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PSS World Medical 10-Q 2012 Documents found in this filing:Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended December 30, 2011 or
For the transition period from to Commission File Number: 0-23832
PSS WORLD MEDICAL, INC. (Exact name of registrant as specified in its charter)
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.
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 February 3, 2012 was 51,280,323 shares.
Table of ContentsPSS WORLD MEDICAL, INC. AND SUBSIDIARIES DECEMBER 30, 2011 TABLE OF CONTENTS
Table of ContentsCAUTIONARY 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 April 1, 2011, 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,” “believes,” “seeks,” “estimates,” “may,” “could,” “assumes,” “should,” “indicates,” “projects,” “targets” 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:
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 2011 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 2011 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 ContentsPSS WORLD MEDICAL, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS DECEMBER 30, 2011 AND APRIL 1, 2011 (Dollars in Thousands)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Table of ContentsPSS WORLD MEDICAL, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 30, 2011 AND DECEMBER 31, 2010 (In Thousands, Except Per Share Data)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Table of ContentsPSS WORLD MEDICAL, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED DECEMBER 30, 2011 AND DECEMBER 31, 2010 (Dollars in Thousands)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Table of ContentsPSS WORLD MEDICAL, INC. AND SUBSIDIARIES UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 30, 2011 AND DECEMBER 31, 2010 (In Thousands, Except Share and Per Share Data, Unless Otherwise Noted)
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 3, Variable Interest Entity, for additional information. All significant intercompany balances and transactions have been eliminated in consolidation. The Company currently conducts business through two operating segments, the Physician Business and the Extended Care Business, which serve a diverse customer base. During the nine months ended December 30, 2011, the Company rebranded its Elder Care Business to the “Extended Care Business” to more appropriately align with its customer base. A third segment, Corporate Shared Services, includes functional departments which support the operating activities and strategic initiatives of the operating segments, and engage in other strategic, operating and administrative activities. The condensed consolidated balance sheet as of April 1, 2011 has been derived from the Company’s audited consolidated financial statements for the fiscal year ended April 1, 2011. 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 April 1, 2011. 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 2012 and 2011 each consist of 52 weeks or 253 selling days. The three and nine months ended December 30, 2011 consisted of 62 and 189 selling days, respectively, while the three and nine months ended December 31, 2010 consisted of 61 and 188, respectively. 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. Recent Accounting Pronouncements In May 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) with amendments to achieve common fair value measurement and disclosure requirements in GAAP. The amendments in this update clarified the language used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements. The following areas were impacted by this ASU: (i) application of the highest and best use and valuation premise concepts; (ii) measuring the fair value of an instrument classified in shareholders’ equity; and (iii) additional quantitative disclosures regarding unobservable inputs used in Level 3 fair value measurements. The amendments are effective during interim and annual periods beginning after December 15, 2011, or the Company’s fourth quarter of fiscal year 2012. The Company has evaluated this standard and determined that, other than requiring additional disclosures, it will not have a material impact on the Company’s statements of financial condition or results of operations.
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Table of ContentsIn June 2011, the FASB issued new guidance on the presentation of comprehensive income that 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 and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, or the Company’s fiscal year 2013. In December 2011, the FASB indefinitely deferred the effective date for amendments pertaining to the presentation of reclassification adjustments by component. The Company has evaluated this standard and determined it will not have a material effect on the Company’s statements of financial condition or results of operations. In September 2011, the FASB issued amended 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 amendments in this update are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, or the Company’s fiscal year 2013. Early adoption is permitted. The Company is currently evaluating the impact of adoption of this update. 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 April 1, 2011 to December 30, 2011:
During the nine months ended December 30, 2011, the Company repurchased approximately 4.6 million shares of common stock at an average price of $25.30 per common share for $115,760, which reduced Additional paid in capital and Common stock on the Unaudited Condensed Consolidated Balance Sheets by approximately $115,715 and $45.
During fiscal year 2011, the Physician Business acquired the assets of Linear Medical Solutions, Inc. (“Linear”) and all of the outstanding stock of Dispensing Solutions, Inc. (“DSI”), which market proprietary systems for dispensing medications to patients primarily within physician practices. During the nine months ended December 30, 2011, the purchase accounting associated with these acquisitions was finalized and the fair value measurements of assets acquired and liabilities assumed as of the acquisition dates were revised.
