<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 30, 1995.
-----------------
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 0-13008 .
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MEDICINE SHOPPE INTERNATIONAL, INC.
-----------------------------------
(Exact name of registrant as specified in its charter)
State of Delaware 43-0950846
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1100 North Lindbergh Boulevard, St. Louis, Missouri 63132
- --------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(314) 993-6000
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(Registrant's telephone number, including area code)
Not Applicable
--------------
(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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Common Stock Outstanding at July 31, 1995
--------------------- ----------------------------
$0.01 per share 7,714,775
Exhibit index is on page 13.
1
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MEDICINE SHOPPE INTERNATIONAL, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS:
Balance Sheets - June 30, 1995 (Unaudited) and
September 30, 1994 ...................................... 3
Statements of Earnings (Unaudited) - For the Three and Nine
Months Ended June 30, 1995 and 1994 ..................... 5
Statements of Cash Flows (Unaudited) - For the Nine Months
Ended June 30, 1995 and 1994 ............................ 6
Notes to Financial Statements .............................. 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ....................... 8
SIGNATURES .......................................................... 11
PART II - OTHER INFORMATION ......................................... 12
EXHIBIT INDEX ....................................................... 13
Exhibit 11 - Computation of Net Earnings
Per Common Share (Unaudited) ......................... 14
Exhibit 27 - Financial Data Schedule - included in the Company's
electronic (EDGAR) filing
</TABLE>
2
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MEDICINE SHOPPE INTERNATIONAL, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
June 30 September 30
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ASSETS 1995 1994
- ---------------------------------------------------- ----------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,906,262 $ 5,989,274
Short-term investments 18,119,000 10,064,000
Accounts receivable, net 10,546,008 9,741,426
Notes and accrued interest receivable, net 5,062,296 4,647,824
Other current assets 2,025,767 2,351,651
- ---------------------------------------------------- ----------- -----------
Total Current Assets 37,659,333 32,794,175
- ---------------------------------------------------- ----------- -----------
Other Assets:
Long-term investments 7,118,000 7,078,000
Finance notes and accrued interest receivable, net 33,329,657 32,981,110
Other assets 8,569,732 8,338,459
- ---------------------------------------------------- ----------- -----------
Total Other Assets 49,017,389 48,397,569
- ---------------------------------------------------- ----------- -----------
Property and Equipment, at Cost:
Furniture and equipment 5,407,225 4,851,525
Leasehold improvements 595,342 548,437
- ---------------------------------------------------- ----------- -----------
6,002,567 5,399,962
Less- Accumulated depreciation and
amortization (4,148,686) (3,712,334)
- ---------------------------------------------------- ----------- -----------
Net Property and Equipment 1,853,881 1,687,628
- ---------------------------------------------------- ----------- -----------
Total Assets $88,530,603 $82,879,372
=================================================== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
Page 3
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MEDICINE SHOPPE INTERNATIONAL, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
June 30 September 30
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LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
- ---------------------------------------------------- ----------- ------------
<S> <C> <C>
Current Liabilities:
Accounts payable $ 2,214,039 $ 1,850,999
Accrued income taxes 832,000 566,000
Other accrued expenses 1,242,369 1,552,524
- ---------------------------------------------------- ----------- -----------
Total Current Liabilities 4,288,408 3,969,523
- ---------------------------------------------------- ----------- -----------
Deferred Origination Fee Income, net of
related direct expenses incurred to date
of $1,299,732 and $1,287,804, respectively 1,203,087 940,185
- ---------------------------------------------------- ----------- -----------
Stockholders' Equity:
Common stock-$.01 par value, 10,000,000 shares
authorized; 7,713,843 and 7,825,397 shares
issued and outstanding, respectively 77,138 78,514
Paid-in capital 14,852,855 14,047,328
Retained earnings 68,109,115 63,843,822
- ---------------------------------------------------- ----------- -----------
Total Stockholders' Equity 83,039,108 77,969,664
- ---------------------------------------------------- ----------- -----------
Total Liabilities and Stockholders' Equity $88,530,603 $82,879,372
==================================================== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
Page 4
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MEDICINE SHOPPE INTERNATIONAL, INC.
STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Quarter Ended Nine Months Ended
June 30 June 30
----------------------------- ------------------------------
1995 1994 1995 1994
- ------------------------------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues:
Sales to franchisees $ 2,529,839 $ 2,310,860 $ 7,539,068 $ 7,449,231
Franchise fees 9,669,811 8,753,247 28,666,343 25,928,377
Origination fees 242,700 318,137 564,350 973,611
Interest income on financing
and other revenues 1,262,917 977,412 3,616,624 2,770,985
- ------------------------------------ ----------- ----------- ----------- -----------
13,705,267 12,359,656 40,386,385 37,122,204
- ------------------------------------ ----------- ----------- ----------- -----------
Costs and Expenses:
Cost of sales to franchisees 2,116,157 1,956,632 6,356,424 6,295,411
Selling, general and
administrative 5,343,532 5,036,312 15,539,934 14,635,896
- ------------------------------------ ----------- ----------- ----------- -----------
7,459,689 6,992,944 21,896,358 20,931,307
- ------------------------------------ ----------- ----------- ----------- -----------
Earnings From Operations 6,245,578 5,366,712 18,490,027 16,190,897
- ------------------------------------ ----------- ----------- ----------- -----------
Income on Investments, net 291,000 179,305 809,000 543,000
- ------------------------------------ ----------- ----------- ----------- -----------
Earnings Before Taxes 6,536,578 5,546,017 19,299,027 16,733,897
- ------------------------------------ ----------- ----------- ----------- -----------
Income Tax Provision 2,340,000 1,930,000 6,957,000 5,952,000
- ------------------------------------ ----------- ----------- ----------- -----------
Net Earnings $ 4,196,578 $ 3,616,017 $12,342,027 $10,781,897
==================================== =========== =========== =========== ===========
Earnings Per Share $ 0.54 $ 0.46 $ 1.59 $ 1.37
==================================== =========== =========== =========== ===========
Dividends Per Share $ 0.14 $ 0.12 $ 0.42 $ 0.36
==================================== =========== =========== =========== ===========
Average Shares Outstanding 7,767,661 7,841,647 7,785,374 7,887,627
==================================== =========== =========== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
Page 5
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MEDICINE SHOPPE INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Nine Months Ended
June 30
-------------------------
1995 1994
- ---------------------------------------------------- ------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $12,342,027 $10,781,897
Depreciation and amortization 460,310 469,965
Change in working capital [excluding cash
and cash equivalents and short term investments] (574,285) (941,821)
Change in deferred orig. fee income, net 262,902 231,885
Increase in finance notes and accrued interest
receivable, net (348,547) (2,493,640)
Change in deferred income taxes (305,000) (201,590)
- ---------------------------------------------------- ----------- -----------
Net cash provided by operating activities 11,837,407 7,846,696
- ---------------------------------------------------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in investments (8,095,000) (558,397)
Additions to property and equipment (602,605) (475,391)
Change in net investment in pharmacies (12,615) 27,255
Other, net 106,441 0
- ---------------------------------------------------- ----------- -----------
Net cash used by investing activities (8,603,779) (1,006,533)
- ---------------------------------------------------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock (5,149,548) (2,423,342)
Proceeds from exercise of common stock options 1,104,458 36,660
Dividends paid (3,271,550) (2,841,812)
- ---------------------------------------------------- ----------- -----------
Net cash used by financing activities (7,316,640) (5,228,494)
- ---------------------------------------------------- ----------- -----------
Net change in cash and cash equivalents (4,083,012) 1,611,669
Cash and cash equivalents at beginning of period 5,989,274 1,500,258
- ---------------------------------------------------- ----------- -----------
Cash and cash equivalents at end of period $ 1,906,262 $ 3,111,927
==================================================== =========== ===========
Supplemental disclosures:
Cash paid during the period for income taxes $ 7,100,000 $ 6,582,000
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
Page 6
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MEDICINE SHOPPE INTERNATIONAL, INC.
