FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number 1-11122
November 30, 1993
Hook-SupeRx, Inc.
A Delaware Corporation Employer Identification Number
31-1186877
175 Tri-County Parkway
Cincinnati, Ohio 45246-3222
513-782-3000
Indicate by check mark whether the registrant (1) has filed all
reports require 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.
Yes x No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
At December 31, 1993, 20,860,830 shares were outstanding.
The total number of pages included in this filing is 20.
The exhibit index is located on page 19.
HOOK-SUPERX, INC.
INDEX
PAGE
NUMBER
PART I. Financial Information
Item 1. - Financial Statements
Consolidated Balance Sheets at November 30, 1993
and August 31, 1993 1
Consolidated Statements of Operations and
Accumulated Deficit for the three months ended
November 30, 1993 and 1992 3
Consolidated Statements of Cash Flows for the
three months ended November 30, 1993 and 1992 4
Notes to Consolidated Financial Statements 5
Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
PART II. Other Information 15
Signature 16
HOOK-SUPERX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(dollars in thousands)
November 30, 1993 August 31, 1993
ASSETS
Current Assets
Accounts receivable, less
allowances for doubtful
accounts of $10,954
and $11,786, respectively $ 38,019 $ 73,660
Inventories 374,885 337,185
Prepaid expenses and
other current assets 21,540 8,532
__________ __________
Total current assets 434,444 419,377
Property and Equipment
Land 8,285 8,285
Buildings 43,718 42,666
Store improvements 65,130 65,108
Fixtures and equipment 141,748 141,830
Leased property under
capital leases 36,609 27,637
Leasehold interests 168,435 162,360
__________ __________
463,925 447,886
Less allowances for
accumulated depreciation
and amortization (201,420) (192,463)
__________ __________
262,505 255,423
Other Assets 37,788 42,799
__________ __________
$ 734,737 $ 717,599
========== ==========
See Notes to Consolidated Financial Statements.
1
HOOK-SUPERX, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(dollars in thousands, except per share amounts)
November 30, 1993 August 31, 1993
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable under revolving
credit commitment $ 66,000 $ 81,000
Current portion of long-term debt 15,042 17,642
Current portion of obligations
under capital leases 3,050 1,910
Accounts payable
Trade 132,428 106,406
Related parties 7,578 10,166
Accrued liabilities
Payroll and related taxes 45,162 50,305
State and local taxes
other than income 16,880 17,861
Restructuring costs 16,190 18,851
Other 47,515 28,543
__________ __________
Total current liabilities 349,845 332,684
Long-term debt 247,358 247,358
Obligations under capital leases 30,720 23,606
Deferred credits and other liabilities 26,143 26,497
__________ __________
Total liabilities 654,066 630,145
Commitments and contingency
Stockholders' Equity
Preferred stock, par value $.01;
10,000,000 shares authorized,
none issued
Common stock, par value $.01;
Authorized 100,000,000 shares;
Issued: November 30, 1993-20,856,756
August 31, 1993-20,839,930 209 208
Additional paid in capital 134,947 134,831
Accumulated deficit ( 54,346) ( 47,440)
Stockholders' notes receivable ( 21) ( 127)
Treasury stock, at cost
(November 30, 1993 - 49,166 shares
August 31, 1993 - 15,833 shares) ( 118) ( 18)
__________ __________
Total stockholders' equity 80,671 87,454
__________ __________
$ 734,737 $ 717,599
========== ==========
See Notes to Consolidated Financial Statements.
