D&K Healthcare Resources Reports First Quarter Fiscal 2004 Results and Enters Agreement to Acquire Walsh Healthcare Solutions.Business Editors ST. LOUIS--(BUSINESS WIRE)--Oct. 22, 2003 D&K Healthcare Resources, Inc. (Nasdaq:DKHR): -- Company lowers full-year earnings outlook -- Acquisition will strengthen and grow company's core distribution business and will be immediately accretive to earnings D&K Healthcare Resources, Inc. (Nasdaq: DKHR) today reported first quarter fiscal 2004 results and announced it has signed a definitive agreement to acquire Walsh Walsh has several meanings: Mathematics
D&K reported first quarter fiscal 2004 diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of (EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. ) of $0.10 on net income of $1.5 million for the first quarter of fiscal 2004 ended September September: see month. 30, 2003. The results compare with a year-ago first quarter diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. EPS loss of $0.10 on a net loss of $1.4 million including the cumulative effect of an accounting change related to the adoption of SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System No. 142. Excluding the cumulative effect of an accounting change diluted EPS last year were $0.19 on net income of $2.9 million. For the fiscal year, D&K now anticipates diluted EPS in the range $0.90 to $1.05. Earnings guidance anticipates continued reduced activity in the national accounts trade class and continued pressure on gross profit, and excludes modest accretion The act of adding portions of soil to the soil already in possession of the owner by gradual deposition through the operation of natural causes. The growth of the value of a particular item given to a person as a specific bequest under the provisions of a will between the from the Walsh acquisition. Further details regarding the Walsh acquisition are included later in this release. D&K's previous guidance for fiscal 2004 was for full-year diluted EPS in the range of $1.10 to $1.20. "We did not meet our earnings goals in the first quarter and have now reevaluated our outlook for the full year," said J. Hord Armstrong, III, chairman and chief executive officer of D&K Healthcare Resources. "While we have reduced our expectations for the national accounts trade class, we remain encouraged by the sales growth in our core independent and regional pharmacies This article is a list of major pharmacies (also known as chemists and drugstores) by country. Australia Pharmacies in Australia are mostly independently-owned by pharmacists, often operated as franchises of retail brands offered by the three major trade class and the prospects of adding Walsh HealthCare to our business base. "Our efforts to broaden our national accounts trade class have been successful; however, inventory purchase and sale opportunities in the first quarter have been more limited than we anticipated," Armstrong said. "Because we believe that this weakness will likely persist beyond the quarter, we are adjusting our outlook for the year. Since the close of the quarter we have focused on analyzing these trends in order to provide a revised outlook for the full year." First-Quarter Results Fiscal 2004 first quarter net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight declined 10.4% to $478.5 million compared to $534.0 million in the year ago first quarter. The lower sales reflect a decline in the national accounts trade class, partially offset by higher sales in the independent and regional pharmacies and other healthcare providers trade classes, and the Pharmaceutical Buyers, Inc. (PBI PBI protein-bound iodine. PBI abbr. protein-bound iodine PBI, n See iodine, protein-bound. PBI protein-bound iodine. ) line of business. The fiscal first quarter is historically the company's seasonally slowest sales period. A summary of net sales for first quarter fiscal 2004 follows.
Net Sales Summary
----------------------------------------------------------------------
Q1 F04 % Change
(In thousands) vs. Q1 F03
----------------------------------------------------------------------
Independent and Regional Pharmacies $319,791 +13.7%
National Accounts 127,893 -42.7
-- Without F03 sales from single supplier (1) -- -8.8
Other Healthcare Providers 27,835 +2.3
PBI, Inc. 2,319 +43.9
Software Services/Other 710 -11.9
Total $478,548 -10.4
-- Without F03 sales from single supplier (1) -- +6.1
----------------------------------------------------------------------
(1) Excludes sales related to attractively priced purchase
opportunities from a single supplier in Q1 F03 of approximately
$83,000.
