<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
-----------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ------------- to -------------
Commission File No. 0-20348
-------
D & K HEALTHCARE RESOURCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 43-1465483
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8000 MARYLAND AVENUE, SUITE 920, ST. LOUIS, MISSOURI
(Address of principal executive offices)
63105
(Zip Code)
(314) 727-3485
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X YES NO
------------- -------------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.01 par value 4,163,781
---------------------------- ------------------
(class) (January 31, 2000)
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<TABLE>
D & K HEALTHCARE RESOURCES, INC. AND SUBSIDIARIES
Index
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information
---------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
December 31, 1999 and June 30, 1999 3
Condensed Consolidated Statements of Operations
for the Three Months and Six Months Ended
December 31, 1999 and December 31, 1998 4
Condensed Consolidated Statements of Cash Flows for
the Six Months Ended December 31, 1999 and
December 31, 1998 5
Notes to Condensed Consolidated Financial Statements 6 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 15
Part II. Other Information
-----------------
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
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Part I. Financial Information
- ------------------------------
Item 1. Financial Statements.
<TABLE>
D & K HEALTHCARE RESOURCES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<CAPTION>
December 31, June 30,
1999 1999
------------ -----------
(Unaudited)
ASSETS
------
<S> <C> <C>
Cash $1,261 $708
Receivables 18,907 14,889
Inventories 192,825 157,171
Other current assets 1,120 599
------------ -----------
Total current assets 214,113 173,367
------------ -----------
Net property and equipment 6,947 6,205
Investment in affiliates 4,901 4,111
Deferred income taxes 1,547 1,547
Other assets 1,057 1,041
Intangible assets 43,345 43,809
------------ -----------
Total assets $271,910 $230,080
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current maturities of long-term debt $129 $403
Accounts payable 136,157 142,360
Deferred income taxes 2,285 2,285
Accrued expenses 9,866 8,251
------------ -----------
Total current liabilities 148,437 153,299
------------ -----------
Long-term liabilities 603 482
Revolving line of credit 86,638 39,453
Long-term debt, excluding current maturities 934 996
------------ -----------
Total liabilities 236,612 194,230
------------ -----------
Stockholders' equity:
Common stock 45 44
Paid-in capital 30,120 29,555
Retained earnings 10,472 7,195
Less treasury stock (5,339) (944)
------------ -----------
Total stockholders' equity 35,298 35,850
------------ -----------
Total liabilities and stockholders' equity $271,910 $230,080
============ ===========
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
D & K HEALTHCARE RESOURCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except share and per share data)
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Net sales $336,898 $198,345 $660,463 $377,719
Cost of sales 323,897 188,569 635,642 359,539
-------------- -------------- -------------- -------------
Gross profit 13,001 9,776 24,821 18,180
Operating expenses 7,973 6,428 15,651 12,156
-------------- -------------- -------------- -------------
Income from operations 5,028 3,348 9,170 6,024
Other income (expense):
Interest expense, net (2,343) (1,204) (4,159) (2,207)
Other, net 65 59 315 268
-------------- -------------- -------------- -------------
(2,278) (1,145) (3,844) (1,939)
-------------- -------------- -------------- -------------
Income before income tax provision 2,750 2,203 5,326 4,085
Income tax provision 1,059 840 2,051 1,593
-------------- -------------- -------------- -------------
Net income $1,691 $1,363 $3,275 $2,492
============== ============== ============== =============
Earnings per common share:
Basic earnings per share $0.40 $0.36 $0.76 $0.67
Diluted earnings per share $0.37 $0.33 $0.72 $0.62
Basic common shares outstanding 4,254,849 3,767,514 4,318,138 3,747,859
Diluted common shares outstanding 4,572,499 4,149,392 4,654,174 4,126,356
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
D & K HEALTHCARE RESOURCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<CAPTION>
Six Months Ended
December 31, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $3,275 $2,492
Adjustments to reconcile net income
to net cash flows from operating activities:
Amortization of debt issuance costs 352 173
Depreciation and amortization 1,506 764
Equity in net income of PBI (279) (242)
Changes in operating assets and liabilities, net
of acquisitions:
Decrease (increase) in accounts receivable, net (4,018) 48,649
Increase in inventories (35,654) (28,891)
Increase in other current assets (271) (319)
Decrease in accounts payable (6,203) (2,512)
Increase in accrued expenses 1,860 1,121
Other, net (239) (296)
-------------- --------------
Cash flows from operating activities (39,671) 20,939
Cash flows from investing activities:
Cash paid for acquired company -- (2,176)
Cash invested in affiliate (500) --
Proceeds from sale of fixed assets -- 746
Purchases of property and equipment (1,353) (350)
-------------- --------------
Cash flows from investing activities (1,853) (1,780)
Cash flows from financing activities:
Borrowings under revolving line of credit 251,822 221,792
Repayments under revolving line of credit (204,637) (240,104)
Principal payments on long-term debt (336) (1,092)
Proceeds from exercise of stock options 268 135
Purchase of treasury stock (4,395) --
Debt issuance costs (645) (611)
-------------- --------------
Cash flows from financing activities 42,077 (19,880)
Increase (decrease) in cash 553 (721)
Cash, beginning of period 708 4,051
-------------- --------------
Cash, end of period $1,261 $3,330
============== ==============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $3,587 $2,202
Income taxes 1,041 796
See notes to condensed consolidated financial statements.