2
HOOK-SUPERX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1993 AND 1992
(UNAUDITED)
(dollars in thousands, except per share amounts)
November 30,
1993 1992
(Restated)
Net sales $ 567,877 $ 544,129
Cost of merchandise sold,
including distribution costs 402,811 381,557
__________ __________
Gross profit 165,066 162,572
Costs and Expenses
Selling, general and administrative 134,516 132,429
Rent 16,768 16,040
Depreciation and amortization 9,089 8,284
Interest 7,539 7,843
___________ __________
Loss before income taxes and
cumulative effect
of accounting change ( 2,846) ( 2,024)
Income taxes (benefit) ( 1,132)
___________ __________
Loss before cumulative effect of
accounting change ( 1,714) ( 2,024)
Cumulative effect of change in method
of accounting for income taxes ( 5,192)
Cumulative effect of change in method
of accounting for postretirement benefits
other than pensions ( 18,612)
__________ __________
Net loss $( 6,906) $( 20,636)
=========== ==========
Loss per share:
Before cumulative effect
of accounting change $(.08) $(.10)
Per share effect of cumulative effect
of accounting change (.25) (.89)
______ ______
Net loss $(.33) $(.99)
====== ======
Weighted average number of
shares outstanding 20,986,516 20,904,980
========== ==========
Accumulated deficit
Beginning of period $(47,440) $( 25,209)
Net loss ( 6,906) ( 20,636)
_________ __________
End of period $(54,346) $( 45,845)
========= ==========
See Notes to Consolidated Financial Statements.
3
HOOK-SUPERX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTHS ENDED NOVEMBER 30, 1993 AND 1992
(UNAUDITED)
(dollars in thousands)
1993 1992
(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $( 6,906) $( 20,636)
Adjustments to reconcile net loss to
net cash used in operating activities:
Cumulative effect of change in
accounting for income taxes 5,192
Cumulative effect of change in
accounting for postretirement
benefits other than pensions 18,612
Depreciation and amortization 9,089 8,284
Loss on sale of equipment 471 44
Increase in deferred income taxes ( 513) ( 3,520)
Other, net 118 ( 270)
Changes in operating assets and
liabilities:
Increase in accounts receivable ( 2,859) ( 12,067)
Increase in inventories ( 37,700) ( 48,725)
Increase in prepaid expenses
and other current assets ( 2,700) ( 2,699)
Increase in accounts payable 23,434 53,608
Decrease in accrued liabilities ( 2,858) ( 4,933)
_________ _________
NET CASH USED IN
OPERATING ACTIVITIES ( 15,232) ( 12,302)
_________ _________
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment ( 2,175) ( 7,498)
Proceeds from sale of receivables 36,000
Other, net ( 285) ( 1,162)
_________ _________
NET CASH PROVIDED BY (USED
IN) INVESTING ACTIVITIES 33,540 ( 8,660)
_________ _________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 163,000 137,000
Reduction of short-term borrowings (178,000) (108,000)
Repayments of obligations under
capital leases ( 745) ( 382)
Repayments of long-term debt ( 2,600) ( 3,000)
Other, net 37 5
_________ _________
NET CASH (USED IN) PROVIDED
BY FINANCING ACTIVITIES ( 18,308) 25,623
_________ _________
INCREASE (DECREASE) IN CASH 4,661
CASH, BEGINNING OF PERIOD
__________ __________
CASH, END OF PERIOD $ $ 4,661
========== ==========
See Notes to Consolidated Financial Statements.
4
HOOK-SUPERX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in thousands, except per share amounts)
NOTE A -- Consolidated Financial Statements
The consolidated financial statements have been prepared by the
Company, without audit, in accordance with generally accepted
accounting principles and in the opinion of management include all
adjustments necessary for a fair presentation of results of operations
for the periods presented. Pursuant to the rules and regulations of
the Securities and Exchange Commission, certain information and
footnote disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted accounting
principles have been omitted or condensed. It is management's belief
that the disclosures made are adequate to make the information
presented not misleading. It is recommended that these consolidated
financial statements be read in conjunction with the consolidated
financial statements for the year ended August 31, 1993, and the notes
thereto.
Inventories are stated at the lower of LIFO cost or market
utilizing the retail and average cost methods. If these inventories
had been valued on the first-in, first-out method of inventory
valuation, the inventory values would have been approximately $69,687
and $67,287 higher at November 30, 1993 and August 31, 1993,
respectively. The LIFO charge to operations for the three months
ended November 30, 1993 and 1992 was $2,400 and $3,163, respectively.
The Company considers all liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash paid
for interest was approximately $3,256 and $3,907 for the three months
ended November 30, 1993 and 1992, respectively. During the three
months ended November 30, 1993 and 1992, the Company entered into
capital lease obligations amounting to $9,000 and $449, respectively.
