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 PERIOD ENDED JANUARY 27, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-21379
COMMUNITY DISTRIBUTORS, INC.
CDI GROUP, INC.
(Exact name of registrants as specified in their charters)
DELAWARE 22-1833660
22-3349976
(States or other jurisdictions of (I.R.S. Employer
incorporation or organization) Identification Nos.)
800 COTTONTAIL LANE
FRANKLIN TOWNSHIP
SOMERSET, NEW JERSEY 08873-1227
(Address of principal executive offices)
(732) 748-8900
(Registrants' telephone number, including area code)
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 date.
Yes X No
--- ---
Number of shares of Common Stock, $.01 par value per share, of
Community Distributors, Inc. outstanding at March 13, 2001: 1,000 shares.
Number of shares of Class A Voting Common Stock, $.00001 par value per
share, of CDI Group, Inc. outstanding at March 13, 2001: 196,632 shares.
Number of shares of Class B Non-Voting Common Stock, $.00001 par value
per share, of CDI Group, Inc. outstanding at March 13, 2001: 187,922 shares.
COMMUNITY DISTRIBUTORS, INC.
CDI GROUP, INC.
INDEX
ITEM PAGE
NUMBER NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements................................................................... 3
COMMUNITY DISTRIBUTORS, INC.
Condensed Statements of Operations (Unaudited) - For the Three and
Six Month Periods Ended January 27, 2001 and January 29, 2000.................................. 3
Condensed Balance Sheets (Unaudited) - As of January 27, 2001 and
July 29, 2000.................................................................................. 4
Condensed Statements of Cash Flows (Unaudited) - For the Three and
Six Month Periods Ended January 27, 2001 and January 29, 2000.................................. 5
Notes to Condensed Financial Statements of
Community Distributors, Inc. (Unaudited)....................................................... 6
CDI GROUP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Operations (Unaudited) - For the Three and
Six Month Periods Ended January 27, 2001 and January 29, 2000.................................. 8
Condensed Consolidated Balance Sheets (Unaudited) - As of January 27, 2001
and July 29, 2000.............................................................................. 9
Condensed Consolidated Statements of Cash Flows (Unaudited) - For the Three
and Six Month Periods Ended January 27, 2001 and January 29, 2000.............................. 10
Notes to Condensed Consolidated Financial Statements of
CDI Group, Inc. and Subsidiary (Unaudited)..................................................... 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.................................................................................. 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................................................. 21
SIGNATURES....................................................................................... 22
2
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
COMMUNITY DISTRIBUTORS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 27, JANUARY 29, JANUARY 27, JANUARY 29,
2001 2000 2001 2000
------------- ------------- ------------- -------------
Net sales $ 85,400 $ 82,041 $ 156,189 $ 147,814
Cost of sales 62,577 57,822 116,427 105,975
------------- ------------- ------------- -------------
Gross profit 22,823 24,219 39,762 41,839
Selling, general and administrative expenses 19,095 17,092 35,835 32,945
Administrative fees 62 62 125 125
Depreciation and amortization 1,539 1,531 3,048 2,981
Other income, net 51 118 511 206
------------- ------------- ------------- -------------
Operating income 2,178 5,652 1,265 5,994
Interest expense, net 2,195 2,026 4,331 4,068
------------- ------------- ------------- -------------
Income (loss) before income taxes (17) 3,626 (3,066) 1,926
Provision (benefit) for income taxes 358 2,609 (804) 1,384
------------- ------------- ------------- -------------
Net income (loss) $ (375) $ 1,017 $ (2,262) $ 542
============= ============= ============= =============
See accompanying notes to condensed financial statements.
3
COMMUNITY DISTRIBUTORS, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
(Amounts in thousands)
AS OF AS OF
JANUARY 27, JULY 29,
2001 2000
----------- -----------
ASSETS:
Cash and cash equivalents $ 557 $ 464
Accounts receivable 8,585 7,356
Inventory 38,474 37,076
Prepaid expenses and other current assets 2,666 1,625
----------- -----------
TOTAL CURRENT ASSETS 50,282 46,521
Property and equipment, net 13,766 13,838
Deferred charges and other assets 6,607 6,728
Goodwill, net 26,814 27,772
----------- -----------
TOTAL ASSETS $ 97,469 $ 94,859
=========== ===========
LIABILITIES:
Revolver borrowings $ 8,275 $ 1,250
Accounts payable 14,696 17,220
Accrued expenses and other current liabilities 7,885 8,124
Current portion of supplier advances 994 993
----------- -----------
TOTAL CURRENT LIABILITIES 31,850 27,587
Long-term debt 74,000 74,000
Supplier advances, net of current portion 2,304 2,762
Other long-term liabilities 6,856 5,789
----------- -----------
TOTAL LIABILITIES $ 115,010 $ 110,138
----------- -----------
STOCKHOLDER'S DEFICIT:
Common stock, $.01 par value, 1,000 shares authorized,
issued and outstanding -- --
Additional paid-in capital -- --
Retained earnings 1 2,263
Distribution in excess of capital (17,542) (17,542)
----------- -----------
TOTAL STOCKHOLDER'S DEFICIT (17,541) (15,279)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 97,469 $ 94,859
=========== ===========
See accompanying notes to condensed financial statements.
