-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, aHV6zcuAuoYvwCEalxWMbUPEz9GyyLo+GHnC6GFGv1BoND+HspgFHA0/KnH7KlD0 GaZmlHXTm4g1/GrOUYMzHA== 0000823883-94-000002.txt : 19940118 0000823883-94-000002.hdr.sgml : 19940118 ACCESSION NUMBER: 0000823883-94-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19931130 FILED AS OF DATE: 19940114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOOK SUPERX INC CENTRAL INDEX KEY: 0000823883 STANDARD INDUSTRIAL CLASSIFICATION: 5912 IRS NUMBER: 311186877 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 34 SEC FILE NUMBER: 001-11122 FILM NUMBER: 94501454 BUSINESS ADDRESS: STREET 1: 175 TRI COUNTY PKWY CITY: CINCINNATI STATE: OH ZIP: 45246 BUSINESS PHONE: 5137823000 MAIL ADDRESS: STREET 1: 175 TRI-COUNTY PARKWAY CITY: CINCINNATI STATE: OH ZIP: 45246-3222 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarter Ended Commission File Number 1-11122 November 30, 1993 Hook-SupeRx, Inc. A Delaware Corporation Employer Identification Number 31-1186877 175 Tri-County Parkway Cincinnati, Ohio 45246-3222 513-782-3000 Indicate by check mark whether the registrant (1) has filed all reports require to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. At December 31, 1993, 20,860,830 shares were outstanding. The total number of pages included in this filing is 20. The exhibit index is located on page 19. HOOK-SUPERX, INC. INDEX PAGE NUMBER PART I. Financial Information Item 1. - Financial Statements Consolidated Balance Sheets at November 30, 1993 and August 31, 1993 1 Consolidated Statements of Operations and Accumulated Deficit for the three months ended November 30, 1993 and 1992 3 Consolidated Statements of Cash Flows for the three months ended November 30, 1993 and 1992 4 Notes to Consolidated Financial Statements 5 Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. Other Information 15 Signature 16 HOOK-SUPERX, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in thousands) November 30, 1993 August 31, 1993 ASSETS Current Assets Accounts receivable, less allowances for doubtful accounts of $10,954 and $11,786, respectively $ 38,019 $ 73,660 Inventories 374,885 337,185 Prepaid expenses and other current assets 21,540 8,532 __________ __________ Total current assets 434,444 419,377 Property and Equipment Land 8,285 8,285 Buildings 43,718 42,666 Store improvements 65,130 65,108 Fixtures and equipment 141,748 141,830 Leased property under capital leases 36,609 27,637 Leasehold interests 168,435 162,360 __________ __________ 463,925 447,886 Less allowances for accumulated depreciation and amortization (201,420) (192,463) __________ __________ 262,505 255,423 Other Assets 37,788 42,799 __________ __________ $ 734,737 $ 717,599 ========== ========== See Notes to Consolidated Financial Statements. 1 HOOK-SUPERX, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in thousands, except per share amounts) November 30, 1993 August 31, 1993 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Notes payable under revolving credit commitment $ 66,000 $ 81,000 Current portion of long-term debt 15,042 17,642 Current portion of obligations under capital leases 3,050 1,910 Accounts payable Trade 132,428 106,406 Related parties 7,578 10,166 Accrued liabilities Payroll and related taxes 45,162 50,305 State and local taxes other than income 16,880 17,861 Restructuring costs 16,190 18,851 Other 47,515 28,543 __________ __________ Total current liabilities 349,845 332,684 Long-term debt 247,358 247,358 Obligations under capital leases 30,720 23,606 Deferred credits and other liabilities 26,143 26,497 __________ __________ Total liabilities 654,066 630,145 Commitments and contingency Stockholders' Equity Preferred stock, par value $.01; 10,000,000 shares authorized, none issued Common stock, par value $.01; Authorized 100,000,000 shares; Issued: November 30, 1993-20,856,756 August 31, 1993-20,839,930 209 208 Additional paid in capital 134,947 134,831 Accumulated deficit ( 54,346) ( 47,440) Stockholders' notes receivable ( 21) ( 127) Treasury stock, at cost (November 30, 1993 - 49,166 shares August 31, 1993 - 15,833 shares) ( 118) ( 18) __________ __________ Total stockholders' equity 80,671 87,454 __________ __________ $ 734,737 $ 717,599 ========== ========== See Notes to Consolidated Financial Statements. 