11-K 1 c77878e11vk.txt FORM 11-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 11-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 ----------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . -------- -------- COMMISSION FILE NUMBER 0-20348 ------------------- A. Full title of the plan and the address of the Plan, if different from that of the issuer named below: D & K HEALTHCARE RESOURCES, INC. 401 (K) PROFIT SHARING PLAN AND TRUST B. Name of the issuer of the securities held pursuant to the Plan and the address of its principal executive office: D & K HEALTHCARE RESOURCES, INC. 8235 FORSYTH BOULEVARD ST. LOUIS, MO 63105 D & K HEALTHCARE RESOURCES, INC. FORM 11-K REQUIRED INFORMATION (a) Financial Statements. Filed as part of this Report on Form 11-K are the financial statements and the schedules thereto of the D & K Healthcare Resources, Inc. 401 (k) Profit Sharing Plan and Trust as required by Form 11-K together with the report thereon of KPMG LLP, independent public accountants, dated May 9, 2003. (b) Exhibits. Exhibit 23 -- Independent Auditors' Consent Exhibit 99.1 -- Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. D & K HEALTHCARE RESOURCES, INC. FORM 11-K SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Trustee has duly caused this annual report to be signed on its behalf by the undersigned thereunto duly authorized. D & K HEALTHCARE RESOURCES, INC. 401(K) PROFIT SHARING PLAN AND TRUST Date: June 26, 2003 By: /s/ Martin D. Wilson ------------------------ Martin D. Wilson, Trustee D&K HEALTHCARE RESOURCES, INC. 401(K) PROFIT SHARING PLAN AND TRUST Financial Statements and Supplemental Schedules December 31, 2002 and 2001 (With Independent Auditors' Report Thereon) INDEPENDENT AUDITORS' REPORT The Trustee of the D&K Healthcare Resources, Inc. 401(k) Profit Sharing Plan and Trust: We have audited the accompanying statements of net assets available for benefits of the D&K Healthcare Resources, Inc. 401(k) Profit Sharing Plan and Trust (the Plan) as of December 31, 2002 and 2001, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2002 and 2001, and the changes in net assets available for benefits for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of assets held (at end of year) and reportable transactions are presented for purposes of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedules are the responsibility of the Plan's management. The supplemental schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ KPMG LLP St. Louis, Missouri May 9, 2003 D&K HEALTHCARE RESOURCES, INC. 401(K) PROFIT SHARING PLAN AND TRUST Statements of Net Assets Available for Benefits December 31, 2002 and 2001
2002 2001 ---------- ---------- Assets: Investments, at fair value $6,029,149 $5,227,232 Participant contributions receivable 47,930 38,165 Employer contributions receivable 87,261 46,583 ---------- ---------- Net assets available for benefits $6,164,340 $5,311,980 =========== ===========
See accompanying notes to financial statements. 2 D&K HEALTHCARE RESOURCES, INC. 401(K) PROFIT SHARING PLAN AND TRUST Statements of Changes in Net Assets Available for Benefits Year ended December 31, 2002 and 2001
2002 2001 ------------- -------------- Additions: Participant contributions $ 988,974 $ 625,151 Employer contributions 319,823 215,936 Interest income 10,798 5,435 Transfers from another plan 2,576,361 -- Net appreciation (depreciation) in the fair value of investments (2,568,098) 1,396,615 ------------- -------------- Total additions 1,327,858 2,243,137 ------------- -------------- Deductions: Benefits paid to participants 454,506 212,659 Administrative expenses 20,992 718 ------------- -------------- Total deductions 475,498 213,377 ------------- -------------- Increase in net assets available for benefits 852,360 2,029,760 Net assets available for benefits at beginning of year 5,311,980 3,282,220 ------------- -------------- Net assets available for benefits at end of year $ 6,164,340 $ 5,311,980 ============= ==============
