Add
PSSI to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| PSSI > SEC Filings for PSSI > Form 10-Q on 10-Nov-2009 | All Recent SEC Filings |
10-Nov-2009
Quarterly Report
THE COMPANY
PSS World Medical, Inc. (the "Company" or "PSSI"), a Florida corporation, began operations in 1983. The Company is a national distributor of medical products and equipment, pharmaceutical products, healthcare information technology and billing services to alternate-site healthcare providers including physician offices, long-term care and assisted living facilities, home health care and hospice providers through 39 full-service distribution centers, which serve all 50 states throughout the United States ("U.S."). The Company currently conducts business through two operating segments, the Physician Business and the Elder Care Business, which serve a diverse customer base. For information on comparative segment revenue, segment profit and related financial information, refer to Footnote 7, Segment Information, of the consolidated financial statements.
PSSI is a market-leading company in the two alternate-site segments it serves as a result of value-added, solutions-based marketing programs; a differentiated customer distribution and service model; a consultative sales force with extensive product, disease state, reimbursement, and supply chain knowledge; unique arrangements with manufacturers; a full line of the Company's own brand, Select Medical Products® and specialty brand products ("Select"); innovative information systems and technology that serve its core markets; and a culture of performance.
EXECUTIVE OVERVIEW
During the second quarter of fiscal year 2010, net sales grew 14.3% at the consolidated level and 16.6% and 9.0% in the Physician and Elder Care Businesses, respectively, compared to the second quarter of fiscal year 2009. This was due to progress in the Company's sales growth strategies, the impact from the sale of products related to the H1N1 influenza ("swine flu") pandemic, and five additional selling days during the current period. The Company's per billing day revenue growth, excluding flu-related products, was lower than historical growth levels, reflecting a general slowdown in market growth due to current economic conditions.
The Company recognized sales growth on the disposables, lab diagnostics, and pharmaceuticals product lines within the Physician Business and across the largest customer segments within the Elder Care Business during the second quarter and year-to-date periods compared to the prior year. Select brand product sales grew 29.2% and 21.4% during the quarter and 22.2% and 23.0% during the year-to-date period in the Physician and Elder Care Businesses, respectively.
Income from operations increased 58.3% or $14.2 million to $38.6 million for the three months ended October 2, 2009 and increased 42.1% or $17.8 million to $60.3 million for the six months ended October 2, 2009 when compared to the same periods in the prior year. This was the result of sales growth discussed above and a decrease in general and administrative expenses due to implemented cost savings initiatives partially offset by increased incentive compensation accruals.
Cash flow from operations during the three and six months ended October 2, 2009 was approximately $8.6 million and $53.6 million, respectively. Operating income growth offset by an investment in inventory and timing of receivables and payables resulted in a reduction in operating cash flow during the current quarter, compared to the first quarter.
The following significant events impacted the Company during the six months ended October 2, 2009:
Swine Flu Pandemic
During the three and six months ended October 2, 2009, the Physician Business experienced increased sales in influenza test kits, surgical masks, medical gloves and hand sanitizers, related to the H1N1/Swine flu pandemic. As a result, the Company recognized approximately $23.2 and $32.2 million in additional net sales for the three and six month periods, respectively, when compared to the same periods in the prior year.
Adoption of New Accounting Pronouncement
As discussed in Footnote 1, Background and Basis of Presentation, effective March 28, 2009, the Company adopted ASC 470-20, Debt - Debt with Conversion and Other Options and, as required by this new standard the Company retrospectively applied this change in accounting to all prior periods for which the Company had applicable outstanding convertible debt. As a result of the adoption, interest expense increased by $1.9 million ($1.2 million net of tax) and by $3.6 million ($2.2 million net of tax) for the three and six months ended October 2, 2009 and increased $2.5 million ($1.5 million net of tax) and $3.9 million ($2.4 million net of tax) for the three and six months ended September 26, 2008, respectively. See Footnote 3, Debt, for additional information.
Investment in athenahealth, Inc.
In April 2009, the Company sold its remaining investment in athenahealth, Inc. ("athena"), a leading provider of internet-based healthcare information technology and business services to physician practices, for $10.7 million, resulting in a gain of $3.6 million ($2.3 million net of tax) recorded in "Other income, net" on the Unaudited Condensed Consolidated Statements of Operations. See Footnote 2, Equity Investment, for additional information.
