-----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, PPnfa6uSgVZyfJPvNTFxPh8H4F2DBGGhKif+KtJ5MDGjegvKQHUwOWGJzYGMJwzD l8W+APugYNcoTg0uBxa8yw== 0000950114-01-500007.txt : 20010209 0000950114-01-500007.hdr.sgml : 20010209 ACCESSION NUMBER: 0000950114-01-500007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010208 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: 1528045 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 eo10q.txt D&K HEALTHCARE FORM 10-Q 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, 2000 ----------------- 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 4,253,631 ---------------------------- ------------------ (class) (February 2, 2001) 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, 2000 and June 30, 2000 3 Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended December 31, 2000 and December 31, 1999 4 Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2000 and December 31, 1999 5 Notes to Condensed Consolidated Financial Statements 6 - 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 - 14 Item 3. Quantitative and Qualitative Disclosures About Market Risk 14 Part II. Other Information ----------------- Item 4. Submission of Matters to a Vote of Security Holders 15 Item 6. Exhibits and Reports on Form 8-K 15 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)
ASSETS DECEMBER 31, JUNE 30, ------ 2000 2000 ------------ ----------- (UNAUDITED) Cash $ 5,068 $ 3,661 Receivables 42,969 29,923 Inventories 212,477 202,467 Other current assets 1,783 1,443 ---------- ---------- Total current assets 262,297 237,494 ---------- ---------- Net property and equipment 9,124 8,184 Investment in affiliates 5,814 5,199 Other assets 614 1,026 Intangible assets 42,090 42,516 ---------- ---------- Total assets $319,939 $294,419 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current maturities of long-term debt $ 314 $ 305 Accounts payable 149,181 134,834 Accrued expenses 6,288 8,799 ---------- ---------- Total current liabilities 155,783 143,938 ---------- ---------- Long-term liabilities 886 700 Revolving line of credit 108,217 97,990 Long-term debt, excluding current maturities 1,508 1,657 Deferred income taxes 4,869 4,869 ---------- ---------- Total liabilities 271,263 249,154 ---------- ---------- Stockholders' equity: Common stock 45 45 Paid-in capital 30,426 30,334 Retained earnings 23,752 20,433 Less treasury stock (5,547) (5,547) ---------- ---------- Total stockholders' equity 48,676 45,265 ---------- ---------- Total liabilities and stockholders' equity $319,939 $294,419 ========== ==========
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 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Net sales $355,275 $336,898 $706,178 $660,463 Cost of sales 339,860 323,772 676,162 635,472 ---------- ---------- ---------- ---------- Gross profit 15,415 13,126 30,016 24,991 Operating expenses 9,936 7,973 19,155 15,651 ---------- ---------- ---------- ---------- Income from operations 5,479 5,153 10,861 9,340 Other income (expense): Interest expense, net (2,582) (2,343) (5,686) (4,159) Other, net 16 65 266 315 ---------- ---------- ---------- ---------- (2,566) (2,278) (5,420) (3,844) ---------- ---------- ---------- ---------- Income before income tax provision 2,913 2,875 5,441 5,496 Income tax provision 1,136 1,107 2,122 2,116 ---------- ---------- ---------- ---------- Net income $ 1,777 $ 1,768 $ 3,319 $ 3,380 ========== ========== ========== ========== Earnings per common share: Basic earnings per share $0.42 $0.42 $0.79 $0.78 Diluted earnings per share $0.40 $0.39 $0.76 $0.74 Basic common shares outstanding 4,209,929 4,254,849 4,205,011 4,318,138 Diluted common shares outstanding 4,482,585 4,572,499 4,476,305 4,654,174
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 DECEMBER 31, DECEMBER 31, 2000 1999 ------------ ------------ Cash flows from operating activities: Net income $ 3,319 $ 3,380 Adjustments to reconcile net income to net cash flows from operating activities: Amortization of debt issuance costs 540 352 Depreciation and amortization 1,672 1,506 Equity in net income of PBI (365) (279) Changes in operating assets and liabilities: Increase in accounts receivable, net (13,046) (4,018) Increase in inventories (10,010) (35,824) Decrease (Increase) in other current assets 340 (271) Increase (Decease) in accounts payable 14,347 (6,203) Increase (Decrease) in accrued expenses (2,572) 1,925 Other, net 150 (239) ----------- ----------- Cash flows from operating activities (5,625) (39,671) Cash flows from investing activities: Cash invested in affiliate (750) (500) Purchases of property and equipment (1,687) (1,353) ----------- ----------- Cash flows from investing activities (2,437) (1,853) Cash flows from financing activities: Borrowings under revolving line of credit 283,130 251,822 Repayments under revolving line of credit (272,903) (204,637) Principal payments on long-term debt (140) (336) Proceeds from exercise of stock options 92 268 Purchase of treasury stock 0 (4,395) Debt issuance costs (710) (645) ----------- ----------- Cash flows from financing activities 9,469 42,077 Increase in cash 1,407 553 Cash, beginning of period 3,661 708 ----------- ----------- Cash, end of period $ 5,068 $ 1,261 =========== =========== Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest $ 5,649 $ 3,587 Income taxes 3,466 1,041
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, supplying customers from facilities in Missouri, Florida, Kentucky, Minnesota, and South Dakota. The Company distributes a broad range of pharmaceuticals and related products to its customers in more than 24 states primarily in the Midwest and South. The Company focuses primarily on a target market sector, which includes independent retail, institutional, franchise, chain store and alternate site pharmacies. The Company also develops and markets sophisticated pharmacy systems software through two wholly owned subsidiaries, Tykon, Inc., and Viking Computer Services. In addition, the Company owns a 50% equity interest in Pharmaceutical Buyers, Inc. (PBI), a leading alternate site group purchasing organization. The accompanying unaudited condensed consolidated 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, 2000 are not necessarily indicative of the results to be expected for the full fiscal year. In the fourth quarter of the fiscal year ended June 30, 2000, the Company changed its method of determining the cost of inventories to the first-in, first-out method from the last-in, first-out method. Accordingly, previously reported figures have been restated to reflect the effect of the accounting change. 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 2000 Annual Report to Stockholders. Note 2. Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128), requires the computation of basic and diluted earnings per share. 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 effect of outstanding stock options and warrants (calculated using the treasury stock method); and (2) common shares issuable upon conversion of certain convertible PBI stock. The diluted computation for the three-month and six-month periods ended December 31, 2000 adds to income the earnings that 7 Page 7 of 17 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 DECEMBER 31, 2000 QUARTER ENDED DECEMBER 31, 1999 ------------------------------------------ ------------------------------------------ INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) (1) AMOUNT (NUMERATOR) (DENOMINATOR) (1) AMOUNT ----------- ------------- --------- ----------- ------------- --------- BASIC EARNINGS PER SHARE: Net income available to Common stockholders $1,777,000 4,209,929 $0.42 $1,768,000 4,254,849 $0.42 EFFECT OF DILUTED SECURITIES: Options and warrants 72,656 117,650 Convertible PBI stock 28,888 200,000 (4,116) 200,000 ------------ ----------- ------------ ----------- DILUTED EPS: Net Income available to Common stockholders plus assumed conversions $1,805,888 4,482,585 $0.40 $1,763,884 4,572,499 $0.39 ------------ ----------- ------------ ----------- SIX-MONTHS ENDED DECEMBER 31, 2000 SIX-MONTHS ENDED DECEMBER 31, 1999 ------------------------------------------ ------------------------------------------ INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) (1) AMOUNT (NUMERATOR) (DENOMINATOR) (1) AMOUNT ----------- ------------- --------- ----------- ------------- --------- BASIC EARNINGS PER SHARE: Net income available to Common stockholders $3,319,000 4,205,011 $0.79 $3,380,000 4,318,138 $0.78 EFFECT OF DILUTED SECURITIES: Options and warrants 71,294 136,036 Convertible PBI stock 92,270 200,000 61,964 200,000 ------------ ----------- ------------ ----------- DILUTED EPS: Net Income available to Common stockholders plus Assumed conversions $3,411,270 4,476,305 $0.76 $3,441,964 4,654,174 $0.74 ------------ ----------- ------------ -----------