See accompanying notes to financial statements. 3 D&K HEALTHCARE RESOURCES, INC. 401(K) PROFIT SHARING PLAN AND TRUST Notes to Financial Statements December 31, 2002 and 2001 (1) DESCRIPTION OF THE PLAN The following description of the D&K Healthcare Resources, Inc. 401(k) Profit Sharing Plan and Trust (the Plan) is provided for financial statement purposes only. Participants should refer to the Plan document for more complete information. (A) GENERAL The Plan is a defined contribution plan established by D&K Healthcare Resources, Inc. (D&K or the Company) under the provisions of Section 401(a) of the Internal Revenue Code (IRC), which includes a qualified cash or deferred salary arrangement as described in Section 401(k) of the IRC, for the benefit of eligible employees of the Company. The Plan was established January 1, 1995, to offer the employees of the Company a means of saving funds, on a pretax basis, for retirement. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974. Participation is voluntary. Full-time employees are eligible to participate in the Plan upon reaching age 21 and completing 30 days of regular service. The Plan is administered by executives of D&K, with additional administrative duties, such as loan processing, performed by Pension Associates of Wausau, Inc., a third-party plan administrator. The assets of the Plan are held in a trust by Nationwide Insurance Company (Nationwide). Pension Associates of Wausau, Inc. is a subsidiary of Nationwide Life Insurance Company. (B) CONTRIBUTIONS Plan participants may contribute up to 20% of their annual compensation, subject to certain limitations. Contributions may be made prior to federal and certain other income taxes pursuant to Section 401(k) of the IRC. The Company contribution is discretionary and is currently equivalent to 50% of employees' contributions up to a maximum contribution based on 6% of eligible compensation and is invested in the D&K Common Stock Fund. In January 2003, the Company's contribution to the Plan for the fourth quarter of 2002 was made in the form of 8,750 shares of D&K Healthcare Resources, Inc. common stock valued at $87,261. (C) INVESTMENTS Participants direct contributions into any of eleven investment funds. Participants may change their investment elections daily. Employer contributions are invested only in the D&K Common Stock Fund. A description of each of the eleven participant directed investment funds and the D&K Common Stock fund is provided below: DREYFUS A BONDS PLUS For investment of contributions in a fund which invests principally in debt obligations of corporations, the U.S. Government and its agencies and instrumentalities, and major U.S. banking institutions. At least 80% of the fund's portfolio is invested in bonds rated at least A by Moody's 4 (Continued) D&K HEALTHCARE RESOURCES, INC. 401(K) PROFIT SHARING PLAN AND TRUST Notes to Financial Statements December 31, 2002 and 2001 Investor Services, Inc. or Standard and Poor's Corporation. The fund seeks the maximum amount of current income to the extent consistent with the preservation of capital and maintenance of liquidity. FIDELITY ASSET MANAGER For investment of contributions in a fund which diversifies across stocks, bonds, short-term instruments and money market instruments, both in the United States and abroad. The fund has a neutral mix, which represents the way the fund's investments will generally be allocated over the long term. This mix will vary over short-term periods as fund management gradually adjusts the fund's holdings, within defined ranges, based on the current outlook for the different markets. Neutral mix: stocks 50% (can range from 30-70%), bonds 40% (can range from 20-60%), and short term/money market 10% (can range 0-50%). The fund seeks high total return with reduced risk over the long term. NEUBERGER & BERMAN GUARDIAN FUND For investment of contributions in a fund that invests in stocks of established, high quality companies considered to be undervalued in comparison to stocks of similar companies. The fund seeks capital appreciation and current income. AMERICAN CENTURY: TWENTIETH CENTURY ULTRA For investment of contributions in a fund that invests in the stocks of companies that demonstrate accelerating, sustainable earnings growth. The fund's management team evaluates companies based on earnings and revenue trends. The fund intends to remain fully invested in the stock market at all times. The fund seeks capital appreciation over time by investing primarily in the common stocks of medium- and large-sized companies that exhibit accelerating growth. OPPENHEIMER GLOBAL FUND A For investment of contributions in a fund that invests in foreign and U.S. markets using a disciplined theme approach. The fund identifies key worldwide trends in order to focus on areas that the fund management believes offers some of the best opportunities