4
COMMUNITY DISTRIBUTORS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
JANUARY 27, JANUARY 29, JANUARY 27, JANUARY 29,
2001 2000 2001 2000
------------- ------------- ------------- -------------
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net income (loss) $ (375) $ 1,017 $ (2,262) $ 542
Depreciation and amortization 1,600 1,567 3,152 3,086
Non-cash rent expense 185 158 384 303
LIFO provision 100 - 400 300
Changes in operating assets and liabilities 5,177 3,375 (8,318) (5,957)
------------- ------------- ------------- -------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 6,687 6,117 (6,644) (1,726)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (1,151) (983) (2,001) (1,900)
------------- ------------- ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (1,151) (983) (2,001) (1,900)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolver borrowings 21,425 9,200 53,725 29,500
Repayments of revolver borrowings (28,650) (19,200) (46,700) (30,700)
Cash overdraft 1,713 4,925 1,713 4,925
------------- ------------- ------------- -------------
NET CASH FROM (USED IN) FINANCING ACTIVITIES (5,512) (5,075) 8,738 3,725
Net increase in cash and cash equivalents 24 59 93 99
Cash and cash equivalents at beginning of period 533 325 464 285
------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 557 $ 384 $ 557 $ 384
============= ============= ============= =============
See accompanying notes to condensed financial statements.
5
COMMUNITY DISTRIBUTORS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
(1) BASIS OF PRESENTATION:
The accompanying financial statements should be read in conjunction with
the audited financial statements of Community Distributors, Inc. (the
"Company"), and the notes thereto contained in the Company's annual report
on Form 10-K, as amended, for its fiscal year ended July 29, 2000. The
Company, a wholly owned subsidiary of CDI Group, Inc. (the "Parent"), is
engaged in the operation of retail stores throughout New Jersey. These
interim financial statements are unaudited but, in the opinion of
management, include all adjustments, consisting only of normal recurring
items, necessary to fairly present the financial position and operating
results and cash flows for the interim periods. Results for interim periods
are not necessarily indicative of results for the full year. The year-end
balance sheet data was derived from the audited financial statements but
does not include all disclosures required by generally accepted accounting
principles.
(2) ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make significant
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
(3) CONTINGENCIES:
The Company is a defendant in various lawsuits arising in the ordinary
course of business. In the opinion of management, the disposition of these
lawsuits should not have a material impact on the Company's results of
operations, financial position, and cash flows.
(4) DEBT:
Long-term debt includes $74,000 of 10 1/4% senior notes due in 2004 (the
"Senior Notes"), which are guaranteed by the Parent. The terms of the
Senior Notes include certain restrictive covenants regarding the payment of
dividends, the incurrence of debt, the use of proceeds resulting from
disposition of assets and certain other defined activities. Under the
relevant debt agreements, in the event of a change in control, as defined,
the Company is required to repurchase all such outstanding notes.
The Company maintains a $20,000 revolving credit facility (the "Facility")
with a bank expiring in October 2002. This Facility bears interest at
either prime rate or the London Interbank Offered Rate ("LIBOR") plus 1.75%
and is collateralized by the Company's eligible accounts receivable and
inventory balances, as defined. Included in the Facility is a $5,000 letter
of credit facility. Outstanding letters of credit, guaranteeing certain
contingent purchases which are not reflected in the accompanying financial
statements, aggregated approximately $2,248 and $3,144 at January 27, 2001
and July 29, 2000, respectively. At January 27, 2001, $9,477 of the
Facility was available to the Company. The Facility contains certain
financial and operating covenants, including a minimum fixed charge ratio.
Additionally, the Company cannot make any dividend or other distributions
with respect to any share of stock other than in certain limited
circumstances.
6
COMMUNITY DISTRIBUTORS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
(5) INVENTORY COSTING METHOD:
Inventory at interim periods is valued on a last-in, first-out (LIFO) basis
that is determined based on current estimates of gross profit rate,
inflation rates and inventory levels, and is adjusted for the results of
physical inventories. The results of the last physical inventory that was
taken on January 27, 2001 did not have a material impact on the results of
operations, financial position and cash flows.
7
CDI GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
JANUARY 27, JANUARY 29, JANUARY 27, JANUARY 29,
2001 2000 2001 2000
------------- ------------- ------------- -------------
Net sales $ 85,400 $ 82,041 $ 156,189 $ 147,814
Cost of sales 62,577 57,822 116,427 105,975
------------- ------------- ------------- -------------
Gross profit 22,823 24,219 39,762 41,839
Selling, general and administrative expenses 19,095 17,092 35,835 32,945
Administrative fees 62 62 125 125
Depreciation and amortization 1,539 1,531 3,048 2,981
Other income, net 51 118 511 206
------------- ------------- ------------- -------------
Operating income 2,178 5,652 1,265 5,994
Interest expense, net 2,726 2,510 5,394 5,035
------------- ------------- ------------- -------------
Income (loss) before income taxes (548) 3,142 (4,129) 959
Provision (benefit) for income taxes 172 2,439 (1,176) 1,045
------------- ------------- ------------- -------------
Net income (loss) $ (720) $ 703 $ (2,953) $ (86)
============= ============= ============= =============
See accompanying notes to condensed consolidated financial statements.
8
CDI GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands)
AS OF AS OF
JANUARY 27, JULY 29,
2001 2000
----------- -----------
ASSETS:
Cash and cash equivalents $ 557 $ 464
Accounts receivable 8,622 7,389
Inventory 38,474 37,076
Prepaid expenses and other current assets 3,038 2,080
----------- -----------
TOTAL CURRENT ASSETS 50,691 47,009
Property and equipment, net 13,766 13,838
Deferred charges and other assets 6,607 6,728
Goodwill, net 26,814 27,772
----------- -----------
TOTAL ASSETS $ 97,878 $ 95,347
=========== ===========
LIABILITIES:
Revolver borrowings $ 8,275 $ 1,250
Accounts payable 14,696 17,220
Accrued expenses and other current liabilities 7,885 7,902
Current portion of supplier advances 994 993
----------- -----------
TOTAL CURRENT LIABILITIES 31,850 27,365
Long-term debt 74,000 74,000
Subordinated debt 23,491 22,424
Supplier advances, net of current portion 2,304 2,762
Other long-term liabilities 3,585 3,195
----------- -----------
TOTAL LIABILITIES $ 135,230 $ 129,746
----------- -----------
COMMITMENTS AND CONTINGENCIES:
Redeemable preferred stock, $1.00 par value, 7,862 authorized,
issued and outstanding, redemption value $100 per share 786 786
Redeemable shares of Class A voting common stock, 57,963
shares issued and outstanding at net redemption
value at January 27, 2001 and July 29, 2000 493 493
STOCKHOLDERS' DEFICIT:
Class A voting common stock, $.00001 par value, authorized 600,000 shares,
196,632 issued and outstanding at
January 27, 2001 and July 29, 2000 -- --
Class B voting common stock, $.00001 par value, authorized
600,000 shares, 187,922 issued and outstanding at
January 27, 2001 and July 29, 2000 -- --
Additional paid-in capital -- --
Retained deficit (4,027) (1,074)
Distribution in excess of capital (34,604) (34,604)
----------- ----------
TOTAL STOCKHOLDERS' DEFICIT (38,631) (35,678)
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 97,878 $ 95,347
=========== ===========
See accompanying notes to condensed consolidated financial statements.