2 HOOK-SUPERX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT FOR THE THREE MONTHS ENDED NOVEMBER 30, 1993 AND 1992 (UNAUDITED) (dollars in thousands, except per share amounts) November 30, 1993 1992 (Restated) Net sales $ 567,877 $ 544,129 Cost of merchandise sold, including distribution costs 402,811 381,557 __________ __________ Gross profit 165,066 162,572 Costs and Expenses Selling, general and administrative 134,516 132,429 Rent 16,768 16,040 Depreciation and amortization 9,089 8,284 Interest 7,539 7,843 ___________ __________ Loss before income taxes and cumulative effect of accounting change ( 2,846) ( 2,024) Income taxes (benefit) ( 1,132) ___________ __________ Loss before cumulative effect of accounting change ( 1,714) ( 2,024) Cumulative effect of change in method of accounting for income taxes ( 5,192) Cumulative effect of change in method of accounting for postretirement benefits other than pensions ( 18,612) __________ __________ Net loss $( 6,906) $( 20,636) =========== ========== Loss per share: Before cumulative effect of accounting change $(.08) $(.10) Per share effect of cumulative effect of accounting change (.25) (.89) ______ ______ Net loss $(.33) $(.99) ====== ====== Weighted average number of shares outstanding 20,986,516 20,904,980 ========== ========== Accumulated deficit Beginning of period $(47,440) $( 25,209) Net loss ( 6,906) ( 20,636) _________ __________ End of period $(54,346) $( 45,845) ========= ========== See Notes to Consolidated Financial Statements. 3 HOOK-SUPERX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED NOVEMBER 30, 1993 AND 1992 (UNAUDITED) (dollars in thousands) 1993 1992 (Restated) CASH FLOWS FROM OPERATING ACTIVITIES Net loss $( 6,906) $( 20,636) Adjustments to reconcile net loss to net cash used in operating activities: Cumulative effect of change in accounting for income taxes 5,192 Cumulative effect of change in accounting for postretirement benefits other than pensions 18,612 Depreciation and amortization 9,089 8,284 Loss on sale of equipment 471 44 Increase in deferred income taxes ( 513) ( 3,520) Other, net 118 ( 270) Changes in operating assets and liabilities: Increase in accounts receivable ( 2,859) ( 12,067) Increase in inventories ( 37,700) ( 48,725) Increase in prepaid expenses and other current assets ( 2,700) ( 2,699) Increase in accounts payable 23,434 53,608 Decrease in accrued liabilities ( 2,858) ( 4,933) _________ _________ NET CASH USED IN OPERATING ACTIVITIES ( 15,232) ( 12,302) _________ _________ CASH FLOWS FROM INVESTING ACTIVITIES Purchase of equipment ( 2,175) ( 7,498) Proceeds from sale of receivables 36,000 Other, net ( 285) ( 1,162) _________ _________ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 33,540 ( 8,660) _________ _________ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from short-term borrowings 163,000 137,000 Reduction of short-term borrowings (178,000) (108,000) Repayments of obligations under capital leases ( 745) ( 382) Repayments of long-term debt ( 2,600) ( 3,000) Other, net 37 5 _________ _________ NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ( 18,308) 25,623 _________ _________ INCREASE (DECREASE) IN CASH 4,661 CASH, BEGINNING OF PERIOD __________ __________ CASH, END OF PERIOD $ $ 4,661 ========== ========== See Notes to Consolidated Financial Statements. 4 HOOK-SUPERX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (dollars in thousands, except per share amounts) NOTE A -- Consolidated Financial Statements The consolidated financial statements have been prepared by the Company, without audit, in accordance with generally accepted accounting principles and in the opinion of management include all adjustments necessary for a fair presentation of results of operations for the periods presented. Pursuant to the rules and regulations of the Securities and Exchange Commission, certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been omitted or condensed. It is management's belief that the disclosures made are adequate to make the information presented not misleading. It is recommended that these consolidated financial statements be read in conjunction with the consolidated financial statements for the year ended August 31, 1993, and the notes thereto. Inventories are stated at the lower of LIFO cost or market utilizing the retail and average cost methods. If these inventories had been valued on the first-in, first-out method of inventory valuation, the inventory values would have been approximately $69,687 and $67,287 higher at November 30, 1993 and August 31, 1993, respectively. The LIFO charge to operations for the three months ended November 30, 1993 and 1992 was $2,400 and $3,163, respectively. The Company considers all liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash paid for interest was approximately $3,256 and $3,907 for the three months ended November 30, 1993 and 1992, respectively. During the three months ended November 30, 1993 and 1992, the Company entered into capital lease obligations amounting to $9,000 and $449, respectively. The current year capital lease obligation entered into by the Company relates to equipment leased in connection with the Company's expansion to the Midwestern distribution facility. During the fourth quarter of Fiscal 1993, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 106 - Employers' Accounting for Postretirement Benefits Other Than Pensions. Consistent with the provisions of this statement, when adoption of this statement is in any quarter other than the first, the adoption is effective as of the beginning of the fiscal year of adoption. Accordingly, the Company has restated the operating results for the first quarter of Fiscal 1993 to give effect to this adoption as of the beginning of the fiscal year. The result of this restatement on the three months ended November 30, 1992, was an increase of $18,939 ($18,612 cumulative effect of an accounting change plus $327 current year effect of this change) in the previously reported net loss for this period. 