</TABLE>
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D & K HEALTHCARE RESOURCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. The Company is a full-service, regional wholesale drug
distributor. From facilities in Missouri, Kentucky, Minnesota, South
Dakota, and Florida, the Company distributes a broad range of
pharmaceuticals and related products to its customers in more than 24
states. The Company focuses primarily on a target market sector,
which includes independent retail, institutional, chain store and
alternate site pharmacies throughout the Midwest and South. 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 condensed consolidated financial
statements have been prepared in accordance with the instructions to
Form 10-Q and include all of the information and disclosures required
by generally accepted accounting principles for interim reporting,
which are less than those required for annual reporting. In the
opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair representation
have been included. The results of operations for the three-month
and six-month periods ended December 31, 1999 are not necessarily
indicative of the results to be expected for the full fiscal year.
Certain reclassifications have been made to the prior period's
financial statements to conform to the current year presentation.
These condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and
related notes contained in the Company's 1999 Annual Report to
Stockholders.
Note 2. Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" (SFAS 128), requires the computation of basic and diluted
earnings per share. Basic earnings per common share are computed by
dividing net income by the weighted average number of common shares
outstanding during the period. Diluted earnings per common share are
computed using the component mentioned above for the basic
computation with the addition of: (1) the dilutive effect of
outstanding stock options and warrants (calculated using the treasury
stock method); and (2) common shares issuable upon conversion of
certain convertible PBI stock. The diluted computation for the
quarter and six-months ended December 31, 1999 adds to income the
earnings that would be included in the Company's consolidated net
income for the periods as if the convertible PBI stock had been
converted to the Company's common stock at the beginning of the
period.
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The reconciliation of the numerator and denominator of the basic and
diluted earnings per common share computations is as follows:
<TABLE>
<CAPTION>
Quarter Ended December 31, 1999 Quarter Ended December 31, 1998
------------------------------------------------ ----------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) <F1> Amount (Numerator) (Denominator) <F1> Amount
------------- --------------- ----------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net income available to
Common shareholders $ 1,691,000 4,254,849 $0.40 $ 1,363,161 3,767,514 $0.36
EFFECT OF DILUTED SECURITIES:
Options and warrants 117,650 181,878
Convertible PBI stock (4,116) 200,000 9,408 200,000
------------- --------------- ------------ -------------
DILUTED EPS:
Net Income available to
Common stockholder plus
Assumed conversions $ 1,686,884 4,572,499 $0.37 $1,372,569 4,149,392 $0.33
------------- --------------- ------------ -------------
<CAPTION>
Six-Months Ended December 31, 1999 Six-Months Ended December 31, 1998
------------------------------------------------ ----------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) <F1> Amount (Numerator) (Denominator) <F1> Amount
------------- --------------- ----------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net income available to
Common shareholders $ 3,275,000 4,318,138 $0.76 $ 2,492,380 3,747,859 $0.67
EFFECT OF DILUTED SECURITIES:
Options and warrants 136,036 178,497
Convertible PBI stock 61,964 200,000 48,256 200,000
------------- --------------- ------------ -------------
DILUTED EPS:
Net Income available to
Common stockholder plus
Assumed conversions $ 3,336,964 4,654,174 $0.72 $ 2,540,636 4,126,356 $0.62
------------- --------------- ------------ -------------
<FN>
<F1> - Outstanding shares computed on a weighted average basis
</TABLE>
Note 3. In August 1998, the Company, through a bankruptcy remote
subsidiary, D & K Receivables Corp. ("D&KRC"), entered into a sales
agreement that provided the Company with a three-year revolving
accounts receivable securitization facility (the "Securitization").
Under this facility and pursuant to a purchase and contribution
agreement between the Company and D&KRC, the Company sells to D&KRC,
on a non-recourse basis, all rights and interests in its accounts
receivable. Pursuant to the receivables purchase agreement, D&KRC in
turn sells certain interests in the accounts receivable pool owned by
D&KRC under similar terms to a third party purchaser.
At December 31, 1999, the maximum allowable amount of receivables
eligible to be sold is $60 million. The amount available at any
settlement date varies based upon the level of eligible receivables.
Under this agreement, $43 million of accounts receivable were sold as
of December 31, 1999. This sale is reflected as a reduction in
accounts receivable in the accompanying condensed consolidated
balance sheets and as operating cash flows in the
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accompanying condensed consolidated statements of cash flows for the
six-month period ended December 31, 1999. Accordingly, the Company's
trade accounts receivable and long-term debt at December 31, 1999 are
net of $43 million, which represent accounts receivable that were
sold under the Securitization.
The Securitization bears interest at the 30-day London Interbank
Offer Rate (LIBOR) plus program and liquidity fees of 0.71%.
In addition, the Company has a revolving line of credit, which, as of
June 30, 1999, provided a maximum borrowing capacity of $95 million
based upon eligible inventories. In December 1999, an additional
seasonal line of credit was added to this facility increasing the
maximum borrowing capacity to $120 million during a seasonal period.
Such seasonal period will start on or after October 1 but not later
than December 1 of each year and continue until six months after the
commencement of such seasonal period. The advances bear interest at
the daily LIBOR plus 1.75%. The Company also has the option to pay
interest on the obligation at prime plus .25% per annum. At December
31, 1999 and June 30, 1999, the unused portion of the line of credit
amounted to $33.4 million and $55.5 million, respectively.
The Company also has an interest rate collar agreement, whereby the
LIBOR on $10 million of the outstanding revolving line of credit
balance shall not exceed 6.75%. If the LIBOR is less than 5.25%,
then the LIBOR rate on $7.5 million of the outstanding revolving line
of credit balance shall not be less than 5.25%. On March 31, 1999,
the Company executed an additional interest rate collar agreement on
$40 million of the outstanding revolving line of credit, whereby the
LIBOR shall not exceed 6.85% nor be less than 4.93%. At December 31,
1999, the LIBOR was 5.83%.
