<PAGE> 1
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 March 31, 2000
--------------
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 4,168,631
---------------------------- --------------
(class) (May 11, 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
March 31, 2000 and June 30, 1999 3
Condensed Consolidated Statements of Operations for the
Three Months and Nine Months Ended March 31, 2000
and March 31, 1999 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 2000 and March 31, 1999 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>
<PAGE> 3
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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>
March 31, June 30,
2000 1999
----------- --------
(Unaudited)
<S> <C> <C>
Assets
------
Cash $ 3,169 $ 708
Receivables 53,677 14,889
Inventories 221,160 157,171
Other current assets 793 599
------------ ------------
Total current assets 278,799 173,367
------------ ------------
Net property and equipment 7,310 6,205
Investment in affiliates 4,999 4,111
Deferred income taxes 1,547 1,547
Other assets 962 1,041
Intangible assets 43,084 43,809
------------ ------------
Total assets $336,701 $230,080
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current maturities of long-term debt $ 101 $ 403
Accounts payable 214,045 142,360
Deferred income taxes 2,285 2,285
Accrued expenses 13,118 8,251
------------ ------------
Total current liabilities 229,549 153,299
------------ ------------
Long-term liabilities 597 482
Revolving line of credit 68,060 39,453
Long-term debt, excluding current maturities 927 996
------------ ------------
Total liabilities 299,133 194,230
------------ ------------
Stockholders' equity:
Common stock 45 44
Paid-in capital 30,120 29,555
Retained earnings 12,950 7,195
Less treasury stock (5,547) (944)
------------ ------------
Total stockholders' equity 37,568 35,850
------------ ------------
Total liabilities and stockholders' equity $336,701 $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 per share data)
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
Net sales $427,236 $213,984 $1,087,699 $591,703
Cost of sales 411,973 201,779 1,047,615 561,318
------------ ------------ -------------- ------------
Gross profit 15,263 12,205 40,084 30,385
Operating expenses 8,914 7,505 24,565 19,661
------------ ------------ -------------- ------------
Income from operations 6,349 4,700 15,519 10,724
Other income (expense):
Interest expense, net (2,554) (1,395) (6,713) (3,602)
Other, net 234 95 549 363
------------ ------------ -------------- ------------
(2,320) (1,300) (6,164) (3,239)
------------ ------------ -------------- ------------
Income before income tax provision 4,029 3,400 9,355 7,485
Income tax provision 1,551 1,326 3,602 2,919
------------ ------------ -------------- ------------
Net income $2,478 $2,074 $5,753 $4,566
============ ============ ============== ============
Earnings per common share:
Basic earnings per share $0.60 $0.54 $1.35 $1.21
Diluted earnings per share $0.56 $0.49 $1.28 $1.11
Basic common shares outstanding 4,163,481 3,841,253 4,264,921 3,785,259
Diluted common shares outstanding 4,470,022 4,215,747 4,591,125 4,162,421
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>
Nine Months Ended
March 31, March 31,
2000 1999
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $5,753 $4,566
Adjustments to reconcile net income
to net cash flows from operating activities:
Amortization of debt issuance costs 568 349
Depreciation and amortization 2,277 1,148
Equity in net income of PBI (476) (295)
Changes in operating assets and liabilities, net
of acquisitions:
Decrease (increase) in accounts receivable, net (38,788) 14,139
Increase in inventories (63,989) (14,444)
Increase in other current assets (58) (66)
Increase in accounts payable 71,685 22,787
Increase in accrued expenses 5,105 3,824
Other, net (434) (21)
------------ -------------
Cash flows from operating activities (18,357) 31,987
Cash flows from investing activities:
Cash paid for acquired company -- (2,176)
Cash invested in affiliates (750) --
Cash dividend from affiliates 350 350
Proceeds from sale of fixed assets 9 752
Purchases of property and equipment (2,043) (545)
------------ -------------
Cash flows from investing activities (2,434) (1,619)
Cash flows from financing activities:
Borrowings under revolving line of credit 353,780 332,748
Repayments under revolving line of credit (325,173) (364,935)
Principal payments on long-term debt (371) (1,970)
Proceeds from exercise of stock options 268 810
Purchase of treasury stock (4,603) --
Debt issuance costs (649) (616)
------------ -------------
Cash flows from financing activities 23,252 (33,963)
Increase (decrease) in cash 2,461 (3,595)
Cash, beginning of period 708 4,051
------------ -------------
Cash, end of period $3,169 $456
============ =============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $6,137 $3,544
Income taxes 1,853 1,281
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 nine-month periods ended March 31, 2000 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 common 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 nine months ended March 31, 2000 adds to income the
earnings that would be included in the Company's consolidated net
income for the periods as if the
<PAGE> 7
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convertible PBI stock had been converted to the Company's common stock
at the beginning of the period.
