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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
(Mark One)
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
    
 
For the quarterly period ended June 29, 2002
 
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 number 000-23249
 
 
PRIORITY HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
 
Indiana
  
35-1927379
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer Identification No.)
 
250 Technology Park, Suite 124
    
Lake Mary, Florida
  
32746
(Address of principal executive offices)
  
(Zip Code)
 
Registrant’s telephone number, including area code: (407) 804-6700
 
No Change
(Former name, former address and former fiscal year, if changed since last report)
 
 
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. Yes  x    No  ¨
 
As of July 22, 2002, the number of shares outstanding of each of the issuer’s classes of common stock were as follows:
 
Class A Common Stock—7,092,156
 
Class B Common Stock—36,921,121
 

 
PART 1—FINANCIAL INFORMATION
 
Item 1.    Financial Statements.
 
PRIORITY HEALTHCARE CORPORATION
 
CONSOLIDATED STATEMENTS OF EARNINGS
(000’s omitted, except share data)
(unaudited)
 
    
Six-month
Period ended
June 29,
2002
     
Six-mont
period ended
June 30,
2001
     
Three-month
period ended
June 29,
2002
     
Three-month
period ended
June 30,
2001
  
Net sales
   
$
557,456
 
   
$
368,924
 
   
$
290,999
 
   
$
200,578
 
Cost of products sold
   
 
494,730
 
   
 
325,348
 
   
 
258,103
 
   
 
178,612
 
    
  
  
  
Gross profit
   
 
62,726
 
   
 
43,576
 
   
 
32,896
 
   
 
21,966
 
Selling, general and administrative expense
   
 
30,434
 
   
 
24,634
 
   
 
15,773
 
   
 
15,653
 
Depreciation and amortization
   
 
1,303
 
   
 
1,455
 
   
 
657
 
   
 
926
 
    
  
  
  
Earnings from operations
   
 
30,989
 
   
 
17,487
 
   
 
16,466
 
   
 
5,387
 
Impairment of investment
   
 
—  
 
   
 
2,019
 
   
 
—  
 
   
 
2,019
 
Interest income
   
 
(1,538
)
   
 
(3,412
)
   
 
(671
)
   
 
(1,539
)
    
  
  
  
Earnings before income taxes
   
 
32,527
 
   
 
18,880
 
   
 
17,137
 
   
 
4,907
 
Provision for income taxes
   
 
12,198
 
   
 
7,080
 
   
 
6,427
 
   
 
1,840
 
    
  
  
  
Net earnings
   
$
20,329
 
   
$
11,800
 
   
$
10,710
 
   
$
3,067
 
    
  
  
  
Earnings per share:
                                    
Basic
   
$
.46
 
   
$
.27
 
   
$
.24
 
   
$
.07
 
Diluted
   
$
.46
 
   
$
.26
 
   
$
.24
 
   
$
.07
 
Weighted average shares outstanding:
                                    
Basic
   
 
43,873,331
 
   
 
43,422,994
 
   
 
43,976,292
 
   
 
43,666,335
 
Diluted
   
 
44,655,160
 
   
 
44,824,338
 
   
 
44,699,328
 
   
 
45,050,207
 
 
 
 
See accompanying notes to consolidated financial statements.

2

 
PRIORITY HEALTHCARE CORPORATION
 
CONSOLIDATED BALANCE SHEETS
(000’s omitted, except share data)
 
    
June 29,
2002
     
December 29,
2001
  
    
(unaudited)
         
ASSETS:
                  
Current assets:
                  
Cash and cash equivalents
   
$
34,948
 
   
$
32,758
 
Marketable securities
   
 
61,590
 
   
 
94,166
 
Receivables, less allowance for doubtful accounts of
$4,195 and $3,239, respectively
   
 
147,262
 
   
 
118,342
 
Finished goods inventory
   
 
90,836
 
   
 
74,058
 
Deferred income taxes
   
 
2,165
 
   
 
2,165
 
Other current assets
   
 
18,612
 
   
 
8,145
 
    
  
    
 
355,413
 
   
 
329,634
 
Fixed assets, net
   
 
12,369
 
   
 
9,828
 
Other assets
   
 
816
 
   
 
—
 
Intangibles, net
   
 
83,640
 
   
 
56,554
 
    
  
Total assets
   
$
452,238
 
   
$
396,016
 
    
  
LIABILITIES AND SHAREHOLDERS’ EQUITY:
                  
Current liabilities:
                  
Accounts payable
   
$
140,435
 
   
$
116,148
 
Other current liabilities
   
 
28,463
 
   
 
24,806
 
    
  
    
 
168,898
 
   
 
140,954
 
    
  
Deferred income taxes
   
 
722
 
   
 
722
 
    
  
Commitments and contingencies (note 6)
                  
