-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Uap7JI3g63hJDQzaDXeuQ9bnkPuC9/GveMYVJCV1viNUVt+gvi/RjkD+8FCjojrT /p7bcJ08gfn7JGtn/Jr85w== 0000950114-99-000021.txt : 19990217 0000950114-99-000021.hdr.sgml : 19990217 ACCESSION NUMBER: 0000950114-99-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: D & K HEALTHCARE RESOURCES INC CENTRAL INDEX KEY: 0000888914 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-DRUGS PROPRIETARIES & DRUGGISTS' SUNDRIES [5122] IRS NUMBER: 431465483 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20348 FILM NUMBER: 99542090 BUSINESS ADDRESS: STREET 1: 8000 MARYLAND AVENUE STREET 2: SUITE 920 CITY: ST. LOUIS STATE: MO ZIP: 63105 BUSINESS PHONE: 3147273485 MAIL ADDRESS: STREET 1: 8000 MARYLAND AVENUE STREET 2: SUITE 920 CITY: ST. LOUIS STATE: MO ZIP: 63105 FORMER COMPANY: FORMER CONFORMED NAME: D & K WHOLESALE DRUG INC/DE/ DATE OF NAME CHANGE: 19930328 10-Q 1 QUARTERLY REPORT 1 Page 1 of 17 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1998 ----------------- 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 No. 0-20348 ------- D & K HEALTHCARE RESOURCES, INC. (Exact name of registrant as specified in its charter) DELAWARE 43-1465483 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 8000 MARYLAND AVENUE, SUITE 920, ST. LOUIS, MISSOURI (Address of principal executive offices) 63105 (Zip Code) (314) 727-3485 (Registrant's telephone number, including area code) 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.01 par value 3,847,775 ---------------------------- ------------------ (class) (January 31, 1999) 2 Page 2 of 17 D & K HEALTHCARE RESOURCES, INC. AND SUBSIDIARIES Index
Page No. -------- Part I. Financial Information --------------------- Item 1. Financial Statements Condensed Consolidated Balance Sheets as of December 31, 1998 and June 30, 1998 3 Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended December 31, 1998 and December 31, 1997 4 Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 1998 and December 31, 1997 5 Notes to Condensed Consolidated Financial Statements 6 - 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 - 15 Part II. Other Information ----------------- Item 6. Exhibits and Reports on Form 8-K 16
3 Page 3 of 17 Part I. Financial Information - --------------------------------- Item 1. Financial Statements. D & K HEALTHCARE RESOURCES, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands)
Dec. 31, June 30, 1998 1998 ------------ ------------ (Unaudited) Assets ------ Cash $3,330 $4,051 Receivables 1,997 50,496 Inventories 119,304 90,413 Other current assets 817 532 -------- -------- Total current assets 125,448 145,492 -------- -------- Net property and equipment 5,087 5,924 Investment in PBI 4,371 4,129 Deferred income taxes 2,842 2,842 Other assets 869 228 Intangible assets 13,388 11,735 -------- -------- Total assets $152,005 $170,350 ======== ======== Liabilities and Stockholders' Equity ------------------------------------ Current maturities of long-term debt $721 $6,448 Accounts payable 78,147 80,659 Deferred income taxes 2,906 2,974 Accrued expenses 4,455 3,161 -------- -------- Total current liabilities 86,229 93,242 -------- -------- Revolving line of credit 46,624 60,185 Long-term debt, excluding current maturities 469 971 -------- -------- Total liabilities 133,322 154,398 -------- -------- Stockholders' equity: Common stock 38 37 Paid-in capital 15,312 15,074 Retained earnings 3,333 841 -------- -------- Total stockholders' equity 18,683 15,952 -------- -------- Total liabilities and stockholders' equity $152,005 $170,350 ======== ======== See notes to condensed consolidated financial statements.
4 Page 4 of 17 D & K HEALTHCARE RESOURCES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) (In thousands, except share and per share data)
Three Months Ended Six Months Ended Dec. 31, Dec. 31, Dec. 31, Dec. 31, 1998 1997 1998 1997 --------- -------- -------- -------- Net sales $198,345 $138,570 $377,719 $287,594 Cost of sales 188,569 131,754 359,539 274,399 -------- -------- -------- -------- Gross profit 9,776 6,816 18,180 13,195 Operating expenses 6,428 4,836 12,156 9,790 -------- -------- -------- -------- Income from operations 3,348 1,980 6,024 3,405 Other income (expense): Interest expense, net (1,204) (856) (2,207) (1,545) Other, net 59 104 268 246 -------- -------- -------- -------- (1,145) (752) (1,939) (1,299) -------- -------- -------- -------- Income before income tax provision 2,203 1,228 4,085 2,106 Income tax provision 840 516 1,593 885 -------- -------- -------- -------- Net income $1,363 $712 $2,492 $1,221 ======== ======== ======== ======== Earnings per common share: Basic earnings per share $0.36 $0.23 $0.67 $0.40 Diluted earnings per share $0.33 $0.20 $0.62 $0.34 Basic common shares outstanding 3,767,514 3,076,733 3,747,859 3,068,560 Diluted common shares outstanding 4,149,392 3,789,608 4,126,356 3,748,242 See notes to condensed consolidated financial statements.
5 Page 5 of 17 D & K HEALTHCARE RESOURCES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Six Months Ended Dec. 31, Dec. 31, 1998 1997 --------- -------- Cash flows from operating activities: Net income $2,492 $1,221 Adjustments to reconcile net income to net cash flows from operating activities: Amortization of debt issuance costs 173 153 Depreciation and amortization 764 780 Gain from sale of assets (2) (6) Equity in net income of PBI (242) (200) Changes in operating assets and liabilities, net of acquisitions: Decrease in accounts receivable, net 48,649 4,497 Increase in inventories (28,891) (35,556) Increase in other current assets (319) (480) Increase (decrease) in accounts payable (2,512) 7,616 Increase in accrued expenses 1,121 120 Other, net (294) 96 -------- -------- Cash flows from operating activities 20,939 (21,759) Cash flows from investing activities: Cash paid for acquired company (2,176) (755) Proceeds from sale of fixed assets 746 6 Purchases of property and equipment (350) (497) -------- -------- Cash flows from investing activities (1,780) (1,246) Cash flows from financing activities: Borrowings under revolving line of credit 221,792 210,264 Repayments under revolving line of credit (240,104) (185,008) Principal payments on long-term debt (1,092) (2,073) Proceeds from exercise of stock options 135 41 Debt issuance costs (611) (289) -------- -------- Cash flows from financing activities (19,880) 22,935 Decrease in cash (721) (70) Cash, beginning of period 4,051 1,646 -------- -------- Cash, end of period $3,330 $1,576 ======== ======== Supplemental Disclosure of Cash Flow Information: Cash paid during the period for Interest $2,202 $1,398 Income taxes 796 876 See notes to condensed consolidated financial statements.