9
CDI GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
JANUARY 27, JANUARY 29, JANUARY 27, JANUARY 29,
2001 2000 2001 2000
------------- ------------- ------------- -------------
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net income (loss) $ (720) $ 703 $ (2,953) $ (86)
Depreciation and amortization 1,600 1,567 3,152 3,086
Non-cash rent expense 185 158 384 303
Non-cash interest expense 531 484 1,063 967
LIFO provision 100 - 400 300
Changes in operating assets and liabilities 4,991 3,205 (8,690) (6,296)
------------- ------------- ------------- -------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 6,687 6,117 (6,644) (1,726)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (1,151) (983) (2,001) (1,900)
------------- ------------- ------------- ------------
NET CASH USED IN INVESTING ACTIVITIES (1,151) (983) (2,001) (1,900)
CASH FLOWS USED IN FINANCING ACTIVITIES:
Proceeds from revolver borrowings 21,425 9,200 53,725 29,500
Repayments of revolver borrowings (28,650) (19,200) (46,700) (30,700)
Cash overdraft 1,713 4,925 1,713 4,925
------------- ------------- ------------- -------------
NET CASH FROM (USED IN) FINANCING ACTIVITIES (5,512) (5,075) 8,738 3,725
Net increase in cash and cash equivalents 24 59 93 99
Cash and cash equivalents at beginning of period 533 325 464 285
------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 557 $ 384 $ 557 $ 384
============= ============= ============= =============
See accompanying notes to condensed consolidated financial statements.
10
CDI GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
(1) BASIS OF PRESENTATION:
The accompanying consolidated financial statements should be read in
conjunction with the audited consolidated financial statements of CDI
Group, Inc. (the "Parent") and Subsidiary (collectively referred to as the
"Company"), and the notes thereto contained in the Company's annual report
on Form 10-K, as amended, for its fiscal year ended July 29, 2000. The
accompanying condensed consolidated financial statements include the
accounts of the Parent and its wholly-owned subsidiary, Community
Distributors, Inc. (the "Subsidiary"), which is engaged in the operation of
retail stores throughout New Jersey. These interim consolidated financial
statements are unaudited but, in the opinion of the Company, include all
adjustments, consisting only of normal recurring items, necessary to fairly
present the financial position, operating results, and cash flows for the
interim periods. Results for interim periods are not necessarily indicative
of results for the full year. The year-end balance sheet data was derived
from the audited financial statements but does not include all disclosures
required by generally accepted accounting principles.
(2) ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make significant
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
(3) CONTINGENCIES:
The Company is a defendant in various lawsuits arising in the ordinary
course of business. In the opinion of management, the disposition of these
lawsuits should not have a material impact on the Company's consolidated
results of operations, financial position, and cash flows.
(4) DEBT:
Long-term debt includes $74,000 of 10 1/4% senior notes due in 2004 (the
"Senior Notes"), which are guaranteed by the Parent. The terms of the
Senior Notes include certain restrictive covenants regarding the payment of
dividends, the incurrence of debt, the use of proceeds resulting from
disposition of assets and certain other defined activities. Under the
relevant debt agreements, in the event of a change in control, as defined,
the Company is required to repurchase all such outstanding notes.
The Company maintains a $20,000 revolving credit facility (the "Facility")
with a bank expiring in October 2002. This Facility bears interest at
either prime rate or the London Interbank Offered Rate ("LIBOR") plus 1.75%
and is collateralized by the Company's eligible accounts receivable and
inventory balances, as defined. Included in the Facility is a $5,000 letter
of credit facility. Outstanding letters of credit, guaranteeing certain
contingent purchases which are not reflected in the accompanying financial
statements, aggregated approximately $2,248 and $3,144 at January 27, 2001
and July 29, 2000, respectively. At January 27, 2001, $9,477 of the
Facility was available to the Company. The Facility contains certain
financial and operating covenants, including a minimum fixed charge ratio.
Additionally, the Company cannot make any dividend or other distributions
with respect to any share of stock other than in certain limited
circumstances.
11
CDI GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
In addition to the outstanding Senior Notes issued by the Subsidiary, the
Parent had outstanding long-term debt, consisting of senior subordinated
notes due January 31, 2005, in the amount of $23,491 and $22,424 at January
27, 2001 and July 29, 2000, respectively, which includes accrued interest.