The reconciliation of the numerator and denominator of the basic and
diluted earnings per common share computations is as follows:
<TABLE>
<CAPTION>
Quarter Ended March 31, 2000 Quarter Ended March 31, 1999
------------------------------------------ -------------------------------------------
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 $2,477,800 4,163,481 $0.60 $2,073,581 3,841,253 $0.54
EFFECT OF DILUTED SECURITIES:
Options and warrants 106,541 174,494
Convertible PBI stock 43,380 200,000 (1,063) 200,000
----------- ---------- ------------ ----------
DILUTED EPS:
Net Income available to
Common stockholders plus
Assumed conversions $2,521,180 4,470,022 $0.56 $2,072,518 4,215,747 $0.49
----------- ---------- ------------ ----------
<CAPTION>
Nine-Months Ended March 31, 2000 Nine-Months Ended March 31, 1999
------------------------------------------ -------------------------------------------
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 $5,753,624 4,264,921 $1.35 $4,565,961 3,785,259 $1.21
EFFECT OF DILUTED SECURITIES:
Options and warrants 126,204 177,162
Convertible PBI stock 105,344 200,000 47,193 200,000
----------- ---------- ------------ ----------
DILUTED EPS:
Net Income available to
Common stockholders plus
Assumed conversions $5,858,968 4,591,125 $1.28 $4,613,154 4,162,421 $1.11
----------- ---------- ------------ ----------
<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 March 31, 2000, the maximum allowable amount of receivables
eligible to be sold was $75 million, an increase of $15 million over
the amount allowable
<PAGE> 8
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at December 31, 1999. The amount available at any settlement date
varies based upon the level of eligible receivables. Under this
agreement, $60 million of accounts receivable were sold as of March
31, 2000. This sale is reflected as a reduction in accounts
receivable in the accompanying condensed consolidated balance sheets
and as operating cash flows in the accompanying condensed consolidated
statements of cash flows for the nine-month period ended March 31,
2000. Accordingly, the Company's trade accounts receivable and
long-term debt at March 31, 2000 are net of $60 million, which
represent accounts receivable that were sold under the Securitization.
The Securitization bore 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 starts on or after October 1
but not later than December 1 of each year and continues 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 March 31, 2000 and June 30, 1999, the unused portion of
the line of credit amounted to $41.9 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%. The Company
has 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 May 8, 2000, the LIBOR
was 6.43%.
On May 4, 2000, the Company entered into a $20 million fixed rate
interest swap with a nominal rate of 7.30% which terminates August
6, 2001.
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 $197,000 and $52,000 for the three-month
periods ended March 31, 2000 and March 31, 1999 ($266,000 and
$121,000, respectively, before goodwill amortization). The Company's
equity in the net income of PBI totaled $476,000 and $295,000 for
the nine-month periods ended March 31, 2000 and March 31, 1999,
respectively ($683,000 and $502,000, respectively, before goodwill
amortization).
<PAGE> 9
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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 March
31, 2000, are included in the 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 threshold 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) 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.
<PAGE> 10
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<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999 2000 1999
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers -
Wholesale drug distribution $426,524 $213,416 $1,085,466 $590,416
Other 712 568 2,233 1,287
-------- -------- ---------- --------
Total $427,236 $213,984 $1,087,699 $591,703
Intersegment sales -
Wholesale drug distribution $ -- $ -- $ -- $ --
Other 65 54 221 54
Intersegment eliminations (65) (54) (221) (54)
-------- -------- ---------- --------
Total $ -- $ -- $ -- $ --
Net Sales -
Wholesale drug distribution $426,524 $213,416 $1,085,466 $590,416
Other 777 622 2,454 1,341
Intersegment eliminations (65) (54) (221) (54)
-------- -------- ---------- --------
Total $427,236 $213,984 $1,087,699 $591,703
Gross Profit -
Wholesale drug distribution $ 14,613 $ 11,663 $ 38,114 $ 29,173
Other 650 542 1,970 1,212
-------- -------- ---------- --------
Total $ 15,613 $ 12,205 $ 40,084 $ 30,385
Pre-tax income
Wholesale drug distribution $ 3,645 $ 3,232 $ 8,233 $ 7,017
Other 384 168 1,122 468
-------- -------- ---------- --------
Total $ 4,029 $ 3,400 $ 9,355 $ 7,485
</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.