The current year capital lease obligation entered into by the Company
relates to equipment leased in connection with the Company's expansion
to the Midwestern distribution facility.
During the fourth quarter of Fiscal 1993, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 106 -
Employers' Accounting for Postretirement Benefits Other Than Pensions.
Consistent with the provisions of this statement, when adoption of
this statement is in any quarter other than the first, the adoption is
effective as of the beginning of the fiscal year of adoption.
Accordingly, the Company has restated the operating results for the
first quarter of Fiscal 1993 to give effect to this adoption as of the
beginning of the fiscal year. The result of this restatement on the
three months ended November 30, 1992, was an increase of $18,939
($18,612 cumulative effect of an accounting change plus $327 current
year effect of this change) in the previously reported net loss for
this period.
5
HOOK-SUPERX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in thousands, except per share amounts)
NOTE B -- Income Taxes
In February 1992, the Financial Accounting Standards Board issued
SFAS No. 109 - Accounting for Income Taxes. This statement requires a
change from the deferred method of accounting for income taxes (as
previously required by Accounting Principles Board Opinion ("APB") No.
11) to the liability method. Under the liability method, deferred
income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to
future years to differences between the carrying amount of assets and
liabilities for financial reporting purposes and the tax bases of these
assets and liabilities. Under SFAS No. 109, the effect on deferred
taxes of a change in tax rates is recognized in the period that
includes the enactment date. The Company adopted the provisions of
SFAS No. 109 on September 1, 1993, and recorded the change in
accounting for income taxes as the cumulative effect of an accounting
change in the Consolidated Statements of Operations for the three
months ended November 30, 1993. The cumulative effect of this adoption
was a charge of $5,192 or $.25 per share. Prior year financial
statements have not been restated to apply the provisions of SFAS No.
109.
The net current and non-current components of deferred income
taxes recognized in the balance sheet at November 30, 1993 are as
follows:
Net current asset $10,713
Net non-current asset 4,985
_______
Net asset $15,698
=======
The tax effects of the significant temporary differences which
comprise the deferred tax assets and liabilities at November 30, 1993
are as follows:
Deferred Tax Deferred Tax
Assets Liabilities
Capital leases $ 8,930 $ 6,461
Postretirement benefits
other than pensions 6,972
Depreciation and amortization 2,478 17,281
Inventories 2,728 6,944
Bad debts 4,068
Accrued liabilities 12,424
Restructuring reserve 6,640
Tax credits 4,133
Other 5,737 2,549
_________ ________
54,110 33,235
Valuation allowance ( 5,177)
_________ ________
Total $ 48,933 $33,235
========= ========
6
HOOK-SUPERX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in thousands, except per share amounts)
NOTE B -- Income Taxes - (Continued)
The valuation allowance relates to certain future deductible items
in excess of future taxable items that are not expected to be realized.
Under the provisions of SFAS No. 109, assets and liabilities
acquired in purchase business combinations are assigned their fair
values and deferred taxes are provided for differences between the
fair values and the tax bases of these assets and liabilities. Under
APB No. 11, values assigned were net of tax. In adopting SFAS No.
109, the Company adjusted the carrying amounts of certain assets and
liabilities of Brooks, acquired in June 1988. Pre-tax income from
operations for the three months ended November 30, 1993, was not
materially affected by this adjustment.
The Company and its subsidiaries file a consolidated income tax
return. The Company's Federal income tax benefit for the three months
ended November 30, 1993 was $996. Federal income taxes were based
upon the estimated annual effective tax rate, which approximates the
Federal statutory tax rate. The Company recorded a benefit for state
and local income taxes for the three months ended November 30, 1993 of
$136. State income tax expense was based upon the estimated annual
effective tax rate.
The components of the income tax benefits are as follows:
Current
Federal $( 483)
State and local ( 136)
_________
Total current ( 619)
_________
Deferred
Federal ( 513)
State and local
_________
Total deferred ( 513)
_________
Total $(1,132)
=========
During the three months ended November 30, 1993 and 1992, the
cash paid for income taxes (Federal, state and local) was $125 and $6,
respectively. During the three months ended November 30, 1993, the
Company received a state income tax refund of $150 and during the
three months ended November 30, 1992 a Federal income tax refund of
$1,500, due to the overpayment of estimated income taxes.