Note 4. The Company accounts for its 50% investment in PBI under the
equity method. Equity income is recorded net, after reduction of
goodwill amortization based on the excess of the amount paid for its
interest in PBI over the fair value of PBI's underlying net assets at
the date of the original investment. The Company's equity in the net
income of PBI totaled $44,000 and $81,000 for the three-month periods
ended December 31, 1999 and December 31, 1998 ($113,000 and $150,000,
respectively, before goodwill amortization). The Company's equity in
the net income of PBI totaled $279,000 and $242,000 for the six-month
periods ended December 31, 1999 and December 31, 1998, respectively
($417,000 and $380,000, respectively, before goodwill amortization).
Certain other shareholders of PBI have the option to exchange their
combined 20% ownership interests in PBI for shares of the Company's
common stock under the terms of the original purchase agreement.
Those options, which have been determined to be dilutive at December
31,1999, are included in the
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reconciliation of the basic and diluted earnings per share
computation in Note 2 above.
Note 5. During the fourth quarter of fiscal 1999, the Company adopted
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" (SFAS No.
131). This statement establishes standards for the way public
companies report information about operating segments that is
consistent with that made available to the management of the Company
in allocating resources and assessing performance.
After application of the aggregation criteria, the Company has three
identifiable business segments, only one of which, Wholesale drug
distribution, meets the quantitative thresholds for separate
disclosure prescribed in SFAS No. 131. This segment is described in
Note 1. The Company's equity investment in PBI (see Note 4) is a
second segment. Two wholly owned software subsidiaries; VC Services,
Inc. (dba Viking Computer Services, Inc.) and Tykon, Inc. constitute
the third segment. Viking markets a pharmacy management software
system and Tykon developed and markets a proprietary PC-based order
entry/order confirmation system to the drug distribution industry.
These two segments are combined as Other in the table below.
Though the Wholesale drug distribution segment operates from several
different facilities, the nature of its products and services, the
types of customers and the methods used to distribute its products
are similar and thus they have been aggregated for presentation
purposes. Intersegment sales have been recorded at amounts
approximating market.
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<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
(in thousands) 1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers -
Wholesale drug distribution $ 336,054 $ 197,824 $ 658,942 $ 377,000
Other 844 521 1,521 719
------------ ------------ ------------ ------------
Total $ 336,898 $ 198,345 $ 660,463 $ 377,719
Intersegment sales -
Wholesale drug distribution $ -- $ -- $ -- $ --
Other 88 -- 156 --
Intersegment eliminations (88) -- (156) --
------------ ------------ ------------ ------------
Total $ -- $ -- $ -- $ --
Net Sales -
Wholesale drug distribution $ 336,054 $ 197,824 $ 658,942 $ 377,000
Other 932 521 1,677 719
Intersegment eliminations (88) -- (156) --
------------ ------------ ------------ ------------
Total $ 336,898 $ 198,345 $ 660,463 $ 377,719
Gross Profit -
Wholesale drug distribution $ 12,287 $ 9,288 $ 23,501 $ 17,510
Other 714 488 1,320 670
------------ ------------ ------------ ------------
Total $ 13,001 $ 9,776 $ 24,821 $ 18,180
Pre-tax income (loss)
Wholesale drug distribution $ 2,428 $ 2,028 $ 4,588 $ 3,785
Other 322 175 738 300
------------ ------------ ------------ ------------
Total $ 2,750 $ 2,203 $ 5,326 $ 4,085
</TABLE>
There has been no material change in total assets from the amount
disclosed in the last annual report. There are no differences from
the last annual report in the basis of segmentation or in the basis
of measurement of segment profit or loss.
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D & K HEALTHCARE RESOURCES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The discussion below is concerned with material changes in financial
condition and results of operations in the condensed consolidated
balance sheets as of December 31, 1999 and June 30, 1999, and in the
condensed consolidated statements of operations for the three-month
and six-month periods ended December 31, 1999 and December 31, 1998,
respectively. The Company recommends that this discussion be read in
conjunction with the audited consolidated financial statements and
accompanying notes included in the Company's 1999 Annual Report to
Stockholders.
Certain statements in this document regarding future events,
prospects, projections or financial performance are forward looking
statements. Such forward looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform
Act of 1995 and may also be identified by words such as
"anticipates," "believes," "estimates," "expects," "intends" and
similar expressions. Such statements are subject to risks and
uncertainties that could cause actual results to differ materially
from those described in or suggested by such forward looking
statements. These risks and uncertainties include the Company's
ability to compete in a competitive industry, with many competitors
having substantially greater resources than the Company and the
Company's customers generally having the right to terminate their
contracts with the Company or reduce purchasing levels on relatively
short notice without penalty, the Company's ability to maintain or
improve its operating margin with the industry's competitive pricing
pressures, the changing business and regulatory environment,
including possible changes in reimbursement for healthcare products
and in manufacturers' pricing or distribution policies, the continued
availability of investment buying opportunities, the loss of one or
more key suppliers for which alternative sources may not be
available, and the ability to integrate recently acquired businesses.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect the Company's views as of
the date hereof. The Company undertakes no obligation to publicly
update or revise any forward-looking statements.
Results of Operations:
---------------------
Net Sales Net sales increased $138.6 million, or 69.9%, for the
---------
quarter ended December 31, 1999, compared to the corresponding period
of the prior year. This increase was due to growth among the chain,
independent pharmacy and mail order trade classes as a result of new
customers and increased sales to
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existing customers and the acquisition of Jewett Drug Co. in June
1999. Including the impact of the Jewett sales, mail order sales
increased $68.7 million, independent pharmacy sales increased by
$48.0 million and chain store sales increased $24.2 million.