Note 6. On April 11, 2000 the Company announced that Jewett Drug
Co., a wholly owned subsidiary of the Company, had been notified
that the supply contract with its largest customer will be
terminated effective May 31, 2000. This mail order customer's sales
represented 20.1% of the Company's net sales for the nine months
ended March 31, 2000. The Company does not believe that the loss of
this customer will have a material adverse effect on its
consolidated results of operations or financial condition.
<PAGE> 11
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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 March 31, 2000 and June 30, 1999, and in the
condensed consolidated statements of operations for the three-month
and nine-month periods ended March 31, 2000 and March 31, 1999,
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 $213.2 million, or 99.7%, for the
---------
quarter ended March 31, 2000, 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, chain store sales
increased $97.7 million, mail order sales increased $86.6 million, and
independent pharmacy sales increased by $35.3 million. Jewett mail
order sales included approximately $ 85.2 million for the three months
ended March 31, 2000 to a customer who notified the Company that the
supply contract would be terminated effective May 31, 2000. See
Footnote 6 in Notes to Condensed Consolidated Financial Statements
for further information.
Net sales increased $496.0 million, or 83.8% for the nine months
ended March 31, 2000, 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 $218.1 million, chain
store sales increased $170.1 million, and independent pharmacy sales
increased by $122.5 million. Jewett mail order sales included
approximately $218.3 million for the nine months ended March 31,
2000 to a customer who notified the Company that the supply contract
would be terminated effective May 31, 2000. See Footnote 6 in Notes
to Condensed Consolidated Financial Statements for further
information.
In addition, the quarter and nine months ended March 31, 2000
contained $9.7 million and $35.4 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 $92.6 million
and $171.0 million, respectively, for the quarter and nine months
ended March 31, 1999.
Gross Profit Gross profit increased 25.1% to $15.3 million for the
------------
quarter ended March 31, 2000, compared to the corresponding period
of the prior year. As a percentage of net sales, gross margin
decreased from 5.70% to 3.57% for the quarter ended March 31, 2000,
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 6.14% to 3.62% for the quarter ended March
31, 2000, compared to the corresponding period of the prior year.
Gross profit increased 31.9% to $40.1 million for the nine months
ended March 31, 2000, compared to the corresponding period of the
prior year. As a percentage of net sales, gross margin decreased
from 5.14% to 3.69% for the nine months ended March 31, 2000,
compared to the corresponding period of
<PAGE> 13
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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 5.37% to
3.72% for the nine months ended March 31, 2000, compared to the
corresponding period of the prior year. Management anticipates
continued competitive pressures.
Operating Expenses Operating expenses increased $1.4 million, or
------------------
18.8%, for the quarter and increased $4.9 million, or 24.9%, to
$24.6 million for the nine months ended March 31, 2000 compared to
the corresponding periods of the prior year. The ratio of operating
expenses to net sales for the quarter decreased to 2.09% from 3.51%
while the ratio for the first nine months of fiscal 2000 was 2.26%,
a 106 basis point decrease from the comparable period of the prior
year. This decrease was a result of the increased sales and
efficiencies realized from the higher sales activity. The increase
in operating expenses for the quarter and nine months ended March
31, 2000 resulted primarily from the addition of the Jewett
operations.
Interest Expense, Net Net interest expense increased $1.2 million
---------------------
or 83.1% for the quarter and $3.1 million or 86.4% for the nine
months ended March 31, 2000, compared to the corresponding periods
of the prior year. As a percentage of net sales, net interest
expense decreased to 0.60% from 0.65% for the quarter ended March
31, 2000, compared to the corresponding period of the prior year.
This ratio for the first nine months of fiscal 2000 was 0.62%
compared to 0.61% in the corresponding period of last year. The
increase interest expense was primarily due to higher interest rates
and more debt incurred in connection with the higher inventory levels
needed to support the sales growth of the Company, and the Jewett Drug
Co. acquisition.
Other Income, Net Other income, net increased from $95,000 to
-----------------
$234,000 for the quarter and increased from $363,000 to $549,000 for
the nine months ended March 31, 2000, compared to the corresponding
periods of the prior year. The increases in other income, net were
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 $196,000 and $930,000, respectively, for the
quarter ended March 31, 2000 and March 31, 1999 and approximately
$354,000 and $1,382,000, respectively, for the nine months ended
March 31, 2000 and March 31, 1999.
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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.
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>
March 31, June 30,
2000 1999
---- ----
<S> <C> <C>
Working capital (000's) $49,250 $20,068
Current ratio 1.21 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.
The Company invested $2,043,000 in capital assets in the nine-month
period ended March 31, 2000, as compared to $545,000 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 $23.3 million for the
nine-month period ended March 31, 2000 as compared to cash outflows
of $34.0 million for the corresponding period in the prior year.