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Table of ContentsOpening Balance Sheet Adjustments The following table summarizes adjustments to estimated fair values of the assets acquired and liabilities assumed as of the date of the Linear and DSI acquisitions:
During the nine months ended December 30, 2011, the Company recorded a $3,500 reduction in the purchase price of DSI related to circumstances outstanding at the acquisition date, as well as a working capital adjustment of $596. As of December 30, 2011, the purchase accounting related to DSI and Linear was finalized. Contingent Consideration During the nine months ended December 30, 2011, the fair value of contingent consideration associated with the Linear, DSI and other acquisitions was decreased by $594, $42 and $19, respectively, with the change in value reflected as a reduction in General and administrative expenses in the Unaudited Condensed Consolidated Statements of Operations. During the nine months ended December 30, 2011, the Company paid a final contingent consideration payment of $3,000 for Linear and $1,000 for other acquisitions. Subsequent to December 30, 2011, the Company made a final contingent consideration payment related to DSI of $5,500, which was reduced by the purchase price adjustment of $3,500 discussed above. Other Acquisitions During the nine months ended December 30, 2011, the Company made cash payments of $38,112 related to other acquisitions not significant for additional disclosure individually or in the aggregate, and cash payments of $866 for holdback payments and working capital adjustments related to prior year acquisitions.
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 $3.3 million 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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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 and nine months ended December 30, 2011 and December 31, 2010:
The Company included shares underlying its 2008 Notes in its diluted weighted average shares outstanding during the three and nine months ended December 30, 2011. 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.
Accrued expenses as of December 30, 2011 and April 1, 2011 were as follows:
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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 2012 Issuances of Performance-Based Awards On June 16, 2011, the Company’s Compensation Committee of the Board of Directors (the “Compensation Committee”), approved awards of performance-based restricted stock units (“Performance Shares”) and performance-accelerated restricted stock units (“PARS Units”) to certain of the Company’s executive officers. These awards were granted under the Company’s 2006 Incentive Plan. The Performance Shares will vest after three years and convert to shares of common stock based on the Company’s achievement of certain earnings per share growth targets, the calculation of which will not be impacted by any change in generally accepted accounting principles promulgated by standard setting bodies. These awards, which are denominated in terms of a target number of shares, will be forfeited if performance falls below a designated threshold level and may vest for up to 250% of the target number of shares for exceptional performance. The ultimate number of shares delivered to recipients and the related compensation cost recognized as expense will be based on actual performance. 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. Total stock-based compensation expense during the three months ended December 30, 2011 and December 31, 2010 was approximately $1,949 and $1,997, respectively, with related income tax benefits of $741 and $760, respectively. Total stock-based compensation expense during the nine months ended December 30, 2011 and December 31, 2010 was approximately $5,357 and $7,259, respectively, with related income tax benefits of $2,036 and $2,761, respectively. As of December 30, 2011, there was $20,346 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 3.3 years.
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Table of ContentsOutstanding stock-based awards granted under equity incentive plans as of December 30, 2011 and April 1, 2011 are as follows:
Corporate Long-Term Executive Cash-Based Incentive Plans During the nine months ended December 30, 2011, the Compensation Committee approved the 2011 Shareholder Value Plan (“2011 SVP”), a cash based performance award program for certain officers and management under the 2006 Incentive Plan. The performance period under the 2011 SVP is the 36-month period from April 1, 2011 to March 28, 2014. The Company has approximately $993 of accrued compensation cost related to the 2011 SVP, recorded in Other noncurrent liabilities on the Company’s Unaudited Condensed Consolidated Balance Sheets as of December 30, 2011. The Company had approximately $10,697 of accrued compensation cost related to the 2008 Shareholder Value Plan, recorded in Other current liabilities on the Company’s Unaudited Condensed Consolidated Balance Sheets as of April 1, 2011, which was paid in June 2011.