Net sales increased $282.7 million, or 74.9% for the six months ended
December 31, 1999, compared to the corresponding period of the prior
year. This increase was due to growth among the chain, independent
pharmacy and mail order trade classes as a result of new customers
and increased sales to existing customers and the acquisition of
Jewett Drug Co. in June 1999. Including the impact of the Jewett
sales, mail order sales increased $131.5 million, independent
pharmacy sales increased by $87.2 million and chain store sales
increased $72.4 million.
In addition, the quarter and six months ended December 31, 1999
contained $16.1 million and $25.8 million, respectively, in
"dock-to-dock" sales, which are not included in net sales due to the
Company's accounting policy of recording only the commission on such
transactions as a component of cost of sales in its consolidated
statements of operations. "Dock-to-dock" sales were $43.8 million
and $78.4 million, respectively, for the quarter and six months ended
December 31, 1998.
Gross Profit Gross profit increased 33.0% to $13.0 million for the
------------
quarter ended December 31, 1999, compared to the corresponding period
of the prior year. As a percentage of net sales, gross margin
decreased from 4.93% to 3.86% for the quarter ended December 31,
1999, compared to the corresponding period of the prior year. The
decrease in gross margin percentage was due primarily to sales mix
and additionally to competitive pressures in the marketplace. Higher
mail order sales as a result of the Jewett acquisition and increased
sales to large chains, which carry a lower margin percentage, account
for this decrease. The gross margin computed on a first-in, first-out
(FIFO) basis decreased from 5.07% to 3.89% for the quarter ended
December 31, 1999, compared to the corresponding period of the prior
year.
Gross profit increased 36.5% to $24.8 million for the six months
ended December 31, 1999, compared to the corresponding period of the
prior year. As a percentage of net sales, gross margin decreased
from 4.81% to 3.76% for the six months ended December 31, 1999,
compared to the corresponding period of the prior year. The decrease
in gross margin percentage was due primarily to sales mix and
additionally to competitive pressures in the marketplace. Higher mail
order sales as a result of the Jewett acquisition and increased sales
to large chains, which carry a lower margin percentage, account for
this decrease. The gross margin computed on a first-in, first-out
(FIFO) basis decreased from 4.93% to 3.78% for the six months ended
December 31, 1999, compared to the corresponding period of the prior
year. Management anticipates continued competitive pressures.
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Operating Expenses Operating expenses increased $1.5 million, or
------------------
24.0%, for the quarter and increased $3.5 million, or 28.8%, to $15.6
million for the six months ended December 31, 1999 compared to the
corresponding periods of the prior year. The ratio of operating
expenses to net sales for the quarter decreased to 2.37% from 3.24%
while the ratio for the first six months of fiscal 2000 was 2.37%, an
85 basis point decrease from the comparable period of the prior year.
This decrease was a result of the increased sales and efficiencies
realized from this higher sales activity. The increase in operating
expenses for the quarter and six months ended December 31, 1999
resulted primarily from the addition of the Jewett operations.
Interest Expense, Net Net interest expense increased $1.1 million or
---------------------
94.6% for the quarter and $2.0 million or 88.4% for the six months
ended December 31, 1999, compared to the corresponding periods of the
prior year. As a percentage of net sales, net interest expense
increased to 0.70% from 0.61% for the quarter ended December 31,
1999, compared to the corresponding period of the prior year. This
ratio for the first six months of fiscal 2000 was 0.63%, or 5 basis
points higher than the corresponding period of last year. The
increase interest expense was primarily due to higher debt levels
associated with inventory held for potential Y2K demand that was not
as significant as expected and higher interest rates at yearend.
Other Income, Net Other income, net increased from $59,000 to
-----------------
$65,000 for the quarter and increased from $268,000 to $315,000 for
the six months ended December 31, 1999, compared to the corresponding
periods of the prior year. The increase in other income, net for the
six months ended December 31, 1999 was primarily due to higher equity
in the net income of PBI.
Effects of Inflation and LIFO Accounting The effects of price
----------------------------------------
inflation, measured by the excess of LIFO costs over FIFO costs, were
approximately $113,000 and $275,000, respectively, for the quarter
ended December 31, 1999 and December 31, 1998 and approximately
$158,000 and $452,000, respectively, for the six months ended
December 31, 1999 and December 31, 1998.
Provision for Income Taxes The Company's effective income tax rate
--------------------------
of 38.5% is the rate expected to be applicable for the full fiscal
year ending June 30, 2000. This rate was greater than the federal
income tax rate of 34% primarily because of the amortization of
intangible assets that are not deductible for federal and state
income tax purposes and offset by the reduced impact of state income
taxes. The overall rate is lower than the corresponding period of
last year due to the impact of the Jewett acquisition on the blended
state income tax rate.
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Financial Condition:
-------------------
Liquidity and Capital Resources The Company's working capital
-------------------------------
requirements are generally met through a combination of internally
generated funds, borrowings under its revolving line of credit and
the Securitization facility, and trade credit from its suppliers.
The following measures are utilized by the Company as key indicators
of the Company's liquidity and working capital management:
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
---- ----
<S> <C> <C>
Working capital (000's) $65,676 $20,068
Current ratio 1.44 to 1 1.13 to 1
</TABLE>
Working capital and the current ratio have increased as a result of
seasonal increases in accounts receivable and inventories combined
with a reduction in accounts payable as fiscal year end inventory
purchases were paid for.
The Company invested $1,353,000 in capital assets in the six-month
period ended December 31, 1999, as compared to $350,000 in the
corresponding period in the prior year. The additional assets are
primarily associated with the new facility in Lexington, Kentucky.
The Company believes that continuing investment in capital assets is
necessary to achieve its goal of improving operational efficiency,
thereby enhancing its productivity and profitability.