(6) INVENTORY COSTING METHOD:
Inventory at interim periods is valued on a last-in, first-out (LIFO) basis
which is determined based on current estimates of gross profit rate,
inflation rates and inventory levels, and is adjusted for the results of
physical inventories. The results of the last physical inventory that was
taken on January 27, 2001 did not have a material impact on the results of
operations, financial position and cash flows.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CAUTIONARY NOTE
This Quarterly Report on Form 10-Q may contain "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities and Exchange Act of 1934, as amended,
including, but not limited to, (i) statements about possible changes in the rate
of increase of pharmacy sales to participants in managed health care plans and
other third-party payer plans ("Third Party Plans") as a percentage of total
pharmacy sales, and its impact on profitability; (ii) the ability of the
Community Distributors, Inc. (the "Company") to meet its debt service
obligations and to fund anticipated capital expenditures and working capital
requirements in the future; and (iii) certain other statements identified or
qualified by words such as "likely", "will", "suggests", "may", "would",
"could", "should", "expects", "anticipates", "estimates", "plans", "projects",
"believes", or similar expressions (and variants of such words or expressions).
Investors are cautioned that forward-looking statements are inherently
uncertain. These forward-looking statements represent the best judgment of the
Company and of CDI Group, Inc. (the "Holding Company") as of the date of this
Quarterly Report on Form 10-Q, and the Company and the Holding Company caution
readers not to place undue reliance on such statements. Actual performance and
results of operations may differ materially from those projected or suggested in
the forward-looking statements due to certain risks and uncertainties,
including, but not limited to, the risks and uncertainties described or
discussed in the section "Certain Risks" in the Annual Report on Form 10-K, as
amended, for its fiscal year ended July 29, 2000 for the Company and for the
Holding Company.
RESULTS OF OPERATIONS
Except where indicated below, the following discussion related to the
operations of the Company only. The Holding Company conducts no operations
separate from the Company.
COMPARISON OF THE THREE MONTHS ENDED JANUARY 21, 2001 (THE "2001 THREE-MONTH
PERIOD") WITH THE THREE MONTHS ENDED JANUARY 29, 2000 (THE "2000 THREE-MONTH
PERIOD").
Net sales for the 2001 Three-Month Period were $85.4 million as
compared to $82.0 million for the 2000 Three-Month Period, an increase of $3.4
million, or 4.1%. This increase, which includes a 3.9% increase in same-store
sales, was primarily due to (i) a 3.6% decrease in sales of non-pharmacy
products from $58.5 million for the 2000 Three-Month Period to $56.4 million for
the 2001 Three-Month Period, and (ii) a 23.4% increase in pharmacy sales from
$23.5 million for the 2000 Three-Month Period to $29.0 million for the 2001
Three-Month Period, including a 29.7% increase in pharmacy sales to Third Party
Plan customers from $19.5 million for the 2000 Three-Month Period to $25.3
million for the 2001 Three-Month Period. The Company attributes the decrease in
net sales of non-pharmacy products to the increased competition in the Company's
markets, a decline in personal consumer spending, and an increased level of
sales at lower prices due to increased markdowns offset by a new store opened
during the 2001 Three-Month Period. The number of prescriptions filled
(including prescriptions filled for Third Party Plan customers) was
approximately 574,000 for the 2001 Three-Month Period as compared to
approximately 522,000 for the 2000 Three-Month Period, an increase of
approximately 52,000, or 10.0%. The number of prescriptions filled for Third
Party Plan customers increased to approximately 495,000 for the 2001 Three-Month
Period, as compared to 434,000 for the 2000 Three-Month Period, an increase of
approximately 61,000, or 14.1%. Pharmacy sales to non-Third Party Plan customers
were $3.7 million in the 2001 Three-Month Period as compared to $4.0 million in
the 2000 Three-Month Period, a decrease of $0.3 million, or 7.5%, primarily as
the result of increased participation of the Company's customers in Third Party
Plans and by a decrease in the number of prescriptions filled for non-Third
Party Plan customers from approximately 88,000 in the 2000 Three-Month Period to
approximately 79,000 in the 2001 Three-Month Period.
Gross profit was $22.8 million for the 2001 Three-Month Period, as
compared to $24.2 million for the 2000 Three-Month Period, a decrease of $1.4
million, or 5.8%. Gross profit as a percentage of net sales was 26.7% for the
2001 Three-Month Period as compared to 29.5% for the 2000 Three-Month Period.
This 2.8% decrease in gross profit as a percentage of net sales was due
primarily to pharmacy sales, which generate lower margins than sales of
non-pharmacy merchandise, representing a higher percentage of total sales in the
2001 Three-Month Period as compared to the 2000 Three-Month Period, a decrease
in the margin on pharmacy merchandise due to the new purchasing agreement with
Cardinal Health, Inc. that was entered into during the second half of the 2000
fiscal year and continues
13
after the end of fiscal 2001, and a decline in the margin on non-pharmacy
merchandise due to greater competition in the Company's market and increased
markdowns on seasonal merchandise.
Gross profit on total pharmacy sales (including sales to Third Party
Plan customers) was $5.6 million for the 2001 Three-Month Period as compared to
$4.6 million for the 2000 Three-Month Period, an increase of $1.0 million, or
21.7%, which was primarily the result of the increase in sales and prescriptions
filled on a same store basis, the maturing of new stores opened in the last
three fiscal years, and to the acquisition of the inventory and customer lists
of seven independent pharmacies during the last three fiscal years. Gross profit
on sales to Third Party Plan customers was $4.2 million for the 2001 Three-Month
Period as compared to $3.0 million for the 2000 Three-Month Period, an increase
of $1.2 million, or 40.0%, which was primarily the result of the increase in
sales of prescriptions to Third Party Plan customers as a percent of total sales
of prescriptions. Gross profit on sales of pharmacy products to non-Third Party
Plan customers was $1.4 million in the 2001 Three-Month Period as compared to
$1.6 million in the 2000 Three-Month Period, a decrease of $0.2 million, or
12.5%, which was primarily the result of a decrease in sales of prescriptions to
non-Third Party Plan customers as a percentage of total sales of prescriptions.