7
HOOK-SUPERX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in thousands, except per share amounts)
NOTE C -- Subsequent Events
In December 1993, the Company entered into a nine year contract
with Hughes Network Systems, Inc. to install and maintain an
interactive satellite communications network for all of the Company's
stores. Upon expiration of the initial contract term, the contract
will continue on a year to year basis, unless otherwise terminated by
either party on written notice given at least 60 days prior to the end
of the initial term or any subsequent renewal term. Charges to the
Company under this contract will include monthly service charges
subject to adjustment for, among other things, certain variances from
the annual targeted number of satellite systems installed within the
targeted installation period or the total number of satellite systems
installed at the end of the target period. Subject to these
adjustments, the aggregate amount payable by the Company during the
initial nine year contract period is approximately $21,000 comprised
of approximately $12,000 for rental of equipment and $9,000 for
maintenance of the network and usage of system. During Fiscal 1994,
the Company expects to install satellite communications equipment in
approximately 90 stores and this equipment is expected to be installed
in the remaining Company stores as the Company implements its
point-of-sale scanning technology during Fiscal 1995 and 1996.
Also in December 1993, the Company entered into an agreement with
one of its vendors which will have exclusive rights to provide certain
products and services to the Company for a period of at least five
years. The agreement requires the Company to purchase a minimum
dollar amount of products and/or services from the vendor. In the
event that the Company has not met this minimum purchase amount by the
end of five years, the term of the agreement is extended in one year
increments until the end of the year in which the minimum purchase is
met. Pursuant to this agreement, on January 14, 1994 the Company will
receive cash proceeds approximating $40,000 which the Company will
utilize to reduce the borrowings outstanding under the revolving line
of credit. For financial reporting purposes, the Company plans to
reflect this cash prepayment as deferred revenue and to recognize the
income over the 60 month term of the agreement. The terms relating to
the Company's purchase of products and services from the vendor under
this agreement, in the opinion of management, are no less favorable to
the Company than the Company's arrangements with the vendor prior to
the Company entering into this agreement.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations for Hook-SupeRx, Inc. and Subsidiaries for
the three months ended November 30, 1993, compared to Results of
Operations for the three months ended November 30, 1992.
At November 30, 1993, the Company operated 1,115 drug stores and
33 home health care centers ("HHC"), as compared with 1,152 drug
stores and 32 HHCs at November 30, 1992.
Net sales for the three months ended November 30, 1993 were $23.7
million or 4.4% above net sales for the same period of the prior year.
Sales increases from stores opened one year or more were 4.5% over the
same period of the prior year. The increase in net sales of 4.4% is
less than the comparable store sales increase as a result of operating
thirty-six fewer stores this fiscal year as compared to the same time
of the prior year. During the three months ended November 30, 1993,
the Company opened 10 new stores and closed 19 (14 of which were
closed in connection with the Asset Divestiture Program implemented
during Fiscal 1993 and the remaining stores were closed in the normal
course of business), as compared with 27 new store openings and 9
closings during the comparable period of the prior year.
Prescription sales, as a percentage of net sales, continued to
increase during this three month period. For the three months ended
November 30, 1993, prescription sales increased 9.7% over the prior
year to $302.9 million, which represented 53.3% of net sales, as
compared with $276 million or 50.7% of net sales for the prior year.
This sales growth in prescription sales is a trend which the Company
expects will continue because of the (a) aging of the U.S. population
and the corresponding increased use of prescription drugs by the
elderly, (b) development of new pharmaceutical products and new
applications of existing drugs, (c) continued pursuit of new customer
segments such as mail order, nursing homes and third party payor
arrangements and (d) to a lesser extent, price inflation for
pharmaceuticals. For the three months ended November 30, 1993, the
Company experienced lower levels of price inflation on pharmaceuticals
than in the same period of the prior year. This lower level of price
inflation is a trend which the Company expects to continue, at least
for the foreseeable future, as a result of the increased emphasis
placed on limiting price increases by the pharmaceutical
manufacturers, thereby adversely affecting the rate of the Company's
sales growth.
