D&K Healthcare Resources Reports 3rd Quarter Income - Continued Strong

D&K Healthcare Resources Reports 3rd Quarter Income - Continued Strong Independent and Regional Sales Growth

    Business Editors

    ST. LOUIS--(BUSINESS WIRE)--April 28, 2005--D&K Healthcare Resources, Inc. (NASDAQ:DKHR):

--	Company reports diluted earnings per share of $0.25 for the third quarter of fiscal 2005,
--	Independent and regional pharmacies sales for the quarter grew 33%
--	Company revises guidance for remainder of fiscal 2005

    D&K Healthcare Resources, Inc. (NASDAQ:DKHR) reported today that diluted earnings per share (EPS) for the third quarter of fiscal 2005 were $0.25 compared to $0.38 in the prior year quarter. The reduction in EPS from last year reflects the transition from a "buy and hold" to a "fee for service" industry model which decrease the contribution by the national accounts trade class as it reduced the amount of inventory available to this trade class. Similar to the Company's first and second quarter results, product price increases were lower than previous years, contributing to the unfavorable quarterly results. Sales in the independent and regional pharmacies trade class increased 33% over last year, continuing the strong growth shown during the first half of fiscal 2005.
    "We continue to face the industry issues that are creating a period of uncertainty for wholesale drug distributors," said J. Hord Armstrong, III, D&K Healthcare's Chairman and Chief Executive Officer. "Despite industry issues, D&K delivered strong third quarter sales growth in our core independent and regional pharmacy business. Our strategy of focusing on our distinct capabilities to service this customer segment continues to produce very positive top line growth, which we believe will produce favorable earnings as industry issues are resolved over the next several quarters."

    Performance Highlights

    -- Net sales in the independent and regional pharmacies trade
    class increased 33% in the fiscal 2005 third quarter driven
    primarily by new business wins and improving sales trends in
    D&K's service territory.

    -- The inventory balance at March 31, 2005 was $431 million, down
    $71 million or 14.1% compared to the year ago balance, and
    down 6.5% compared to the June 30, 2004 balance. Inventory was
    also down 29.5% from December 31, 2004 levels. The decreases
    in inventory reflect a combination of the normal seasonal
    sell-down of inventory that occurs in the March quarter and
    the impact of the transition to the "fee for service" industry
    model that continue to reduce special purchasing
    opportunities.

    -- The long-term debt balance at March 31, 2005 was $267 million
    compared to $308 million at June 30, 2004 and $384 million a
    year ago. These decreases relate primarily to lower inventory
    levels. The balance also represents a reduction of $177
    million from December 31, 2004 levels.

    -- A summary of net sales by class of trade for the third quarter
    and first nine months of fiscal 2005 follows.

Net Sales Summary (In Thousands) ---------------------------------------------------------------------- % Change % Change vs. vs. First Third Third First Nine Nine Quarter Quarter Months of Months of of Fiscal Fiscal Fiscal Fiscal 2005 2004 2005 2004 -------------------------- ---------- --------- ----------- ---------- Independent and Regional Pharmacies(1) $722,177 +33.4 $2,059,739 +63.7% National Accounts 168,817 -35.4 333,260 -29.5 Other Healthcare Providers(2) 29,406 +1.9 88,993 +6.4 PBI, Inc. 2,371 +12.9 6,977 +4.2 Software Services/Other 1,079 +104.0 3,395 +44.8 ---------- ----------- Total $923,850 +10.8 $2,492,364 +36.7 -------------------------- ---------- --------- ----------- ----------

The Walsh acquisition was completed on December 5, 2003. As such, the nine month percentage change calculation includes a six month period benefited by additional Walsh sales, as follows:

(1) Nine month sales figures include Walsh sales of $424,456 for the six months ended December 31, 2004. The corresponding period of fiscal 2004 included $52,949 related to Walsh.

(2) Nine month sales figures include Walsh sales of $4,845 for the six months ended December 31, 2004. The corresponding period of fiscal 2004 included $1,430 related to Walsh.