6 Page 6 of 17 D & K HEALTHCARE RESOURCES, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1. The Company is a full-service, regional wholesale drug distributor. From facilities in Missouri, Kentucky and Minnesota, the Company distributes a broad range of pharmaceuticals and related products to its customers in more than 20 states. The Company focuses primarily on a target market sector, which includes independent retail, institutional, mail-order, franchise, chain store and alternate site pharmacies in the Midwest and South. The Company also owns a 50% equity interest in Pharmaceutical Buyers, Inc. (PBI), a group purchasing organization with approximately 2,200 members nationwide. The accompanying unaudited condensed financial statements have been prepared in accordance with the instructions to Form 10-Q and include all of the information and disclosures required by generally accepted accounting principles for interim reporting, which are less than those required for annual reporting. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair representation have been included. The results of operations for the three-month and six-month periods ended December 31, 1998 are not necessarily indicative of the results to be expected for the full fiscal year. Certain reclassifications have been made to the prior period's financial statements to conform to the current year presentation. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company's 1998 Annual Report to Stockholders. Note 2. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128), which establishes standards for computing and presenting earnings per share. SFAS 128 replaces the presentation of primary earnings per share with a presentation of basic earnings per share. It also requires dual presentation of basic and diluted earnings per share on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic and diluted earnings per share computations. The Company was required to adopt the provisions of SFAS 128 during the quarter ended December 31, 1997 and all prior period earnings per share data presented have been restated. Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common share are computed using the component mentioned above for the basic computation with the addition of: (1) the dilutive 7 Page 7 of 17 effect of outstanding stock options and warrants (calculated using the treasury stock method); (2) common shares issuable upon conversion of certain convertible PBI stock; and (3) common shares issuable upon conversion of all convertible subordinated notes. The diluted computation for the 1997 periods adds to income interest on all convertible subordinated notes and deducts the related income tax effect as if such notes had been converted into common stock at the beginning of the period. On December 29, 1997, the holder of 11% convertible subordinated notes converted its remaining $1,750,000 of notes into 530,978 shares of the Company's common stock. The conversion ratio was approximately $3.30 per share. The diluted computation for the 1998 periods adds to income the earnings that would be included in the Company's consolidated net income for the periods as if the convertible PBI stock had been converted to the Company's common stock at the beginning of the period. The reconciliation of the numerator and denominator of the basic and diluted earnings per common share computations is as follows:
Quarter Ended Dec. 31, 1998 Quarter Ended Dec. 31, 1997 ------------------------------------------- ---------------------------------------- Income Shares Per-Share Income Shares Per- Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------ --------- ---------- ------------- ------ BASIC EARNINGS PER SHARE: Net income available to Common shareholders 1,363,161 3,767,514 $ 0.36 712,181 3,076,733 $0.23 EFFECT OF DILUTED SECURITIES: Options and warrants 181,878 193,440 Convertible PBI stock 9,408 200,000 - - Convertible subordinated notes - - 28,875 519,435 --------- --------- ------- --------- DILUTED EPS: Net Income available to Common stockholder plus assumed conversions 1,372,569 4,149,392 $ 0.33 741,056 3,789,608 $0.20 --------- --------- ------- --------- Six-Months Ended Dec. 31, 1998 Six-Months Ended Dec. 31, 1997 ------------------------------------------- ---------------------------------------- Income Shares Per-Share Income Shares Per- Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------ --------- ---------- ------------- ------ BASIC EARNINGS PER SHARE: Net income available to Common shareholders 2,492,380 3,747,859 $ 0.67 1,221,492 3,068,560 $0.40 EFFECT OF DILUTED SECURITIES: Options and warrants 178,497 154,178 Convertible PBI stock 48,256 200,000 - - Convertible subordinated notes - - 57,750 525,504 --------- --------- --------- --------- DILUTED EPS: Net Income available to Common stockholder plus assumed conversions 2,540,636 4,126,356 $ 0.62 1,279,242 3,748,242 $0.34 - Outstanding shares computed on a weighted average basis - Impact of PBI stock conversion has been determined not to be dilutive for this period
8 Page 8 of 17 Note 3. In August 1998, the Company, through a bankruptcy remote subsidiary, D & K Receivables Corp. ("D&KRC"), entered into a sales agreement that provided the Company with a three-year $45 million revolving accounts receivable securitization facility (the "Securitization"). Under this facility and pursuant to a purchase and contribution agreement between the Company and D&KRC, the Company sells to D&KRC, on a non-recourse basis, all rights and interests in its accounts receivable. Pursuant to the receivables purchase agreement, D&KRC in turn sells certain interests in the accounts receivable pool owned by D&KRC under similar terms to a third party purchaser. In December 1998, this facility was increased from $45 million to $60 million to provide greater access to working capital. The maximum allowable amount of receivables eligible to be sold is $60 million. The amount available at any settlement date varies based upon the level of eligible receivables. Under this agreement, $46.9 million of accounts receivable were sold as of December 31, 1998. This sale is reflected as a reduction in accounts receivable in the accompanying condensed consolidated balance sheets and as operating cash flows in the accompanying condensed consolidated statements of cash flows for the six-month period ended December 31, 1998. Accordingly, the Company's trade accounts receivable at December 31, 1998 are net of $46.9 million, which represent accounts receivable that were sold under the Securitization. The Securitization bears interest at the 30-day London Interbank Offer Rate (LIBOR) plus program and liquidity fees of 0.71%. At December 31, 1998 the unused portion of the Securitization amounted to $13.1 million. In addition, in August 1998, the Company amended the terms of its revolving line of credit to provide a maximum borrowing capacity of $75 million based upon eligible inventories and to extend its maturity through August 2001. The advances bear interest at the daily LIBOR plus 1.25%. The Company also has the option to pay interest on the obligation at prime plus .5% per annum. At December 31, 1998 and June 30, 1998, the unused portion of the line of credit amounted to $20.4 million and $14.8 million, respectively. The Company also has an interest rate collar agreement, whereby the LIBOR rate on $10.0 million of the outstanding revolving line of credit balance shall not exceed 6.75% per annum. If the LIBOR rate is less than 5.25% per annum, then the LIBOR rate on $7.5 million of the outstanding revolving line of credit balance shall not be less than 5.25% per annum. Note 4. The Company accounts for its 50% investment in PBI under the equity method. Equity income is recorded net, after reduction of goodwill amortization based on the excess of the amount paid for its interest in PBI over the fair value of 9 Page 9 of 17 PBI's underlying net assets at the date of the original investment. The Company's equity in the net income of PBI totaled $81,000 for both three-month periods ended December 31, 1998 and December 31, 1997 ($150,000 before goodwill amortization). The Company's equity in the net income of PBI totaled $242,000 and $200,000 for the six-month periods ended December 31, 1998 and December 31, 1997, respectively ($380,000 and $338,000, respectively, before goodwill amortization). The remaining PBI shareholders have options to convert their ownership interests in PBI into shares of the Company's common stock under the terms of the original purchase agreement. Those options which have been determined to be dilutive are included in the reconciliation of the basic and diluted earnings per share computation in Note 2 above. Note 5. During the six months ended December 31, 1998, under the provisions of its Long-Term Incentive Plan and its 1993 Stock Option Plan, the Company granted non-qualified stock options for an aggregate of 55,000 and 45,200 shares, respectively, of common stock to certain executives and key employees at exercise prices ranging from $16.88 to $20.00 per share. The exercise price of all options granted pursuant to the two plans was equal to the fair market value of the stock on the date of grant. Stock options granted under the Long-Term Incentive Plan are generally not exercisable earlier than six months from the date of grant, nor later than ten years from the date of grant. Stock options granted under the 1993 Stock Option Plan are immediately exercisable from the date of grant and expire not later than ten years from the date of grant. The following sets forth a summary of the options outstanding under the Company's Long-Term Incentive Plan and the 1993 Stock Option Plan:
WEIGHTED AVERAGE NUMBER OF ---------------- SHARES EXERCISE PRICE ------------------------------- OUTSTANDING AT JUNE 30, 1998 441,998 $ 7.13 GRANTED 100,200 $17.27 EXERCISED (23,500) $ 6.35 CANCELLED (3,000) $11.25 --------- OUTSTANDING AT DECEMBER 31, 1998 515,698 $ 9.11 =========
Note 6. On November 12, 1998, the Company filed a Current Report on 8-K announcing the adoption of a shareholder rights plan. The shareholder rights plan provides for a dividend distribution of one right for each share of the Company's common stock to holders as of the close of business on November 23, 1998. Each right will entitle the holder to buy, under certain circumstances, 10 Page 10 of 17 one one-thousandth of a share of preferred stock for $100. The rights will become exercisable only in the event, with certain exceptions, a person or group acquires 15 percent or more of the Company's common stock or commences a tender or exchange offer for 15 percent or more of the Company's common stock. In addition, upon the occurrence of certain events, holders of the rights will be entitled to purchase either the Company's common stock or preferred stock or shares in an acquiring entity at half of market value. The Company will generally be entitled to redeem the rights in whole, but not in part, at a price of $0.005 per right, at any time up to and including the tenth day after the time that a person or group has acquired 15 percent or more of the Company's common stock or announced a tender offer to purchase at least 15 percent of the outstanding common stock of the Company, subject to extension of the redemption period by the Company's Board of Directors. Unless earlier redeemed, the rights will expire on November 12, 2008. Note 7. On February 16, 1999, the Company announced the signing of a letter of intent to acquire Jewett Drug Co., Inc., ("Jewett") a privately owned pharmaceutical distribution company based in Aberdeen, South Dakota for a combination of cash, notes and the Company's common stock totaling $36 million. Jewett provides comprehensive pharmaceutical distribution services to over 250 customers in South Dakota, North Dakota, Minnesota and four north central states. Jewett recorded calendar 1998 sales of approximately $250 million. The company expects the transaction to be closed in its fourth fiscal quarter subject to execution of a definitive agreement, satisfactory completion of due diligence and required regulatory approvals. 11 Page 11 of 17 D & K HEALTHCARE RESOURCES, INC. AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The discussion below is concerned with material changes in financial condition and results of operations in the condensed consolidated balance sheets as of December 31, 1998 and June 30, 1998, and in the condensed consolidated statements of operations for the three-month and six-month periods ended December 31, 1998 and December 31, 1997, respectively. The Company recommends that this discussion be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company's 1998 Annual Report to Stockholders. Statements contained in this Report that state the Company's or management's intentions, expectations, beliefs or predictions about future events, including expected Year 2000 compliance costs, tax rates and capital resources, are forward-looking statements and are inherently subject to risks and uncertainties. The Company's actual results could differ materially from those contained in such forward-looking statements due to a number of factors, including without limitation, higher than anticipated software modification costs, changes in the level of Company borrowings, changes in tax laws, the nature of the wholesale pharmaceutical drug distribution industry, the evolving business and regulatory environment of the healthcare industry and changes in the Company's business and capital needs. Results of Operations: --------------------- Net Sales Net sales increased $59.8 million, or 43.1%, for the --------- quarter ended December 31, 1998, compared to the corresponding period of the prior year. Institutional sales increased $7.0 million primarily due to increased sales to a prescription benefit management company. Independent pharmacy sales increased by $16.9 million due to new and existing retail accounts, including a $9.9 million increase from the prior year in sales made to an independent retail purchasing association and independent retail pharmacies formerly associated with an acquired drug wholesaler. Chain store sales increased $35.6 million due to higher sales to existing and new chain store customers during the current quarter. Net sales increased $90.1 million, or 31.3% for the six months ended December 31, 1998, compared to the corresponding period of the prior year. Institutional sales increased $13.5 million primarily due to increased sales to a prescription benefit management company. Independent pharmacy sales increased by $32.6 million due to new and existing retail accounts, including a $22.2 million increase from the corresponding period of prior year in sales made to an independent retail purchasing association and independent retail pharmacies formerly associated with an acquired drug wholesaler. Chain store sales increased $43.7 million due to higher sales to existing and new chain 12 Page 12 of 17 store customers of approximately $70.1 million during the six- month period partially offset by the termination of the Company's relationship with a large regional chain customer on September 30, 1997 (an impact of approximately $26.4 million). Excluding sales made to the former large regional chain customer from the six-month period in the prior year, net sales effectively increased 44.6% for the six months ended December 31, 1998. In addition, the quarter and six months ended December 31, 1998 contained $43.8 million and $78.4 million, respectively, in "dock- to-dock" sales, which are not included in net sales due to the Company's accounting policy of recording only the commission on such transactions as a component of cost of sales in its consolidated statement of operations. "Dock-to-dock" sales were $12.8 million for both the quarter and six months ended December 31, 1997, as there were no "dock-to-dock" sales in the first quarter of the prior year. Gross Profit Gross profit increased 43.4% to $9.8 million for the ------------ quarter ended December 31, 1998, compared to the corresponding period of the prior year. As a percentage of net sales, gross margin increased from 4.92% to 4.93% for the quarter ended December 31, 1998, compared to the corresponding period of the prior year. Deeper penetration of higher margin generic sales, inventory investment buying initiatives and non-product related services were substantially offset by the impact of higher sales to large customers, which typically carry a lower margin. The gross margin computed on a first-in, first-out (FIFO) basis increased from 5.04% to 5.07% for the quarter ended December 31, 1998, compared to the corresponding period of the prior year. Gross profit increased 37.8% to $18.2 million for the six months ended December 31, 1998, compared to the corresponding period of the prior year. As a percentage of net sales, gross margin increased from 4.59% to 4.81% for the six months ended December 31, 1998, compared to the corresponding period of the prior year. The increase in gross margin percentage was due mainly to higher penetration of profitable generic sales, and benefits from changes in the Company's procurement strategies. The gross margin computed on a first-in, first-out (FIFO) basis increased from 4.71% to 4.93% for the six months ended December 31, 1998, compared to the corresponding period of the prior year. Operating Expenses Operating expenses increased $1.6 million, or ------------------ 32.9%, to $6.4 million for the quarter and increased $2.4 million, or 24.2%, to $12.2 million for the six months ended December 31, 1998, compared to the corresponding period of the prior year. As a percentage of net sales, operating expenses decreased from 3.49% to 3.24% for the quarter and decreased from 3.40% to 3.22% for the six months ended December 31, 1998, compared to the corresponding period of the prior year. The increase in