For the three months ended November 30, 1993, prescription sales
to third party payors increased 17.9% over the prior year to $152.6
million or 50.4% of total prescription sales, as compared with $129.4
million or 46.9% of total prescription sales for the same period of
the prior year. Excluded from the third party sales amounts above are
amounts received directly from customers pursuant to third party
arrangements which require the customer to contribute a portion of the
sales price. The Company expects prescription sales to third party
payors to continue to increase, both in absolute terms and as a
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
percentage of total prescription sales, as a result of anticipated new
third party payor arrangements and continued migration of non-third
party pharmacy customers to third party plans. The Company cannot
predict when or if any health care reform will be enacted by the
Federal government, or the form that such reform would take.
However, the Company believes that market forces will cause
prescription sales to third party payors to continue to increase as
a percentage of total prescription sales and any legislated health
care reform may accelerate that trend. In addition, increased
competition has led to declining gross profit margins on third party
prescription sales. The increasing levels of third party prescription
sales have resulted in a decline in gross profit margin, as gross
profit margins on sales to third party payors are typically lower than
those on non-third party sales. In addition, increased competition has
led to declining gross profit margins on third party prescription
sales. The Company expects the trend of gross profit margin erosion
relating to third party prescription sales to continue, at least for
the foreseeable future. The Company is developing strategies to
mitigate this erosion. An example is to encourage the use of
generic pharmaceuticals, when available, in filling the prescription.
Typically, generic drugs have a higher gross profit margin than
non-generic drugs. In addition to the adverse effect third party
prescription sales have on gross profit margin, these sales are
predominately sales on credit. On November 2, 1993, the Company
implemented a program to sell, on a continuous basis, certain of its
third party accounts receivable. The proceeds from these sales will be
utilized to reduce borrowings under the Company's revolving line of
credit. See "Liquidity and Capital Resources." At November 30, 1993,
third party accounts receivable, net of allowance, amounted to $14.0
million, as compared with $53.3 million, net of allowance, at
November 30, 1992. The primary reason for the decline in third party
accounts receivable from November 30, 1992 to November 30, 1993 is the
accounts receivable sales program.
Cost of merchandise sold, as a percentage of net sales, for the
three months ended November 30, 1993 was 70.9%, as compared with 70.1%
for the same period of the prior year. One of the principal reasons
for the decline in gross profit margin, from 29.9% to 29.1%, was the
duplicate warehouse and distribution expenses incurred by the Company
arising from the transition away from its current warehouse and
distribution arrangement with Peyton's, Inc. ("Peytons") for the
Company's SupeRx stores into the enlarged Midwestern warehouse and
distribution facility operated by the Company. The Company currently
provides seasonal and promotional product to all of its SupeRx stores
from this facility while still utilizing Peyton as the product source
to its SupeRx stores for everyday product. The duplicate warehouse
and distribution expenses incurred during this quarter, which were
estimated to be approximately $3 million, represent the cost of
continuing the arrangement with Peyton for distribution of everyday
product to the SupeRx stores. The Company currently expects to
continue to incur similar amounts of duplicate warehouse and
distribution expenses through at least the second quarter which ends
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
February 28, 1994. However, as the Company moves further into its
transition away from Peyton these duplicate costs will be reduced. In
January 1994, the Company began shipment of everyday product to its
SupeRx stores from its Midwestern warehouse and distribution facility
with the full transition from Peyton expected to be completed by March
or April 1994. The remaining decline in gross profit margin was
primarily due to the continuing shift of prescription sales to
lower gross margin third party prescription sales. The Company
believes that as the absolute and percentage amount of prescription
sales to third party payors continues to increase, gross profit
margins will continue to be under downward pressures. However, as
has been previously mentioned, the Company is continually developing
plans to mitigate the downward pressures placed on gross profit
margins as a result of the above mentioned situation. For the three
months ended November 30, 1993, the Company recorded a LIFO charge to
operations of $2.4 million, as compared with $3.2 million for the same
period of the prior year. The smaller LIFO charge, this quarter when
compared with the same quarter of the prior year, is the result of
declining rates of inflation on the Company's inventory purchases,
primarily pharmaceuticals. At November 30, 1993 and 1992, LIFO
inventories were approximately $69.7 million and $64.2 million,
respectively, less than the amount of such inventories valued on a
FIFO basis.