Although management expects that sales to Third Party Plan customers as
a percentage of total pharmacy sales will continue to increase, management
believes that as this rate of increase slows, margins will stabilize, resulting
in pharmacy gross profit growth that more closely approximates pharmacy sales
growth rates. Management believes that the rate of increase in sales to Third
Party Plan customers as a percentage of total pharmacy sales should slow because
the current growth rate, if continued, would reach the point at which almost all
members of the population who may be eligible for enrollment in Third Party
Plans will be so covered. However, management believes there will always be some
pharmacy customers who do not enroll in Third Party Plans. The Company is unable
to estimate when this increase will slow, or stop, if at all. Because of the
lower margins on prescription sales to Third Party Plan participants, management
believes that the increase in Third Party Plan prescription sales as a
percentage of total pharmacy sales may further negatively impact profit margin,
although this may be partly or wholly offset by the increases in non-pharmacy
sales that may result from increased floor traffic associated with increased
pharmacy sales. There can be no assurance, however, that the increase in Third
Party Plan prescription sales as a percentage of total prescription sales will
continue, or that any resulting decrease in overall margins will be offset by
higher margins on non-pharmacy merchandise.
Gross profit on non-pharmacy sales was $17.2 million for the 2001
Three-Month Period, as compared to $19.6 million for the 2000 Three-Month
Period, a decrease of $2.4 million, or 12.2%. Gross profit as a percentage of
non-pharmacy sales was 30.5% for the 2001 Three-Month Period as compared to
33.5% for the 2000 Three-Month Period, a decrease of 3.0%. Gross profit as a
percentage of non-pharmacy sales decreased due to greater competition in the
Company's market and an increase in the amount of markdowns incurred on seasonal
merchandise.
Selling, general and administrative expense as a percentage of net
sales was 22.4% for the 2001 Three-Month Period, as compared to 20.7% for the
2000 Three-Month Period, an increase of 1.7%. This increase in selling, general
and administrative expenses as a percentage of net sales is primarily due to
higher costs for pharmacy personnel and related employee benefits, higher
occupancy costs resulting from colder and wetter weather, and higher
professional services costs related to computer software evaluation and
implementation compounded with a decline in non-pharmacy sales of $2.1 million.
Depreciation and amortization expense was $1.5 million for the 2001 and
2000 Three-Month Periods.
Other income, net was $0.1 million for the 2001 and 2000 Three-Month
Periods.
The Company's net interest expense was $2.2 million in the 2001
Three-Month Period as compared to $2.1 million in the 2000 Three-Month Period,
an increase of $0.1 million resulting from the higher level of outstanding
balances on the Company's revolving line of credit. Non-cash interest expense on
the Holding Company's outstanding subordinated debt was $0.5 in the 2001
Three-Month Period as compared to $0.4 million for 2000 Three-Month Period, an
increase of $0.1 million resulting from the compounding of interest on the
subordinated debt.
The Company's provision for income taxes was $0.4 million for the 2001
Three-Month Period as compared to $2.6 million for the 2000 Three-Month Period,
a decrease of $2.2 million. The Holding Company experienced a benefit from
income taxes of $0.2 million in the 2001 and 2000 Three-Month Periods, related
to the interest expense incurred on the outstanding subordinated debt. The
Company's effective tax rate is consistently higher than the statutory tax
14
rates, and varies from period to period, due to the amortization of goodwill and
of beneficial leaseholds that are not deductible when calculating taxable
income.
The Company's net loss for the 2001 Three-Month Period was $0.4 million
as compared to a net income of $1.0 million in the 2000 Three-Month Period, an
increase in the net loss of $1.4 million, which is primarily due to lower gross
profit and higher selling, general and administrative expenses during the 2001
Three-Month Period as previously discussed. The Holding Company incurred a net
loss of $0.3 million for both the 2001 and 2000 Three-Month Periods, principally
as a result of the accrued interest on the subordinated debt.
COMPARISON OF THE SIX MONTHS ENDED JANUARY 21, 2001 (THE "2001 SIX-MONTH
PERIOD") WITH THE SIX MONTHS ENDED JANUARY 29, 2000 (THE "2000 SIX-MONTH
PERIOD").
Net sales for the 2001 Six-Month Period were $156.2 million as compared
to $147.8 million for the 2000 Six-Month Period, an increase of $8.4 million, or
5.7%. This increase, which includes a 2.8% increase in same-store sales, was
primarily due to (i) a 2.3% decrease in sales of non-pharmacy products from
$102.9 million for the 2000 Six-Month Period to $100.5 million for the 2001
Six-Month Period, and (ii) a 24.1% increase in pharmacy sales from $44.9 million
for the 2000 Six-Month Period to $55.7 million for the 2001 Six-Month Period,
including a 30.2% increase in pharmacy sales to Third Party Plan customers from
$37.1 million for the 2000 Six-Month Period to $48.3 million for the 2001
Six-Month Period. The Company attributes the decrease in net sales of
non-pharmacy products to the increased competition in the Company's markets, a
decline in personal consumer spending, and an increased level of sales at lower
prices due to increased markdowns offset by two new stores opened during the
2001 Six-Month Period. The number of prescriptions filled (including
prescriptions filled for Third Party Plan customers) was approximately 1,108,000
for the 2001 Six-Month Period as compared to approximately 991,000 for the 2000
Six-Month Period, an increase of approximately 117,000, or 11.8%. The number of
prescriptions filled for Third Party Plan customers increased to approximately
950,000 for the 2001 Six-Month Period, as compared to 819,000 for the 2000
Six-Month Period, an increase of approximately 131,000, or 16.0%. Pharmacy sales
to non-Third Party Plan customers were $7.4 million in the 2001 Six-Month Period
as compared to $7.8 million in the 2000 Six-Month Period, a decrease of $0.4
million, or 5.1%, primarily as the result of increased participation of the
Company's customers in Third Party Plans and a decrease in the number of
prescriptions filled for non-Third Party Plan customers from approximately
172,000 in the 2000 Six-Month Period to approximately 158,000 in the 2001
Six-Month Period.