Cash inflows from financing activities totaled $42.1 million for the
six-month period ended December 31, 1999 as compared to cash outflows
of $19.9 million for the corresponding period in the prior year. The
current year increase in cash inflows is primarily due to the
increase in the revolver as a result of the reduction in accounts
payable. The prior year outflows were primarily related to
repayments under the revolving line of credit as a result of the
funds made available from the initial Securitization. At December
31, 1999, the revolving line of credit provided a maximum borrowing
capacity of $120.0 million, which includes the seasonal facility of
$25 million. At December 31, 1999 and June 30, 1999, the unused
portion of the line of credit amounted to $33.4 million and $55.5
million, respectively. In addition, at December 31, 1999, the
Securitization provided a maximum capacity of $60.0 million. At
December 31, 1999, $43.0 million was utilized. Management believes
that, together with internally generated funds, the Company's
available capital resources will be sufficient to meet its
foreseeable capital requirements.
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Year 2000:
---------
Certain aspects of the Company's business (including that of its
subsidiaries) could be affected by what has commonly become known as
the Year 2000 or Y2K problem: however, the Company has not been
adversely affected by any Year 2000 problems as of the filing date.
Specifically, the problem derives from computer software, hardware
and embedded chips which recognize, receive, process and store date
data using only 2-digit years, and therefore, may malfunction when
they encounter dates which are from the 21st century, rather than the
1900's. Computerized systems are fundamental to several key
functions of the Company and its subsidiaries.
As of December 31, 1999, the Company had cumulatively spent
approximately $662,000 on its Year 2000 project primarily on
remediation and testing the Company's software products and on
contingency planning.
Although there are no indications that any Y2K problems will arise,
the Company will continue to monitor for potential Year 2000
problems. While the Company believes it has taken a comprehensive
and reasonable approach towards anticipating and addressing the
potential impact of Y2K problems on its business, there can be no
assurance that the Company internally, or any third party upon which
the Company depends, will not be adversely affected by any such
problems.
As part of the foregoing Y2K discussion, the Company has used a
significant number of forward looking statements (i.e. "expects",
"believes", and similar phrases). These are based on the Company's
present knowledge and informed expectations which may change in the
future based on new developments, facts and circumstances.
<PAGE> 16
Page 16 of 18
D & K HEALTHCARE RESOURCES, INC. AND SUBSIDIARIES
Part II. Other Information
- ------- -----------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on page 19.
(b) Reports on Form 8-K
None
<PAGE> 17
Page 17 of 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
D & K HEALTHCARE RESOURCES, INC.
Date: February 11, 2000 By: /s/ J. Hord Armstrong, III
----------------- -------------------------------
J. Hord Armstrong, III
Chairman of the Board and
Chief Executive Officer
By: /s/ Thomas S. Hilton
--------------------
Thomas S. Hilton
Senior Vice President
Chief Financial Officer
(Principal Financial &
Accounting Officer)
<PAGE> 18
Page 18 of 18
<TABLE>
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit No. Description
- ----------- -----------
<C> <S>
3.1<F*> Restated Certificate of Incorporation, filed as an exhibit
to registrant's Registration Statement on Form S-1
(Reg. No. 33-48730).
3.2<F*> Certificate of Amendment to the Restated Certificate
of Incorporation of D&K Wholesale Drug, Inc filed as an
exhibit to the registrant's Annual Report on Form 10-K
for the year ended June 30, 1998.
3.3<F*> By-laws of the registrant, as currently in effect, filed
as an exhibit to registrant's Registration Statement on
Form S-1 (Reg. No. 33-48730).
4.1<F*> Form of certificate for Common Stock, filed as an exhibit
to registrant's Registration Statement on Form S-1
(Reg. No. 33-48730).
4.2<F*> Form of Rights Agreement dated as of November 12, 1998
between registrant and Harris Trust and Savings Bank as
Rights Agent, which includes as Exhibit B the form of
Right Certificate, filed as an exhibit to Form 8-K dated
November 17, 1998.
10.1<F**> Fourth Amendment to the Fourth Amended and Restated Loan
and Security Agreement, dated December 17, 1999 between
registrant and Fleet Capital Corporation.
27<F**> Financial data schedule.
<FN>
<F*> Incorporated by reference.
<F**> Filed herewith.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
FOURTH AMENDMENT TO FOURTH AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
---------------------------
THIS FOURTH AMENDMENT TO THE FOURTH AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT (this "Amendment") is made as of December 17, 1999, by and
---------
among FLEET CAPITAL CORPORATION, a Rhode Island corporation (the "Lender"),
------
and D&K HEALTHCARE RESOURCES, INC. ("D & K"), JARON, INC. ("Jaron") and
----- -----
JEWETT DRUG CO., a South Dakota corporation ("Jewett") (D & K, Jaron and
------
Jewett are sometimes hereinafter referred to individually as "Borrower" and
--------
collectively as "Borrowers").
---------
Preliminary Statements
----------------------
A. Lender, and Borrowers are parties to that certain Fourth Amended
and Restated Loan and Security Agreement dated as of August 7, 1998 (as
amended, restated or renewed from time to time, the "Loan Agreement").
--------------
Capitalized terms used herein and not otherwise defined shall have the meanings
given them in the Loan Agreement.
B. D & K has requested that Lender amend certain provisions of the
Loan Agreement and certain other Loan Documents to increase the aggregate
amount of credit available under the Loan Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Increase in Credit Facility. The Loan Agreement and all of the
---------------------------
Loan Documents are hereby amended to increase the Total Credit Facility from
$95,000,000 to $95,000,000 and, during the Seasonal Period, $120,000,000.
Accordingly, whenever the number "$95,000,000" appears in any Loan Document,
it shall be replaced with "$95,000,000, and, during the Seasonal Period,
$120,000,000."