The current year increase in cash inflows is primarily due to the
increase in borrowing under the revolver supporting the increase in
inventories. 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 March 31,
2000, the revolving line of credit provided a maximum borrowing
capacity of $120.0 million, which includes the seasonal facility of
$25.0 million. At March 31, 2000 and June 30, 1999, the unused
portion of the line of credit amounted to $41.9 million and
<PAGE> 15
Page 15 of 18
$55.5 million, respectively. In addition, at March 31, 2000, the
Securitization provided a maximum capacity of $75.0 million. At
March 31, 2000, $60.0 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.
Year 2000:
---------
The Company has not been adversely affected by any Year 2000
problems as of the filing date and does not anticipate any such
problems in the future. As of March 31, 2000, 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. No additional spending is anticipated.
<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 18.
(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: May 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**> Fifth Amendment to the Fourth Amended and Restated Loan and
Security Agreement, dated February 29, 2000 between registrant
and Fleet Capital Corporation.
10.2<F**> Third Amendment to Receivable Purchase Agreement, dated March
31, 2000 between registrant, Blue Keel Funding, LLC and Fleet
National Bank.
27<F**> Financial data schedule.
<FN>
<F*> Incorporated by reference.
<F**> Filed herewith
</TABLE>
<PAGE> 1
Exhibit 10.1
FIFTH AMENDMENT TO FOURTH AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
---------------------------
THIS FIFTH AMENDMENT TO FOURTH AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (this "Amendment") is made as of February 29, 2000, 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 on and subject to the terms hereof.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Increase in Letter of Credit Sublimit. The Loan Agreement is hereby
-------------------------------------
amended by deleting Section 1.2 [RELATING TO LETTERS OF CREDIT; LC GUARANTIES]
in its entirety and replacing it the following new Section 1.2:
1.2 Letters of Credit; LC Guaranties. Lender agrees, for so
--------------------------------
long as no Default or Event of Default exists and if requested by D&K on
its own behalf or as agent for any Borrower, to (i) issue its or cause to
be issued its Affiliate's, Letters of Credit for the account of any
Borrower, or (ii) execute LC Guaranties by which Lender or its Affiliate
shall guaranty the payment of performance by any Borrower of its
reimbursement obligations with respect to Letters of Credit and letters
of credit issued for Borrower's account by any other Persons in support
of such Borrower's obligations (other than obligations for the repayment
of Money Borrowed), provided that the LC Amount at any time shall not
--------
exceed $25,000,000. No Letter of Credit or LC Guaranty may have an
expiration date that is after the last day of the Original Term. Any
amounts paid by Lender under any LC Guaranty or in connection with any
Letter of Credit shall be treated as Revolving Credit Loans, shall be
secured by all of the Collateral, and shall bear interest and be payable
at the same rate and in the same manner as Revolving Credit Loans.
2. 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.
<PAGE> 2
3. 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: SVP
D & K HEALTHCARE RESOURCES, INC.
By: /s/ Thomas S. Hilton
-------------------------------------------
Name: Thomas S. Hilton
Title: Senior VP and CFO
JARON, INC.
By: /s/ Thomas S. Hilton
-------------------------------------------
Name: Thomas S. Hilton
Title: VP
JEWETT DRUG CO.
By: /s/ Thomas S. Hilton
-------------------------------------------
Name: Thomas S. Hilton
Title: VP
<PAGE> 1
EXHIBIT 10.2
THIRD AMENDMENT TO
RECEIVABLES PURCHASE AGREEMENT
------------------------------
This Third Amendment to Receivables Purchase Agreement, dated as of March
31, 2000 (this "Amendment"), is among D&K RECEIVABLES CORPORATION, a Delaware
---------
corporation ("Seller"), D&K HEALTHCARE RESOURCES, INC., a Delaware
------
corporation ("Parent"), BLUE KEEL FUNDING, LLC, a Delaware limited liability
------
company ("Purchaser"), and FLEET NATIONAL BANK, a national banking
---------
association, as administrator for Purchaser (in such capacity, the
"Administrator").
------------
BACKGROUND
1. Seller, Parent, Purchaser and the Administrator are parties to that
certain Receivables Purchase Agreement, dated as of August 7, 1998, as
amended by the First Amendment to Receivables Purchase Agreement, dated as of
December 17, 1998, and by the Second Amendment to Receivables Purchase
Agreement, dated as of June 1, 1999 (the "Receivables Purchase Agreement").