[FN] (1) - Outstanding shares computed on a weighted average basis 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 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. At December 31, 2000, the maximum allowable amount of receivables eligible to be sold is $75 million. The amount available at any settlement date varies based upon the level of eligible receivables. Under this agreement, $75 million of accounts receivable were sold as of December 31, 2000. This sale is 8 Page 8 of 17 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, 2000. Accordingly, the Company's trade accounts receivable and long-term debt at December 31, 2000 are net of $75 million, which represent accounts receivable that were sold under the Securitization. The Securitization bears interest based on 30-day commercial paper rates plus program and liquidity fees of 0.71%. In addition, the Company has a revolving line of credit that, as of June 30, 2000, provided a maximum borrowing capacity of $120 million based upon eligible inventories. The advances bear interest at the daily LIBOR plus 2.00%. The Company also has the option to pay interest on the obligation at prime plus .25% per annum. Effective September 30, 2000, the Company executed a one-year extension, to August 2002, of its revolving credit facility and increased availability under the facility to $130 million year round. The facility had been capped at $95 million with a $25 million seasonal overline. On May 4, 2000, the Company fixed $20 million of the revolving line of credit at a nominal rate of 7.30%, expiring in August 2001. In October 2000, this arrangement was renegotiated to a rate of 6.99% with a termination date of August 2002. The Company also has an interest rate collar agreement, whereby the LIBOR on $10 million of the outstanding revolving line of credit balance shall not exceed 6.75%. If the LIBOR is less than 5.25%, then the LIBOR rate on $7.5 million of the outstanding revolving line of credit balance shall not be less than 5.25%. In addition, the Company has an additional interest rate collar agreement on $40 million of the outstanding revolving line of credit, whereby the LIBOR shall not exceed 6.85% nor be less than 4.93%. At December 31, 2000, the LIBOR was 6.65%. Both of these agreements expire in August 2001. In October 2000, a $50 million interest rate cap agreement was executed with the LIBOR rate capped at 7.25%. This agreement is for the period August 2001 through August 2002. Effective February 5, 2001, the Securitization was amended to increase the maximum capacity by $25.0 million to $100.0 million for a period of 60 days. 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 PBI's underlying net assets at the date of the original investment. The Company's equity in the net income of PBI totaled $135,000 and $44,000 for the three-month periods ended December 31, 2000 and December 31, 1999, respectively ($204,000 and $113,000, respectively, before goodwill amortization). The Company's equity in the net income of PBI totaled $365,000 and $279,000 for the six-month periods ended December 31, 2000 and December 31, 1999, respectively ($503,000 and $417,000, respectively, before goodwill amortization). 9 Page 9 of 17 Certain other shareholders of PBI have the option to exchange their combined 20% ownership interests in PBI for a fixed number of shares of the Company's common stock under the terms of the original purchase agreement. Those options, which have been determined to be dilutive at December 31, 2000, are included in the reconciliation of the basic and diluted earnings per share computation in Note 2 above. Note 5. Pursuant to Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information", the Company has three identifiable business segments, only one of which, Wholesale drug distribution, meets the quantitative thresholds for separate disclosure prescribed in SFAS No. 131. This segment is described in Note 1. The Company's equity investment in PBI (see Note 4) is a second segment. Two wholly owned software subsidiaries, VC Services, Inc. (dba Viking Computer Services, Inc.) and Tykon, Inc. Constitute the third segment. Viking markets a pharmacy management software system and Tykon developed and markets a proprietary PC-based order entry/order confirmation system to the drug distribution industry. These two segments are combined as Other in the table below. Though the Wholesale drug distribution segment operates from several different facilities, the nature of its products and services, the types of customers and the methods used to distribute its products are similar and thus they have been aggregated for presentation purposes. The Company operates principally in the United States. Intersegment sales have been recorded at amounts approximating market.