----------------------------------------------------------------------
Independent and Regional Pharmacies Net sales in the independent and regional pharmacies trade class increased 13.7% to $319.8 million, compared with $281.1 million in the year ago period. This rate of sales growth in the quarter is higher than both the year-ago first quarter and previous quarter. The company believes this sales growth reflects improved regional and independent retail pharmacy pharmacy, art of compounding and dispensing drugs and medication. The term is also applied to an establishment used for such purposes. Until modern times medication was prepared and dispensed by the physician himself. In the 18th cent. industry sales trends in the company's service territory as well as the impact of new business. National Accounts Net sales in the national accounts trade class declined 42.7% to $127.9 million compared with $223.2 million a year ago. Sales in this trade class continue to reflect fewer attractively priced purchase opportunities, particularly from one supplier that accounted for 2003 first quarter sales of approximately $83 million. Excluding sales related to attractively priced purchase opportunities from this supplier, year-over-year national accounts sales declined 8.8% in the fiscal 2004 first quarter. D&K believes the sales decline results from a continuation of trends identified in the fiscal 2003 fourth quarter and discussed in the company's Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. filed on September 29, 2003. Fewer than anticipated product price increases enacted by pharmaceutical manufacturers resulting in lower activity in the national accounts trade class combined with changes in manufacturers' inventory management practices resulting in reduced availability of product, impacted revenue in this trade class. During fiscal 2003, D&K Healthcare significantly broadened and diversified diversified (di·verˑ·s the national accounts trade class by expanding the array of both branded and generic pharmaceuticals it offers and increasing the supplier and customer base. Company-wide Performance D&K Healthcare reported first quarter 2004 gross profit of $18.1 million compared to $21.1 million in 2003. The decline in gross profit was driven by lower national accounts sales and fewer product price increases, which also resulted in lower gross profit margins Gross profit margin Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold. gross profit margin A measure calculated by dividing gross profit by net sales. . Operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. declined 2.6% in the first quarter while operating expenses as a percent of sales increased due to lower sales in the national accounts trade class. Income from operations as a percent of sales in the quarter declined to 1.02% from 1.41% in last year's first quarter also due to the impact of lower sales in national accounts. First quarter inventory levels increased compared to the previous quarter (June June: see month. 30, 2003), reflecting seasonal trends, while net interest expense declined to $2.1 million from $2.5 million in the year ago first quarter. Through October October: see month. 17, 2003, D&K Healthcare has repurchased 656,500 shares of its common stock at an average price of $10.17 per share under its one million-share repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. authorization The right or permission to use a system resource; the process of granting access. See access control. announced in September 2002. Second-Quarter and Full-Year Outlook D&K Healthcare management expects diluted EPS of $0.90 to $1.05 for fiscal year 2004. Full year earnings guidance includes continued reduced activity in the national accounts trade class and continued pressure on gross profit. This outlook compares with $1.03 per diluted EPS earned in fiscal 2003, excluding the cumulative effect of an accounting change related to the adoption of SFAS No. 142 ($0.30 per diluted share). At this time, the company estimates second quarter fiscal 2004 earnings to be in the range of $0.10 to $0.15 per diluted share on sales of $500 million to $525 million. This second quarter 2004 outlook compares with diluted EPS of $0.18 in the second quarter of fiscal 2003. Agreement to Acquire Walsh HealthCare Solutions, Inc. D&K Healthcare has signed a definitive agreement to acquire Walsh HealthCare Solutions, Inc. of Texarkana, Texas. Walsh is a family-owned, full-service full-ser·vice adj. Associated with or offering complete service: full-service gasoline pumps; full-service banks. pharmaceutical distributor with distribution centers located in San Antonio San Antonio (săn ăntō`nēō, əntōn`), city (1990 pop. 935,933), seat of Bexar co., S central Tex., at the source of the San Antonio River; inc. 1837. and Texarkana, Texas and Paragould, Arkansas Paragould is a city in Greene County, Arkansas, United States. According to 2006 Census Bureau estimates, the population of the city is 23,775. ranking it as the state's 17th largest city, behind Russellville. . Walsh reported net sales of approximately $900 million in its most recent fiscal year ended April 30, 2003. D&K Healthcare expects the acquisition to be immediately accretive to earnings per share with a modest earnings impact in fiscal 2004 and a significant earnings impact thereafter as integration activities take place. The transaction is expected to close by December December: see month. 