Notes to Financial Statements
(1) UNAUDITED INTERIM STATEMENTS:
These unaudited financial statements have been prepared in accordance
with the instructions to Form 10-Q of the Securities and Exchange Commission and
should be read in conjunction with the Notes to Financial Statements in the 1994
Annual Report (pages 19-23), which were incorporated by reference into the
Company's Report on Form 10-K for fiscal 1994. In the opinion of management,
this information is fairly presented and all adjustments (consisting only of
normal recurring adjustments) necessary for a fair statement of the results for
the interim periods have been included; however, certain items are included in
these statements based upon estimates for the entire year.
7
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MEDICINE SHOPPE INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Analysis of Financial Condition:
Medicine Shoppe International, Inc. (Company) continues in a strong
financial position with a current ratio of 8.8:1 at June 30, 1995 (versus 8.3:1
at September 30, 1994) and an equity ratio of 94% at June 30, 1995 (versus 94%
at September 30, 1994). The improvement in the current ratio in 1995 versus
1994 is due primarily to the results of operations. The Company had no external
financing outstanding as of June 30, 1995 or September 30, 1994.
On June 24, 1995, the Company's Board of Directors voted a regular
quarterly dividend of $0.14 per share which is payable August 17, 1995 to
stockholders of record on August 7, 1995.
At its January 1995 meeting, the Company's Board of Directors
authorized the Company to repurchase an additional 500,000 shares of its common
stock on the open market and/or through private purchases. Purchases may be
made at various times and at such prices as the Company believes attractive in
the circumstances. Internal funds have been and will continue to be utilized
for the share repurchase; no additional debt will be incurred. Management
continues to believe such share repurchases are an appropriate use of funds and
should benefit all shareholders. Through July 31, 1995, the Company has
repurchased, through prior repurchase authorizations, 579,675 shares at a cost
of approximately $14 million, including 186,875 shares repurchased in the first
ten months of fiscal 1995.
The Company has a program to provide financing of opening costs to
selected new franchisees. This financing program includes financing for new
stores as well as the conversion and acquisition costs of independent pharmacies
to franchised MEDICINE SHOPPE pharmacies. Loan amounts are normally repayable
in seven to ten years, with interest at a rate which fluctuates with the prime
interest rate. The aggregate amount of such franchisee obligations to the
Company outstanding as of June 30, 1995 and September 30, 1994 was approximately
$38 million, including both principal and accrued interest receivable.
The Company sold its minority interest in Healthy Homecomings, Inc., a
home health care concern, to Health Management Corporation, a health care
management company. The Company received cash and a long-term note. The
transaction, which closed on June 30, 1995, had no material impact on the
Company's third quarter financial results.
8
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MEDICINE SHOPPE INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Analysis of Results of Operations:
Company revenues increased 11% to $13,705,000 in the third quarter
fiscal 1995 compared to $12,360,000 in the third quarter fiscal 1994. Year-
to-date revenues have increased 9% to $40,386,000 in fiscal 1995 compared to
$37,122,000 in fiscal 1994. The principal component of Company revenues,
franchise fees, increased 10% to $9,670,000 from the $8,753,000 recorded in the
quarter ended June 30, 1994. Year-to-date franchise fees have increased 11% in
fiscal 1995 versus the nine months of 1994. These increases are primarily
attributable to an increase of 11% in the nine months fiscal 1995 retail sales
at the store level to approximately $709 million from $637 million for the nine
months of fiscal 1994. For the nine months, store-for-store comparable sales
were up 9% for fiscal 1995.
The revenue category of sales to franchisees which represents MEDICINE
SHOPPE brand label products, signage, fixtures and supplies showed an increase
of 9% in the third fiscal quarter of 1995 versus the comparable period of 1994.
Year-to-date sales to franchisees are up by 1%. The increase in sales in the
third quarter of 1995 is primarily due to promotional programs. Flat sales for
the nine months are due to the mild winter season experienced by most of the
United States resulting in lower sale of over-the-counter cold and flu remedies
and inventory reductions by retail pharmacies.