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED (in thousands) DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Sales to unaffiliated customers - Wholesale drug distribution $ 354,180 $ 336,054 $ 704,446 $ 658,942 Other 1,095 844 1,732 1,521 ----------- ----------- ----------- ----------- Total $ 355,275 $ 336,898 $ 706,178 $ 660,463 Intersegment sales - Wholesale drug distribution $ - $ - $ - $ - Other 214 88 401 156 Intersegment eliminations (214) (88) (401) (156) ----------- ----------- ----------- ----------- Total $ - $ - $ - $ - Net Sales - Wholesale drug distribution $ 354,180 $ 336,054 $ 704,446 $ 658,942 Other 1,309 932 2,133 1,677 Intersegment eliminations (214) (88) (401) (156) ----------- ----------- ----------- ----------- Total $ 355,275 $ 336,898 $ 706,178 $ 660,463 Gross Profit - Wholesale drug distribution $ 14,914 $ 12,498 $ 29,019 $ 23,827 Other 501 628 997 1,164 ----------- ----------- ----------- ----------- Total $ 15,415 $ 13,126 $ 30,016 $ 24,991 Pre-tax income (loss) Wholesale drug distribution $ 2,726 $ 2,641 $ 5,001 $ 4,913 Other 187 234 440 583 ----------- ----------- ----------- ----------- Total $ 2,913 $ 2,875 $ 5,441 $ 5,496
10 Page 10 of 17 There has been no material change in total assets from the amount disclosed in the last annual report. There are no differences from the last annual report in the basis of segmentation or in the basis of measurement of segment profit or loss. Note 6. As of July 1, 2000 the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended in June 2000 by Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities". The impact on the financial statements of this adoption was not material. 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, 2000 and June 30, 2000, and in the condensed consolidated statements of operations for the three-month and six-month periods ended December 31, 2000 and December 31, 1999, 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 2000 Annual Report to Stockholders. In the fourth quarter of the fiscal year ended June 30, 2000, the Company changed its method of determining the cost of inventories to the first-in, first-out method from the last-in, first-out method. Accordingly, previously reported figures have been restated to reflect the effect of the accounting change. Certain statements in this document regarding future events, prospects, projections or financial performance are forward looking statements. Such forward looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and may also be identified by words such as "anticipates," "believes," "estimates," "expects," "intends" and similar expressions. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in or suggested by such forward looking statements. These risks and uncertainties include the Company's ability to compete in a competitive industry, with many competitors having substantially greater resources than the Company and the Company's customers generally having the right to terminate their contracts with the Company or reduce purchasing levels on relatively short notice without penalty, changes in interest rates, the Company's ability to maintain or improve its operating margin with the industry's competitive pricing pressures, the changing business and regulatory environment, including possible changes in reimbursement for healthcare products and in manufacturers' pricing or distribution policies, the continued availability of investment buying opportunities, the loss of one or more key suppliers for which alternative sources may not be available, and the ability to integrate recently acquired businesses. Readers are cautioned not to place undue reliance on these forward-looking statements that reflect the Company's views as of the date hereof. The Company undertakes no obligation to publicly update or revise any forward-looking statements. Results of Operations: --------------------- Net Sales Net sales increased $18.4 million, or 5.5%, for the --------- quarter ended December 31, 2000, compared to the corresponding period of the prior year. Sales growth was primarily in the chain and independent pharmacy groups. 