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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 on
FORM 10-Q/A
( ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
-------------------------
OR
(X) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from March 29, 1997 to June 30, 1997
-------------- -------------
Commission File No. 0-20348
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D & K WHOLESALE DRUG, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 43-1465483
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8000 MARYLAND AVENUE, SUITE 920, ST. LOUIS, MISSOURI
(Address of principal executive offices)
63105
(Zip Code)
(314) 727-3485
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X YES NO
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value 3,056,217
---------------------------- -----------------
(class) (July 31, 1997)
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Part 1. Financial Information
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Item 1. Financial Statements.
<TABLE>
D & K WHOLESALE DRUG, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<CAPTION>
Assets June 30, March 28,
- ------ 1997 1997
-------- ---------
(Unaudited)
<S> <C> <C>
Cash $ 1,646 $ 2,213
Receivables 29,332 22,247
Inventories 41,391 49,991
Other current assets 1,152 882
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Total current assets 73,521 75,333
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Net property and equipment 5,419 6,242
Investment in affiliated company 4,090 4,039
Deferred income taxes 889 889
Other assets 317 338
Intangible assets 14,521 14,625
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Total assets $98,757 $101,466
======= ========
Liabilities and Stockholders' Equity
------------------------------------
Current maturities of long-term debt $ 3,127 $ 3,138
Accounts payable 48,074 41,410
Deferred income taxes 3,842 3,842
Accrued expenses 2,675 2,673
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Total current liabilities 57,718 51,063
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Revolving line of credit 30,147 40,000
Long-term debt, excluding current maturities 1,529 1,530
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Total liabilities 89,394 92,593
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Stockholders' equity:
Common stock 30 30
Paid-in capital 11,819 11,693
Accumulated deficit (2,486) (2,850)
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Total stockholders' equity 9,363 8,873
------- --------
Total liabilities and stockholders' equity $98,757 $101,466
======= ========
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
D & K WHOLESALE DRUG, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except share and per share data)
<CAPTION>
Three Months Ended
June 30, June 30,
1997 1996
-------- --------
<S> <C> <C>
Net sales $ 144,473 $ 106,409
Cost of sales 138,457 101,213
--------- ---------
Gross profit 6,016 5,196
Operating expenses 4,769 4,170
--------- ---------
Income from operations 1,247 1,026
Other income (expense):
Interest expense, net (820) (835)
Other, net 216 34
--------- ---------
(604) (801)
--------- ---------
Income before income tax provision 643 225
Income tax provision 280 112
--------- ---------
Net income $ 363 $ 113
========= =========
Earnings per common share:
Primary earnings per share $0.12 $0.04
Fully diluted earnings per share $0.11 $0.04
Primary common shares outstanding 3,117,451 3,093,875
Fully diluted common shares outstanding 3,654,416 3,093,875
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
D & K WHOLESALE DRUG, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<CAPTION>
Three Months Ended
June 30, June 30,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 363 $ 113
Adjustments to reconcile net income
to net cash flows from operating activities:
Amortization of debt issuance costs 20 18
Depreciation and amortization 384 395
Stock option and warrant expense 77 1
Gain from sale of assets (217) --
Equity in net income of affiliated company (51) (34)
Increase in accounts receivable, net (7,069) (522)
Decrease in inventories 8,600 3,136
(Increase) decrease in other current assets (295) 64
Increase (decrease) in accounts payable 6,664 (1,268)
Increase in accrued expenses 52 726
Other, net (6) 11
-------- --------
Cash flows from operating activities 8,522 2,640
Cash flows from investing activities:
Proceeds from sale of assets 956 --
Purchases of property and equipment (180) (152)
-------- --------
Cash flows from investing activities 776 (152)
Cash flows from financing activities:
Borrowings under revolving line of credit 82,138 69,816
Repayments under revolving line of credit (91,990) (73,062)
Payments of long-term debt (2) --
Payments of capital lease obligations (10) (22)
Proceeds from exercise of stock options -- 30
-------- --------
Cash flows from financing activities (9,864) (3,238)
Decrease in cash (566) (750)
Cash, beginning of period 2,212 1,947
-------- --------
Cash, end of period $ 1,646 $ 1,197
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for
Interest $ 1,029 $ 782
Income taxes 31 10
See notes to condensed consolidated financial statements.