------------------------------
2. The parties hereto desire to amend the Receivables Purchase Agreement
in certain respects as set forth herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Definitions. Capitalized terms used in this Amendment and
-----------
not otherwise defined herein shall have the meanings assigned thereto in the
Receivables Purchase Agreement.
SECTION 2. Purchase Limit. Section 1.01 of the Receivables Purchase
-------------- ------------
Agreement is hereby amended by deleting the number "$60,000,000" where it
appears in clause (a) thereof and substituting therefor the number
----------
"$75,000,000".
SECTION 3. Weekly Settlement Date; Weekly Servicer Reports. Section
----------------------------------------------- -------
1.02(a) of the Receivables Purchase Agreement is hereby amended by deleting
- -------
the second sentence thereof in its entirety and substituting therefor the
following:
Each such notice of a proposed Purchase shall be substantially in the
form of Exhibit 1.02(a) (each a "Purchase Notice"), and shall specify the
--------------- ---------------
desired amount and date of such Purchase, which shall be a Weekly
Settlement Date.
Section 2.04 of the Receivables Purchase Agreement is hereby amended by
------------
(i) deleting the phrase "Settlement Period" where it appears in clause (iii)
------------
thereof and substituting therefor the phrase "Earned Discount Period" and
(ii) deleting the phrase "Settlement Period" where it appears in clause (iv)
-----------
thereof and substituting therefor the word "period".
<PAGE> 2
Section 3.01 of the Receivables Purchase Agreement is hereby amended by
------------
deleting the phrase "with respect to each Settlement Period" where it appears
in the lead-in clause thereof. Section 3.01(a) of the Receivables Purchase
---------------
Agreement is hereby amended by (i) adding the phrase "the earlier of the
second Weekly Settlement Date to occur after each Cut-Off Date and"
immediately after the phrase "On or before" in the first line thereof, (ii)
deleting the word "each" where it appears before the phrase "Cut-Off Date" in
the third line thereof and substituting therefor the word "such" and (iii)
adding a new sentence at the end thereof as follows:
On or before the date that is two Business Days immediately preceding each
Weekly Settlement Date (each, a "Weekly Reporting Date"), Servicer shall
---------------------
deliver to the Administrator a report containing the information
described in Exhibit 3.01(b) for the period from Wednesday of the
---------------
immediately preceding week to the Business Day immediately preceding such
Weekly Reporting Date (each, a "Weekly Servicer Report").
----------------------
Exhibit 3.01(b) attached to this Amendment is hereby added as an exhibit
---------------
to the Receivables Purchase Agreement.
Section 3.01(b) of the Receivables Purchase Agreement is hereby amended
---------------
by (i) adding the word "Weekly" immediately prior to the phrase "Reporting
Date" where it appears in the second line thereof, (ii) deleting the text of
clause (i) thereof and substituting therefor the following: "the amount of
- ----------
Earned Discount that will have accrued in respect of the Capital allocated to
the Earned Discount Period ending on the Weekly Settlement Date immediately
following such Weekly Reporting Date", (iii) adding the phrase "if such
Weekly Reporting Date relates to a Monthly Settlement Date," at the beginning
of clause (ii) thereof and (iv) adding the word "Monthly" immediately prior
-----------
to the phrase "Settlement Date" where it appears in clause (ii) thereof.
-----------
Sections 3.01(c) and (d) of the Receivables Purchase Agreement are hereby
- ---------------- ---
deleted in their entirety, and the following shall be substituted therefor:
(c) Settlement Date Procedure - Reinvestment Period. On each Weekly
-----------------------------------------------
Settlement Date, the Servicer shall distribute from Collections set aside
pursuant to Sections 1.03(a)(i) through (iii) during the Settlement
------------------- -----
Period in which such Weekly Settlement Date occurs (to the extent not
previously distributed pursuant to this Section 3.01(c)) the following
----------------
amounts in the following order:
(1) to the Administrator, an amount equal to the Earned
Discount accrued during the Earned Discount Period ending on such
Weekly Settlement Date on the portion of the Capital allocated to
such Earned Discount Period, plus any previously accrued Earned
Discount not paid on any prior Weekly Settlement Date that remains
unpaid, which amount shall be distributed by the
<PAGE> 3
Administrator to the Purchaser for application to such Earned
Discount;
(2) if such Weekly Settlement Date is also a Monthly Settlement
Date, to the Administrator, an amount equal to the Program Fee and
Commitment Fee accrued during the Settlement Period ending on such
Monthly Settlement Date, plus any previously accrued amounts
----
described in this clause (2) not paid on any prior Monthly Settlement
----------
Date that remain unpaid;
(3) if such Weekly Settlement Date is also a Monthly Settlement
Date, to the Servicer, if the Servicer is not Parent, an amount equal
to the Purchaser's Share of the Servicer's Fee accrued during the
Settlement Period ending on such Monthly Settlement Date, plus any
----
previously accrued Purchaser's Share of the Servicer's Fee not paid
on a prior Monthly Settlement Date that remains unpaid;
(4) to the Administrator, all other amounts (other than
Capital) then due under this Agreement to the Administrator, the
Purchaser, the Affected Parties or the Indemnified Parties;
(5) to the Administrator, an amount equal to the Excess Amount,
if any, which amount shall be distributed by the Administrator to the
Purchaser for application to the Capital;
(6) if such Weekly Settlement Date is also a Monthly Settlement
Date, to the Servicer, if the Servicer is Parent, an amount equal to
the Purchaser's Share of the Servicer's Fee accrued during the
Settlement Period ending on such Monthly Settlement Date, plus any
----
previously accrued Purchaser's Share of the Servicer's Fee not paid
on a prior Monthly Settlement Date that remains unpaid; and
(7) if such Weekly Settlement Date is also a Monthly Settlement
Date, to the Seller, any remaining amounts.