operating expenses for the quarter and six months ended December 31, 1998 resulted primarily from incremental warehouse and distribution costs associated with increased sales activity, and higher personnel and occupancy costs related to additional 13 Page 13 of 17 managerial positions in several major functional areas of the Company. The decrease in the operating expense percentages for the quarter and six months ended December 31, 1998 is due mainly to the increase in chain store sales, which typically carry a lower operating expense to net sales percentage than other trade classes. Interest Expense, Net Net interest expense increased $348,000 or --------------------- 40.7% for the quarter and increased $662,000 or 42.8% for the six months ended December 31, 1998, compared to the corresponding period of the prior year. As a percentage of net sales, net interest expense decreased from 0.62% of net sales to 0.61% of net sales for the quarter and increased from 0.54% to 0.58% of net sales for the six months ended December 31, 1998, compared to the corresponding period of the prior year. The increase in net interest expense is primarily the result of an increase in the average outstanding balance on the Company's working capital credit facilities due to expanded business and changes in the Company's inventory procurement strategies, offset by the lower interest rates on these facilities. Other Income, Net Other income, net decreased from $104,000 to ----------------- $59,000 for the quarter and increased from $246,000 to $268,000 for the six months ended December 31, 1998, compared to the corresponding period of the prior year. The decrease in other income, net for the quarter was primarily due to the impact of a fixed asset disposal. Effects of Inflation and LIFO Accounting The effects of price ---------------------------------------- inflation, measured by the excess of LIFO costs over FIFO costs, were approximately $275,000 and $170,000, respectively, for the three months ended December 31, 1998 and December 31, 1997 and approximately $452,000 and $360,000, respectively, for the six months ended December 31, 1998 and December 31, 1997. Provision for Income Taxes The Company's effective income tax -------------------------- rate of 39.0% is the rate expected to be applicable for the full fiscal year ending June 30, 1999. This rate was greater than the federal income tax rate of 34% primarily because of the amortization of intangible assets that are not deductible for federal and state income tax purposes and the effect of state income taxes. The effective income tax rate has decreased from the quarter ended September 30, 1998 as a result of lower non- deductible amortization expenses of intangible assets. Financial Condition: ------------------- Liquidity and Capital Resources The Company's working capital ------------------------------- requirements are generally met through a combination of internally generated funds, borrowings under its revolving line of credit and the Securitization facility, and trade credit from its suppliers. The following measures are utilized by the Company as key indicators of the Company's liquidity and working capital management: 14 Page 14 of 17
December 31, June 30, 1998 1998 ------------ --------- Working capital (000's) $39,219 $52,250 Current ratio 1.45 to 1 1.56 to 1
Working capital and the current ratio have declined mainly as a result of the Securitization, since a portion of the Company's trade accounts receivables are no longer included in the Company's current assets, offset by an increase in inventory of $28.9 million. The reduction in trade accounts receivable as a result of the Securitization at December 31, 1998 amounted to $46.9 million. Adjusting for the Securitization, working capital and the current ratio would have been $92.8 million and 2.08 to 1, respectively. The Company invested $350,000 in capital assets in the six-month period ended December 31, 1998, as compared to $497,000 in the corresponding period in the prior year. The Company believes that continuing investment in capital assets is necessary to achieve its goal of improving operational efficiency, thereby enhancing its productivity and profitability. Cash outflows from financing activities totaled $19.9 million for the six-month period ended December 31, 1998 as compared to cash inflows of $22.9 million for the corresponding period in the prior year. The current year increase in cash outflow is primarily due to the reduction in the revolver that resulted from the application of the receivable Securitization proceeds. At December 31, 1998, the revolving line of credit provided a maximum borrowing capacity of $75.0 million. At December 31, 1998 and June 30, 1998, the unused portion of the line of credit amounted to $20.4 million and $14.8 million, respectively. In addition, at December 31, 1998, the Securitization provided a maximum borrowing capacity of $60.0 million. At December 31, 1998, the unused portion of the Securitization amounted to $13.1 million. Management believes that, together with internally generated funds, the Company's available capital resources will be sufficient to meet its foreseeable capital requirements. Year 2000: --------- The Company is dependent upon its software programs and operating systems for internal operations (e.g., inventory and warehouse management) and for processing product orders with its customers and suppliers. The Company has determined that it will not incur any significant costs to make the Company's software programs and operating systems Year 2000 compliant and is making inquiries regarding the magnitude of any Year 2000 problems that may be resident in the software programs and operating systems of its customers and suppliers, or the impact that any such problems could have on the sales made and services provided by the Company to such customers or suppliers. The Company is in the process of modifying and testing its affected software programs and operating systems to make them Year 2000 compliant and is 15 Page 15 of 17 developing a contingency plan to address the possibility of Year 2000-related failures. The Company expects these processes to be completed by the end of fiscal 1999. The occurrence of Year 2000- related failures in the software programs and operating systems of any of the Company's significant customers or suppliers could have a material adverse effect on the Company's business, results of operations, or financial condition. Subsequent Event: ---------------- On February 16, 1999, the Company announced the signing of a letter of intent to acquire Jewett Drug Co., Inc., ("Jewett") a privately owned pharmaceutical distribution company based in Aberdeen, South Dakota for a combination of cash, and notes the Company's common stock totaling $36 million. Jewett provides comprehensive pharmaceutical distribution services to over 250 customers in South Dakota, North Dakota, Minnesota and four north central states. Jewett recorded calendar 1998 sales of approximately $250 million. The company expects the transaction to be closed in its fourth fiscal quarter subject to execution of a definitive agreement, satisfactory completion of due diligence and required regulatory approvals. 16 Page 16 of 17 D & K HEALTHCARE RESOURCES, INC. AND SUBSIDIARIES Part II. Other Information - ------- ----------------- Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 3.2 - By-laws of D&K Healthcare Resources, Inc., as currently in effect 27 - Financial Data Schedule 99 - Press Release (b) Reports on Form 8-K Current report on Form 8-K relating to the adoption of a shareholder rights plan, dated November 12, 1998 17 Page 17 of 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. D & K HEALTHCARE RESOURCES, INC. Date: February 16, 1999 By: /s/ J. Hord Armstrong, III ----------------- ------------------------------- J. Hord Armstrong, III Chairman of the Board and Chief Executive Officer By: /s/ Thomas S. Hilton ------------------------------ Thomas S. Hilton Senior Vice President Chief Financial Officer (Principal Financial & Accounting Officer) EX-3.2 2 BYLAWS 1 BY-LAWS OF D & K HEALTHCARE RESOURCES, INC. AS AMENDED AND RESTATED As Amended through November 12, 1998. 