2. Amendment of Negative Covenants. Section 8.2 of the Loan Agreement
-------------------------------
[RELATING TO NEGATIVE COVENANTS] is hereby deleted in its entirety and
replaced with the following new Section 8.2 as follows:
8.2 Negative Covenants. During the term of this Agreement, and
------------------
thereafter for so long as there are any Obligations to Lender, each
Borrower covenants that, unless Lender has first consented thereto in
writing, it will not:
8.2.1 Mergers; Consolidations; Acquisitions. Except as
-------------------------------------
otherwise provided in this Section 8.2.1, merge or consolidate, or permit
any Subsidiary of any Borrower to merge or consolidate, with any Person;
nor acquire, nor permit any of its Subsidiaries to acquire, all or any
substantial part of the Properties of any Person; provided that (i) the
consolidation of PBI with D&K shall not constitute a violation of this
covenant so long as such consolidation does not involve a merger and so
long as D&K does not become directly or indirectly liable for any
Indebtedness of PBI; (ii) the
1
<PAGE> 2
merger of Jaron into D&K, with D&K the surviving company, shall not
constitute a violation of this covenant, and (iii) the Borrowers may make
acquisitions of the Properties of any Person so long as the aggregate
purchase price (however structured or denominated) for all acquisitions
by the Borrowers for any fiscal year does not exceed $5,000,000.
8.2.2. Loans. Make, or permit any Subsidiary of any
-----
Borrower to make, any loans or other advances of money (other than
pursuant to the Securitization Documents, and other than for salary,
travel advances, advances against commissions and other similar advances
in the ordinary course of business) to any Person in excess of $250,000,
and with an aggregate of not more than $750,000 outstanding at any time.
8.2.3. Total Indebtedness. Create, incur, assume, or suffer
-------------------
to exist, or permit any Subsidiary of any Borrower to create, incur or
suffer to exist, any Indebtedness, except:
(i) Obligations owing to Lender;
(ii) Subordinated Debt existing on the date of this
Agreement;
(iii) Indebtedness of any Subsidiary of any Borrower
to such Borrower;
(iv) accounts payable to trade creditors and current
operating expenses (other than for Money Borrowed) which are
not aged more than 60 days from billing date or more than 30
days from the due date, in each case incurred in the ordinary
course of business and paid within such time period, unless
the same are being actively contested in good faith and by
appropriate and lawful proceedings; and Borrower or such
Subsidiary shall have set aside such reserves, if any, with
respect thereto as are required by GAAP and deemed adequate by
Borrower or such Subsidiary and its independent accountants;
(v) Obligations to pay Rentals permitted by
subsection 8.2.13;
(vi) Permitted Purchase Money Indebtedness;
(vii) contingent liabilities arising out of
endorsements of checks and other negotiable instruments for
deposit or collection in the ordinary course of business; and
(viii) Indebtedness pursuant to the Securitization
Documents.
8.2.4. Affiliate Transactions. Enter into, or be a party
----------------------
to, or permit any Subsidiary of any Borrower to enter into or be a party
to, any transaction with any Affiliate of such Borrower or stockholder,
except in the ordinary course of and pursuant to the reasonable
requirements of such Borrower's or such Subsidiary's business and upon
fair and reasonable terms which are fully disclosed to Lender and are no
less favorable to such Borrower than would obtain in a comparable arm's
length transaction with a Person not an Affiliate or stockholder of such
Borrower or such Subsidiary. The
2
<PAGE> 3
parties hereto acknowledge that the conduct by Borrowers or their
Subsidiaries of the transactions contemplated by and in accordance with
the Securitization Documents shall not violate the provisions of this
Section.
8.2.5. Limitation on Liens. Create or suffer to exist, or
-------------------
permit any Subsidiary of any Borrower to create or suffer to exist, any
Lien upon any of its Property, income or profits, whether now owned or
hereafter acquired, except:
(i) Liens at any time granted in favor of Lender;
(ii) Liens for taxes (excluding any Lien imposed
pursuant to any of the provisions of ERISA) not yet due, or
being contested in the manner described in subsection 7.1.12
hereto, but only if in Lender's judgment such Lien does not
adversely affect Lender's rights or the priority of Lender's
Lien in the Collateral;
(iii) Liens arising in the ordinary course of
Borrower's business by operation of law or regulation, but
only if payment in respect of any such Lien is not at the
time required and such Liens do not, in the aggregate,
materially detract from the value of the Property of Borrower
or materially impair the use thereof in the operation of
Borrower's business;
(iv) Purchase Money Liens securing Permitted
Purchase Money Indebtedness;
(v) Liens securing Indebtedness of one of
Borrower's Subsidiaries to Borrower or another such
Subsidiary;
(vi) such other Liens as appear on EXHIBIT P hereto;
(vii) Liens arising out of the Securitization
Documents; and
(viii) such other Liens as Lender may hereafter
approve in writing.
8.2.6. Subordinated and Intercreditor Debt. Make, or permit
-----------------------------------
any Subsidiary of any Borrower to make, any payment of any part or all of
any Subordinated Debt or take any other action or omit to take any other
action in respect of any Subordinated Debt, except in accordance with the
Subordination Agreement relative thereto.
8.2.7. Distributions. Declare or make, or permit any
-------------
Subsidiary of Borrower to declare or make, any Distributions, except for
dividends of Jaron to D&K, provided that not less than 5 business days
prior to the payment of such dividend, D&K shall give Lender written
notice describing the amount of such dividend.
8.2.8. Capital Expenditures. Make Capital Expenditures
--------------------
(including, without limitation, by way of capitalized leases) which, in
the aggregate, as to Borrower and its Subsidiaries, exceed $4,000,000
during any fiscal year of Borrowers.
