year ended March 30, 2012.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Sales and Purchases of Equity Securities

The Company repurchases its common stock under a stock repurchase program authorized by the Company’s Board of Directors. As of March 30, 2012, there were 0.4 million shares available for repurchase under the existing stock repurchase program. These shares may be purchased in the open market, in privately negotiated transactions, or otherwise. The share repurchase program does not have an expiration date.

The following table summarizes the Company’s repurchase activity during the three months ended June 29, 2012:

 

                                                                                                                           

Period

   Total
Number of
Shares
Purchased (a)
     Average
Price
Paid per
Share
     Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs
     Maximum
Number of
Shares that
May yet be
Purchased
Under the
Plans or
Programs
 

March 31 - April 29

     1,953      $ 25.34        1,953        435,241  

April 30 - May 29

     18,600        20.39        18,600        416,641  

May 30 - June 29

     349,286        20.17        349,286        67,355  
  

 

 

       

 

 

    

Total first quarter

     369,839      $ 20.21        369,839        67,355  
  

 

 

       

 

 

    

 

(a) Includes shares repurchased for net share settlement of employee share-based awards.

 

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Table of Contents
ITEM 6. EXHIBITS

 

(a) Exhibits required by Item 601 of Regulation S-K:

 

Exhibit

Number

   Description
  10.1    Amendment to Employment Agreement, dated as of June 29, 2012, by and between the Company and Gary A. Corless.
  10.2    Amendment to Employment Agreement, dated as of June 29, 2012, by and between the Company and David M. Bronson.
  10.3    Amendment to Employment Agreement, dated as of June 29, 2012, by and between the Company and Kevin P. English.
  10.4    Amendment to Employment Agreement, dated as of June 29, 2012, by and between the Company and Bradley J. Hilton.
  10.5    Second Amendment to Employment Agreement, dated as of June 29, 2012, by and between the Company and John F. Sasen, Sr.
  10.6    Amendment to Employment Agreement, dated as of June 29, 2012, by and between the Company and Edward D. Dienes.
  10.7    Form of Performance-Accelerated Restricted Stock Award Agreement dated June 22, 2012.
  10.8    Form of Performance-Based Restricted Stock Unit Agreement dated June 22, 2012.
  10.9    Form of Total Shareholder Return Award Agreement dated June 22, 2012.
  10.10    July 2012 Amendment to the Conformed Amended and Restated Savings Plan.
  31.1    Rule 13a-14(a) Certification of the Chief Executive Officer.
  31.2    Rule 13a-14(a) Certification of the Chief Financial Officer.
  32.1    Section 1350 Certification of the Chief Executive Officer.
  32.2    Section 1350 Certification of the Chief Financial Officer.
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

 

37


Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Jacksonville, State of Florida, on August 8, 2012.

 

PSS WORLD MEDICAL, INC.
By:  

/s/ David M. Bronson

       David M. Bronson
 

     Executive Vice President and Chief Financial

     Officer (Duly Authorized Officer and Principal

     Financial and Accounting Officer)

 

38

XNAS:PSSI Quarterly Report 10-Q Filling

XNAS:PSSI Stock - Get Quarterly Report SEC Filing of XNAS:PSSI stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XNAS:PSSI Quarterly Report 10-Q Filing - 6/29/2012
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