Outstanding debt consists of the following, in order of seniority:
Revolving Line of Credit The Company maintains an asset-based revolving line of credit (the “RLOC”) under a credit agreement (the “Credit Agreement”). As of April 1, 2011, the Credit Agreement permitted maximum borrowings of up to $200.0 million, with increased borrowing capacity to $250.0 million via an accordion feature. Availability of borrowings (“Availability”) was based on a borrowing base calculation consisting of accounts receivable and inventory, subject to satisfaction of certain eligibility requirements less any outstanding letters of credit. Borrowings under the RLOC bore interest at the bank’s prime rate plus an applicable margin based on a fixed charge coverage ratio, or at LIBOR plus an applicable margin based on a fixed charge coverage ratio. Additionally, the RLOC bore interest at a fixed rate of 0.25% for any unused portion of the facility.
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Table of ContentsOn November 16, 2011, the Company amended and restated 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 $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. Based on the amended terms of the Credit Agreement, and in accordance with ASC 470-10 Debt – Overall, outstanding borrowings on the RLOC were classified within Revolving line of credit and long-term debt, excluding current portion on the Consolidated Balance Sheets as of December 30, 2011. Prior to the amendment, the Credit Agreement contained both a subjective acceleration clause and a lock-box arrangement, and in accordance with ASC 470-10, borrowings were classified within Revolving line of credit and current portion of long-term debt on the Consolidated Balance Sheets as of April 1, 2011. 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 $116.3 million in outstanding borrowings under the RLOC as of December 30, 2011. 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 an additional $169.2 million (not including additional Availability via the accordion feature) under the RLOC. The average daily interest rate, excluding debt issuance costs and unused line fees, for the nine months ended December 30, 2011 was 2.60%. There were no outstanding borrowings under the RLOC as of April 1, 2011. 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 semiannually 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 December 30, 2011; therefore, the notes may not be converted. As of December 30, 2011, the if-converted value exceeded the principal amount of the 2008 Notes by $32,241. 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 December 30, 2011 and April 1, 2011 are as follows:
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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. 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:
As of December 30, 2011, 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 December 30, 2011, by level within the fair value hierarchy:
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Table of ContentsThe following table summarizes the change in the fair value for Level 3 instruments for the nine months ended December 30, 2011:
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. The gross carrying value of the Company’s 2008 Notes as of December 30, 2011 and April 1, 2011 was $230,000 and the fair value, which is estimated using a third party valuation model, was approximately $287,017 and $323,800, respectively.
The Company’s supplemental disclosures for the nine months ended December 30, 2011 and December 31, 2010 are as follows:
During the nine months ended December 30, 2011 and December 31, 2010, the Company had no material non-cash transactions.
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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. Corporate Shared Services allocates a portion of its costs and interest expense to the operating segments. The allocation of shared operating costs is generally proportionate to the revenues of each operating segment. Interest expense is allocated based on an internal carrying value of historical capital used to acquire or develop the operating segments’ operations. The following tables present financial information about the Company’s business segments:
As of December 30, 2011 and April 1, 2011, the Company recorded an income tax receivable of $1,780 in Other current assets on the Unaudited Condensed Consolidated Balance Sheets, and an income tax payable of $1,233 in Other current liabilities on the Unaudited Condensed Consolidated Balance Sheets, respectively, related to the timing of payments on the Company’s income tax filings.
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Table of ContentsThe Company’s provision for income taxes and effective tax rate for the three and nine months ended December 30, 2011 and December 31, 2010 are presented in the following table:
The effective rate for the three and nine months ended December 30, 2011 was impacted by a reorganization of the Company’s non-U.S. global sourcing subsidiaries. This reorganization reflects the increasing responsibilities and contributions of the non-U.S. subsidiaries, increasing their income, and correspondingly 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, changes in the proportion of the Company’s taxable earnings originating outside the U.S. favorably impacts the effective tax rate. During the nine months ended December 30, 2011, the IRS completed an examination of the Company’s federal income tax return for the fiscal year ended March 27, 2009. As a result, no changes were made to the Company’s taxable income.
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. 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 December 30, 2011, 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.