12 Page 12 of 17 Chain sales increased $90.8 million over the second quarter of fiscal 2000 due to infrastructure investments and a focused effort on this trade class. Sales to independents increased $22.4 million while mail order sales decreased $94.8 million as a result of the loss of two mail order customers during the fourth quarter of fiscal 2000. Net sales increased $45.7 million, or 6.9% for the six months ended December 31, 2000, compared to the corresponding period of the prior year. Sales growth was primarily in the chain and independent pharmacy groups. Chain sales increased $179.8 million over the first six months of fiscal 2000 due to infrastructure investments and a focused effort on this trade class. Sales to independents increased $44.2 million while mail order sales decreased $181.6 million as a result of the loss of two mail order customers during the fourth quarter of fiscal 2000. In addition, the quarter and six months ended December 31, 2000 contained $30.3 million and $38.8 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 statements of operations. "Dock-to-dock" sales were $16.1 million and $25.8 million, respectively, for the quarter and six months ended December 31, 1999. Gross Profit Gross profit increased 17.4% to $15.4 million for ------------ the quarter ended December 31, 2000, compared to the corresponding period of the prior year. As a percentage of net sales, gross margin increased from 3.90% to 4.34% for the quarter ended December 31, 2000, compared to the corresponding period of the prior year. The increase in gross margin percentage was due to sales mix as a result of the discontinuance of lower gross profit business from the mail order customers mentioned above. Gross profit increased 20.1% to $30.0 million for the six months ended December 31, 2000, compared to the corresponding period of the prior year. As a percentage of net sales, gross margin increased from 3.78% to 4.25% for the six months ended December 31, 2000, compared to the corresponding period of the prior year. The increase in gross margin percentage was due to sales mix as a result of the discontinuance of lower gross profit business from the mail order customers mentioned above. Operating Expenses Operating expenses increased $2.0 million, or ------------------ 24.6%, for the quarter and increased $3.5 million, or 22.4%, to $19.2 million for the six months ended December 31, 2000 compared to the corresponding periods of the prior year. The ratio of operating expenses to net sales for the quarter increased to 2.80% from 2.37% while the ratio for the first six months of fiscal 2001 was 2.71%, an 34 basis point increase from the comparable period of the prior year. The increase in operating expenses and the ratio of operating 13 Page 13 of 17 expenses to net sales for the quarter and six-month period ended December 31, 2000 resulted primarily from a shift in sales mix to accounts requiring a higher level of service and related expense. Interest Expense, Net Net interest expense increased $0.2 million --------------------- or 10.2% for the quarter and $1.5 million or 36.7% for the six months ended December 31, 2000, compared to the corresponding periods of the prior year. As a percentage of net sales, net interest expense increased to 0.73% from 0.70% for the quarter ended December 31, 2000, compared to the corresponding period of the prior year. This ratio for the first six months of fiscal 2000 was 0.81%, or 18 basis points higher than the corresponding period of last year. The increase in net interest expense is primarily the result of higher interest rates and higher average borrowings related to the Company's continued growth. Provision for Income Taxes The Company's effective income tax -------------------------- rate of 39% is the rate expected to be applicable for the full fiscal year ending June 30, 2001. 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 offset by the reduced impact of state income taxes. The overall rate is slightly higher than the corresponding period of last year due to the impact of the sales mix on the blended state income tax rate. 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: December 31, June 30, 2000 2000 ---- ---- Working capital (000's) $106,514 $93,556 Current ratio 1.68 to 1 1.65 to 1 Working capital and the current ratio have increased as a result of seasonal increases in accounts receivable and inventories combined with a reduction in accounts payable as fiscal year end inventory purchases were paid for. The Company invested $1,687,000 in capital assets in the six-month period ended December 31, 2000, as compared to $1,353,000 in the corresponding period in the prior year. The expenditures were primarily related to the new 14 Page 14 of 17 Enterprise Resource Planning computer system being implemented during fiscal 2001. This system integrates sales order management, inventory management, transportation management, customer service, accounts payable, accounts receivable, general ledger and financial reporting. 