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I. SHAREHOLDERS 1 Section 1.01. Annual Meeting 1 Section 1.02. Special Meetings 1 Section 1.03. Place of Meeting 1 Section 1.04. Notice of Meeting 1 Section 1.05. Meetings, How Convened 1 Section 1.06. Fixing Date of Record 2 Section 1.07. Voting Lists 2 Section 1.08. Quorum 2 Section 1.09. Proxies 3 Section 1.10. Voting of Shares 3 Section 1.11. Voting of Shares by Certain Holders 3 Section 1.12. Cumulative Voting Rights Denied 4 Section 1.13. Shareholders' Right to Examine Books and Records 4 Section 1.14. Shares of Other Corporations 4 Section 1.15. Notice of Shareholder Nominees 4 Section 1.16. Procedures for Submission of Shareholder Proposals at Annual Meeting 5 ARTICLE II. BOARD OF DIRECTORS 6 Section 2.01. General Powers 6 Section 2.02. Number, Tenure and Qualifications 6 Section 2.03. Regular Meetings 6 Section 2.04. Special Meetings 6 Section 2.05. Notice 6 Section 2.06. Quorum; Participation by Telephone 7 Section 2.07. Manner of Acting 7 Section 2.08. Action Without a Meeting 7 Section 2.09. Resignations 7 Section 2.10. Removal by Shareholders 7 Section 2.11. Vacancies 7 Section 2.12. Compensation 8 Section 2.13. Presumption of Assent 8 Section 2.14. Committees 8 i 3 ARTICLE III. OFFICERS 8 Section 3.01. Number 8 Section 3.02. Election and Term of Office 8 Section 3.03. Removal 9 Section 3.04. Resignations 9 Section 3.05. Vacancies 9 Section 3.06. Chairman of the Board 9 Section 3.07. President 9 Section 3.08. Vice-President(s) 9 Section 3.09. Secretary 10 Section 3.10. Treasurer 10 Section 3.11. Salaries 10 ARTICLE IV. CONTRACTS, LOANS, CHECKS AND DEPOSITS 10 Section 4.01. Contracts 10 Section 4.02. Loans 11 Section 4.03. Checks, Drafts, etc. 11 Section 4.04. Deposits 11 ARTICLE V. CERTIFICATES FOR SHARES AND THEIR TRANSFER 11 Section 5.01. Certificates for Shares 11 Section 5.02. Transfer of Shares 11 ARTICLE VI. FISCAL YEAR 11 ARTICLE VII. INDEMNIFICATION OF DIRECTORS,OFFICERS, EMPLOYEES AND AGENTS 12 ARTICLE VIII. CORPORATE SEAL 12 ARTICLE IX. WAIVER OF NOTICE 12 ARTICLE X. AMENDMENTS 12 ii 4 BY-LAWS OF D & K HEALTHCARE RESOURCES, INC. AS AMENDED AND RESTATED Through November 12, 1998 -------------------------- ARTICLE I. SHAREHOLDERS --------- ------------ Section 1.01. Annual Meeting. The annual meeting of the shareholders ------------ -------------- shall be held on the last Monday in the month of June, in each year, beginning with the year 1988, at the hour of 10:00 A.M., or at such other date or time as shall be designated by resolution of the Board of Directors, for the purpose of electing directors and for the transaction of such other business as may come before the meeting. Section 1.02. Special Meetings. A special meeting of the ------------ ---------------- shareholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chairman of the Board, President, by the Board of Directors, or by the holders of not less than one-third of all the outstanding shares of the Corporation entitled to vote at such meeting. Section 1.03. Place of Meeting. The Board of Directors may designate ------------ ---------------- any place, either within or without the State of Delaware, as the place of meeting for any annual meeting of the shareholders. Section 1.04. Notice of Meeting. Unless a different manner of giving ------------ ----------------- notice is prescribed by statute, written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall, unless otherwise allowed or prescribed by statute, be delivered not less than ten nor more than sixty days before the date of the meeting, either personally or by mail, by or at the direction of the President, or the Secretary, or the persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his or her address as it appears on the records of the Corporation, with postage thereon prepaid. Matters considered and voted on at a special meeting shall be limited to matters specified in the notice of the special meeting. Section 1.05. Meetings, How Convened. Every meeting, for whatever ------------ ---------------------- purpose, of the shareholders of the Corporation shall be convened by its Chairman of the Board, President, Secretary or other officer, or any of the persons calling the meeting by notice given as herein provided. 5 Section 1.06. Fixing Date of Record. ------------ --------------------- (a) In order that the corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty or less than ten days before the date of such meeting, nor more than sixty days prior to any other action. (b) If no record date is fixed: (i) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (ii) The record date for determining shareholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the board of directors is necessary, shall be the day on which the first written consent is expressed. (iii) The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. (c) A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. Section 1.07. Voting Lists. The officer or agent having charge of the ------------ ------------ transfer book for shares of the Corporation shall make, at least ten days before each meeting of the shareholders, a complete list of the shareholders entitled to vote at such meeting, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten days prior to such meeting shall be kept on file at the registered office of the Corporation and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and subject to the inspection of any shareholder during the whole time of the meeting. The original share ledger or transfer books, or a duplicate thereof kept in the State of Missouri, shall be prima facie evidence as to who are the shareholders entitled to examine such list or share ledger or transfer book or to vote at any meeting of the shareholders. 6 Section 1.08. Quorum. Unless a greater portion shall be required by ------------ ------ statute for a specified action, one-third of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at any meeting of shareholders. If less than a quorum is present, those present may adjourn the meeting until a specified date, not longer than ninety days after such adjournment, and no notice need be given of such adjournment to shareholders not present at the meeting. Every decision of a majority of such quorum shall be valid as a corporate act unless a different vote is required by law, the Certificate of Incorporation or the By-Laws of the Corporation. Section 1.09. Proxies. At all meetings of shareholders, a shareholder ------------ ------- may vote in person or by proxy executed in writing by the shareholder or by the shareholder's duly authorized attorney in fact. Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after three years from the date of its execution, unless otherwise provided in the proxy. A duly executed proxy shall be irrevocable only if it states that it is irrevocable and if, and only so long as, it is coupled with an interest sufficient in law to support an irrevocable power of attorney. The interest with which it is coupled need not be an interest in the shares themselves. If any instrument of proxy designates two or more persons to act as proxy, in the absence of any provisions in the proxy to the contrary, the persons designated may represent and vote the shares in accordance with the vote or consent of the majority of the persons named as proxies. If only one such proxy is present, the proxy may vote all of the shares, and all the shares standing in the name of the principal or principals for whom such proxy acts shall be deemed represented for the purpose of obtaining a quorum. The foregoing provisions shall apply to the voting of shares by proxies for any two or more personal representatives, trustees or other fiduciaries, unless an instrument or order of court appointing them otherwise directs. Section 1.10. Voting of Shares. Subject to the provisions of Section ------------ ---------------- 1.13, each outstanding share entitled to vote shall be entitled to one vote upon each matter submitted to a vote at a meeting of the shareholders. Section 1.11. Voting of Shares by Certain Holders. Shares standing in ------------ ----------------------------------- the name of another corporation may be voted by such officer, agent or proxy as the by-laws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine. Shares standing in the name of a deceased person may be voted by his or her personal representative, either in person or by proxy. Shares standing in the name of a conservator or trustee may be voted by such fiduciary, either in person or by proxy, but no conservator or trustee shall be entitled, as a fiduciary to vote shares held by him or her without a transfer of such shares into his or her name. 3 7 Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his or her name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Neither shares of its own stock held by the Corporation, nor those held by another corporation if a majority of the shares entitled to vote for the election of directors of such other corporation are owned beneficially and of record (and not in trust) by this Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time. Section 1.12. Cumulative Voting Rights Denied. In all elections for ------------ ------------------------------- directors, each shareholder entitled to vote shall have the right to cast only as many votes as shall equal the number of voting shares held by him in the Corporation. There shall be no right to cumulative voting in the election of directors. Section 1.13. Shareholders' Right to Examine Books and Records. This ------------ ------------------------------------------------ Corporation shall keep correct and complete books and records