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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, physician dispensing solutions and professional services to healthcare providers including physician offices, long-term care and assisted living facilities, home health care and hospice providers through full-service distribution centers, which serve all 50 states throughout the United States (“U.S.”). The Company’s Purpose is to strengthen the clinical success and financial health of caregivers by solving their biggest problems. The Company’s Mission is to improve caregivers’ financial performance by 20%. The Company uses its Purpose and Mission to guide its business decisions and strategies. The Company currently conducts business through two operating segments, the Physician Business and the Extended Care Business, which serve a diverse customer base. During the nine months ended December 30, 2011, the Company rebranded its Elder Care Business to the “Extended Care Business” to more appropriately align with its customer base. A third reporting segment, Corporate Shared Services, includes functional departments that provide services to the operating segments. For information on comparative segment net sales, segment profit and loss, and related financial information, refer to Footnote 10, Segment Information, of the consolidated financial statements. PSSI is a market leader in the two alternate-site customer 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 expertise; unique arrangements with manufacturers; a full line of the Company’s store brands, including Select Medical Products and other specialty brand products and services; innovative information systems and customer-facing technologies that serve its core markets and a culture of performance. EXECUTIVE OVERVIEW During the third quarter of fiscal year 2012, consolidated net sales increased 3.5% compared to the same period in the prior fiscal year. There was one additional selling day during the three months ended December 30, 2011 compared to the third quarter of the prior fiscal year. The Company’s net sales per selling day increased 1.8% compared to the same period in the prior fiscal year. Net sales in the Physician Business during the three months ended December 30, 2011 increased 6.1% compared to the same period in the prior fiscal year. The increase in net sales was attributable to revenue generated from acquisitions, primarily within the physician dispensing solutions product category, as well as organic growth within the pharmaceutical, equipment, and store brands product categories. Net sales in the Extended Care Business during the three months ended December 30, 2011 decreased 2.8% compared to the same period in the prior fiscal year. The decrease is attributable to the loss of certain regional customers which adversely impacted net sales for the Extended Care Business, partially offset by growth in net sales of store brands and recent acquisitions. Consolidated general and administrative expenses increased $9.9 million, or 11.2% compared to the third 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. Cash flow provided by operating activities during the three and nine months ended December 30, 2011 was $8.5 million and $66.0 million, respectively. 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 1.5 million and 4.6 million common shares during the three and nine months ended December 30, 2011, respectively.
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Table of ContentsThe following significantly impacted the Company’s financial and operating results during the nine months ended December 30, 2011. Acquisitions During the nine months ended December 30, 2011, the Company made strategic acquisitions in both the Physician Business and Extended Care markets. Cash paid for acquisitions was $39.6 million, of which $1.5 million was for holdback payments and working capital adjustments related to prior year acquisitions. Refer to Footnote 2, Purchase Business Combinations, for additional information. Revolving Line of Credit On November 16, 2011, the Company amended and restated the credit agreement related to its revolving line of credit (the “RLOC”) 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 $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. See Footnote 7, Debt for additional information regarding the features and terms under the new RLOC. NET SALES The following table summarizes net sales period over period:
The comparability of net sales year over year was impacted by the number of selling days in each period. The three and nine months ended December 30, 2011 consisted of 62 and 189 selling days, respectively, while the three and nine months ended December 31, 2010 consisted of 61 and 188 selling days, respectively.
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Table of ContentsPhysician Business Management evaluates the Physician Business by product category. The following table summarizes the growth rate by product category period over period:
Overall, net sales during the three and nine months ended December 30, 2011 were positively impacted by revenue generated by acquisitions made in the physician dispensing solutions product category and continued success with the Company’s Reach initiative resulting in the addition of new accounts during the period. Net sales of store brand products and services increased during the three and nine months ended December 30, 2011 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. Pharmaceutical sales increased during the three and nine months ended December 30, 2011 as a result of an existing manufacturer’s shift from a direct sales structure to a distribution-based structure, partially offset by a decrease in flu vaccine and controlled pharmaceutical product sales compared to the same period in the prior fiscal year. Equipment sales increased during the three and nine months ended December 30, 2011 due to increased demand, as prior fiscal year sales were negatively impacted by a decrease in discretionary spending and tight credit markets which impacted the ability of physicians to obtain financing. During fiscal years 2011 and 2012, the Physician Business made several strategic acquisitions of companies providing physician pharmaceutical dispensing, establishing a new product category, physician dispensing solutions, which contributed approximately $21.6 million and $60.7 million in net sales during the three and nine months ended December 30, 2011, respectively.