Shareholders’ equity:
                  
Preferred stock, no par value, 5,000,000 shares authorized, none
issued and outstanding
   
 
—  
 
   
 
—  
 
Common stock
                  
Class A, $0.01 par value, 55,000,000 shares authorized,
7,093,922 and 7,211,815 issued and outstanding,
respectively
   
 
71
 
   
 
72
 
Class B, $0.01 par value, 180,000,000 shares authorized,
38,303,396 and 38,185,503 issued, respectively
   
 
383
 
   
 
382
 
Additional paid in capital
   
 
186,485
 
   
 
182,818
 
Retained earnings
   
 
113,816
 
   
 
93,487
 
    
  
    
 
300,755
 
   
 
276,759
 
Less: Class B Common stock in treasury (at cost), 1,407,181
      and 1,739,474 shares, respectively
   
 
(18,137
)
   
 
(22,419
)
    
  
Total shareholders’ equity
   
 
282,618
 
   
 
254,340
 
    
  
Total liabilities and shareholders’ equity
   
$
452,238
 
   
$
396,016
 
    
  
 
 
See accompanying notes to consolidated financial statements.

3

 
PRIORITY HEALTHCARE CORPORATION
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000’s omitted)
(unaudited)
 
    
Six-month period ended June 29, 2002
     
Six-month period ended June 30, 2001
  
Cash flow from operating activities:
                  
Net income
   
$
20,329
 
   
$
11,800
 
Adjustments to reconcile net earnings to net cash provided (used) by
operating activities:
                  
Depreciation and amortization
   
 
1,303
 
   
 
1,455
 
Provision for doubtful accounts
   
 
1,350
 
   
 
4,654
 
Tax benefit from stock option exercises
   
 
521
 
   
 
9,357
 
Impairment of investment
   
 
—  
 
   
 
2,019
 
Loss on disposal of fixed assets
   
 
—  
 
   
 
16
 
Change in assets and liabilities, net of acquisitions:
                  
Receivables
   
 
(27,380
)
   
 
(8,779
)
Finished goods inventory
   
 
(14,421
)
   
 
1,967
 
Accounts payable
   
 
23,411
 
   
 
1,861
 
Other current assets and liabilities
   
 
(6,612
)
   
 
(6,473
)
    
  
Net cash provided (used) by operating activities
   
 
(1,499
)
   
 
17,877
 
    
  
Cash flow from investing activities:
                  
Sales, net of purchases, of marketable securities
   
 
32,576
 
   
 
3,015
 
Purchases of fixed assets
   
 
(3,763
)
   
 
(861
)
Increase in other assets
   
 
(1,225
)
   
 
(113
)
Acquisition of businesses, net of cash acquired
   
 
(26,327
)
   
 
(28,895
)
    
  
Net cash provided (used) by investing activities
   
 
1,261
 
   
 
(26,854
)
    
  
Cash flow from financing activities:
                  
Proceeds from stock option exercises
   
 
2,428
 
   
 
7,730
 
Payments for purchase of treasury stock
   
 
—  
 
   
 
(365
)
    
  
Net cash provided by financing activities
   
 
2,428
 
   
 
7,365
 
    
  
Net increase (decrease) in cash
   
 
2,190
 
   
 
(1,612
)
Cash and cash equivalents at beginning of period
   
 
32,758
 
   
 
50,057
 
    
  
Cash and cash equivalents at end of period
   
$
34,948
 
   
$
48,445
 
    
  
Supplemental non-cash investing and financing activities:
                  
Acquisition liabilities
   
$
6,470
 
   
$
4,440
 
Stock issued in connection with acquisition
   
$
5,000
 
   
$
—  
 
 
See accompanying notes to consolidated financial statements.

4

 
PRIORITY HEALTHCARE CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
1.    The accompanying consolidated financial statements have been prepared by the Company without audit. Certain information and footnote disclosures, including significant accounting policies, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The Company believes that the financial statements for the three-month and six-month periods ended June 29, 2002 and June 30, 2001 include all necessary adjustments for fair presentation. Results for any interim period may not be indicative of the results for the entire year.
 
2.    A reconciliation of the basic and diluted weighted average shares outstanding is as follows for the three-month and six-month periods ended June 29, 2002 and June 30, 2001:
 
    
Six-month period ended June 29, 2002
   
Six-month period ended June 30, 2001
   
Three-month period ended June 29, 2002
   
Three-month period ended June 30, 2001
    
(000’s omitted)
Weighted average number of Class A and Class B Common shares outstanding used as the denominator in the basic earnings per share calculation
   
43,873
   
43,423
   
43,976
   
43,666
Additional shares assuming exercise of dilutive stock options
   
782
   
1,401
   
723
   
1,384
    
  
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