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 inflows from financing activities totaled $9.5 million for the six-month period ended December 31, 2000 as compared to cash inflows of $42.1 million for the corresponding period in the prior year. During both periods, the inflows were associated with borrowings under the revolving credit facilities utilized to finance inventory builds. Inventory builds for the six month period ended December 31, 2000 were less than the corresponding period of the prior year. Effective September 30, 2000, the Company executed a one-year extension, to August 2002, of its revolving credit facility and increased availability under the facility to $130 million year round. The facility had been capped at $95 million with a $25 million seasonal overline. In addition, at December 31, 2000, the Securitization provided a maximum capacity of $75.0 million. At December 31, 2000, $75.0 million was utilized. Effective February 5, 2001, the Securitization was amended to increase the maximum capacity by $25.0 million to $100.0 million for a period of 60 days. The Company has begun negotiations on a permanent increase to and an extension of the Securitization. Management believes that, together with internally generated funds, the Company's available capital resources will be sufficient to meet its foreseeable capital requirements. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company's primary exposure to market risk consists of changes in interest rates on borrowings. An increase in interest rates would adversely affect the operating results and the cash flow available to fund operations and expansion. Based on the average variable borrowings, a change of 25 basis points in the average variable borrowing rate would result in a change of approximately $0.3 million in annual interest expense. The recent reduction in interest rates should have a positive impact on the Company's short-term interest expense. The Company continually monitor this risk and reviews the potential benefits of entering into hedging transactions, such as interest rate collar agreements, to mitigate the exposure to interest rate fluctuations. At December 31, 2000, the Company had several arrangements as disclosed in Note 3. 15 Page 15 of 17 D & K HEALTHCARE RESOURCES, INC. AND SUBSIDIARIES Part II. Other Information - ------- ----------------- Item 4. Submission of Matters to a Vote of Security Holders (a) Registrant's 2000 Annual Meeting of Shareholders was held on November 9, 2000. (b) Proxies were solicited by Registrant's management pursuant to Regulation 14A under the Securities Exchange Act of 1934; there was no solicitation in opposition to management's nominees as listed in the proxy statement; and all director nominees were elected to the class indicated in the proxy statement pursuant to the vote of the Registrant's shareholders. (c) Matters voted upon at the Annual Meeting were as follows: a. Election of Robert E. Korenblat, Bryan H. Lawrence, and James M. Usdan. The results of the shareholder voting were as follows: Mr. Korenblat, 3,774,018 for, 0 against, and 34,285 withheld; Mr. Lawrence, 3,774,018 for, 0 against, and 34,285 withheld; and Mr. Usdan, 3,772,918 for, 0 against, and 35,385 withheld. Mr. Armstrong, Mr. Wilson, Mr. Ford, Mr. Jewett, Mr. Patton and Mr. Susman continue as board members. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits See Exhibit Index on page 17. (b) Reports on Form 8-K None 16 Page 16 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 8, 2001 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) 17 Page 17 of 17 EXHIBIT INDEX ------------- Exhibit No. Description - ---------- ----------- 3.1* Restated Certificate of Incorporation, filed as an exhibit to registrant's Registration Statement on Form S-1 (Reg. No. 33-48730). 3.2* Certificate of Amendment to the Restated Certificate of Incorporation of D&K Wholesale Drug, Inc filed as an exhibit to the registrant's Annual Report on Form 10-K for the year ended June 30, 1998. 3.3* By-laws of the registrant, as currently in effect, filed as an exhibit to registrant's Registration Statement on Form S-1 (Reg. No. 33-48730). 4.1* Form of certificate for Common Stock, filed as an exhibit to registrant's Registration Statement on Form S-1 (Reg. No. 33-48730). 4.2* Form of Rights Agreement dated as of November 12, 1998 between registrant and Harris Trust and Savings Bank as Rights Agent, which includes as Exhibit B the form of Right Certificate, filed as an exhibit to Form 8-K dated November 17, 1998. 27** Financial data schedule. * Incorporated by reference. ** Filed herewith EX-27 2 eoex27.frm FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1,000 U.S.DOLLARS 3-MOS Jul-01-2000 Jun-30-2001 Dec-31-2000 0 5,068 0 42,969 1,682 212,477 262,297 17,718 8,594 319,939 155,783 0 0 0 45 48,631 319,939 706,178 706,444 676,162 695,317 0 0 5,686 5,441 2,122 3,319 0 0 0 3,319 0.79 0.76
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