Heroin in pharmacies? Maybe - Inside Pharmacy - column

HSI meets cash needs in LBO; Brooks purchase boosts sales

CINCINNATI -- Hook-SupeRx, Inc. is paying its bills with cash to spare.

Two years into its leveraged buyout, the Midwestern-based chain has been covering expenses with funds generated by operations. The company managed this even after taking on more expensive debt when it bought Brooks Drug, show documents which HSI filed with the Securities and Exchange Commission.

HSI has posted net losses on paper in the fiscal year ended Aug. 31 and the first quarter ended Nov. 30, 1988. The primary reason: non-cash charges against earnings which stem from depreciation of assets that were initially inflated to reflect the LBO buyout price. The posted losses, in fact, created additional income for HSI in the form of tax credits.

Sales were $413.4 million in the first quarter ended Nov. 30, or 49 percent above the comparable period a year earlier. They were boosted by $107.3 million in sales from Brooks, bought last June.

HSI ended the first quarter with $2.49 million in cash, a gain of $1.69 million from the amount it had ended the year with. After paying $14.4 million in interest, it recorded a net loss of $6.6 million for the quarter.

Sales for the last full year hit $1.3 billion. The year's final nine months sales of $1 billion were 20.5 percent higher than the comparable 1987 period.

The 1,071-store company said cash flow was sufficient to leave a year-end balance of $798,905.

The 1988 year produced a net loss of $401,652. That was after interest expense of $44.8 million, and a non-cash charge from depreciation of $31.5 million.

HSI also reported in 1988 it changed from the FIFO to the LIFO method of inventory valuation. That increased HSI's cost of merchandise sold, including distribution costs by $7.3 million, it reported.

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