EX-99.2 5 c82936aexv99w2.txt UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS EXHIBIT 99.2 D&K Healthcare Resources, Inc. Unaudited Pro Forma Combined Condensed Financial Statements The following unaudited pro forma combined condensed financial statements have been prepared to give effect to D&K Healthcare Resources, Inc.'s ("D&K Healthcare") acquisition of Walsh HealthCare Solutions, Inc. ("Walsh") on December 5, 2003 (the "Acquisition"), using the purchase method of accounting and the assumptions and adjustments described in the accompanying notes to the unaudited pro forma combined condensed financial statements. These unaudited pro forma financial statements were prepared as if the Acquisition had been completed as of July 1, 2002, with respect to the statements of operations, and as of September 30, 2003, with respect to the balance sheet. D&K Healthcare's fiscal year end is June 30, whereas Walsh's fiscal year end is April 30. The following unaudited pro forma combined condensed balance sheet as of September 30, 2003 includes the historical balance sheets of D&K Healthcare and Walsh as of September 30, 2003 and July 31, 2003, respectively. The unaudited pro forma combined condensed statement of operations for the three months ended September 30, 2003 includes the historical statements of operations of D&K Healthcare and Walsh for their three months ended September 30, 2003 and July 31, 2003, respectively. The unaudited pro forma combined condensed statement of operations for the year ended June 30, 2003 includes the historical statements of operations of D&K Healthcare and Walsh for their fiscal years ended June 30, 2003 and April 30, 2003, respectively. The unaudited pro forma combined condensed financial statements are based upon the respective historical financial statements of D&K Healthcare and Walsh. These unaudited pro forma combined condensed financial statements should be read in conjunction with: (i) D&K Healthcare's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 filed on November 12, 2003; (ii) D&K Healthcare's Annual Report on Form 10-K for the year ended June 30, 2003, filed on September 29, 2003; (iii) Walsh's audited financial statements for the year ended April 30, 2003, included in this Form 8-K as exhibit 99.1; and (iv) the accompanying notes to the unaudited pro forma combined condensed financial statements. The unaudited pro forma combined condensed financial statements include adjustments, which are based upon preliminary estimates, to reflect the allocation of the purchase price to the acquired assets and assumed liabilities of Walsh. The purchase price allocation presented herein is preliminary, and final allocation of the purchase price will be based upon actual net tangible and intangible assets acquired as well as liabilities assumed as of the date of the Acquisition. Accordingly, final purchase accounting adjustments may differ from the pro forma adjustments presented herein. The unaudited pro forma combined condensed financial statements are intended for informational purposes only and, in the opinion of management, are not indicative of the financial position or results of operations of D&K Healthcare after the Acquisition or the financial position or results of operations had the Acquisition actually been effected as of the dates indicated, nor are they indicative of the future financial position or results of operations. The unaudited pro forma combined condensed financial statements do not include potential cost savings from operating efficiencies or synergies that may result from the Acquisition. D&K HEALTHCARE RESOURCES, INC. PRO FORMA COMBINED CONDENSED BALANCE SHEET AT SEPTEMBER 30, 2003