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Table of ContentsExtended Care Business Management evaluates the Extended Care Business by customer category. The following table summarizes the change in net sales by customer category period over period:
Net sales during the three and nine months ended December 30, 2011 decreased $4.3 million and $16.4 million, respectively, when compared to the same period in the prior fiscal year. Net sales in the nursing home and assisted living facilities and the hospice and home health care customer categories were negatively impacted by the loss of several regional and national chain customers. Net sales in the nursing home and assisted living facilities customer category improved 1.1% during the three months ended December 30, 2011 due to recent acquisitions. Billing services net sales were negatively impacted by contractual billing adjustments related to Medicare and Medicaid billings and accounts lost due to competitive bidding. The net sales decline in the other sales category for the three months ended December 30, 2011 reflects a decline in net sales of $0.3 million attributable to the company’s non-controlling interest in Pathway, a consulting service provider within the extended care market, which is consolidated by the Company as a variable interest entity. Net sales growth in the other sales category for the nine months ended December 30, 2011 was due to an increase in net sales of $1.9 million attributable to Pathway. See Footnote 3, Variable Interest Entity, for additional information. Across the Extended Care customer categories, net sales of store brands during the three and nine months ended December 30, 2011 increased 7.5% and 8.4%, respectively, when compared to the same period in the prior fiscal year. The increase was the result of 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 Business increased $13.7 million and gross margin increased 180 basis points during the three months ended December 30, 2011, when compared to the same period in the prior fiscal year. Gross profit dollars increased $39.1 million and gross margin increased 78 basis points during the nine months ended December 30, 2011, when compared to the same period in the prior fiscal year. The increase in gross profit dollars and gross margin was a result of growth in the Company’s store brand products and acquisitions in the physician dispensing solutions product category, which generally have higher gross margins than the Company’s other product categories. Gross profit dollars for the Extended Care Business decreased $1.1 million, while gross margin increased 9 basis points during the three months ended December 30, 2011, when compared to the same period in the prior fiscal year. Gross profit dollars decreased $3.6 million, while gross margin increased 27 basis points during the nine months ended December 30, 2011, when compared to the same period in the prior fiscal year. Gross profit dollars were negatively impacted by the reduction in net sales and competitive pricing pressures, while increased sales of store brand products positively impacted gross margin.
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Table of ContentsGENERAL AND ADMINISTRATIVE EXPENSES
Physician Business General and administrative expenses increased $7.4 million during the three months ended December 30, 2011, when compared to the same period in the prior fiscal year. This increase was attributable to (i) an increase in payroll and payroll related expenses of $3.8 million, $2.7 million of which was the result of physician dispensing solutions acquisitions; (ii) an increase in cost to deliver of $1.3 million due to an increase in warehouse expense related to the growth in net sales during the period, and additional expenses from physician dispensing solutions acquisitions; and (iii) an increase in depreciation and amortization expense of $1.1 million due to the addition of property and equipment and intangible assets related to acquisitions. General and administrative expenses increased $23.4 million during the nine months ended December 30, 2011, when compared to the same period in the prior fiscal year. This increase was attributable to (i) an increase in payroll and payroll related expenses of $11.0 million, $9.0 million of which was the result of physician dispensing solutions acquisitions; (ii) an increase in cost to deliver of $4.1 million due to an increase in warehouse expense related to the growth in net sales during the period, and additional expenses from physician dispensing solutions acquisitions; (iii) an increase in depreciation and amortization expense of $3.7 million due to the addition of property and equipment and intangible assets related to acquisitions; (iv) an increase in consulting fees of $1.5 million related to acquired companies; and (v) an increase in accrued incentive compensation expense of $0.7 million. Extended Care Business General and administrative expenses increased $2.1 million during the three months ended December 30, 2011, 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 $1.0 million as a result of acquisitions; (ii) an increase in cost to deliver of $0.3 million due to additional expenses from acquisitions; and (iii) an increase in consulting fees of $0.2 million related to acquisitions. General and administrative expenses increased $1.9 million during the nine months ended December 30, 2011, when compared to the same period in the prior fiscal year. The increase was attributable to an increase in payroll and payroll-related expenses of $1.9 million due to acquisitions and the timing of the Company’s consolidation of Pathway, partially offset by a decrease in accrued incentive compensation expense of $1.0 million related to payout estimates based on performance. Corporate Shared Services General and administrative expenses increased $0.4 million during the three months ended December 30, 2011, when compared to the same period in the prior fiscal year. This increase was attributable to (i) an increase in payroll and payroll-related expenses of $1.5 million; and (ii) an increase in self-insured medical costs of $1.0 million. The overall increase in expenses was partially offset by (i) a decrease in business insurance costs of $1.7 million; and (ii) a decrease in accrued incentive and stock-based compensation expense of $0.5 million related to payout estimates based on performance.