(d) Settlement Date Procedure - Liquidation Period. On each Weekly
----------------------------------------------
Settlement Date during the Liquidation Period, the Servicer shall
distribute from Purchaser's Share of Collections received or deemed
received pursuant to Section 3.02 during the Settlement Period in which
------------
such Weekly Settlement Date occurs (to the extent not previously
<PAGE> 4
distributed pursuant to this Section 3.01(d)), the following amounts in
----------------
the following order:
(1) to the Administrator, an amount equal to the Earned
Discount accrued during the Earned Discount Period ending on such
Weekly Settlement Date on the portion of the Capital allocated to
such Earned Discount Period, plus any previously accrued Earned
----
Discount not paid on any prior Weekly Settlement Date that remains
unpaid, which amount shall be distributed by the Administrator to the
Purchaser for application to such Earned Discount;
(2) if such Weekly Settlement Date is also a Monthly Settlement
Date, to the Administrator, an amount equal to the Program Fee and
Commitment Fee accrued during the Settlement Period ending on such
Monthly Settlement Date, plus any previously accrued Program Fee and
----
Commitment Fee not paid on a prior Monthly Settlement Date that
remain unpaid;
(3) if such Weekly Settlement Date is also a Monthly Settlement
Date, to the Servicer, if the Servicer is not Parent, an amount equal
to the Purchaser's Share of the Servicer's Fee accrued during the
Settlement Period ending on such Monthly Settlement Date, plus any
----
previously accrued Purchaser's Share of the Servicer's Fee not paid
on a prior Monthly Settlement Date that remains unpaid;
(4) to the Administrator, an amount equal to the remaining
Purchaser's Share of Collections until the Capital is reduced to
zero, which amount shall be distributed by the Administrator to the
Purchaser for application to the Capital;
(5) to the Administrator, all other amounts (other than
Capital) then due under this Agreement to the Administrator, the
Purchaser, the Affected Parties or the Indemnified Parties;
(6) if such Weekly Settlement Date is also a Monthly Settlement
Date, to the Servicer, if the Servicer is Parent, an amount equal to
the Purchaser's Share of the Servicer's Fee accrued during the
Settlement Period ending on such Monthly Settlement Date, plus any
----
previously accrued Purchaser's Share of the Servicer's Fee not paid
on a prior Monthly Settlement Date that remains unpaid; and
<PAGE> 5
(7) if such Weekly Settlement Date is also a Monthly Settlement
Date, to the Seller, any remaining amounts.
Section 3.02(b) of the Receivables Purchase Agreement is hereby amended
---------------
by adding the word "Weekly" immediately before the phrase "Settlement Date"
where it appears in clause (iii) thereof.
------------
Section 4.03 of the Receivables Purchase Agreement is hereby amended by
------------
(i) deleting the phrase "Settlement Period" where it appears in clause (i)
----------
thereof and substituting therefor the phrase "Earned Discount Period" and
(ii) deleting the phrase "within thirty days of written notice" where it
appears in the first sentence thereof and substituting therefor the phrase
"upon demand".
Section 5.02(a) of the Receivables Purchase Agreement is hereby amended
---------------
by deleting the phrase "Servicer Report with respect to the immediately
preceding calendar month" where it appears therein and substituting therefor
the phrase "Weekly Servicer Report with respect to the period from Wednesday
of the immediately preceding week to the Business Day immediately preceding
the related Weekly Reporting Date".