30-SEP-03 31-JUL-03 PRO FORMA PRO FORMA D&K WALSH COMBINED ADJUSTMENTS COMBINED ---------------------- -------- ----------- -------- ASSETS Cash $ 12,517 $ 127 $ 12,644 $ - $ 12,644 Receivables, net 100,507 50,223 150,730 150,730 Inventories 321,856 89,209 411,065 (3,524) a 407,541 Deferred income taxes 2,119 1,247 3,366 2,515 e 5,881 Other current assets 8,995 1,219 10,214 10,214 ---------------------- --------- --------- --------- Total current assets 445,994 142,025 588,019 (1,009) 587,010 ---------------------- --------- --------- --------- Property and equipment, net 10,814 13,013 23,827 (719) b $ 23,108 Deferred income taxes 1,130 1,130 (1,130) e - Other assets 7,803 2,144 9,947 9,947 Goodwill, net 44,105 1,536 45,641 13,266 c 58,907 Other intangible assets, net 1,769 1,769 5,199 d 6,968 ---------------------- --------- --------- --------- Total assets $ 511,615 $ 158,718 $ 670,333 $ 15,607 $ 685,940 ====================== ========= ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current maturities of long-term debt & capital leases $ 1,510 $ 75,899 $ 77,409 $ (75,899) g $ 1,510 Accounts payable 174,357 57,198 231,555 231,555 Accrued expenses 10,287 3,549 13,836 3,720 f 17,556 Other current liabilities 1,248 1,248 1,248 ---------------------- --------- --------- --------- Total current liabilities 187,402 136,646 324,048 (72,179) 251,869 Long-term debt and capital leases 149,689 2,874 152,563 101,540 g 254,103 Other long-term liabilities 3,707 3,360 7,067 (2,241) h 4,826 Deferred income taxes -- 3,707 3,707 618 e 4,325 ---------------------- --------- --------- --------- Total liabilities 340,798 146,587 487,385 27,738 515,123 ---------------------- --------- --------- --------- Stockholders' Equity Common stock 152 75 227 (75) i 152 Accumulated comprehensive income (1,179) (1,179) (1,179) Deferred compensation - restricted stock (1,105) (1,105) (1,105) Paid-in capital 125,502 125,502 125,502 Treasury stock (12,226) (12,226) (12,226) Retained earnings 59,673 12,056 71,729 (12,056) i 59,673 ---------------------- --------- --------- --------- Total stockholders' equity 170,817 12,131 182,948 (12,131) 170,817 ---------------------- --------- --------- --------- Total liabilities and stockholders' equity $ 511,615 $ 158,718 $ 670,333 $ 15,607 $ 685,940 ====================== ========= ========= =========
D&K HEALTHCARE RESOURCES, INC. PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003
30-SEP-03 31-JUL-03 PRO FORMA PRO FORMA D&K WALSH COMBINED ADJUSTMENTS COMBINED ----------------------- -------- ----------- --------- Net Sales $ 478,548 $ 184,986 $ 663,534 $ - $ 663,534 Cost of Sales 460,460 178,229 638,689 638,689 ---------------------- --------- ------ --------- Gross profit 18,088 6,757 24,845 - 24,845 Depreciation and Amortization 656 870 1,526 134 k 1,660 Operating Expenses 12,532 5,717 18,249 18,249 ---------------------- --------- ------ --------- Income from operations 4,900 170 5,070 (134) 4,936 ---------------------- --------- ------ --------- Other Income (Expense): Interest expense, net (2,147) (1,198) (3,345) 413 l (2,932) Other, net 36 173 209 209 ---------------------- --------- ------ --------- (2,111) (1,025) (3,136) 413 (2,723) ---------------------- --------- ------ --------- Income (loss) before income tax provision 2,789 (855) 1,934 279 2,213 Income Tax Provision (1,088) 260 (828) (109) m (937) Minority Interest (234) 147 (87) (147) n (234) ---------------------- --------- ------ --------- Net income (loss) from continuing operations $ 1,467 $ (448) $ 1,019 $ 23 $ 1,042 ====================== ========= ====== ========= Earnings Per Share - Basic $ 0.11 $ 0.07 ========= ========= Basic common shares outstanding 13,956 13,956 ========= ========= Earnings Per Share - Diluted $ 0.10 $ 0.07 ========= ========= Diluted common shares outstanding 14,194 14,194 ========= =========
D&K HEALTHCARE RESOURCES, INC. PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2003
30-JUN-03 30-APR-03 PRO FORMA PRO FORMA D&K WALSH COMBINED ADJUSTMENTS COMBINED ---------------------- -------- ----------- -------- Net Sales $2,223,388 $ 893,107 $ 3,116,495 $ - $ 3,116,495 Cost of Sales 2,132,689 857,960 2,990,649 2,990,649 ---------------------- ----------- ------- ----------- Gross profit 90,699 35,147 125,846 - 125,846 Depreciation and Amortization 2,492 - 2,492 537 k 3,029 Operating Expenses 51,820 25,583 77,403 77,403 ---------------------- ----------- ------- ----------- Income from operations 36,387 9,564 45,951 (537) 45,414 ---------------------- ----------- ------- ----------- Other Income (Expense) Interest expense (11,070) (5,106) (16,176) 2,114 l (14,062) Interest income 410 - 410 410 Equity in earnings of unconsolidated affiliates - 1,125 1,125 1,125 Securitization termination costs (2,008) - (2,008) (2,008) Gain on sale of Walsh Dohmen Southeast, L.L.C. - 4,062 4,062 4,062 Other, net (13) (824) (837) (837) ---------------------- ----------- ------- ----------- (12,681) (743) (13,424) 2,114 (11,310) ---------------------- ----------- ------- ----------- Income before income tax provision 23,706 8,821 32,527 1,577 34,104 Income Tax Provision (9,058) (2,855) (11,913) (615) m (12,528) Minority Interest (713) (1,134) (1,847) 1,134 n (713) ---------------------- ----------- ------- ----------- Net income from continuing operations $ 13,935 $ 4,832 $ 18,767 $ 2,096 $ 20,863 ====================== =========== ======= =========== Earnings Per Share - Basic $ 0.98 $ 1.46 ========== =========== Basic common shares outstanding 14,328 14,328 ========== =========== Earnings Per Share - Diluted $ 0.95 $ 1.42 ========== =========== Diluted common shares outstanding 14,513 14,513 ========== ===========
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS The unaudited pro forma combined condensed financial statements included herein have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and certain footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations; however, management believes that the disclosures are adequate to make the information presented not misleading. 1. BASIS OF PRO FORMA PRESENTATION On December 5, 2003, by way of a merger of a wholly owned subsidiary of D&K Healthcare Resources, Inc. ("D&K Healthcare") with and into Walsh HealthCare Solutions, Inc. ("Walsh"), D&K Healthcare acquired all of the outstanding shares of Walsh, a family-owned, full-service pharmaceutical distributor with distribution centers located in San Antonio and Texarkana, Texas and Paragould, Arkansas. The aggregate purchase price of $104.4 million in cash includes the repayment of all Walsh bank debt and other direct acquisition costs. D&K utilized its existing revolving credit facility to finance the transaction. D&K Healthcare expects the acquisition of Walsh to increase its penetration in existing markets and expand its presence in markets not currently served. The unaudited pro forma combined condensed balance sheet as of September 30, 2003 was prepared by combining the historical consolidated condensed balance sheet data as of September 30, 2003 for D&K Healthcare and the historical condensed balance sheet data as of July 31, 2003 for Walsh, as if the merger had been consummated on September 30, 2003. The unaudited pro forma combined condensed statements of operations for the year ended June 30, 2003 and for the three months ended September 30, 2003 give effect to the Acquisition as if it had occurred on July 1, 2002. The unaudited pro forma combined condensed consolidated statement of operations for the twelve months ended June 30, 2003 combine the results of operations of D&K Healthcare for its fiscal year ended June 30, 2003 and Walsh for its fiscal year ended April 30, 2003. The unaudited pro forma combined condensed statement of operations for the three months ended September 30, 2003 combine the results of operations of D&K Healthcare for the three months ended September 30, 2003 and Walsh for the three months ended July 31, 2003. 2. PURCHASE PRICE ALLOCATION The following represents the preliminary allocation of the purchase price paid for Walsh based on the estimated fair values of the acquired assets and assumed liabilities of Walsh as of December 5, 2003. Actual fair values will be determined as more detailed analysis is completed and additional information on the fair values of Walsh's assets and liabilities becomes available. The unaudited pro forma combined condensed financial statements reflect a total initial purchase price of $104.4 million (the "Initial Purchase Price"), consisting of the following: (i) the payment of the initial cash consideration of $103.8 million, (ii) estimated transaction costs of $1.2 million, and (iii) a decrease in the purchase price of $0.6 million for the working capital adjustment of Walsh on the date of Acquisition. Under the purchase method of accounting, the Initial Purchase Price is allocated to Walsh's net tangible and intangible assets based upon their estimated fair value as of the date of the Acquisition. The preliminary purchase price allocation as of December 5, 2003 is as follows (in thousands):