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Table of ContentsGeneral and administrative expenses increased $0.8 million during the nine months ended December 30, 2011, when compared to the same period in the prior fiscal year. This increase was attributable to (i) an increase in payroll and payroll-related expenses of $4.2 million; and (ii) an increase in consulting fees of $2.0 million. The overall increase in expenses was partially offset by (i) a decrease in accrued incentive and stock-based compensation expense of $4.0 million related to payout estimates based on performance; and (ii) a decrease in business insurance costs of $1.8 million. SELLING EXPENSES The following table summarizes selling expenses as a percentage of net sales period over period:
Selling expenses are principally driven by commission expenses, which are generally paid to sales representatives based on gross profit dollars and gross margin. The change in selling expenses for the Physician Business and Extended Care Business was relatively consistent with the change in gross profit dollars and gross margin during the three and nine months ended December 30, 2011. PROVISION FOR INCOME TAXES The following table summarizes the provision for income taxes period over period:
The effective rate for the three and nine months ended December 30, 2011 was impacted by a reorganization of the Company’s non-U.S. global sourcing subsidiaries. This reorganization reflects the increasing responsibilities and contributions of the non-U.S. subsidiaries, increasing their income, and correspondingly 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, changes in the proportion of the Company’s taxable earnings originating outside the U.S. favorably impacts the effective tax rate. The Company expects this reorganization to continue to have a sustained positive impact on its effective tax rate.
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Table of ContentsLIQUIDITY 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:
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Table of ContentsIn addition to cash flow, the Company monitors other components of liquidity and capital structure, including the following:
Cash Flows from Operating Activities Net cash provided by operating activities was $66.0 million and $74.4 million for the nine months ended December 30, 2011 and December 31, 2010, respectively. The decline in cash provided by operating activities was the result of an increase in operating working capital of $17.2 million, partially offset by an increase in net income for the period. As of December 30, 2011, 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 $57.4 million and $37.2 million during the nine months ended December 30, 2011 and December 31, 2010, respectively, and included the following:
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Table of ContentsCash Flows from Financing Activities Net cash used in financing activities was $5.4 million and $53.0 million during the nine months ended December 30, 2011 and December 31, 2010, respectively, and was impacted by the following factors:
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 generated from operations, the proceeds from the 2008 Notes offering and borrowings under the RLOC. The ability to generate sufficient cash flows from operations 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 of customer service and revenue growth. The RLOC, which is an asset-based agreement, is primarily collateralized by the Company’s accounts receivable and inventory. The Company’s long-term priorities for use of its capital are internal growth, acquisitions, and the repurchase of its common stock. During the nine months ended December 30, 2011, the Company amended and restated the credit agreement related to its RLOC, increasing the facility size to $300.0 million, with increased borrowing capacity of $100.0 million via an accordion feature. Based on the amended terms of the credit agreement, and in accordance with ASC 470-10 Debt – Overall, outstanding borrowings on the RLOC were classified within Revolving line of credit and long-term debt, excluding current portion on the Consolidated Balance Sheets as of December 30, 2011. As the credit agreement prior to the amendment contained both a subjective acceleration clause and a lock-box arrangement, and in accordance with ASC 470-10, borrowings were classified within Revolving line of credit and current portion of long-term debt on the Consolidated Balance Sheets as of April 1, 2011. See Footnote 7, Debt for additional information regarding the features and terms under the new credit agreement. 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, capital markets, and/or other financing arrangements.