31, 2003. Closing of the transaction is subject to receipt of required regulatory approvals and other customary terms and conditions, as well as Walsh's acquisition of 100% of the equity interests in a joint venture to which it is a party. "Walsh HealthCare's culture, geographic reach, and customer base fits nicely with D&K's strategy of strengthening and growing our core distribution business," said Mr. Armstrong. "The D&K and Walsh combination will deepen deep·en tr. & intr.v. deep·ened, deep·en·ing, deep·ens To make or become deep or deeper. deepen Verb to make or become deeper or more intense Verb 1. our capabilities in existing markets and expand our market reach into new territory. We're we're Contraction of we are. we're we are very excited about welcoming their customers and employees to the D&K Healthcare family." The acquisition purchase price of $99 million in cash includes the repayment of all Walsh bank debt. The purchase price will be subject to adjustment based on the net working capital at closing. D&K will utilize its existing revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility to finance the transaction. Walsh, founded in 1920 as Walsh-Lumpkin Drug, is the sixth-largest regional pharmaceutical distributor in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . Walsh serves customers in Texas, Arkansas Arkansas, river, United States Arkansas (ärkăn`zəs, är`kənsô'), river, c.1,450 mi (2,330 km) long, rising in the Rocky Mts., central Colo. , Louisiana Louisiana (ləwē'zēăn`ə, l  ē'–), state in the S central United States. It is bounded by Mississippi, with the Mississippi R. , Oklahoma Oklahoma (ōkləhō`mə), state in SW United States. It is bordered by Missouri and Arkansas (E); Texas, partially across the Red R. (S, W); New Mexico, across the narrow edge of the Oklahoma Panhandle (W); and Colorado and Kansas (N). , Kansas Kansas, state, United StatesKansas (kăn`zəs), midwestern state occupying the center of the coterminous United States. It is bordered by Missouri (E), Oklahoma (S), Colorado (W), and Nebraska (N). , Missouri Missouri, state, United States Missouri (mĭz  r`ē, –ə), one of the midwestern states of the United States. ,
Illinois Illinois, river, United StatesIllinois, river, 273 mi (439 km) long, formed by the confluence of the Des Plaines and Kankakee rivers, NE Ill., and flowing SW to the Mississippi at Grafton, Ill. It is an important commercial and recreational waterway. , Tennessee Tennessee, state, United States Tennessee (tĕn`əsē', tĕn'əsē`), state in the south-central United States. , Kentucky Kentucky, state, United States Kentucky (kəntŭk`ē, kĭn–), one of the so-called border states of the S central United States. It is bordered by West Virginia and Virginia (E); Tennessee (S); the Mississippi R. and Mississippi Mississippi, state, United States Mississippi (mĭs'əsĭp`ē), one of the Deep South states of the United States. It is bordered by Alabama (E), the Gulf of Mexico (S), Arkansas and Louisiana, with most of the border formed by . Approximately 96% of Walsh's sales are to independent and regional pharmacy customers with the remaining 4% to hospitals and other healthcare providers. The distribution facilities in San Antonio and Paragould were opened in 1999 and 2000, respectively. Today's Conference Call Webcast Today, at 10:00 a.m. Eastern time, D&K Healthcare will host a live audio Webcast of its discussion with the investment community regarding the company's fiscal 2004 first-quarter results and the Walsh announcement. The Webcast can be accessed at www.dkhealthcare.com. Following the live discussion, a replay of the Webcast will be available for replay through November 5, 2003. Company Description D&K Healthcare Resources, Inc., which had fiscal 2003 sales of $2.2 billion, is a full-service wholesale distributor of branded and generic pharmaceuticals and over-the-counter health and beauty aid products. Headquartered in St. Louis, D&K serves three classes of customers from six distribution centers: independent and regional pharmacies with locations in one or more of 26 states, primarily in the Midwest, Upper Midwest The Upper Midwest is a region of the United States with no universally agreed-upon boundary, but it almost always lies within the US Census Bureau's definition of the Midwest and includes the states of Minnesota and Wisconsin, as well as at least the Upper Peninsula of Michigan. and South; national accounts that operate locations in multiple regions of the United States; and other healthcare providers including hospitals, alternate-site care providers, and pharmacy benefit management A Pharmacy Benefit Manager (PBM) is a third party administrator of prescription drug programs. They are primarily responsible for processing and paying prescription drug claims. companies in its primary distribution area. D&K also offers a number of proprietary information systems, marketing and business management solutions, and owns a 70% equity stake in Pharmaceutical Buyers, Inc., a leading alternate-site group purchasing service located in Boulder Boulder, city, United States Boulder, city (1990 pop. 83,312), seat of Boulder co., N central Colo.; inc. 1871. A Rocky Mountain resort and a suburb of Denver, it is the seat of the Univ. of Colorado (1876). , CO. More information can be found at www.dkhealthcare.com. Forward-looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. This press release contains forward-looking statements within the meaning of the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. Such forward-looking statements are inherently subject to risks and uncertainties. The company's actual results could differ materially from those currently anticipated due to a number of factors, including without limitation, the competitive nature of the wholesale pharmaceutical distribution industry with many competitors having substantially greater resources than D&K Healthcare, the company's ability to maintain or improve its operating margins Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: with the industry's competitive pricing pressures, the company's customers and suppliers generally having the right to terminate or reduce their purchases or shipments on relatively short notice, the availability of investment purchasing opportunities, the company's ability to complete and integrate acquisitions successfully, the changing business and regulatory environment of the healthcare industry in which the company operates, including manufacturers' pricing or distribution policies or practices, changes in private and governmental reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. or in the delivery systems for healthcare products, changes in interest rates, and other factors set forth in reports and other documents filed by D&K Healthcare with the Securities and Exchange Commission from time to time. The reader should not place undue reliance on forward-looking statements, which speak only as of the date they are made. D&K Healthcare undertakes no obligation to publicly update or revise any forward-looking statements.