5 HOOK-SUPERX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (dollars in thousands, except per share amounts) NOTE B -- Income Taxes In February 1992, the Financial Accounting Standards Board issued SFAS No. 109 - Accounting for Income Taxes. This statement requires a change from the deferred method of accounting for income taxes (as previously required by Accounting Principles Board Opinion ("APB") No. 11) to the liability method. Under the liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the carrying amount of assets and liabilities for financial reporting purposes and the tax bases of these assets and liabilities. Under SFAS No. 109, the effect on deferred taxes of a change in tax rates is recognized in the period that includes the enactment date. The Company adopted the provisions of SFAS No. 109 on September 1, 1993, and recorded the change in accounting for income taxes as the cumulative effect of an accounting change in the Consolidated Statements of Operations for the three months ended November 30, 1993. The cumulative effect of this adoption was a charge of $5,192 or $.25 per share. Prior year financial statements have not been restated to apply the provisions of SFAS No. 109. The net current and non-current components of deferred income taxes recognized in the balance sheet at November 30, 1993 are as follows: Net current asset $10,713 Net non-current asset 4,985 _______ Net asset $15,698 ======= The tax effects of the significant temporary differences which comprise the deferred tax assets and liabilities at November 30, 1993 are as follows: Deferred Tax Deferred Tax Assets Liabilities Capital leases $ 8,930 $ 6,461 Postretirement benefits other than pensions 6,972 Depreciation and amortization 2,478 17,281 Inventories 2,728 6,944 Bad debts 4,068 Accrued liabilities 12,424 Restructuring reserve 6,640 Tax credits 4,133 Other 5,737 2,549 _________ ________ 54,110 33,235 Valuation allowance ( 5,177) _________ ________ Total $ 48,933 $33,235 ========= ======== 6 HOOK-SUPERX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (dollars in thousands, except per share amounts) NOTE B -- Income Taxes - (Continued) The valuation allowance relates to certain future deductible items in excess of future taxable items that are not expected to be realized. Under the provisions of SFAS No. 109, assets and liabilities acquired in purchase business combinations are assigned their fair values and deferred taxes are provided for differences between the fair values and the tax bases of these assets and liabilities. Under APB No. 11, values assigned were net of tax. In adopting SFAS No. 109, the Company adjusted the carrying amounts of certain assets and liabilities of Brooks, acquired in June 1988. Pre-tax income from operations for the three months ended November 30, 1993, was not materially affected by this adjustment. The Company and its subsidiaries file a consolidated income tax return. The Company's Federal income tax benefit for the three months ended November 30, 1993 was $996. Federal income taxes were based upon the estimated annual effective tax rate, which approximates the Federal statutory tax rate. The Company recorded a benefit for state and local income taxes for the three months ended November 30, 1993 of $136. State income tax expense was based upon the estimated annual effective tax rate. The components of the income tax benefits are as follows: Current Federal $( 483) State and local ( 136) _________ Total current ( 619) _________ Deferred Federal ( 513) State and local _________ Total deferred ( 513) _________ Total $(1,132) ========= During the three months ended November 30, 1993 and 1992, the cash paid for income taxes (Federal, state and local) was $125 and $6, respectively. During the three months ended November 30, 1993, the Company received a state income tax refund of $150 and during the three months ended November 30, 1992 a Federal income tax refund of $1,500, due to the overpayment of estimated income taxes. 