</TABLE>
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D & K WHOLESALE DRUG, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. The Company is a full-service, regional wholesale drug distributor.
From facilities in Missouri, Kentucky and Minnesota, the Company
distributes a broad range of pharmaceuticals and related products to
its customers in 20 states. The Company focuses primarily on a target
market sector, which includes independent retail, institutional,
mail-order, franchise, chain store and alternate site pharmacies in the
Midwest and South. The Company operates in one business segment. The
Company also owns a 50% equity interest in Pharmaceutical Buyers, Inc.
(PBI), a group purchasing organization with approximately 2,200 members
nationwide.
The accompanying unaudited 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 period ended June 30, 1997 are not necessarily
indicative of the results to be expected for a full twelve month
fiscal year.
The financial results for the Company's wholly-owned subsidiary, Viking
Computer Services (Viking), for the three month period ended June 30,
1996, previously included in other, net in the condensed consolidated
statements of operations, have been reclassified to the appropriate
line items to be consistent with the current period presentation.
These condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and
related notes of the Company for the fiscal year ended March 28, 1997
contained in the Company's 1997 Annual Report to Stockholders.
Note 2. In May 1997, under the provisions of its Long-Term Incentive Plan
and its 1993 Stock Option Plan, the Company granted non-qualified stock
options for an aggregate of 34,000 and 52,000 shares of common stock to
certain executives and key employees at an exercise price of $5.625 per
share. The exercise price of all options granted pursuant to the two
plans was equal to the fair market value of the stock on the date of
grant. Stock options granted under the Long-Term Incentive Plan are
generally not exercisable earlier than six months from the date of
grant, nor later than ten years from the date of grant. Stock options
granted under the 1993 Stock Option Plan are immediately exercisable
from the date of grant and expire not later than ten years from the
date of grant.
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The following sets forth a summary of the options outstanding under
the Company's Long Term Incentive Plan and the 1993 Stock Option
Plan:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF ----------------
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
OUTSTANDING AT MARCH 28, 1997 206,699 $3.84
GRANTED MAY 1997 86,000 $5.625
-------
OUTSTANDING AT JUNE 30, 1997 292,699 $4.36
=======
</TABLE>
Note 3. Primary earnings per common share are computed by dividing net
income by the sum of: (1) the weighted average number of common shares
outstanding during the period; and (2) the dilutive effect of
outstanding stock options and warrants (calculated using the treasury
stock method). Fully diluted earnings per common share are computed
using the components mentioned above for the primary computation with
the addition of common shares issuable upon conversion of the Company's
11% convertible subordinated notes. The fully diluted computation adds
back to income interest on the 11% convertible subordinated notes and
deducts the related income tax effect as if such notes had been
converted into common stock at the beginning of the period.
Note 4. In May 1997, the Company amended the terms of its revolving
line of credit such that advances bear interest at the daily London
Interbank Offer Rate (LIBOR) plus 1.7%. Prior to this amendment,
interest was charged at either LIBOR plus 2.5% on a specified portion
of the debt for one-, three- or six-month periods or at the prime rate
plus .75%. The Company now also has an option to pay interest on the
obligation at prime plus .5% per annum. At June 30, 1997 and March 28,
1997, the borrowing base formula amounted to $49,996,000 and
$50,712,000, respectively. At June 30, 1997 and March 28, 1997, the
unused portion of the line of credit amounted to $19,349,000 and
$10,212,000, respectively.
Note 5. In June 1997, the Company sold a former distribution facility in
Duluth, MN, with a carrying value of approximately $717,000, for cash
proceeds of approximately $934,000. The net gain on the transaction of
$217,000 was included in other, net in the condensed consolidated
statements of operations for the three-month period ended June
30, 1997.