for long-term growth. These trends fall into three categories of change: technological change, demographic/geopolitical change, and changing resource need. The fund utilizes techniques such as hedging, borrowing money for investment in securities and short-term trading. The fund seeks capital appreciation and does not consider current income as an objective. VIRTUOSO GUARANTEED INTEREST FUND For investment of contributions in a guaranteed return contract with a quarterly interest rate that is indexed to the Treasury Note yield. The interest earned in this contract can change quarterly if the yield on the Treasury Note index changes. The assets invested in this contract are a part of the general assets of Nationwide. In 2002 and 2001, the return on this fund was 2.88% and 3.85%, respectively. 5 (Continued) D&K HEALTHCARE RESOURCES, INC. 401(K) PROFIT SHARING PLAN AND TRUST Notes to Financial Statements December 31, 2002 and 2001 PERSONAL PORTFOLIO SERIES 3 -- CONSERVATIVE INTERMEDIATE-TERM For investment of contributions in a fund which seeks to provide a balance between capital appreciation and capital preservation. PERSONAL PORTFOLIO SERIES 4 -- INTERMEDIATE-TERM For investment of contributions in a fund which seeks to provide capital appreciation with some income. NATIONWIDE SMALL COMPANY FUND For investment of contributions primarily in equity securities of smaller companies with market capitalizations of less than $1 billion at the time of purchase. NATIONWIDE S&P 500 SERVICE This fund seeks to provide investment results that correspond to the price and yield of Standard and Poor's 500 Composite Stock Price Index. PIMCO TOTAL RETURN The fund invests at least 65% of assets in debt securities, including government securities, corporate bonds, and mortgage-related securities. It may invest up to 20% of assets in securities denominated in foreign currencies. The portfolio duration generally ranges from three to six years. D&K COMMON STOCK FUND Company contributions to this fund are invested in the common stock of D&K. The fund may have cash on hand to meet current needs. Accounts are valued as of the last day of each calendar quarter. This fund is not an investment option for employee contributions, and the participants are not permitted to transfer funds in and out of this fund. (D) VESTING Participants are always 100% vested in the value of their contributions and the earnings thereon. Vesting of company contributions and the earnings thereon is determined based on participants' years of vesting service. Vesting service is any calendar year in which a participant was credited with one thousand hours. The vesting schedule is as follows:
PERCENTAGE YEARS OF VESTING SERVICE VESTED --------------------------------------- -------------- 0-1 0% 2 25% 3 50% 4 75% 5 100% Death, disability, or retirement 100%
6 (Continued) D&K HEALTHCARE RESOURCES, INC. 401(K) PROFIT SHARING PLAN AND TRUST Notes to Financial Statements December 31, 2002 and 2001 (E) PAYMENTS OF BENEFITS Amounts in a participant's account and the vested portion of a participant's employer contributions are distributed upon retirement, death, disability, or other termination of employment. Distributions from the D&K Common Stock Fund are made in cash. Forfeitures of the nonvested amounts are used to reduce Company discretionary contributions. Forfeitures of $47,060 and $13,113 reduced employer contributions for the years ended December 31, 2002 and 2001, respectively. (F) LOANS TO EMPLOYEES Participants of the Plan may borrow funds from their accounts up to $50,000 or 50% of their vested balances, whichever is less. Loans are repayable through payroll deductions over 1-5 years. The interest rate is determined by the prime rate plus 1% on the day the loan is processed. At December 31, 2002, the range is 5.25-10.5%. The outstanding balance of loans to participants was $145,699 and $24,622 as of December 31, 2002 and 2001, respectively. (G) PLAN MEMBER ACCOUNTS Individual accounts are maintained for each plan participant to reflect the plan participant's share of the Plan's income, the Company's contribution, and the Plan's participant's contribution. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) BASIS OF PRESENTATION The accompanying financial statements of the Plan have been prepared on the accrual basis of accounting, except for benefit payments to participants, which are recorded when paid. (B) USE OF ESTIMATES Certain amounts included in the financial statements are estimated based on currently available information and the plan administrator's judgment as to the outcome of future conditions and circumstances. Actual results could differ from these estimates. (C) ADMINISTRATIVE EXPENSES During 2002, substantially all administrative expenses were paid from Plan assets. In 2001, such expenses were paid by the Company. (D) VALUATION OF INVESTMENTS Investments in mutual funds are valued daily and the investment in D&K stock is valued on the last day of each calendar quarter using publicly stated quotes as of the close of business. All investments of the Plan are listed at unit value, as determined by Nationwide. Unit value is calculated as the appreciation/depreciation of each mutual fund based on an original index of $1.00 per unit in relation to the net asset value per each fund's market listing. Investment transactions are accounted for on the trade date basis. The Plan's guaranteed interest fund is included in the financial statements at December 31, 2002, at contract value, which approximates market value as reported to the Plan by Nationwide. Contract value represents the deposits less withdrawals made under the contract plus interest earned through 7 (Continued) D&K HEALTHCARE RESOURCES, INC. 401(K) PROFIT SHARING PLAN AND TRUST Notes to Financial Statements December 31, 2002 and 2001 the end of the plan year. The guaranteed interest fund has an average yield approximating the guaranteed rate of return. The guaranteed interest fund has a quarterly interest guarantee which is based on the five-year U.S. Treasury Note yield, which was 3.03% at December 31, 2002. The interest earned in this fund can change quarterly if the yield on the five-year U.S. Treasury Note index changes. Interest is credited to each participant's account. The Plan provides for investment in various investments and investment securities which, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility. Further, due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and such changes could materially affect the amounts reported in the statements of net assets available for benefits. (3) PLAN AMENDMENTS On April 30, 2002 employees in the Diversified Healthcare L.L.C Profit Sharing 401(k) Plan ("DHI Plan") were merged into the D&K Healthcare Resources, Inc. 401(k) Profit Sharing Plan and Trust ("D&K Plan"). As part of that merger, the participants of the DHI Plan became fully vested prior to the merger. The assets from the DHI Plan were transferred into the D&K Plan at fair value on the effective date of the transfer. The Board of Directors of the Plan approved the merger. A total of $2,576,361 was transferred into the D&K Plan and allocated among investment options based on participant direction. (4) INVESTMENTS The following presents investments that represent 5% or more of the Plan's net assets:
DECEMBER 31 ------------------------ 2002 2001 ----------- ---------- Fidelity Asset Manager $1,058,219 $ 471,584 Neuberger & Berman Guardian Fund 432,147 472,722 American Century: Twentieth Century Ultra 1,095,257 855,790 Oppenheimer Global Fund A 1,206,908 665,419 Nationwide Small Company Fund 410,793 54,732 D&K Common Stock Fund * 930,129 2,325,143 * Nonparticipant-directed
During 2002, the Plan's investments (including realized and unrealized gains and losses on investments bought and sold, as well as held during the year) appreciated (depreciated) in value as follows: 8 (Continued) D&K HEALTHCARE RESOURCES, INC. 401(K) PROFIT SHARING PLAN AND TRUST Notes to Financial Statements December 31, 2002 and 2001 APPRECIATION / (DEPRECIATION)
2002 2001 ---------------- --------------- Mutual funds $(1,031,343) $ (285,895) Common stock (1,536,755) 1,682,510 ---------------- --------------- $(2,568,098) $ 1,396,615 ================ ===============
(5) NONPARTICIPANT-DIRECTED INVESTMENTS Information about the net assets and the significant components of the changes in net assets relating to the nonparticipant-directed investments is as follows:
DECEMBER 31 --------------------------- 2002 2001 ----------- ------------ Net assets: Common stock and employer contributions receivable $ 1,017,390 $ 2,371,799 =========== ============ YEAR ENDED DECEMBER 31, 2002 ------------ Changes in net assets: Contributions $ 319,823 Net depreciation (1,536,755) Participation termination and withdrawal payments (137,203) Administrative expenses (274) ------------ $ (1,354,409) ============