3
<PAGE> 4
8.2.9. Disposition of Assets. Sell, lease or otherwise
---------------------
dispose of any of, or permit any Subsidiary of any Borrower to sell,
lease or otherwise dispose any of, its Properties, including any
disposition of Property as part of a sale and leaseback transaction, to
or in favor of any Person, except (i) sales of Inventory in the ordinary
course of business for so long as no Event of Default exists hereunder,
(ii) disposition of worn out, obsolete or damaged Equipment in the
ordinary course of business, (iii) transfer of Property to a Borrower by
a Subsidiary of such Borrower, (iv) dispositions expressly authorized by
this Agreement or (v) dispositions under or pursuant to the
Securitization.
8.2.10. Stock of Subsidiaries. Permit any of its
---------------------
Subsidiaries to issue any additional shares of its capital stock except
director's qualifying shares.
8.2.11. Bill-and-Hold Sales, Etc. Make a sale to any
------------------------
customer on a bill-and-hold, guaranteed sale, sale and return, sale on
approval or consignment basis, or any sale on a repurchase or return
basis.
8.2.12. Restricted Investment. Make or have, or permit
---------------------
any Subsidiary of any Borrower to make or have, any Restricted
Investments in excess of $500,000 in the aggregate.
8.2.13. Leases. Become, or permit any of its
------
Subsidiaries to become, a lessee under any operating lease (other than a
lease under which a Borrower or any of its Subsidiaries is lessor) of
Property if the aggregate Rentals payable during any current or future
period of 12 consecutive months under the lease in question and all
other leases under which Borrowers or any of their Subsidiaries is then
lessee would exceed $3,000,000. The term "Rentals" means, as of the
date of determination, all payments, which the lessee is required to
make by the terms of any lease.
8.2.14. Tax Consolidation. File or consent to the
-----------------
filing of any consolidated income tax return with any Person other than
a Subsidiary of D&K.
8.2.15. Amendment of Securitization Documents. Request
-------------------------------------
any waiver of or consent to any default under the terms of the
Securitization Documents.
8.2.16. API. Permit API, as a Subsidiary of D&K, to
---
own any property other than the real property currently owned by such
Subsidiary.
3. Financial Covenants. Section 8.3 of the Loan Agreement [RELATING TO
-------------------
SPECIFIC FINANCIAL COVENANTS] is hereby deleted in its entirety and replaced
with the following new Section 8.3:
8.3 Specific Financial Covenants. During the term of this
----------------------------
Agreement, and thereafter for so long as there are any Obligations
to Lender, each Borrower covenants that, unless otherwise consented
to by Lender in writing, it and all other Borrowers shall (all
financial covenants being computed on a consolidated basis):
(A) Current Ratio. Maintain at all times a ratio of
-------------
Consolidated Current Assets to Consolidated Current Liabilities of
not less than 1.25 to 1.0. For purposes of computing the ratio
contemplated herein, (i) the amount of
4
<PAGE> 5
Borrowers' Inventory comprising Consolidated Current Assets shall be
computed on a first in, first out basis in accordance with GAAP, and
(ii) any transfers of assets made pursuant to the Securitization
Documents shall be ignored.
(B) Interest Coverage Ratio. Maintain at all times for
-----------------------
each period of three (3) consecutive months (computed on a
rolling-basis commencing with the three month period ending December
31, 1999) a ratio of Net Cash Flow plus Interest Expense to Interest
Expense of not less than (i) 2.0 to 1.0 in the fiscal year ending
June 30, 2000, (ii) 2.25 to 1.0 in the fiscal year ending June 30,
2001 and thereafter.
(C) Maintenance of Capital Base. Maintain at all times
---------------------------
during the periods specified below a Capital Base in an amount not
less than the amount shown below for the period corresponding
thereto (excluding any purchases by D & K of its own stock made
between May 20, 1999 and June 1, 2000 pursuant to a consent letter
from Lender dated May 20, 1999):
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
June 1, 1999 through December 30, 1999 $ 1,480,000
December 31, 1999 through June 29, 2000 $ 3,000,000
June 30, 2000 through June 29, 2001 $10,000,000
June 30, 2001 and thereafter $20,000,000
</TABLE>
(D) Cash Flow to Fixed Charges. Maintain for each fiscal
--------------------------
year of Borrowers a ratio of Net Cash Flow minus taxes to Fixed
Charges of not less than 1.5 to 1.0 as of each fiscal year end,
commencing with the fiscal year ending June 30, 2000.
4. Definitions. Appendix A to the Loan Agreement [RELATING TO
-----------
DEFINITIONS] is hereby amended by replacing certain definitions therein with
the new ones set forth below, as follows:
Borrowing Base - as at any date of determination thereof, an amount
--------------
equal to the lesser of:
(i) the Total Credit Facility, or
(ii) an amount equal to (A) 70% of the value of Eligible
Trading Company Inventory, plus (B) 65% of the value of all other
Eligible Inventory at such date, calculated in each case on the
basis of the lower of cost or market with the cost of raw materials
and finished goods calculated on a first-in, first-out basis,
MINUS
an amount equal to the sum of (A) the face amount of all letters of
credit issued or guaranteed by Lender or any Affiliate of Lender for
the account of a Borrower and
5
<PAGE> 6
outstanding at such date, and (B) any amounts which Lender may be
obligated to pay in the future for the account of a Borrower.
Notwithstanding anything else herein to the contrary, the aggregate
amount of available Loans to or on behalf of Jaron will be reduced by the
aggregate amount of Indebtedness of Jaron to D&K; and the aggregate
amount of available Loans to or on behalf of Jewett will be reduced by
the aggregate amount of Indebtedness of Jewett to D&K.