Gross profit was $39.8 million for the 2001 Six-Month Period, as
compared to $41.8 million for the 2000 Six-Month Period, a decrease of $2.0
million, or 4.8%. Gross profit as a percentage of net sales was 25.5% for the
2001 Six-Month Period as compared to 28.3% for the 2000 Six-Month Period. This
2.8% decrease in gross profit as a percentage of net sales was due primarily to
pharmacy sales, which generate lower margins than sales of non-pharmacy
merchandise, representing a higher percentage of total sales in the 2001
Six-Month Period as compared to the 2000 Six-Month Period, a decrease in the
margin on pharmacy merchandise due to the new purchasing agreement with Cardinal
Health, Inc. that was entered into during the second half of the 2000 fiscal
year and continues after the end of fiscal 2001, and a decline in the margin on
non-pharmacy merchandise due to greater competition in the Company's market and
increased markdowns on seasonal merchandise.
Gross profit on total pharmacy sales (including sales to Third Party
Plan customers) was $10.7 million for the 2001 Six-Month Period as compared to
$9.2 million for the 2000 Six-Month Period, an increase of $1.5 million, or
16.3%, which was primarily the result of the increase in sales and prescriptions
filled on a same store basis, the maturing of new stores opened in the last
three fiscal years, and the acquisition of the inventory and customer lists of
seven independent pharmacies during the last three fiscal years. Gross profit on
sales to Third Party Plan customers was $8.0 million for the 2001 Six-Month
Period as compared to $6.2 million for the 2000 Six-Month Period, an increase of
$1.8 million, or 29.0%, which was primarily the result of the increase in sales
of prescriptions to Third Party Plan customers as a percent of total sales of
prescriptions. Gross profit on sales of pharmacy products to non-Third Party
Plan customers was $2.7 million in the 2001 Six-Month Period as compared to $3.0
million in the 2000 Six-Month Period, a decrease of $0.3 million, or 10.0%,
which was primarily the result of a decrease in sales of prescriptions to
non-Third Party Plan customers as a percentage of total sales of prescriptions.
Although management expects that sales to Third Party Plan customers as
a percentage of total pharmacy sales will continue to increase, management
believes that as this rate of increase slows, margins will stabilize, resulting
in pharmacy gross profit growth that more closely approximates pharmacy sales
growth rates. Management believes that the rate of increase in sales to Third
Party Plan customers as a percentage of total pharmacy sales should slow
15
because the current growth rate, if continued, would reach the point at which
almost all members of the population who may be eligible for enrollment in Third
Party Plans will be so covered. However, management believes there will always
be some pharmacy customers who do not enroll in Third Party Plans. The Company
is unable to estimate when this increase will slow, or stop, if at all. Because
of the lower margins on prescription sales to Third Party Plan participants,
management believes that the increase in Third Party Plan prescription sales as
a percentage of total pharmacy sales may further negatively impact profit
margin, although this may be partly or wholly offset by the increases in
non-pharmacy sales that may result from increased floor traffic associated with
increased pharmacy sales. There can be no assurance, however, that the increase
in Third Party Plan prescription sales as a percentage of total prescription
sales will continue, or that any resulting decrease in overall margins will be
offset by higher margins on non-pharmacy merchandise.
Gross profit on non-pharmacy sales was $29.1 million for the 2001
Six-Month Period, as compared to $32.6 million for the 2000 Six-Month Period, a
decrease of $3.5 million, or 10.7%. Gross profit as a percentage of non-pharmacy
sales was 29.0% for the 2001 Six-Month Period as compared to 31.7% for the 2000
Six-Month Period, a decrease of 2.7%. Gross profit as a percentage of
non-pharmacy sales decreased due to greater competition in the Company's market,
a slowdown in consumer spending that resulted in a decrease in sales of
non-pharmacy merchandise and an increase in the amount of markdowns incurred on
seasonal merchandise.
Selling, general and administrative expense as a percentage of net
sales was 22.9% for the 2001 Six-Month Period, as compared to 22.3% for the 2000
Six-Month Period, an increase of 0.6%. This increase in selling, general and
administrative expenses as a percentage of net sales is primarily due to higher
costs for pharmacy personnel and related employee benefits, higher occupancy
costs resulting from colder and wetter weather, and higher professional services
costs related to computer software evaluation and implementation compounded with
a decline in non-pharmacy sales of $2.4 million.
Depreciation and amortization expense was $3.0 million for the 2001 and
2000 Six-Month Periods.
Other income, net was $0.5 million for the 2001 Six-Month Period as
compared to $0.2 million for the 2000 Six-Month Period, an increase of $0.3
million, resulting from the receipt of $0.4 million as a member of the class in
the Brand Name Drug class action litigation.
The Company's net interest expense was $4.3 million in the 2001
Six-Month Period as compared to $4.1 million in the 2000 Six-Month Period, an
increase of $0.2 million resulting from the higher level of outstanding balances
on the Company's revolving line of credit. Non-cash interest expense on the
Holding Company's outstanding subordinated debt was $1.1 million in the 2001
Six-Month Period as compared to $0.9 million for 2000 Six-Month Period, an
increase of $0.2 million resulting from the compounding of interest on the
subordinated debt.
The Company's benefit for income taxes was $0.8 million for the 2001
Six-Month Period as compared to a tax provision of $1.4 million for the 2000
Six-Month Period. The Holding Company experienced a benefit from income taxes of
$0.4 million in the 2001 Six-Month Period as compared to $0.3 million in the
2000 Six-Month Period, related to the interest expense incurred on the
outstanding subordinated debt. The Company's effective tax rate is consistently
higher than the statutory tax rates, and varies from period to period, due to
the amortization of goodwill and of beneficial leaseholds that are not
deductible when calculating taxable income.