Section 6.01(1) and 6.02(i) of the Receivables Purchase Agreement are
--------------- -------
hereby amended by adding the phrase ", Weekly Servicer Report" immediately
after the phrase "Servicer Report" where it appears in the first line
thereof.
Section 10.01(b) of the Receivables Purchase Agreement is hereby amended
----------------
by adding the phrase ", Weekly Servicer Report" after the phrase "Daily
Report" where it appears therein. Section 10.01(i) of the Receivables
----------------
Purchase Agreement is hereby amended by adding the word "Weekly" immediately
prior to the phrase "Settlement Date" where it appears therein. Section
-------
13.01(b) of the Receivables Purchase Agreement is hereby amended by adding
- --------
the phrase ", any Weekly Servicer Report, any Daily Report" after the phrase
"Servicer Report" where it appears in clause (i) thereof.
----------
SECTION 4. Cost of Funds Rate; Definitions. The definition of "Earned
------------------------------- ------
Discount Rate" that appears in Appendix A to the Receivables Purchase
- ------------- ----------
Agreement is hereby amended by deleting the word "LIBOR" where it appears in
clause (b) thereof and substituting therefor the phrase "Cost of Funds Rate".
- ----------
The definition of "Cost of Funds Rate" that appears in Appendix A to the
----------
Receivables Purchase Agreement is hereby deleted in its entirety, and the
following is hereby substituted therefor:
"Cost of Funds Rate" means for any Earned Discount Period or portion
------------------
thereof the sum of (i) the rate equivalent to the rate (or if more than
one rate, the weighted average of rates) at which Commercial Paper Notes
having a term equal to such Earned Discount Period and to be issued to
fund or maintain the Capital allocated by the Administrator to such
Earned
<PAGE> 6
Discount Period may be sold by any placement agent or commercial
paper dealer selected by the Administrator or a Conduit Facilitator;
provided, however, if the rate (or rates) as agreed between any such
-------- -------
agent or dealer and the Purchaser or a Conduit Facilitator with regard to
any Earned Discount Period is a discount rate or (rates), the "Cost of
Funds Rate" for such Earned Discount Period shall be the rate (if more
than one rate, the weighted average of the rates) resulting from
converting such discount rate (or rates) to an interest-bearing
equivalent rate (or rates) per annum, plus (ii) without duplication, the
----
commissions and charges related to such Commercial Paper Notes, converted
to an interest-bearing equivalent rate per annum.
Appendix A to the Receivables Purchase Agreement is hereby amended by
----------
adding the following definitions in appropriate alphabetical order:
"Conduit Facilitator" means any entity that issues Commercial Paper Notes
-------------------
the proceeds of which are loaned to Purchaser to fund its investments in
accounts receivables or other financial assets.
"Earned Discount Period" means a period from, and including, a Weekly
----------------------
Settlement Date to, but excluding, the Weekly Settlement Date that occurs
four weeks thereafter.
"Monthly Settlement Date" means the first Weekly Settlement Date to occur
-----------------------
on or after the Reporting Date for each calendar month.
"Weekly Reporting Date" is defined in Section 3.01(a).
--------------------- ---------------
"Weekly Servicer Report" is defined in Section 3.01(a).
---------------------- ---------------
"Weekly Settlement Date" means each Friday, or, if such day is not a
----------------------
Business Day, the next succeeding Business Day.
The definitions of "LIBOR" and "Settlement Date" that appear in Appendix A
----- ----------
are hereby deleted in their entirety. The definition of "Settlement
Period" that appears in Appendix A to the Receivables Purchase Agreement is
----------
hereby amended by inserting the word "Monthly" before the phrase "Settlement
Date" each time that such phrase appears in clause (ii) thereof.
-----------
The definitions of "Earned Discount", "Earned Discount Rate", "Eurodollar
Rate (Reserve Adjusted)" and "Liquidation Fee" that appear in Appendix A are
----------
hereby amended by deleting the phrase "Settlement Period" each time it
appears therein and substituting therefor the phrase "Earned Discount
Period".
<PAGE> 7
Notwithstanding the foregoing amendments, Earned Discount with respect to
the Capital outstanding on the date hereof shall continue to accrue at the
rate set forth in the Receivables Purchase Agreement before giving effect to
this Amendment until the next Settlement Date (as defined in the Receivables
Purchase Agreement before giving effect to this Amendment).
SECTION 5. Excluded Obligor. Receivables owed by Appalachian Regional
----------------
Healthcare shall not be Eligible Receivables, and shall be excluded for
purposes of calculating the Sales-Based Dilution Ratio, Default Ratio and
Delinquency Ratio.