Change in Incentive Compensation Estimate
Based on the financial results of the six months ended October 2, 2009, management raised its expectations for probable achievement of performance targets related to corporate incentive compensation plans. Due to the change in estimate, total incentive-based compensation expense increased $5.2 million and $10.1 million during the three and six months ended October 2, 2009 and is expected to increase $5.4 million during the second half of fiscal year 2010. See Footnote 6, Incentive and Stock-Based Compensation, for additional information.
NET SALES
The following table summarizes net sales period over period.
For the Three Months Ended For the Six Months Ended
October 2, September 26, October 2, September 26,
2009 2008 2009 2008
Percent Percent
(dollars in millions) Amount Amount Change Amount Amount Change
Physician Business $ 398.5 $ 341.8 16.6 % $ 740.8 $ 673.1 10.1 %
Elder Care Business 163.0 149.5 9.0 313.4 289.9 8.1
Corporate Shared Services 0.5 0.3 33.3 1.4 0.8 74.1
Total Company $ 562.0 $ 491.6 14.3 % $ 1,055.6 $ 963.8 9.5 %
|
The comparability of net sales year over year was impacted by the number of selling days in each period. The three and six months ended October 2, 2009 consisted of 68 and 132 selling days, respectively, while the three and six months ended September 26, 2008 consisted of 63 and 127 selling days, respectively. Compared to prior year, average net sales per billing day increased 5.9% and 5.4%, respectively, as shown in the following table.
For the Three Months Ended For the Six Months Ended
October 2, September 26, October 2, September 26,
2009 2008 2009 2008
Average Daily Average Daily Percent Average Daily Average Daily Percent
(dollars in millions) Net Sales Net Sales Change Net Sales Net Sales Change
Physician Business $ 5.9 $ 5.4 8.0 % $ 5.6 $ 5.3 5.9 %
Elder Care Business 2.4 2.4 1.0 2.4 2.3 4.0
Total Company $ 8.3 $ 7.8 5.9 % $ 8.0 $ 7.6 5.4 %
|
Physician Business
Management evaluates the Physician Business by product category. The following
table summarizes the growth rate by product category period over period.
For the Three Months Ended For the Six Months Ended
October 2, September 26, Percent October 2, September 26, Percent
(dollars in millions) 2009 2008 Change 2009 2008 Change
Branded(a) $ 216.0 $ 173.9 24.2 % $ 399.7 $ 347.6 15.0 %
Select(b) 53.4 41.3 29.2 99.9 81.7 22.2
Pharmaceuticals 88.8 80.0 10.9 166.2 156.0 6.5
Equipment 32.1 37.3 (13.9 ) 58.9 69.0 (14.6 )
Immunoassay 6.7 6.6 0.4 13.2 13.9 (5.1 )
Other 1.5 2.7 (38.8 ) 2.9 4.9 (40.8 )
Total $ 398.5 $ 341.8 16.6 % $ 740.8 $ 673.1 10.1 %
|
(a) Branded products are comprised of disposables and lab diagnostics from branded manufacturers.
(b) Select products are comprised of the Company's brand of disposables and lab diagnostics.
Net sales growth during the three and six months ended October 2, 2009 was driven by momentum in the Company's strategic sales growth programs, the effects from the H1N1/Swine flu pandemic, and five additional selling days during the current period. During the three and six months ended October 2, 2009, the Physician Business experienced increased sales in influenza test kits, surgical masks, medical gloves, hand sanitizer, and other products related to the H1N1/Swine flu pandemic. This resulted in an increase of approximately $23.2 and $32.2 million in net sales, with approximately $20.6 and $27.8 million of the increase relating to the sale of branded lab diagnostics and $1.2 and $1.8 million related to the sale of Select disposables. In addition to the effect of the H1N1/Swine flu, Select product sales increased during the three and six months ended October 2, 2009 due to the Company's continued focus on promoting its globally-sourced Select products, which resulted in new customer sales as well as customer conversions from other manufacturers branded products to Select brand products. The Physician Business introduced the Reach Program to add new customers during the first quarter which resulted in approximately 11,000 new customers for the six months ended October 2, 2009. The Company expects this program to have a positive impact on growth rates for future periods. Equipment sales decreased due to the current economic conditions including a decrease in discretionary spending and tight credit markets which negatively impacted customers' ability to obtain equipment financing.
Elder Care Business
Management evaluates the Elder Care business by customer segment. The following
table summarizes the change in net sales by customer segment period over period.