The Company's net loss for the 2001 Six-Month Period was $2.3 million
as compared to a net income of $0.5 million in the 2000 Six-Month Period, an
increase in the net loss of $2.8 million, which is primarily due to lower gross
profit and higher selling, general and administrative expenses during the 2001
Six-Month Period as previously discussed. The Holding Company incurred a net
loss of $0.7 million for the 2001 Six-Month Period as compared to $0.6 million
in the 2000 Six-Month Period, principally as a result of the accrued interest on
the subordinated debt.
LIQUIDITY AND CAPITAL RESOURCES
COMPARISON OF THE THREE MONTHS ENDED JANUARY 27, 2001 (THE "2001 THREE-MONTH
PERIOD") WITH THE THREE MONTHS ENDED JANUARY 29, 2000 (THE "2000 THREE-MONTH
PERIOD").
16
During the 2001 Three-Month Period, cash provided by operations was
$6.7 million as compared to $6.1 million for the 2000 Three-Month Period, an
increase of $0.6 million. This increase in cash provided by operations is
primarily the result of a smaller reduction of inventory during the 2001
Three-Month Period as compared to the 2000 Three-Month Period. Cash used in
investing activities was $1.2 million during the 2001 Three-Month Period as
compared to $1.0 million during the 2000 Three-Month Period, an increase of
$0.2 million, which was primarily the result of one store opened during the
2001 Three-Month Period and trailing expenditures relating to a store opened
during the Three-Month Period ended October 2000 as compared to trailing
expenditures for two stores opened during the Three-Month Period ended
October 1999. Cash used in financing activities was $5.5 million during the
2001 Three-Month Period as compared to $5.1 million during the 2000
Three-Month Period. Cash used in financing activities during the 2001
Three-Month Period was from net repayments on the Facility of $7.2
million offset by a cash overdraft of $1.7 million while the cash used in
financing activities in the 2000 Three-Month Period was from net repayments
on the Facility of $10.0 million offset by a cash overdraft of $4.9 million.
COMPARISON OF THE SIX MONTHS ENDED JANUARY 27, 2001 (THE "2001 SIX-MONTH
PERIOD") WITH THE SIX MONTHS ENDED JANUARY 29, 2000 (THE "2000 SIX-MONTH
PERIOD").
During the 2001 Six-Month Period, cash used in operations was $6.6
million as compared to $1.7 million for the 2000 Six-Month Period, an
increase in cash used in operations of $4.9 million. The increase in cash
used in operations is primarily the result of the Company's net loss of $2.3
million during the 2001 Six-Month Period as compared to a net income of $0.6
million during the 2000 Six-Month Period, in addition to a growth in accounts
receivable of $1.4 million resulting from a greater amount of pharmacy sales
to Third Party Plans customers. Cash used in investing activities was $2.0
million during the 2001 Six-Month Period as compared to $1.9 million during
the 2000 Six-Month Period, an increase of $0.1 million. During each of the
2001 and 2000 Six-Month Periods, the Company opened two stores. Cash provided
by financing activities was $8.7 million during the 2001 Six-Month Period as
compared to $3.7 million during the 2000 Six-Month Period. Cash provided by
financing activities during the 2001 Six-Month Period was from net borrowings
on the Facility of $7.0 million and by a cash overdraft of $1.7 million while
the cash provided by financing activities in the 2000 Six-Month Period was
from net repayments on the Facility of $1.2 million and by a cash overdraft
of $4.9 million.
The Company believes that, based on anticipated levels of operations,
it will be able to meet its debt service obligations, including interest
payments on the Senior Notes when due, and to fund anticipated capital
expenditures and working capital requirements, and to comply with the terms of
its debt agreements during the remainder of its fiscal years ended July 28, 2001
and July 27, 2002. The Company's ability to make scheduled payments of principal
or interest thereon, or to refinance its indebtedness will depend on future
operating performance and cash flow, which are subject to prevailing economic
conditions, prevailing interest rates and financial, competitive, business and
other factors beyond its control. The Company expects that substantially all of
its borrowings under the Facility will bear interest at floating rates;
therefore, the Company's financial condition will be affected by any changes in
prevailing rates.
CERTAIN RISKS
The Company is subject to certain risks, including:
"FREEDOM OF CHOICE" AND "ANY WILLING PROVIDER" LEGISLATION. In July
1994, New Jersey adopted "Freedom of Choice, legislation that required
Third-Party Plans to allow their customers to purchase prescription drugs from
the provider of their choice as long as the provider meets uniformly established
requirements, and "Any Willing Provider" legislation that requires each
Third-Party Plan that has entered into an agreement with a prescription provider
to permit other prescription providers to enter into similar agreements. If this
legislation were repealed, larger national drugstore chains could enter into
exclusive contracts with Third-Party Plans, which could reduce the Company's
sales of prescriptions and potentially non-prescription items as well. In
addition, since none of the states surrounding New Jersey (other than Delaware)
has enacted similar legislation, the Company may be at a disadvantage if it
chooses to expand outside of New Jersey.
GOVERNMENT REGULATION AND REIMBURSEMENT PROGRAMS. The Company is
subject to numerous federal, state, and local licensing and registration
regulations with respect to, among other things, its pharmacy operations.
Violations of any such regulations could result in various penalties, including
suspension or revocation of the Company's licenses or
17
registrations or monetary fines, which could have a material adverse effect on
the Company's financial condition and results of operations.
Federal and New Jersey law requires the Company's pharmacists to offer
free counseling to customers about their medication. In addition, the Company's
pharmacists are required to conduct a prospective drug review before any new
prescriptions are dispensed, and may conduct a similar review prior to refilling
any prescriptions. New Jersey also regulates the dispensing of over-the-counter
controlled dangerous substances. These requirements could result in increased
costs to the Company.