    Company-wide Performance

    D&K reported gross profit of $34.1 million, down 2.9% compared to $35.2 million in the year ago quarter. Gross profit as a percent of sales, or gross margin, was 3.70% compared to last year's second quarter gross margin of 4.22%. The gross profit and margin declines reflect lower product price increases in combination with current competitive market pressures. Operating expenses increased to $22.7 million from $21.4 million in the year ago quarter, driven by higher volume, but decreased as a percentage of sales from 2.57% to 2.46%. Income from operations as a percent of sales, or operating margin, declined to 1.23% from 1.65% in last year's third quarter reflecting the impact of lower gross profit margins.
    Net interest expense increased to $5.4 million compared to $4.5 million in the year ago period, primarily as a result of higher interest rates that were partially offset by lower average borrowing levels.

    Outlook

    Management currently expects diluted EPS to be within the range of $0.10 to $0.15 in fiscal year 2005. This outlook compares with $0.71 per diluted share earned in fiscal 2004, which included two legal settlement gains ($0.14 per diluted share). The Company targets net sales of $3.25 billion to $3.3 billion in fiscal 2005, compared to fiscal 2004 sales of $2.5 billion.
    "This outlook attempts to take into account the changing distribution industry model, changes in manufacturers' inventory management practices, and changes in product pricing practices," said Armstrong. "The revised earnings guidance from last quarter is a reflection of lower than anticipated price increases by manufacturers and competitive market pressures."

    Other News

    As previously announced, the distribution center in Paragould, Arkansas ceased delivery operations in April 2005. The majority of the customers from this distribution center are now served by either our Cape Girardeau, Missouri distribution center or our newly-opened distribution center outside Birmingham, Alabama. The Company also announced that the Owensboro, Kentucky distribution center will be consolidated into our Lexington and Cape Girardeau facilities by fiscal year end.

    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 2005 third-quarter results. The webcast can be accessed at www.dkhealthcare.com. Following the live discussion, a replay of the webcast will be available through May 12, 2005.

    Company Description

    D&K Healthcare Resources, Inc., which had fiscal 2004 sales of $2.5 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 eight distribution centers: independent and regional pharmacies with locations in one or more of 27 states, primarily in the Midwest, Upper Midwest 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 companies in its primary distribution area. D&K also offers a number of proprietary information systems, marketing and business management solutions, and owns Pharmaceutical Buyers, Inc., a leading alternate-site group purchasing service located in Broomfield, CO. More information can be found at www.dkhealthcare.com.

    Forward-looking Statements

    This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act 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 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 ability to maintain prime vendor status with cooperative buying groups, 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 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)

Mar. 31, % of Mar. 31, % of % 2005 Net Sales 2004 Net Sales Change ----------------------------------------------

Net sales $923,850 100.00% $833,933 100.00% 10.8% Cost of sales 889,705 96.30% 798,756 95.78% 11.4% --------- ---------

Gross profit 34,145 3.70% 35,177 4.22% -2.9%

Operating expenses 22,740 2.46% 21,436 2.57% 6.1% --------- ---------

Income from operations 11,405 1.23% 13,741 1.65% -17.0%

Other income (expense): Interest expense, net (5,421) -0.59% (4,502) -0.54% 20.4% Other, net (130) -0.01% (107) -0.01% 21.5% --------- ---------

Pretax earnings 5,854 0.63% 9,132 1.10% -35.9%

Income tax provision (2,301) -0.25% (3,561) -0.43% -35.4% Minority interest - 0.00% (167) -0.02% -100.0% --------- ---------

Net income $3,553 0.38% $5,404 0.65% -34.3% ========= =========

Earnings per share - basic $0.25 $0.39

Earnings per share - diluted $0.25 $0.38

Basic common shares outstanding 14,102 13,928 Diluted common shares outstanding 14,177 14,108

Supplemental Information to the Condensed Consolidated Statements of Operations (In thousands) Three Months Ended ------------------------------ Mar. 31, Mar. 31, 2005 2004 --------- --------- Reconciliation of non- GAAP financial measurement :

Income from operations $11,405 $13,741 Depreciation and amortization 1,451 1,407 Other income, net (130) (107) --------- --------- EBITDA $12,726 $15,041 ========= =========

EBITDA is defined as earnings before interest, taxes, depreciation and amortization. The company believes EBITDA is a relevant measure of financial performance as it is a more representative measure of operating cash flow.