of account, including the amount of its assets and liabilities, minutes of the proceedings of its shareholders and Board of Directors, and the names and places of residence of its officers; and it shall keep at its registered office or principal place of business in this state, or at the office of its transfer agent in this state, if any, books and records in which shall be recorded the number of shares subscribed, the names of the owners of the shares, the numbers owned by them respectively, the amount of shares paid, and by whom, and the transfer of such shares with the date of transfer. Each shareholder may, during normal business hours, have access to the books of the Corporation, to examine the same. The Board of Directors may, from time to time, further prescribe regulations with respect to any such examination. Section 1.14. Shares of Other Corporations. Shares of another ------------ ---------------------------- corporation owned by or standing in the name of the Corporation may be voted by such person or persons as may be designated by the Board of Directors and in the absence of any such designation, the President shall have the power to vote such shares. Section 1.15. Notice of Shareholder Nominees. Only persons who are ------------ ------------------------------ nominated in accordance with the procedures set forth in this Section 1.15 shall be eligible for election as Directors of the Corporation. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of shareholders (a) by or at the direction of the Board of Directors or (b) by any shareholder of the Corporation entitled to vote for the election of Directors 4 8 at such meeting who complies with the procedures set forth in this Section 1.15. All nominations by shareholders shall be made pursuant to timely notice in proper written form to the Secretary of the Corporation. To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than thirty days nor more than sixty days prior to the meeting; provided, however, that in the event that less than forty days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. To be in proper written form, such shareholder's notice shall set forth in writing (a) as to each person whom the shareholder proposes to nominate for election or re-election as a Director, all information relating to such person that is required to be disclosed in solicitations or proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, including, without limitation, such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected; and (b) as to the shareholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such shareholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such shareholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a shareholder's notice of nomination which pertains to the nominee. In the event that a shareholder seeks to nominate one or more directors, the Secretary shall appoint two inspectors, who shall not be affiliated with the Corporation, to determine whether a shareholder has complied with this Section 1.15. If the inspectors shall determine that a shareholder has not complied with this Section 1.15, the inspectors shall direct the chairman of the meeting to declare to the meeting that the nomination was not made in accordance with the procedures prescribed by the By-Laws of the Corporation, and the chairman shall so declare to the meeting and the defective nomination shall be disregarded. Section 1.16. Procedures for Submission of Shareholder Proposals at ------------ ----------------------------------------------------- Annual Meeting. At any annual meeting of the shareholders of the - -------------- Corporation, only such business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the Board of Directors or (ii) by any shareholder of the Corporation who complies with the procedures set forth in this Section 1.16. For business properly to be brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than thirty days nor more than sixty days prior to the meeting; provided, however, that in the event that less than forty days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be received not later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. To be in proper written form, a shareholder's notice to the Secretary shall set forth in writing as to each matter the shareholder proposes to bring before the annual meeting (i) a brief description 5 9 of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the Corporation's books, of the shareholder proposing such business, (iii) the class and number of shares of the Corporation which are beneficially owned by the shareholder and (iv) any material interest of the shareholder in such business. Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at an annual meeting, except in accordance with the procedures set forth in this Section 1.16. The chairman of a meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 1.16, and, if he or she should so determine, shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. ARTICLE II. BOARD OF DIRECTORS ---------- ------------------ Section 2.01. General Powers. The business and affairs of the ------------ -------------- Corporation shall be managed by its Board of Directors. Section 2.02. Number, Tenure and Qualifications. The number of ------------ --------------------------------- Directors to constitute the Board of Directors shall be fixed, from time to time, at not less than six (6) nor more than nine (9), by resolution of the Board of Directors adopted by the vote or consent of at least sixty-six and two-thirds percent (66-2/3%) of the number of Directors then in office. The Directors shall be divided into three classes: Class I, Class II and Class III; and the number of Directors in such classes shall be as nearly equal as possible. The term of office of the initial Class I Directors shall expire at the annual meeting of stockholders of the Corporation in 1993; the term of office of the initial Class II Directors shall expire at the annual meeting of stockholders of the Corporation in 1994; and the term of office of the initial Class III Directors shall expire at the annual meeting of stockholders of the Corporation in 1995; or in each case until their respective successors are duly elected and qualified. At each annual election held after 1992 the Directors chosen to succeed those whose terms then expire shall be identified as being of the same class as the Directors they succeed and shall be elected for a term of three (3) years expiring at the third succeeding annual meeting or thereafter until their respective successors are duly elected and qualified. If the number of Directors is changed, any increase or decrease in the number of Directors shall be apportioned among the classes so as to maintain the number of Directors in each class as nearly equal as possible. Section 2.03. Regular Meetings. A regular meeting of the Board of ------------ ---------------- Directors shall be held without other notice than this By-Law immediately after, and at the same place as, the annual meeting of shareholders. The Board of Directors may provide, by resolution, the time and place, either within or without the State of Delaware, for the holding of additional regular meetings without other notice than such resolution. Section 2.04. Special Meetings. A special meeting of the Board of ------------ ---------------- Directors may be called by, or at the request of, the Chairman of the Board, President or any two directors. The person or 6 10 persons authorized to call such special meeting of the Board of Directors may fix any time and place, either within or without the State of Delaware, as the time and place for holding such special meeting. Section 2.05. Notice. Notice of any special meeting shall be ------------ ------ delivered at least three days prior thereto by written notice delivered personally or left at or mailed to each director at his or her business or residence address, or by telegram. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the text of the telegram is delivered to the telegraph company. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Section 2.06. Quorum; Participation by Telephone. One-third of the ------------ ---------------------------------- full Board of Directors shall constitute a quorum for the transaction of business, but if less than a majority are present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. Members of the Board of Directors may participate in a meeting of the Board of Directors, whether regular or special, by means of conference telephone or similar communications equipment whereby all persons participating in the meeting can hear each other, and participation in a meeting in this manner shall constitute presence in person at the meeting. Section 2.07. Manner of Acting. The act of a majority of the ------------ ---------------- directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless the act of a different number is required by statute, the Certificate of Incorporation or these By-Laws. Section 2.08. Action Without a Meeting. Any action that may be taken ------------ ------------------------ at a meeting of the Board of Directors or of a committee of directors may be taken without a meeting if consents in writing, setting forth the action so taken, are signed by all of the members of the Board of Directors or of the committee, as the case may be. Such written consents shall be filed by the Secretary with the minutes of the proceedings of the Board of Directors or of the committee, as the case may be, and shall have the same force and effect as a unanimous vote at a meeting duly held. Section 2.09. Resignations. Any director may resign at any time by ------------ ------------ delivering written notice to the Board of Directors, the President or the Secretary of the Corporation. Any written notice delivered in person to the President or the Secretary shall be effective upon delivery, unless otherwise provided therein. Written notice may be delivered by certified or registered mail, with postage thereon prepaid and a return receipt requested. Such resignation shall take effect on the date of the receipt of such notice which date of receipt shall be deemed to be the date indicated upon the registered or certified mail return receipt, or at any later time specified therein. Unless otherwise specified, acceptance of such resignation shall not be necessary to make it effective. 7 11 Section 2.10. Removal by Shareholders. At a meeting called expressly ------------ ----------------------- for that purpose, the entire Board of Directors, or any individual director or directors, may be removed only for cause upon the affirmative vote of the holders of a majority of the shares then entitled to vote at a meeting of shareholders called for an election of directors. Section 2.11. Vacancies. Any vacancy on the Board of Directors ------------ --------- (whether such vacancy is caused by death, resignation, or removal for cause or is the result of a newly created directorship) shall be filled by a majority of the Directors then in office. Any Director elected to fill a vacancy in any class (whether such vacancy is caused by death, resignation, or removal for cause, or is the result of an increase in the number of Directors in such class) shall hold office for a term which shall expire with the term of the Directors in such class. Section 2.12. Compensation. By resolution of the Board of Directors, ------------ ------------ each director may be paid his or her expenses, if any, of attendance at each meeting of the Board of Directors, and may be paid a stated salary as director or a fixed sum for attendance at each meeting of the Board of Directors or both. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 2.13. Presumption of Assent. A director of the Corporation ------------ --------------------- who is present at a meeting of the Board of Directors at which action on any matter is taken shall be presumed to have assented to the action taken unless the director dissents or abstains at such meeting, and the fact of such dissent or abstention (a) is entered in the minutes of the meeting, or (b) shall be filed by the director in writing with the person acting as secretary of the meeting before the adjournment thereof, or (c) shall have been recorded by the director and forwarded by registered mail to the Secretary of the Corporation promptly after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favor of such action. Section 2.14. Committees. The Board of Directors, by resolution ------------ ---------- adopted by a majority of the board, may designate two or more directors to constitute (a) an executive committee, which committee shall have and exercise all of the authority of the Board of Directors in the management of the Corporation, or (b) any other committee which shall have the name, purpose, power and authority delegated to it by such resolution. ARTICLE III. OFFICERS ----------- -------- Section 3.01. Number. The officers of the Corporation shall be a ------------ ------ Chairman of the Board of Directors, the President, one or more Vice-Presidents (the number thereof to be determined by the Board of Directors), a Secretary, and a Treasurer, each of whom shall be elected by the Board of Directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the Board of Directors. Any two or more offices may be held by the same person. 8 12 Section 3.02. Election and Term of Office. The officers of the ------------ --------------------------- Corporation to be elected by the Board of Directors shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after the first annual meeting of the shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be arranged. Each officer shall hold office until his or her successor shall have been duly elected and shall have qualified or until his or her death or until he or she shall resign or shall have been removed in the manner hereinafter provided. Section 3.03. Removal. Any officer, agent, or other employee elected ------------ ------- or appointed bythe Board of Directors may be removed by the Board of Directors, with or without cause, whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. Section 3.04. Resignations. Any officer may resign at any time by ------------ ------------ giving written notice to the Board of Directors, the President or the Secretary of the Corporation. Any written notice delivered in person to the President or the Secretary shall be effective upon delivery unless otherwise provided therein. Written notice may be delivered by certified or registered mail, with postage thereon prepaid and a return receipt requested. Such resignation shall take effect on the date of the receipt of such notice which date of receipt shall be deemed to be the date indicated upon the registered or certified mail return receipt, or at any later time specified therein. Unless otherwise specified herein, the acceptance of such resignation shall not be necessary to make it effective. Section 3.05. Vacancies. A vacancy in any office because of death, ------------ --------- incapacity, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term. Section 3.06. Chairman of the Board. The Chairman of the Board shall ------------ --------------------- be the principal executive officer of the Corporation and shall provide overall direction and guidance to the Corporation. He or she shall preside at all meetings of the shareholders and of the Board of Directors. The Chairman shall in general perform all duties incident to the office of Chairman of the Board and such other duties as may be prescribed by the Board of Directors from time to time. Section 3.07. President. The President shall be the principal ------------ --------- operating officer of the Corporation and shall in general supervise and control all of the business and affairs of the Corporation. The President may sign, with the Secretary or any other proper officer of the Corporation thereunto authorized by the Board of Directors, certificates for shares of the Corporation, any deeds, mortgages, bonds, contracts, or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these By-Laws to some other officer or agent of the Corporation, or shall be required by law to be otherwise signed or executed. The President 9 13 may vote in person or by proxy shares in other corporations standing in the name of this Corporation. The President shall in general perform all duties incident to the, office of President and such other duties as may be prescribed by the Board of Directors from time to time. Section 3.08. Vice-President(s). In the absence of the President, ------------ ----------------- whether due to resignation, incapacity or any other cause, or in the event of the President's death, inability or refusal to act, the Vice-President (or in the event there be more than one Vice-President, the Vice-Presidents in the order designated at the time of their election, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice-President shall exercise such powers only so long as the President remains absent or incapacitated, or until the Board of Directors elects a new President. Any Vice-President may sign, with the Secretary, an Assistant Secretary, Treasurer or an Assistant Treasurer, certificates for shares of the Corporation; and shall perform such other duties as from time to time may be assigned to him or her by the President or by the Board of Directors. Section 3.09. Secretary. The Secretary shall (a) keep the minutes of ------------ --------- the proceedings of the shareholders and of the Board of Directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these By-Laws or as required by law; (c) be custodian of the corporate records and of the seal of the Corporation and see that the seal of the Corporation is affixed to all documents the execution of which on behalf of the Corporation under its seal is