SECTION 6. Special Concentration Limit. Schedule A to the Receivables
--------------------------- ----------
Purchase Agreement is hereby amended by (i) deleting ARH and (ii) adding a
new Obligor as follows:
Walgreens A1/P1 25.00%
SECTION 7. Financial Covenant. Section 7.01(k) of the Receivables
------------------
Purchase Agreement is hereby deleted in its entirety and the following is
substituted therefor:
"(k) Financial Covenant. Parent will maintain at all times during the
------------------
period specified below a Capital Base in an amount not less than the
amount shown below for the period corresponding thereto (excluding any
purchases by Parent of its own stock made between May 20, 1999 and June
1, 2000 pursuant to a consent letter from Fleet Capital Corporation dated
May 20, 1999):
<TABLE>
<CAPTION>
Period Amounts
------ -------
<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>
SECTION 8. Representations and Warranties. Each of Parent and Seller
------------------------------
hereby represents and warrants that, after giving effect to this Amendment,
(i) the representations and warranties contained in Article VI of the
----------
Receivables Purchase Agreement are true and correct on and as of the date
hereof and shall be deemed to have been made on such date (except that any
such representation or warranty that is expressly stated as being made only
as of a specified earlier date shall be true and correct in all material
respects as of such earlier date) and (ii) no Liquidation Event or Unmatured
Liquidation Event has occurred and is continuing.
SECTION 9. Effectiveness. This Amendment shall become effective upon
-------------
the receipt by the Administrator of (i) copies of this Amendment duly
executed by Seller and Parent, (ii) the fee required to be paid in connection
herewith as set forth in the fee letter dated as of the date hereof with the
Administrator and (iii) a certificate of the Secretary or Assistant Secretary
of each of Seller and Parent certifying (A) that the certificate of
<PAGE> 8
incorporation and by-laws of such Person previously delivered to the
Administrator have not been amended, except as set forth in such
certificate, or revoked, (B) that attached thereto are resolutions of its
Board of Directors approving this Amendment and (C) the names and true
signatures of the officers authorized on its behalf to execute and deliver
this Amendment.
SECTION 10. Miscellaneous. The Receivables Purchase Agreement , as
-------------
amended hereby, remains in full force and effect. Any reference to the
Receivables Purchase Agreement from and after the date hereof shall be deemed
to refer to the Receivables Purchase Agreement as amended hereby. This
Amendment may be executed in counterparts, each of which when so executed
shall be deemed to be an original and all of which when taken together shall
constitute one and the same agreement. This Amendment shall be governed by,
and construed in accordance with, the laws of the State of New York. Seller,
on demand, shall pay, or reimburse the Administrator for, all of the costs
and expenses, including legal fees and disbursements, incurred by the
Administrator or Purchaser in connection with this Amendment.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
<PAGE> 9
IN WITNESS WHEREOF, each of the undersigned has caused this Amendment to
be executed and delivered by its duly authorized officer as of the date first
above written.
D&K RECEIVABLES CORPORATION
By: /s/ Thomas S. Hilton
---------------------------
Name: Thomas S. Hilton
---------------------------
Title: Senior Vice President & CFO
---------------------------
D&K HEALTHCARE RESOURCES, INC.
By: /s/ Thomas S. Hilton
---------------------------
Name: Thomas S. Hilton
---------------------------
Title: Senior Vice President & CFO
---------------------------
BLUE KEEL FUNDING, LLC, as Purchaser
By: /s/ Bernard J. Angelo
-----------------
Name: Bernard J. Angelo
Title: Vice President
FLEET NATIONAL BANK, as the Administrator
By: /s/Paul Schmieder
--------------
Name: Paul Schmieder
Title: Vice President
<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> MAR-31-2000
<CASH> 3,169
<SECURITIES> 0
<RECEIVABLES> 53,677
<ALLOWANCES> 1,203
<INVENTORY> 221,160
<CURRENT-ASSETS> 278,799
<PP&E> 14,810
<DEPRECIATION> 7,500
<TOTAL-ASSETS> 336,701
<CURRENT-LIABILITIES> 229,549
<BONDS> 0
<COMMON> 45
0
0
<OTHER-SE> 37,523
<TOTAL-LIABILITY-AND-EQUITY> 336,701
<SALES> 1,087,699
<TOTAL-REVENUES> 1,088,248
<CGS> 1,047,615
<TOTAL-COSTS> 1,072,180
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,713
<INCOME-PRETAX> 9,355
<INCOME-TAX> 3,602
<INCOME-CONTINUING> 5,753
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,753
<EPS-BASIC> 1.35
<EPS-DILUTED> 1.28
</TABLE>