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Table of ContentsAs of December 30, 2011, 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 April 1, 2011. 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. 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 December 30, 2011, the purchased options were “in the money” and would have been convertible into approximately 2.0 million shares of the Company’s common stock. The exercise of the purchased options is restricted to each conversion date of the 2008 Notes.
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Table of ContentsFuture Contractual Obligations In the normal course of business, the Company enters into obligations and commitments that require future contractual payments. The following table presents scheduled payments under contractual obligations for the Company:
APPLICATION OF CRITICAL ACCOUNTING ESTIMATES Critical Accounting Estimates are disclosed in the Annual Report on Form 10-K for the fiscal year ended April 1, 2011 filed on May 26, 2011 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. Recent Accounting Pronouncements In May 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) with amendments to achieve common fair value measurement and disclosure requirements in GAAP. The amendments in this update clarified the language used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements. The following areas were impacted by this ASU: (i) application of the highest and best use and valuation premise concepts; (ii) measuring the fair value of an instrument classified in shareholders’ equity; and (iii) additional quantitative disclosures regarding
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Table of Contentsunobservable inputs used in Level 3 fair value measurements. The amendments are effective during interim and annual periods beginning after December 15, 2011, or the Company’s fourth quarter of fiscal year 2012. The Company has evaluated this standard and determined that, other than requiring additional disclosures, it will not have a material impact on the Company’s statements of financial condition or results of operations. In June 2011, the FASB issued new guidance on the presentation of comprehensive income that 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 and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, or the Company’s fiscal year 2013. In December 2011, the FASB indefinitely deferred the effective date for amendments pertaining to the presentation of reclassification adjustments by component. The Company has evaluated this standard and determined it will not have a material effect on the Company’s statements of financial condition or results of operations. In September 2011, the FASB issued amended 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 amendments in this update are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, or the Company’s fiscal year 2013. Early adoption is permitted. The Company is currently evaluating the impact of adoption of this update.
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 April 1, 2011 filed on May 26, 2011.
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 ended December 30, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. PART II – OTHER INFORMATION
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
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Table of Contentsthe fiscal year ended April 1, 2011, filed on May 26, 2011. Such factors could have a material adverse effect on 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 April 1, 2011, other than those noted below: The Company’s indebtedness may limit its ability to obtain additional financing in the future and may limit its flexibility to react to industry or economic conditions. The Company maintains an asset-based revolving line of credit (the “RLOC”), which permits maximum borrowings of up to $300.0 million and may be increased to $400.0 million at the Company’s discretion. Availability depends on a borrowing base calculation consisting of accounts receivable and inventory, subject to satisfaction of certain eligibility requirements, and certain other reserves. Any deterioration in the valuation of these assets could reduce the availability of borrowings under the RLOC. Increases in the level of the Company’s indebtedness or changes in the Company’s debt rating could adversely affect the Company’s liquidity and reduce the Company’s ability to:
Operating cash requirements are normally funded by cash flows from operating activities and borrowings under the RLOC, which expires in 2016. The Company expects that sources of capital to fund future growth in the business will be provided by a combination of cash flows from operating activities, borrowings under the RLOC, capital markets, and/or other financing arrangements. However, changes in capital markets or adverse changes to the Company’s operations may disrupt the Company’s ability to maintain adequate levels of liquidity, including its ability to renew its RLOC in 2016 on terms acceptable to the Company. If the Company is unable to generate sufficient cash flow from operating activities, the Company may be forced to adopt strategies that may include the following:
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 April 1, 2011, there were 3.4 million shares available for repurchase under the existing stock repurchase program. On June 16, 2011, the Company’s Board of Directors approved a stock repurchase program authorizing the Company, depending on market conditions and other factors, to repurchase up to a maximum of 5% of its common stock, which was approximately 2.7 million common shares. 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.
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Table of ContentsThe following table summarizes the Company’s repurchase activity during the three months ended December 30, 2011:
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Table of ContentsSIGNATURE 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 February 8, 2012.
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