Eligible Trading Company Inventory - Branded prescription
----------------------------------
pharmaceutical products located in the Borrower's Davie, Florida facility
and segregated from other Inventory located at such facility.
Fixed Charges - For any period means the sum of (i) scheduled
-------------
payments of principal required to be made during such period with respect
to Indebtedness, plus (ii) Capital Expenditures which are not financed.
Permitted Purchase Money Indebtedness - Purchase Money Indebtedness
-------------------------------------
of a Borrower incurred after the date hereof which is secured by a
Purchase Money Lien and which, when aggregated with the principal amount
of all other such Indebtedness and Capitalized Lease Obligations of all
Borrowers at the time outstanding, does not exceed $3,000,000. For the
purpose of this definition, the principal amount of any Purchase Money
Indebtedness consisting of capitalized leases shall be computed as a
Capitalized Lease Obligation.
Seasonal Period - A period each year during which the Total Credit
---------------
Facility is increased, beginning on or after October 1 but not later than
December 1 of each year and continuing until six months after
commencement of such Seasonal Period. Each year the Seasonal Period
shall commence upon the date of the first Loan which, together with all
other Loans then outstanding, exceeds $95,000,000.
Total Credit Facility - $95,000,000, and, during the Seasonal
---------------------
Period, $120,000,000.
5. Conditions Precedent. The amendments contained herein are expressly
--------------------
conditioned upon the satisfaction by Borrowers of the following conditions.
Failure of Borrowers to deliver to Lender such documents, instruments or
agreements, each in form and substance acceptable to Lender, no later than
the delivery dates set forth herein, shall mean that the Lender's consents
and the amendments related thereto contained herein are ineffective and void,
and Borrowers shall be in default under the Loan Agreement:
(a) Delivery of this Amendment, duly executed by all Borrowers.
(b) Delivery of duly executed amendments and/or consents by the
parties to the Securitization Documents, containing such terms as are
acceptable to Lender to allow for amendments set forth herein.
(c) Delivery of duly executed amendments and/or consents by all
participants in the Loans, containing such terms as are acceptable to
Lender to allow for the
6
<PAGE> 7
amendments set forth herein, including, without limitation, an aggregate
participation of $80,000,000 or more in the Loans.
(d) There shall exist no Default or Event of Default under the
Loan Agreement.
(e) There shall have occurred no material adverse change in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of any Borrower or any of their Subsidiaries,
taken as a whole, since June 30, 1999.
(f) No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before
any court, governmental agency or legislative body to enjoin, restrain
or prohibit, or to obtain damages in respect of, or which is related to
or arises out of the Loan Agreement.
(g) Payment of Lender's fees due on the date hereof, as such fees
have been set out in the Fee Letter of even date herewith.
(h) Delivery of an opinion of counsel to Borrowers or other
evidence acceptable to Lender as to the due authorization of this
Amendment and such other matters as Lender may require.
(i) Delivery of an updated EXHIBIT P To the Loan Agreement.
6. No Claims. Borrowers acknowledge that there are no existing claims,
---------
defenses (personal or otherwise) or rights of set-off or recoupment
whatsoever with respect to any of the Loan Documents. Borrowers agree that
this Amendment in no way acts as a release or relinquishment of any Liens in
favor of the Lender securing payment of the Obligations.
7. Miscellaneous. Except as expressly set forth herein, there are no
-------------
agreements or understandings, written or oral, between any Borrower and
Lender relating to the Loan Agreement and the other Loan Documents that are
not fully and completely set forth herein or therein. Except to the extent
specifically waived or amended herein or in any of the documents,
instruments, or agreements delivered in connection herewith, all terms and
provisions of the Loan Agreement and the other Loan Documents are hereby
ratified and reaffirmed and shall remain in full force and effect in
accordance with the respective terms thereof. This Agreement may be executed
in one or more counterparts, and by different parties on different
counterparts. All such counterparts shall be deemed to be original documents
and together shall constitute one and the same agreement. A signature of a
party delivered by facsimile or other electronic transmission shall be deemed
to be an original signature of such party.
IN WITNESS WHEREOF, this Amendment has been executed and delivered by the
duly authorized representatives of the parties as of the date first above
written.
FLEET CAPITAL CORPORATION
By: /s/ Edward M. Bartkowski
--------------------------------------
Name: Edward M. Bartkowski
Title: Vice President
7
<PAGE> 8
D & K HEALTHCARE RESOURCES, INC.
By: /s/ Thomas S. Hilton
--------------------------------------
Name: Thomas S. Hilton
Title: Senior VP & CEO
JARON, INC.
By: /s/ Martin D. Wilson
--------------------------------------
Name: Martin D. Wilson
Title: President
JEWETT DRUG CO.
By: /s/ Martin D. Wilson
--------------------------------------
Name: Martin D. Wilson
Title: Vice Chairman
8
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,261
<SECURITIES> 0
<RECEIVABLES> 18,907
<ALLOWANCES> 1,134
<INVENTORY> 192,825
<CURRENT-ASSETS> 214,113
<PP&E> 14,188
<DEPRECIATION> 7,241
<TOTAL-ASSETS> 271,910
<CURRENT-LIABILITIES> 148,437
<BONDS> 0
<COMMON> 45
0
0
<OTHER-SE> 35,253
<TOTAL-LIABILITY-AND-EQUITY> 271,910
<SALES> 660,463
<TOTAL-REVENUES> 660,778
<CGS> 635,642
<TOTAL-COSTS> 651,293
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,159
<INCOME-PRETAX> 5,326
<INCOME-TAX> 2,051
<INCOME-CONTINUING> 3,275
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,275
<EPS-BASIC> .76
<EPS-DILUTED> .72
</TABLE>