Note 6. In June 1997, the Company extended its supply agreement with
its largest customer through September 15, 1997. This customer
represented 18.3% and 21.3%, respectively, of the Company's net sales
for the three-month periods ended June 30, 1997 and 1996. Accounts
receivable from such customer represented 35.4% of the Company's net
accounts receivable balance at June 30, 1997. The Company is uncertain
as to the likelihood of the supply agreement being extended beyond
the current expiration date.
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In addition, the Company has been advised that a third party has
agreed to purchase substantially all of the assets of such
customer and the Company anticipates that, if the transaction
is completed, the purchaser of the customer's assets will secure
a new supplier. While sales to the customer have previously
represented a significant percentage of the Company's net sales,
such sales have been at lower margins and longer payment terms
than other large customers and, accordingly, sales to such
customer have contributed average profit to the Company's earnings
and return on invested capital which are lower than that of other
large customers. The Company has received assurances that its
accounts receivable from this customer will be paid substantially
in full at the time of the closing of such proposed sale transaction.
Furthermore, if the proposed transaction is consummated and the
customer secures a new supplier, the Company anticipates that its
working capital needs and related borrowings would be reduced
significantly and interest expense related to such borrowings would
decrease accordingly. The Company expects that anticipated growth
in higher margin sales to other customers will replace a substantial
portion of the revenues which would be lost if the Company is
replaced as a supplier to the customer and will diversify and reduce
the concentration of credit risk among the Company's customers.
Accordingly, the Company does not believe that the pending transaction
would have a material adverse effect on its consolidated results of
operations or financial condition.
Although the inability to collect significant portions of the
amounts due from such customer could have a material adverse effect
on the Company's results of operations and financial position, the
Company believes that, whether or not the proposed transaction is
consummated, all accounts receivable due from the customer will be
fully collectible.
Note 7. The Company accounts for its investment in PBI under the equity
method. The Company's equity in the net income of PBI totaled $51,000
and $34,000, respectively, for the three-month periods ended June 30,
1997 and 1996. Summarized balance sheet information (unaudited) for PBI
for the three-month period ended March 31, 1997 included current assets
of $2.7 million, noncurrent assets of $1.1 million, current liabilities
of $1.7 million and noncurrent liabilities of $7.1 million. Summarized
income statement information (unaudited) for PBI for the three-month
periods ended March 31, 1997 and 1996 included net revenues of $1.4
million and $1.2 million, respectively, and net income of $0.3 million
and $0.2 million, respectively.
Note 8. In June 1997, the exercise period of 70,000 vested stock purchase
warrants previously issued to an independent research firm was extended
to June 1998 as consideration for the issuance of an updated research
report. The remaining terms of the warrants were unchanged. The
Company recorded expenses of $77,000 and credited additional paid-in
capital to reflect the incremental fair market value of the warrants
for the change in exercise period.
Note 9. On June 30, 1997, the Company filed a Current Report on Form 8-K
announcing that it would change from a fiscal year ending the Friday
closest to March 31 in each year to a fiscal year ending June 30 of
each year. The Company has included the unaudited financial statements
for the transition period from March 29, 1997 to June 30, 1997 on this
Form 10-Q, and began its first full fiscal year on the new basis on
July 1, 1997.
Note 10. On August 11, 1997, the Company announced that it had signed a
letter of intent to acquire Associated Pharmacies, Inc. (API), a Little
Rock, Arkansas based wholesale pharmaceutical distributor which is
owned by approximately 35 independent retail pharmacies. The purchase
price of the transaction is approximately $1.7 million, consisting of
cash and subordinated promissory notes of the Company. In connection
with the transaction, the Company will enter into multi-year supply
agreements with each of the former shareholders of API. The closing of
the transaction is subject to execution of a definitive purchase
agreement and the completion of due diligence by the parties.
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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 WHOLESALE DRUG, INC.
Date: August 18, 1997 By: /s/ J. Hord Armstrong, III
----------------------- -----------------------------
J. Hord Armstrong, III
Chairman of the Board and
Chief Executive Officer
(Principal Financial Officer)
By: /s/ Daniel E. Kreher
-----------------------------
Daniel E. Kreher
Vice President
Finance and Administration
(Principal Accounting Officer)