For the Three Months Ended For the Six Months Ended
October 2, September 26, Percent October 2, September 26, Percent
(dollars in millions) 2009 2008 Change 2009 2008 Change
Nursing home and assisted
living facilities $ 100.3 $ 90.6 10.7 % $ 192.1 $ 176.7 8.7 %
Hospice and home health care
agencies 47.3 41.2 14.7 91.3 79.4 14.8
Billing services 3.2 4.3 (26.3 ) 6.2 7.8 (20.5 )
Other 12.2 13.4 (8.5 ) 23.8 26.0 (8.4 )
Total $ 163.0 $ 149.5 9.0 % $ 313.4 $ 289.9 8.1 %
|
Net sales during the three and six months ended October 2, 2009 compared to the same period in the prior year increased approximately $13.5 and $23.5 million, respectively. The Company's net sales were impacted by innovative customer-specific solution programs, a focus on regional and independent customer segments within the nursing home market, and five additional billing days during the current period. Net sales growth in the hospice and home health care lines of business during the quarter reflected the continued successful execution of strategies to
diversify its customer base through expansion in the home health care market and other non-facility based care as well as five additional billing days during the current period. The Company's net sales reduction in billing services was attributable to decreases in Medicare and Medicaid reimbursements.
Across its Elder Care customer segments, Select product sales increased 21.4% and 23.0% during the three and six months ended October 2, 2009, when compared to the same period in the prior year due to the Company's focus on promoting its globally sourced products which resulted in additional sales to new and existing customers.
GROSS PROFIT
Gross profit for the Physician Business increased $20.8 million, or 89 basis points as a percentage of net sales, from the same quarter in the prior year and $26.4 million, or 81 basis points as a percentage of net sales, on a year-to-date basis over the prior year. Gross profit for the Elder Care Business increased $4.4 million, or 34 basis points as a percentage of net sales, from the same quarter in the prior year and increased $5.9 million, however decreased 26 basis points as a percentage of net sales, on a year-to-date basis over the same period in prior year.
These increases were primarily due to (i) the growth in net sales discussed above; (ii) product sales mix; and (iii) the Company's continued focus on its sourcing strategies and margin enhancement initiatives. The Company's sourcing strategies are designed to improve the Physician and Elder Care Business' cost competitiveness and increase its gross margins on certain products. The year-to-date basis point decrease in the Elder Care Business gross profit was attributable to fluctuation of glove prices and decreased Medicaid reimbursement during the current fiscal year.
GENERAL AND ADMINISTRATIVE EXPENSES
For the Three Months Ended For the Six Months Ended
October 2, 2009 September 26, 2008 October 2, 2009 September 26, 2008
% of Net % of Net % of Net % of Net (Decrease)
(dollars in millions) Amount Sales Amount Sales Increase Amount Sales Amount Sales Increase
Physician Business(a) $ 51.1 12.8 % $ 51.1 14.9 % $ - $ 99.3 13.4 % $ 101.6 15.1 % $ (2.3 )
Elder Care Business(a) 30.4 18.7 29.4 19.7 1.0 59.6 19.0 58.9 20.3 0.7
Corporate Shared Services(b) 15.7 2.8 10.2 2.1 5.5 29.9 2.8 19.8 2.1 10.1
Total Company(b) $ 97.2 17.3 % $ 90.7 18.4 % $ 6.5 $ 188.8 17.9 % $ 180.3 18.7 % $ 8.5
|
(a) General and administrative expenses as a percentage of net sales are calculated based on reportable segment net sales.
(b) General and administrative expenses as a percentage of net sales are calculated based on consolidated net sales.
General and administrative expenses as a percentage of net sales for both the Physician and Elder Care businesses decreased for the three and six months ended October 2, 2009 when compared to the same periods in the prior year due to results of cost savings initiatives and leveraging of the Company's fixed cost infrastructure over increased sales volumes.
Corporate Shared Services
General and administrative expenses for the three months ended October 2, 2009 increased $5.5 million when compared to the same period in the prior year. This increase is attributable to (i) an increase of $5.2 million in long-term incentive based compensation expense related to a change in estimated performance achievement; and (ii) an increase of $0.9 million related to payroll costs due to additional days in the current period.
General and administrative expenses for the six months ended October 2, 2009 increased $10.1 million when compared to the same period in the prior year. This increase is attributable to (i) an increase of $10.1 million in long-term incentive based compensation expense related to a change in estimated performance achievement; and (ii) an increase of $1.0 million related to payroll costs due to additional days in the current period, partially offset by $0.7 million in increased capitalized salaries relating to internal software development projects.