7 HOOK-SUPERX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (dollars in thousands, except per share amounts) NOTE C -- Subsequent Events In December 1993, the Company entered into a nine year contract with Hughes Network Systems, Inc. to install and maintain an interactive satellite communications network for all of the Company's stores. Upon expiration of the initial contract term, the contract will continue on a year to year basis, unless otherwise terminated by either party on written notice given at least 60 days prior to the end of the initial term or any subsequent renewal term. Charges to the Company under this contract will include monthly service charges subject to adjustment for, among other things, certain variances from the annual targeted number of satellite systems installed within the targeted installation period or the total number of satellite systems installed at the end of the target period. Subject to these adjustments, the aggregate amount payable by the Company during the initial nine year contract period is approximately $21,000 comprised of approximately $12,000 for rental of equipment and $9,000 for maintenance of the network and usage of system. During Fiscal 1994, the Company expects to install satellite communications equipment in approximately 90 stores and this equipment is expected to be installed in the remaining Company stores as the Company implements its point-of-sale scanning technology during Fiscal 1995 and 1996. Also in December 1993, the Company entered into an agreement with one of its vendors which will have exclusive rights to provide certain products and services to the Company for a period of at least five years. The agreement requires the Company to purchase a minimum dollar amount of products and/or services from the vendor. In the event that the Company has not met this minimum purchase amount by the end of five years, the term of the agreement is extended in one year increments until the end of the year in which the minimum purchase is met. Pursuant to this agreement, on January 14, 1994 the Company will receive cash proceeds approximating $40,000 which the Company will utilize to reduce the borrowings outstanding under the revolving line of credit. For financial reporting purposes, the Company plans to reflect this cash prepayment as deferred revenue and to recognize the income over the 60 month term of the agreement. The terms relating to the Company's purchase of products and services from the vendor under this agreement, in the opinion of management, are no less favorable to the Company than the Company's arrangements with the vendor prior to the Company entering into this agreement. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations for Hook-SupeRx, Inc. and Subsidiaries for the three months ended November 30, 1993, compared to Results of Operations for the three months ended November 30, 1992. At November 30, 1993, the Company operated 1,115 drug stores and 33 home health care centers ("HHC"), as compared with 1,152 drug stores and 32 HHCs at November 30, 1992. Net sales for the three months ended November 30, 1993 were $23.7 million or 4.4% above net sales for the same period of the prior year. Sales increases from stores opened one year or more were 4.5% over the same period of the prior year. The increase in net sales of 4.4% is less than the comparable store sales increase as a result of operating thirty-six fewer stores this fiscal year as compared to the same time of the prior year. During the three months ended November 30, 1993, the Company opened 10 new stores and closed 19 (14 of which were closed in connection with the Asset Divestiture Program implemented during Fiscal 1993 and the remaining stores were closed in the normal course of business), as compared with 27 new store openings and 9 closings during the comparable period of the prior year. Prescription sales, as a percentage of net sales, continued to increase during this three month period. For the three months ended November 30, 1993, prescription sales increased 9.7% over the prior year to $302.9 million, which represented 53.3% of net sales, as compared with $276 million or 50.7% of net sales for the prior year. This sales growth in prescription sales is a trend which the Company expects will continue because of the (a) aging of the U.S. population and the corresponding increased use of prescription drugs by the elderly, (b) development of new pharmaceutical products and new applications of existing drugs, (c) continued pursuit of new customer segments such as mail order, nursing homes and third party payor arrangements and (d) to a lesser extent, price inflation for pharmaceuticals. For the three months ended November 30, 1993, the Company experienced lower levels of price inflation on pharmaceuticals than in the same period of the prior year. This lower level of price inflation is a trend which the Company expects to continue, at least for the foreseeable future, as a result of the increased emphasis placed on limiting price increases by the pharmaceutical manufacturers, thereby adversely affecting the rate of the Company's sales growth. For the three months ended November 30, 1993, prescription sales to third party payors increased 17.9% over the prior year to $152.6 million or 50.4% of total prescription sales, as compared with $129.4 million or 46.9% of total prescription sales for the same period of the prior year. Excluded from the third party sales amounts above are amounts