D&K HEALTHCARE RESOURCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

Nine Months Ended ------------------------------------------- (Unaudited)

Mar. 31, % of Mar. 31, % of % 2005 Net Sales 2004 Net Sales Change --------------------------------------------------

Net sales $2,492,364 100.00% $1,823,426 100.00% 36.7% Cost of sales 2,409,033 96.66% 1,750,706 96.01% 37.6% ----------- -----------

Gross profit 83,331 3.34% 72,720 3.99% 14.6%

Operating expenses 66,618 2.67% 50,471 2.77% 32.0% ----------- -----------

Income from operations 16,713 0.67% 22,249 1.22% -24.9%

Other income (expense): Interest expense, net (14,933) -0.60% (9,980) -0.55% 49.6% Other, net (14) 0.00% 224 0.01% n/m ----------- -----------

Pretax earnings 1,766 0.07% 12,493 0.69% -85.9%

Income tax provision (707) -0.03% (4,872) -0.27% -85.5% Minority interest (185) -0.01% (573) -0.03% -67.7% ----------- -----------

Net income $874 0.04% $7,048 0.39% -87.6% =========== ===========

Earnings per share - basic $0.06 $0.51

Earnings per share - diluted $0.06 $0.49

Basic common shares outstanding 14,125 13,937 Diluted common shares outstanding 14,238 14,144

Supplemental Information to the Condensed Consolidated Statements of Operations (In thousands) Nine Months Ended --------------------------------- Mar. 31, Mar. 31, 2005 2004 ----------- ----------- Reconciliation of non-GAAP financial measurement :

Income from operations $16,713 $22,249 Depreciation and amortization 4,245 2,722 Other income, net (14) 224 ----------- ----------- EBITDA $20,944 $25,195 =========== ===========

EBITDA is defined as earnings before interest, taxes, depreciation and amortization. The company believes EBITDA is a relevant measure of financial performance as it is a more representative measure of operating cash flow.

D&K HEALTHCARE RESOURCES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS

Mar. 31, June 30, (in thousands) 2005 2004 ----------- --------- (unaudited) Assets

Cash $7,082 $12,499 Accounts receivable 166,877 130,770 Inventories 431,219 461,295 Other current assets 28,383 29,736 ----------- --------- Total current assets 633,561 634,300 Property and equipment, net 23,679 24,494 Other assets 19,282 14,298 Goodwill, net of accumulated amortization 72,197 64,233 Other intangible assets, net of accumulated amortization 9,664 6,546 ----------- --------- Total assets $758,383 $743,871 =========== =========

Liabilities and Stockholders' Equity

Accounts payable $273,620 $219,580 Current portion long-term debt 2,504 676 Other current liabilities 26,543 31,144 ----------- --------- Total current liabilities 302,667 251,400 Long-term liabilities 1,383 2,663 Long-term debt 266,929 307,693 Deferred income taxes 5,577 2,785 Stockholders' equity 181,827 179,330 ----------- --------- Total liabilities and stockholders' equity $758,383 $743,871 =========== =========

--30--JS/na*

CONTACT: D&K Healthcare Resources Inc., St. Louis Investor Relations, 314-290-2671 www.dkhealthcare.com

KEYWORD: ARKANSAS MISSOURI ALABAMA KENTUCKY INDUSTRY KEYWORD: MEDICAL PHARMACEUTICAL EARNINGS CONFERENCE CALLS SOURCE: D&K Healthcare Resources, Inc.

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