For the Three Months Ended For the Six Months Ended
October 2, 2009 September 26, 2008 October 2, 2009 September 26, 2008
% of Net % of Net % of Net % of Net
(dollars in millions) Amount Sales Amount Sales Increase Amount Sales Amount Sales Increase
Physician Business $ 31.2 7.8 % $ 26.8 7.8 % $ 4.4 $ 58.8 7.9 % $ 53.0 7.9 % $ 5.8
Elder Care Business 5.5 3.4 5.4 3.6 0.1 10.6 3.4 10.4 3.6 0.2
Total Company $ 36.7 6.5 % $ 32.2 6.5 % $ 4.5 $ 69.4 6.6 % $ 63.4 6.6 % $ 6.0
|
SELLING EXPENSES
The following table summarizes selling expenses as a percentage of net sales
period over period.
For the Three Months Ended For the Six Months Ended
October 2, 2009 September 26, 2008 October 2, 2009 September 26, 2008
% of Net % of Net % of Net % of Net
(dollars in millions) Amount Sales Amount Sales Increase Amount Sales Amount Sales Increase
Physician Business $ 31.2 7.8 % $ 26.8 7.8 % $ 4.4 $ 58.8 7.9 % $ 53.0 7.9 % $ 5.8
Elder Care Business 5.5 3.4 5.4 3.6 0.1 10.6 3.4 10.4 3.6 0.2
Total Company $ 36.7 6.5 % $ 32.2 6.5 % $ 4.5 $ 69.4 6.6 % $ 63.4 6.6 % $ 6.0
|
Overall, the change in selling expenses was attributable to an increase in commission expense due to the growth in net sales and gross profit mix discussed above. A majority of the Company's sales representatives are fully commission-based. Commissions are generally paid to sales representatives based on gross profit dollars and gross profit as a percentage of net sales.
PROVISION FOR INCOME TAXES
The following table summarizes the provision for income taxes period over
period.
For the Three Months Ended For the Six Months Ended
October 2, 2009 September 26, 2008 October 2, 2009 September 26, 2008
Effective Effective Effective Effective
|
The effective rate was favorably impacted by certain short term investments that generated tax-exempt interest income and increased earnings from non-U.S. global sourcing subsidiaries, which are subject to tax at rates lower than the U.S.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources Highlights
Cash flows from operations are primarily impacted by segment profitability and
operating working capital. Management monitors operating working capital
performance through the following:
As of
October 2, September 26,
2009 2008
Days Sales Outstanding:(a)
Physician Business 38.9 40.8
Elder Care Business 49.0 50.1
Days On Hand:(b)
Physician Business 54.0 52.2
Elder Care Business 51.3 52.8
Days in Accounts Payable:(c)
Physician Business 40.4 40.7
Elder Care Business 22.8 28.1
Cash Conversion Days:(d)
Physician Business 52.5 52.3
Elder Care Business 77.5 74.8
Inventory Turnover:(e)
Physician Business 6.7x 6.9x
Elder Care Business 7.0x 6.8x
|
(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.
In addition to cash flow, the Company monitors other components of liquidity, including the following:
As of
October 2, March 27,
(dollars in millions) 2009 2009
Capital Structure:
Convertible senior notes, net $ 183.2 $ 179.2
Revolving line of credit 50.0 50.0
Other debt 2.3 2.7
Cash and cash equivalents (130.1 ) (82.0 )
Net debt 105.4 149.9
Shareholders' equity 424.3 378.0
Total capital $ 529.7 $ 527.9
Operating Working Capital:
Accounts receivable, net $ 258.0 $ 230.4
Inventories 212.8 207.6
Accounts payable (157.0 ) (127.3 )
$ 313.8 $ 310.7
|
Cash Flows from Operating Activities
Net cash provided by operating activities was $53.6 million and $52.5 million for the six months ended October 2, 2009 and September 26, 2008, respectively.
As of October 2, 2009, the Company has a deferred income tax liability of $18.2 million (tax effected) related to interest deductions taken for tax purposes on its 2004 Notes. The liability will be fully deferred for 5 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) provided by investing activities was $(8.1) million and $5.4 million during the six months ended October 2, 2009 and September 26, 2008, respectively, and was impacted by the following factors:
• During the six months ended October 2, 2009, the Company sold its remaining investment in athenahealth for $10.7 million, resulting in a . . .
|
|