Selling, general and administrative expenses, as a percentage of
net sales, were 23.7% as compared with 24.3% for the same period of
the prior year. This decline in selling, general and administrative
expenses, as a percentage of net sales, was primarily due to more
stringent cost control measures combined with the benefits derived
from the Company's ongoing consolidation efforts, as well as the
elimination of costs previously incurred by stores which were closed
as part of the Company's Asset Divestiture Program undertaken in
Fiscal 1993. Additionally, during the three months ended November 30,
1992, the Company opened significantly more stores than were opened
during the three months ended November 30, 1993, resulting in
increased advertising and store pre-opening expenses, which adversely
affected selling, general and administrative expenses, as a percentage
of net sales, for the three months ended November 30, 1992.
Interest expense, as a percentage of net sales, was 1.3% as
compared with 1.4% for the comparable period of the prior year. This
improvement was primarily the result of lower amounts outstanding
under the Company's revolving line of credit and lower rates of
interest on both the Company's bank term debt and the revolving line
of credit. As was previously indicated, on November 2, 1993, the
Company implemented a four year program to sell up to $75 million of
its health care receivables on a continuous basis. The proceeds from
these sales are applied to reduce the level of borrowings under the
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Company's revolving line of credit. As of November 30, 1993, the
Company has completed two such sales and received $36 million in
proceeds. On January 14, 1994, the Company will receive a cash
prepayment of approximately $40 million from a vendor. This cash will
be used to reduce the Company's borrowings under the revolving line of
credit. See "Notes to Consolidated Financial Statements."
As was previously indicated, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109 - Accounting for
Income Taxes, as of September 1, 1993. See "Notes to Consolidated
Financial Statements." For the three months ended November 30,
1993, the Company has recorded an income tax benefit of $1.1 million
which was based upon the estimated annual effective tax rate for both
Federal and state purposes of approximately 40%.
During the fourth quarter of Fiscal 1993, the Company adopted
SFAS No. 106 - Employers' Accounting for Postretirement Benefits Other
Than Pensions. Consistent with the provisions of this statement, when
adoption of this statement is in any quarter other than the first, the
adoption is effective as of the beginning of the fiscal year,
September 1, 1992 in this instance. See "Notes to Consolidated
Financial Statements."
Liquidity and Capital Resources
During the three months ended November 30, 1993, the Company had
additions to property and equipment of approximately $2.2 million, as
compared with approximately $7.5 million for the same period of the
prior year. These additions consisted primarily of capital
expenditures for new store openings and remodeling of existing stores.
The amount reflected above for the three months ended November 30,
1992 includes not only amounts for new store openings and remodels of
existing stores but also amounts related to the construction of the
expanded Midwestern warehouse and distribution facility, for which
construction was completed in September 1993. As previously
indicated, for the three months ended November 30, 1993, the Company
opened 10 new stores and closed 19 (14 of which were closed in
connection with the Asset Divestiture Program), compared with 27 new
store openings and 9 closings for the same period during the prior
year.
During the three months ended November 30, 1993, the Company made
a required prepayment of $2.6 million on its senior bank debt based
upon Available Cash Flow with respect to Fiscal 1993 cash flow. At
November 30, 1993, the Company had $117.4 million outstanding under
the bank term loan, of which $15 million is reflected as current
portion of long-term debt.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
For the three months ended November 30, 1993, borrowings under
the Company's revolving line of credit have ranged from $55 million to
$98 million, with an average amount outstanding for this period of $81
million, as compared with a range of $74 million to $101 million and
an average balance outstanding of $89 million for the comparable
period of the prior year. On January 7, 1994, the balance outstanding
under the revolving line of credit was $51 million. The primary
reason for the significant change in the range of the outstanding
balance and the average balance outstanding under the revolving line
of credit from the prior year is the health care receivable sales
program implemented by the Company. As was previously indicated, on
November 2, 1993, the Company implemented a four year program to sell,
on a continuous basis, up to $75 million of its health care
receivables. Proceeds for these such sales during this three month
period were $36 million. Borrowings under the revolving line of
credit vary based upon the seasonal needs of the Company, which are
typically higher during the Company's first and second fiscal quarters
due to increases in inventories to support the holiday season
merchandise needs, and third party accounts receivable caused by
higher level of pharmacy sales during the cough, cold and flu season.