D&K HEALTHCARE RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended
------------------------------------------------
(Unaudited)
% of % of
September 30, Net September 30, Net %
2003 Sales 2002 Sales Change
------------------------------------------------
Net sales $478,548 100.00% $533,966 100.00% -10.4%
Cost of sales 460,460 96.22% 512,913 96.06% -10.2%
------------ -------------
Gross profit 18,088 3.78% 21,053 3.94% -14.1%
Operating expenses 13,188 2.76% 13,544 2.54% -2.6%
------------ -------------
Income from
operations 4,900 1.02% 7,509 1.41% -34.7%
Other income (expense):
Interest expense, net (2,147) -0.45% (2,513) -0.47% -14.6%
Other, net 36 0.01% (54) -0.01% -166.7%
------------ -------------
Income before income
tax provision and
minority interest 2,789 0.58% 4,942 0.93% -43.6%
Income tax provision (1,088) -0.23% (1,952) -0.37% -44.3%
Minority interest (234) -0.05% (128) -0.02% 82.8%
------------ -------------
Net income before
cumulative effect of
accounting change 1,467 0.31% 2,862 0.54% -48.7%
Cumulative effect of
accounting change, net - 0.00% (4,249) -0.80%
------------ -------------
Net income (loss) $1,467 0.31% $(1,387) -0.26% -205.8%
============ =============
Earnings per share -
basic $0.11 $(0.09)
Net income before
cumulative effect of
accounting change $0.11 $0.20
Cumulative effect of
accounting change $- $(0.29)
------------ -------------
Net income (loss) $0.11 $(0.09)
Earnings per share -
diluted $0.10 $(0.10)
Net income before
cumulative effect of
accounting change $0.10 $0.19
Cumulative effect of
accounting change $- $(0.29)
------------ -------------
Net income (loss) $0.10 $(0.10)
Basic common shares
outstanding 13,956 14,553
Diluted common shares
outstanding 14,194 14,850
D&K HEALTHCARE RESOURCES, INC.
Supplemental Information to the Condensed Consolidated
Statements of Operations
Three Months Ended
----------------------------
September 30, September 30,
2003 2002
------------- -------------
Reconciliation of non-GAAP
financial measurement :
Income from operations $4,900 $7,509
Depreciation and amortization 656 637
Other income, net 36 (54)
------------- -------------
EBITDA (a) $5,592 $8,092
============= =============
(a) Earnings before interest, income taxes, depreciation and
amortization
D&K HEALTHCARE RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, June 30,
(In thousands) 2003 2003
------------- ----------
(Unaudited)
Assets
Cash $12,517 $14,301
Receivables 100,507 122,982
Inventories 321,856 257,984
Other current assets 11,114 8,862
------------- ----------
Total current assets 445,994 404,129
Property and equipment, net 10,814 11,140
Other assets 8,933 11,511
Goodwill, net of accumulated amortization 44,105 44,105
Other intangible assets, net of accumulated
amortization 1,769 1,810
------------- ----------
Total assets $511,615 $472,695
============= ==========
Liabilities and Stockholders' Equity
Accounts payable $174,357 $173,342
Current portion long-term debt 1,510 1,677
Other current liabilities 11,535 13,471
------------- ----------
Total current liabilities 187,402 188,490
Long-term liabilities 3,707 3,703
Long-term debt 149,689 110,423
Stockholders' equity 170,817 170,079
------------- ----------
Total liabilities and stockholders' equity $511,615 $472,695
============= ==========
D&K HEALTHCARE RESOURCES, INC.
EARNINGS PER SHARE RECONCILIATION
(In thousands, except per share data)
Three-Months ended Three-Months ended
September 30, 2003 September 30, 2002
----------------------- -------------------------
(Unaudited) (Unaudited)
Income Shares Per- Income Shares Per-
(Numer- (Denomi- Share (Numer- (Denomi- Share
ator) nator) (1) Amount ator) nator) (1) Amount
----------------------- -------------------------
Basic Earnings per Share:
Net income before
cumulative effect of
accounting change,
net $1,467 13,956 $0.11 $2,862 14,553 $0.20
Cumulative effect of
accounting change,
net - - (4,249) - (0.29)
----------------- -------------------------
Net income (loss)
available to common
stockholders 1,467 13,956 (1,387) 14,553
Effect of Diluted Securities:
Options - 238 - 297
Convertible
securities (63) - (29) -
----------------- ------------------
Diluted Earnings per Share:
Net income (loss)
available to common
stockholders plus
assumed conversions $1,404 14,194 $0.10 $(1,416) 14,850 $(0.10)
================= ==================
(1) Outstanding shares computed on a weighted average basis
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