(6) TAX STATUS The Plan is a prototype plan and has not obtained a determination letter from the IRS, however, the Plan administrator and the Plan's counsel believe that the Plan is currently being operated in compliance with the applicable requirements of the IRC and was tax exempt through the year ended December 31, 2002. (7) DISTRIBUTION OF ASSETS UPON TERMINATION OF THE PLAN D&K reserves the right to terminate the Plan, in whole or in part, at any time. In the event of termination, all amounts credited to the participant accounts will become 100% vested. If the Plan is terminated at any time or contributions are completely discontinued and D&K determines that the Trust shall be terminated, all accounts shall be revalued as if the termination date were a valuation date and such accounts shall be 9 (Continued) D&K HEALTHCARE RESOURCES, INC. 401(K) PROFIT SHARING PLAN AND TRUST Notes to Financial Statements December 31, 2002 and 2001 distributed to participants. If the Plan is terminated or contributions completely discontinued but D&K determines that the Trust shall be continued pursuant to the terms of the trust agreement, no further contributions shall be made by participants or the Company, but the trust shall be administered as though the Plan were otherwise in effect. No plans have been made to terminate the Plan at this time. (8) RECONCILIATION TO FORM 5500 For the year ended December 31, 2002, the Plan had approximately $9,484 of pending distributions to participants who elected either a withdrawal or final payment of their benefits from the Plan. These amounts are recorded as a liability in the Plan's Form 5500; however, these amounts are not recorded as a liability in accordance with accounting principles generally accepted in the United States of America. The following is a reconciliation of the net assets available for plan benefits per the financial statements to the Forms 5500 which were filed for the years ended June 30, 2002 and 2001:
2002 2001 ---------------- --------------- Net assets available for plan benefits per the financial statements $ 6,164,340 $ 5,311,980 Benefit obligations currently payable (health claims, death, and disability benefits) (9,484) (16,512) ---------------- ---------------- Net assets available for plan benefits per the Form 5500 $ 6,154,856 $ 5,295,468 ================ ================
The following is a reconciliation of benefits paid to participants per the financial statements to the Form 5500 for the year ended June 30, 2002:
2002 2001 ---------------- ---------------- Benefits paid to participants per the financial statements $ 454,506 $ 212,659 Add amounts currently payable at year-end 9,484 16,512 Less amounts currently payable at prior year-end (16,512) (23,432) ---------------- ---------------- Benefits paid to participants per the Form 5500 $ 447,478 $ 205,739 ================ ================
10 SCHEDULE I D&K HEALTHCARE RESOURCES, INC. 401(K) PROFIT SHARING PLAN AND TRUST Schedule H, Line 4i -- Schedule of Assets Held (at end of year) December 31, 2002
FAIR COST VALUE ----------- ----------- Dreyfus A Bonds Plus $ 208,293 Fidelity Asset Manager 1,058,219 Neuberger & Berman Guardian Fund 432,147 American Century: Twentieth Century Ultra 1,095,257 Oppenheimer Global Fund A 1,206,908 Nationwide S&P 500 Srv * 74,710 Virtuoso Guaranteed Interest Fund* 224,205 Personal Portfolio 3 -- Conservative Intermediate-Term 37,312 Personal Portfolio 4 -- Intermediate-Term 112,570 Nationwide Small Company Fund* 410,793 Pimco Total Return 92,907 Participant loans, 5.25% to 10.5% 145,699 D&K Common Stock* $ 627,635 930,129 ----------- $ 6,029,149 ===========
*Represents a party-in-interest allowable under ERISA regulations. See accompanying independent auditors' report. 11 SCHEDULE II D&K HEALTHCARE RESOURCES, INC. 401(K) PROFIT SHARING PLAN AND TRUST Schedule H, Line 4j -- Schedule of Reportable Transactions Year ended December 31, 2002
PURCHASES SALES --------------------------- --------------------------------------------------------------- NO. OF TRANS. COST NO. OF TRANS. COST SALES PRICE GAIN/(LOSS) -------------- --------- -------------- --------- -------------- ------------- D&K Common Stock* 10 $ 195,125 7 $ 48,168 $ 48,507 $ 339 Merger of DHI* 10 $ 2,576,361 -- $ -- $ -- $ --
*Represents a party-in-interest allowable under ERISA regulations. See accompanying independent auditors' report. 12