The Company from time to time, reviews the terms of its senior
credit facility to determine whether changes should be sought in light
of changing circumstances or to take advantage of opportunities in the
market place.
On January 14, 1994, the Company will receive a cash prepayment
approximating $40 million from a vendor. This cash will be used to
reduce the borrowings outstanding on the Company's revolving line of
credit. See "Notes to Consolidated Financial Statements."
In December 1993, the Company entered into a nine year contract
with Hughes Network Systems, Inc. to install and maintain an
interactive satellite communications network for all of the Company's
stores. After expiration of the initial contract term, this contract
will continue on a year to year basis, unless otherwise terminated by
either party upon written notice given at least 60 days prior to the
end of the initial term or any subsequent renewal term. See "Notes to
Consolidated Financial Statements." The Company intends to utilize
this satellite communications equipment as a replacement to its
existing store level data communications equipment and currently
expects to realize cost benefits relating to this replacement in
subsequent years.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
In November 1992, the Financial Accounting Standards Board issued
SFAS No. 112 - Employers' Accounting for Postemployment Benefits.
This statement establishes accounting standards for employers who
provide benefits to former or inactive employees, their beneficiaries
or covered dependents, after employment but before retirement.
Postemployment benefits include, but are not limited to, salary
continuation, supplemental unemployment benefits, severance benefits,
disability-related benefits (including workers compensation), job
training and counseling and health and welfare benefit continuation.
This statement requires employers to recognize the obligation to
provide postemployment benefits if the obligation is attributable to
employees' services already rendered, employees' rights to these
benefits vest or accumulate, payment is probable and the amount of the
benefit is reasonably estimated. Currently, the Company is not
required to adopt the provisions of SFAS No. 112 until its fiscal year
ending August 31, 1995; however, it will consider early adoption in
accordance with the provisions of this statement. The Company has
completed its initial review of this statement and believes it will
not have a material effect on the results of operations upon adoption.
14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statement Regarding Computation of Per Share Loss
(b) Reports on Form 8-K
None
15
SIGNATURE
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.
Hook-SupeRx, Inc.
(Registrant)
January 13, 1994 /s/ Timothy M. Mooney
(date) Timothy M. Mooney
Senior Vice President
Chief Financial Officer
16
Exhibit Index
Exhibit
Number Description Location
11.1 Statement Regarding Computation of
Per Share Loss 20
Exhibit 11.1
HOOK-SUPERX, INC. AND SUBSIDIARIES
COMPUTATION OF NET LOSS PER COMMON SHARE
(UNAUDITED)
(dollars in thousands, except for per share amounts)
Three Months Ended November 30,
1993 1992
Loss before cumulative effect of
accounting change $( 1,714) $ (2,024)
Cumulative effect of a change in
accounting for income taxes ( 5,192)
Cumulative effect of a change in
accounting for postretirement
benefits other than pensions (18,612)
__________ __________
Net loss $( 6,906) $(20,636)
========== ==========
Computation of Weighted Average Number
of Common Shares Outstanding
Three Months Ended November 30,
1993 1992
Weighted average number
shares outstanding 20,818,267 20,736,731
Effect of options issued within one
year of the initial public
offering based upon the Treasury
Stock Method:
May 1991 at $3.93 6,626 6,626
October 1991 at $4.23 161,623 161,623
__________ __________
20,986,516 20,904,980
========== ==========
Loss per share:
Before cumulative effect of
accounting change $(.08) $(.10)
Cumulative effect of
accounting change (.25) (.89)
______ ______
Net loss $(.33) $(.99)
====== ======