duly authorized; (d) keep a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholder; (e) sign with the President, or a Vice-President, certificates for shares of the Corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (f) have general charge of the stock transfer books of the Corporation; and (g) in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to the Secretary by the President or by the Board of Directors. Section 3.10. Treasurer. The Treasurer shall: (a) have charge and ------------ --------- custody of and be responsible for all funds and securities of the Corporation; (b) receive and give receipts for moneys due and payable to the Corporation from any source whatsoever, and deposit all such moneys in the name of the Corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of Article IV of these By-Laws; and (c) in general perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to the Treasurer by the President or by the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of the Treasurer's duties in such sum and with such surety or sureties as the Board of Directors shall determine. Section 3.11. Salaries. The salaries of the officers shall be fixed ------------ -------- from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact 10 14 that the officer is also a director of the Corporation and participated in determining and voting upon the salary. ARTICLE IV. CONTRACTS, LOANS, CHECKS AND DEPOSITS ---------- ------------------------------------- Section 4.01. Contracts. The Board of Directors may authorize any ------------ --------- officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. Section 4.02. Loans. No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances. Section 4.03. Checks, Drafts, etc. All checks, drafts or other orders ------------ ------------------- for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. Section 4.04. Deposits. All funds of the Corporation not otherwise ------------ -------- employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may select. ARTICLE V. CERTIFICATES FOR SHARES AND THEIR TRANSFER --------- ------------------------------------------ Section 5.01. Certificates for Shares. Certificates representing ------------ ----------------------- shares of the Corporation shall be in such form as shall be determined by the Board of Directors. The shares of the Corporation shall be represented by certificates signed by the President or a Vice President, and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the Corporation and sealed with the seal of the Corporation. Such seal may be facsimile, engraved or printed. If such certificate is countersigned by a transfer agent or registrar other than the Corporation or its employee, any other signature on the certificate may be facsimile, engraved or printed. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Corporation. All certificates surrendered to the Corporation for transfer shall be canceled, and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms as the Board of Directors may prescribe. Section 5.02. Transfer of Shares. Transfer of shares of the ------------ ------------------ Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by his or her legal 11 15 representative, or by his or her attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation, and on surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes. ARTICLE VI. FISCAL YEAR ---------- ----------- The fiscal year of the Corporation shall begin on the first day of July and end on the last day of June in each year. ARTICLE VII. INDEMNIFICATION OF DIRECTORS, ----------- ----------------------------- OFFICERS, EMPLOYEES AND AGENTS ------------------------------ This Corporation shall indemnify any person who was or is a director, officer, employee or agent of the Corporation, or is or was serving at the request of this Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, to the fullest extent permitted by law and/or the Certificate of Incorporation, except that the Corporation may, but need not, purchase indemnity insurance. ARTICLE VIII. CORPORATE SEAL ------------ -------------- The Board of Directors shall provide a corporate seal in the form of a circle with the name of the Corporation inscribed thereon. ARTICLE IX. WAIVER OF NOTICE ---------- ---------------- Whenever any notice is required to be given to any shareholder or director of the Corporation under the provisions of these By-Laws or of the Certificate of Incorporation or of The General Corporation Law of the State of Delaware, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE X. AMENDMENTS --------- ---------- These By-Laws may be altered, amended or repealed and new By-Laws adopted by action of a majority of the directors at any regular or special meeting of the directors, or by the affirmative vote of the holders of not less than 80% of the shares then entitled to vote. ---------------------------------------- Secretary 12
EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS JUN-30-1999 JUL-01-1998 DEC-31-1998 3,330 0 1,997 702 119,304 125,448 11,228 6,141 152,005 86,229 0 38 0 0 18,645 152,005 377,719 377,987 359,539 371,695 0 0 2,207 4,085 1,593 2,492 0 0 0 2,492 .67 .62
EX-99 4 LETTER OF INTENT 1 D&K HEALTHCARE RESOURCES, INC. ANNOUNCES LETTER OF INTENT TO ACQUIRE JEWETT DRUG CO., INC. ST. LOUIS, MISSOURI, FEBRUARY 16, 1999 - D&K Healthcare Resources, Inc. (NASDAQ:DKWD) today announced the signing of a letter of intent to acquire Jewett Drug Co., Inc., ("Jewett") a privately owned pharmaceutical distribution company based in Aberdeen, South Dakota for $36 million in a combination of cash, notes and D&K common stock. D&K expects the acquisition of Jewett to be immediately accretive to earnings. Jewett will be operated as a wholly owned subsidiary of D&K under its own name from its existing facilities. Jewett provides comprehensive pharmaceutical distribution services to over 250 customers in South Dakota, North Dakota, Minnesota and four north central states. Jewett recorded 1998 sales of approximately $250 million. D&K expects the transaction to be closed in its fourth fiscal quarter subject to execution of a definitive agreement, satisfactory completion of due diligence and required regulatory approvals. "The acquisition of Jewett will further our goal of developing strong regional pharmaceutical distribution services throughout the Midwest," said J. Hord Armstrong, III, D&K's Chairman and Chief Executive Officer. "Jewett complements our existing distribution operations in the Northern Midwest, permitting expansion of geographic coverage and creation of economies of scale that will allow D&K to leverage its operating costs. A highly respected 115-year-old regional pharmaceutical distribution business, Jewett will provide an excellent opportunity for access to a broader base of clients in these markets. We are determined to execute a seamless transition for all stakeholders involved including employees, customers and suppliers. We believe an integral component of this transaction is Jewett's network in the Northern Midwest, which we intend to maintain in order to capitalize on its strong customer relationships. Following the conclusion of the transaction, we expect Harvey C. Jewett IV to join D&K's Board of Directors, and we extend a warm welcome to Jewett's customers and employees." In commenting on the transaction, Harvey C. Jewett IV, Chairman of Jewett, remarked "D&K Healthcare is a company very much like Jewett Drug Company. We believe that this transaction will allow our customers more options in products, better pricing and the same extremely high quality of service. D&K is a company that realizes that the customer and the wholesale house are very much in a partnership. We think this will be good news for Jewett Drug Co., its employees and customers. I look forward to a long and successful relationship with D&K." The forward-looking statements contained in this press release are inherently subject to risks and uncertainties. D&K's actual results could differ materially from those currently anticipated due to a number of factors, including without limitation, the competitive nature of the wholesale pharmaceutical drug distribution industry, the evolving business and regulatory environment of the healthcare industry in which D&K operates and other factors set forth in reports and other documents filed by D&K with the Securities and Exchange Commission from time to time. D&K Healthcare Resources, Inc., of St. Louis, Missouri, is a full-service regional wholesale drug distributor supplying customers from facilities in Lexington, Kentucky; Minneapolis, Minnesota; and Cape Girardeau, Missouri. D&K owns a 50 percent interest in Pharmaceutical Buyers, Inc., of Boulder, Colorado, one of the nation's leading alternate site group purchasing organizations. D&K also invites all interested parties to visit its Web site at http://www.dkwd.com. ------------------- -----END PRIVACY-ENHANCED MESSAGE-----