MEDICAID AND MEDICARE. A portion of the Company's services is
reimbursed by government-sponsored programs such as Medicaid and Medicare, with
the remainder being reimbursed by individual patients or Third-Party Plans. If
the Company were to fail to comply with reimbursement regulations, or if such
reimbursement programs were modified, the Company's business could be adversely
affected. The Company is also subject to laws prohibiting the submission of
false or fraudulent claims and certain financial relationships between health
care providers that are intended to induce the referral of patients, or the
recommendations of particular items or services. Violation of these laws could
result in loss of licensure, civil and criminal penalties, and exclusion from
federal health care programs.
EMPLOYMENT REGULATION. The Company is subject to employment law
governing minimum wage requirements, overtime and working conditions. An
increase in the minimum wage rate, employee benefit costs, or other costs
associated with employees could adversely affect the Company.
POTENTIAL GROWTH AND EXPANSION. The Company has grown in recent years
by opening new stores, remodeling and relocating existing stores and refining
the product mix in existing stores. The ability of the Company to continue to
grow in the future will depend on factors including existing and emerging
competition, the availability of working capital to support growth, the
Company's ability to manage costs and maintain margins in the face of pricing
pressures, and the ability to recruit and train qualified personnel. New stores
that the Company opens may not be profitable.
RESTRICTIONS ON THE COMPANY. Both the Indenture governing the Senior
Notes and the Facility impose on the Company certain requirements and
restrictions, such as a requirement that the Company maintain certain financial
ratios and satisfy certain financial tests, limitation on capital expenditures,
and restrictions on the ability of the Company to incur debt, pay dividends, or
take certain other corporate actions. These limitations may restrict the
Company's ability to pursue its business strategies.
DEBT SERVICE. The Company's ability to make scheduled payments of
principal or interest thereon, or to refinance its indebtedness will depend on
future operating performance and cash flow, which are subject to prevailing
economic conditions, prevailing interest rates and financial, competitive,
business and other factors beyond its control. The Company expects that
substantially all of its borrowings under its credit facility will bear interest
at floating rates; therefore, the Company's financial condition will be affected
by any changes in prevailing rates.
COMPETITION. The industries in which the Company operates are highly
competitive.
TRADE NAMES, SERVICE MARKS AND TRADEMARKS. The Company uses various
trade names, service marks and trademarks including "Drug Fair" and "Cost
Cutters" in the conduct of its business. A third party registered the service
mark "Cost Cutters", but does not currently operate in the Company's market
areas. If such third party commences operations in the Company's geographic
market areas or licenses the use of the name to a third party, the Company could
be required to stop using the name "Cost Cutters". In addition, any of the
Company's other trade names, service marks or trademarks could be challenged or
invalidated in the future.
ECONOMIC CONDITIONS AND REGIONAL CONCENTRATION. All of the Company's
stores are located in northern and central New Jersey. As a result, the Company
is sensitive to economic, competitive, and regulatory condition in that region.
LEASE RENEWALS ON THE COMPANY'S STORES. All of the Company's stores are
leased. Although the Company has historically been successful in renewing its
most important store leases when they have expired, there can be no assurance
that the Company will continue to be able to do so.
18
LEVERAGE. In connection with the Company's issuance of the Senior
Notes, the Company incurred a significant amount of indebtedness and, as a
result, the Company is highly leveraged. The Company is permitted to incur
substantial additional indebtedness in the future, subject to certain
limitations contained in the Indenture governing the Senior Notes.
CONTROLLING STOCKHOLDERS. The Holding Company owns all of the
outstanding capital stock of the Company. The existing stockholders of the
Holding Company, which include the Company's President and Chief Executive
Officer, certain entities affiliated with the other directors of the Company,
and other officers and employees of the Company, own all of the outstanding
common stock of the Holding Company. These stockholders have the power to
appoint new management and approve any action requiring the approval of the
Company's stockholders, including adopting amendments to the Company's charter
and approving mergers or sales of substantially all of the Company's assets.
DEPENDENCE ON KEY PERSONNEL. The success of the Company depends upon
the efforts, abilities and expertise of its Chief Executive Officer and other
key employees. The loss of the services of any key employees could have a
material adverse effect on the Company's financial condition and results of
operations.
19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Neither the Company nor the Holding Company engages in trading market
risk sensitive instruments or purchases hedging instruments or "other than
trading" instruments that are likely to expose the Company or the Holding
Company to market risk, whether interest rate, foreign currency exchange,
commodity price or equity price risk. Neither the Company nor the Holding
Company has purchased options or entered into swaps or forward or futures
contracts. The ability of the Company and the Holding Company (as guarantor) to
make periodic interest payments on the Senior Notes, at a fixed rate of 10 1/4%,
is not directly affected by fluctuations in the market. The Company's primary
market risk exposure is that of interest rate risk on borrowings under the
Facility, which are subject to interest rates based either on the lender's prime
rate or London Interbank Offered Rate ("LIBOR"), and a change in the applicable
interest rate would affect the rate at which the Company could borrow funds.
20
PART II - - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) No Reports on Form 8-K
Neither the Company nor the Holding Company filed reports on
Form 8-K during the three months ended January 27, 2001.
21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrants duly caused this report to be signed on their behalf by the
undersigned, thereunto duly authorized.
COMMUNITY DISTRIBUTORS, INC.
March 13, 2001 By: /s/ TODD H. PLUYMERS
---------------------------------
Todd H. Pluymers,
Chief Financial Officer
(AUTHORIZED OFFICER AND PRINCIPAL
FINANCE AND ACCOUNTING OFFICER)
CDI GROUP, INC.
March 13, 2001 By: /s/ TODD H. PLUYMERS
---------------------------------
Todd H. Pluymers,
Chief Financial Officer
(AUTHORIZED OFFICER AND PRINCIPAL
FINANCE AND ACCOUNTING OFFICER)
22