received directly from customers pursuant to third party arrangements which require the customer to contribute a portion of the sales price. The Company expects prescription sales to third party payors to continue to increase, both in absolute terms and as a 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) percentage of total prescription sales, as a result of anticipated new third party payor arrangements and continued migration of non-third party pharmacy customers to third party plans. The Company cannot predict when or if any health care reform will be enacted by the Federal government, or the form that such reform would take. However, the Company believes that market forces will cause prescription sales to third party payors to continue to increase as a percentage of total prescription sales and any legislated health care reform may accelerate that trend. In addition, increased competition has led to declining gross profit margins on third party prescription sales. The increasing levels of third party prescription sales have resulted in a decline in gross profit margin, as gross profit margins on sales to third party payors are typically lower than those on non-third party sales. In addition, increased competition has led to declining gross profit margins on third party prescription sales. The Company expects the trend of gross profit margin erosion relating to third party prescription sales to continue, at least for the foreseeable future. The Company is developing strategies to mitigate this erosion. An example is to encourage the use of generic pharmaceuticals, when available, in filling the prescription. Typically, generic drugs have a higher gross profit margin than non-generic drugs. In addition to the adverse effect third party prescription sales have on gross profit margin, these sales are predominately sales on credit. On November 2, 1993, the Company implemented a program to sell, on a continuous basis, certain of its third party accounts receivable. The proceeds from these sales will be utilized to reduce borrowings under the Company's revolving line of credit. See "Liquidity and Capital Resources." At November 30, 1993, third party accounts receivable, net of allowance, amounted to $14.0 million, as compared with $53.3 million, net of allowance, at November 30, 1992. The primary reason for the decline in third party accounts receivable from November 30, 1992 to November 30, 1993 is the accounts receivable sales program. Cost of merchandise sold, as a percentage of net sales, for the three months ended November 30, 1993 was 70.9%, as compared with 70.1% for the same period of the prior year. One of the principal reasons for the decline in gross profit margin, from 29.9% to 29.1%, was the duplicate warehouse and distribution expenses incurred by the Company arising from the transition away from its current warehouse and distribution arrangement with Peyton's, Inc. ("Peytons") for the Company's SupeRx stores into the enlarged Midwestern warehouse and distribution facility operated by the Company. The Company currently provides seasonal and promotional product to all of its SupeRx stores from this facility while still utilizing Peyton as the product source to its SupeRx stores for everyday product. The duplicate warehouse and distribution expenses incurred during this quarter, which were estimated to be approximately $3 million, represent the cost of continuing the arrangement with Peyton for distribution of everyday product to the SupeRx stores. The Company currently expects to continue to incur similar amounts of duplicate warehouse and distribution expenses through at least the second quarter which ends 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) February 28, 1994. However, as the Company moves further into its transition away from Peyton these duplicate costs will be reduced. In January 1994, the Company began shipment of everyday product to its SupeRx stores from its Midwestern warehouse and distribution facility with the full transition from Peyton expected to be completed by March or April 1994. The remaining decline in gross profit margin was primarily due to the continuing shift of prescription sales to lower gross margin third party prescription sales. The Company believes that as the absolute and percentage amount of prescription sales to third party payors continues to increase, gross profit margins will continue to be under downward pressures. However, as has been previously mentioned, the Company is continually developing plans to mitigate the downward pressures placed on gross profit margins as a result of the above mentioned situation. For the three months ended November 30, 1993, the Company recorded a LIFO charge to operations of $2.4 million, as compared with $3.2 million for the same period of the prior year. The smaller LIFO charge, this quarter when compared with the same quarter of the prior year, is the result of declining rates of