At December 5, 2003 ------------------- Current assets $ 154,392 Property and equipment 11,574 Other assets 994 Intangible assets 5,199 Goodwill 19,079 ----------- Total assets acquired 191,238 ----------- Current liabilities 82,053 Long-term liabilities 4,771 ----------- Total liabilities assumed 86,824 ----------- Net assets acquired $ 104,414 ===========
The allocation of the purchase price was based on a preliminary evaluation of assets acquired and liabilities assumed. The valuation of intangible assets was based in part on the assistance from an independent valuation firm. D&K Healthcare has preliminarily allocated approximately $5.1 million of the purchase price to a "Customer Relationship" intangible asset, an amortizable intangible asset with an estimated useful life of ten years, and approximately $0.1 million of the purchase price to "Trade Name" intangible asset, an amortizable intangible asset with an estimated useful life of three years. The fair values of the Customer Relationship and the Trade Name intangible assets were determined considering the "income", "market" and "cost" valuation approaches. As of December 5, 2003, a preliminary estimate of $19.1 million has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the tangible and intangible assets acquired. In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," goodwill will not be amortized but will be tested for impairment at least annually. The purchase price allocation presented above is preliminary and final allocation of the purchase price will be based upon the actual fair values of the net tangible and intangible assets acquired, as well as liabilities assumed as of the date of the Acquisition. Any change in the fair value of the net assets of Walsh will change the amount of the purchase price allocable to goodwill. The final purchase accounting adjustments may differ from the pro forma adjustments presented herein. There were no historical transactions between D&K Healthcare and Walsh. 3. PRO FORMA ADJUSTMENTS The unaudited pro forma combined condensed balance sheet and statements of operations give effect to the following pro forma adjustments: BALANCE SHEET a. To adjust inventory to fair market value. b. To adjust the historical values of Walsh's property and equipment to the estimated fair value as of the date of Acquisition based in part on the assistance from an independent valuation firm. c. To reflect goodwill of $13.3 million based on the financial position of Walsh as of July 31, 2003. d. To reflect the acquisition of the two identifiable intangible assets ("Customer Relationship" and "Trade Name"). The valuation of these intangible assets was based in part on the assistance from an independent valuation firm. e. To reflect deferred taxes resulting from the purchase accounting entries discussed herein including reclassifications based on combined deferred tax balances. f. To reflect an accrual for estimated costs associated with the transaction. g. To pay off Walsh debt and recognize debt associated with financing of the Acquisition. h. To eliminate minority interest in affiliate that became 100% owned upon Acquisition. i. To reflect the elimination of Walsh's historical stockholders' equity upon Acquisition. STATEMENT OF OPERATIONS k. To reflect the amortization of intangible assets over an estimated weighted-average useful life of 10 years. l. To reflect the decrease in interest expense resulting from the issuance of debt to finance the purchase price. The interest rate on new debt of $104.4 million is assumed to be 3.05%. A change of -1/8 % in the interest rate would result in a change in annual interest expense and net income of $130,000 and $80,000 before and after taxes, respectively. m. Tax effect of pro forma adjustments at statutory tax rate. n. To eliminate minority interest in affiliate that became 100% owned upon Acquisition.