inflation on the Company's inventory purchases, primarily pharmaceuticals. At November 30, 1993 and 1992, LIFO inventories were approximately $69.7 million and $64.2 million, respectively, less than the amount of such inventories valued on a FIFO basis. Selling, general and administrative expenses, as a percentage of net sales, were 23.7% as compared with 24.3% for the same period of the prior year. This decline in selling, general and administrative expenses, as a percentage of net sales, was primarily due to more stringent cost control measures combined with the benefits derived from the Company's ongoing consolidation efforts, as well as the elimination of costs previously incurred by stores which were closed as part of the Company's Asset Divestiture Program undertaken in Fiscal 1993. Additionally, during the three months ended November 30, 1992, the Company opened significantly more stores than were opened during the three months ended November 30, 1993, resulting in increased advertising and store pre-opening expenses, which adversely affected selling, general and administrative expenses, as a percentage of net sales, for the three months ended November 30, 1992. Interest expense, as a percentage of net sales, was 1.3% as compared with 1.4% for the comparable period of the prior year. This improvement was primarily the result of lower amounts outstanding under the Company's revolving line of credit and lower rates of interest on both the Company's bank term debt and the revolving line of credit. As was previously indicated, on November 2, 1993, the Company implemented a four year program to sell up to $75 million of its health care receivables on a continuous basis. The proceeds from these sales are applied to reduce the level of borrowings under the 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Company's revolving line of credit. As of November 30, 1993, the Company has completed two such sales and received $36 million in proceeds. On January 14, 1994, the Company will receive a cash prepayment of approximately $40 million from a vendor. This cash will be used to reduce the Company's borrowings under the revolving line of credit. See "Notes to Consolidated Financial Statements." As was previously indicated, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109 - Accounting for Income Taxes, as of September 1, 1993. See "Notes to Consolidated Financial Statements." For the three months ended November 30, 1993, the Company has recorded an income tax benefit of $1.1 million which was based upon the estimated annual effective tax rate for both Federal and state purposes of approximately 40%. During the fourth quarter of Fiscal 1993, the Company adopted SFAS No. 106 - Employers' Accounting for Postretirement Benefits Other Than Pensions. Consistent with the provisions of this statement, when adoption of this statement is in any quarter other than the first, the adoption is effective as of the beginning of the fiscal year, September 1, 1992 in this instance. See "Notes to Consolidated Financial Statements." Liquidity and Capital Resources During the three months ended November 30, 1993, the Company had additions to property and equipment of approximately $2.2 million, as compared with approximately $7.5 million for the same period of the prior year. These additions consisted primarily of capital expenditures for new store openings and remodeling of existing stores. The amount reflected above for the three months ended November 30, 1992 includes not only amounts for new store openings and remodels of existing stores but also amounts related to the construction of the expanded Midwestern warehouse and distribution facility, for which construction was completed in September 1993. As previously indicated, for the three months ended November 30, 1993, the Company opened 10 new stores and closed 19 (14 of which were closed in connection with the Asset Divestiture Program), compared with 27 new store openings and 9 closings for the same period during the prior year. During the three months ended November 30, 1993, the Company made a required prepayment of $2.6 million on its senior bank debt based upon Available Cash Flow with respect to Fiscal 1993 cash flow. At November 30, 1993, the Company had $117.4 million outstanding under the bank term loan, of which $15 million is reflected as current portion of long-term debt. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) For the three months ended November 30, 1993, borrowings under the Company's revolving line of credit have ranged from $55 million to $98 million, with an average amount outstanding for this period of $81 million, as compared with a range of $74 million to $101 million and an average balance outstanding of $89 million for the comparable period of the prior year. On January 7, 1994, the balance outstanding under the revolving line of credit was $51 million. The primary reason for the significant change in the range of the outstanding balance and the average balance outstanding under the revolving line of credit from the prior year is the health care receivable sales program implemented by the Company. As was previously indicated, on November 2, 1993, the Company implemented a four year program to sell, on a continuous basis, up to $75 million of its health care receivables. Proceeds for these such sales during this three month period were $36 million. Borrowings under the revolving line of credit vary based upon the seasonal needs of the Company, which are typically higher during the Company's first and second fiscal quarters due to increases in inventories to support the holiday season merchandise needs, and third party accounts receivable caused by higher level of pharmacy sales during the cough, cold and flu season. The Company from time to time, reviews the terms of its senior credit facility to determine whether changes should be sought in light of changing circumstances or to take advantage of opportunities in the market place. On January 14, 1994, the Company will receive a cash prepayment approximating $40 million from a vendor. This cash will be used to reduce the borrowings outstanding on the Company's revolving line of credit. See "Notes to Consolidated Financial Statements." In December 1993, the Company entered into a nine year contract with Hughes Network Systems, Inc. to install and maintain an interactive satellite communications network for all of the Company's stores. After expiration of the initial contract term, this contract will continue on a year to year basis, unless otherwise terminated by either party upon written notice given at least 60 days prior to the end of the initial term or any subsequent renewal term. See "Notes to Consolidated Financial Statements." The Company intends to utilize this satellite communications equipment as a replacement to its existing store level data communications equipment and currently expects to realize cost benefits relating to this replacement in subsequent years. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) In November 1992, the Financial Accounting Standards Board issued SFAS No. 112 - Employers' Accounting for Postemployment Benefits. This statement establishes accounting standards for employers who provide benefits to former or inactive employees, their beneficiaries or covered dependents, after employment but before retirement. Postemployment benefits include, but are not limited to, salary continuation, supplemental unemployment benefits, severance benefits, disability-related benefits (including workers compensation), job training and counseling and health and welfare benefit continuation. This statement requires employers to recognize the obligation to provide postemployment benefits if the obligation is attributable to employees' services already rendered, employees' rights to these benefits vest or accumulate, payment is probable and the amount of the benefit is reasonably estimated. Currently, the Company is not required to adopt the provisions of SFAS No. 112 until its fiscal year ending August 31, 1995; however, it will consider early adoption in accordance with the provisions of this statement. The Company has completed its initial review of this statement and believes it will not have a material effect on the results of operations upon adoption. 14 PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 11.1 Statement Regarding Computation of Per Share Loss (b) Reports on Form 8-K None 15 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Hook-SupeRx, Inc. (Registrant) January 13, 1994 /s/ Timothy M. Mooney (date) Timothy M. Mooney Senior Vice President Chief Financial Officer 16 EX-11 2 Exhibit Index Exhibit Number Description Location 11.1 Statement Regarding Computation of Per Share Loss 20 Exhibit 11.1 HOOK-SUPERX, INC. AND SUBSIDIARIES COMPUTATION OF NET LOSS PER COMMON SHARE (UNAUDITED) (dollars in thousands, except for per share amounts) Three Months Ended November 30, 1993 1992 Loss before cumulative effect of accounting change $( 1,714) $ (2,024) Cumulative effect of a change in accounting for income taxes ( 5,192) Cumulative effect of a change in accounting for postretirement benefits other than pensions (18,612) __________ __________ Net loss $( 6,906) $(20,636) ========== ========== Computation of Weighted Average Number of Common Shares Outstanding Three Months Ended November 30, 1993 1992 Weighted average number shares outstanding 20,818,267 20,736,731 Effect of options issued within one year of the initial public offering based upon the Treasury Stock Method: May 1991 at $3.93 6,626 6,626 October 1991 at $4.23 161,623 161,623 __________ __________ 20,986,516 20,904,980 ========== ========== Loss per share: Before cumulative effect of accounting change $(.08) $(.10) Cumulative effect of accounting change (.25) (.89) ______ ______ Net loss $(.33) $(.99) ====== ====== -----END PRIVACY-ENHANCED MESSAGE-----