Origination fee revenue is off by 24% for the third fiscal quarter and
42% for the year to date. The 1994 figures include revenues from the signing of
a master license contracts in Indonesia and Thailand. 1995 has no similar master
contracts. Also, domestic store openings were 35 for the nine months ended June
30, 1995 compared with 49 for the same period in fiscal 1994.
Interest income on financing and other revenues increased 29% in the
third quarter and 31% for the first nine months of 1995 due to an increase in
financing notes and related interest to $38 million at June 30, 1995 from $35
million at June 30, 1994 and increases in the prime rate at which most of the
Company's loans are pegged.
9
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MEDICINE SHOPPE INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Seventeen new stores were opened during the three months ended June 30,
1995 versus 30 openings in the third quarter of fiscal 1994. Three of the 1995
openings and 12 of the 1994 openings were in foreign countries. Six stores were
closed during the third quarter of fiscal 1995 and 8 closed during the third
quarter fiscal 1994. At June 30, 1995, there were 1,096 MEDICINE SHOPPE
Pharmacies in operation, including 109 units operating outside of the United
States.
Selling, general and administrative expenses increased 6% to $5,344,000
and 6% to $15,540,000 for the quarter and nine months ended June 30, 1995
compared to $5,036,000 and $14,636,000 for the same periods in fiscal 1994.
Personnel costs and other operating expenses associated with system expansion
and managed care initiatives contributed to the fiscal 1995 increases.
Income from investments increased 49% during the first nine months of
fiscal 1995 to $809,000 from $543,000 during the first nine months of fiscal
1994 due primarily to an additional $7.4 million in cash and investments and
higher investment interest rates.
The Company's income tax provision has risen 21% in the third three
months of 1995 when compared to the 1994 period and 17% on a year-to-date
basis. The Company's effective tax rate increased to 36.0% in the first nine
months of 1995 from 35.6% in 1994. The increase in operating earnings,
reduction of tax-exempt interest as a percentage of total income and increased
state income taxes account for the increases.
Net earnings increased to $4,197,000, or 16%, during the third quarter
of fiscal 1995 from $3,616,000 during the third quarter of 1994. A comparable
14% increase in net earnings to $12,342,000 from $10,782,000 has been recorded
during the nine month period ended June 30, 1995. On a per share basis,
earnings for the periods were $0.54 and $0.46 and $1.59 and $1.37,
respectively. These increases primarily reflect the 16% increase in operating
earnings during the first nine months of fiscal 1995 along with the increase in
interest income from investments. The earnings per share amount in fiscal 1995
is enhanced by the Company's repurchase of its common stock. The repurchase
reduced the Company's average shares outstanding during the first nine months
of 1995.
10
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MEDICINE SHOPPE INTERNATIONAL, INC.
SIGNATURES
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.
MEDICINE SHOPPE INTERNATIONAL, INC.
August 11, 1995 /s/ David A. Abrahamson
Date -----------------------------------
DAVID A. ABRAHAMSON
President & Chief Executive Officer
August 11, 1995 /s/ Donald C. Schreiber
Date --------------------------------------
DONALD C. SCHREIBER
Vice-President of Finance
Chief Financial Officer
11
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MEDICINE SHOPPE INTERNATIONAL, INC.
Part II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS:
There are no pending legal proceedings, other than routine litigation
incidental to the business, to which the Registrant is a party.
Item 2. CHANGES IN SECURITIES:
No change.
Item 3. DEFAULT UPON SENIOR SECURITIES:
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
Nothing to report.
Item 5. OTHER INFORMATION:
Nothing to report.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
A) Exhibits: See Exhibit Index on page 13.
B) No reports on Form 8-K were filed for the quarter ended
June 30, 1995.
12
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MEDICINE SHOPPE INTERNATIONAL, INC.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
11 Computation of Net Earnings Per Common Share 14
27 Financial Data Schedule
13
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MEDICINE SHOPPE INTERNATIONAL, INC.
EXHIBIT 11 - COMPUTATION OF NET EARNINGS
PER COMMON SHARE (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
June 30, June 30,
----------------------- -----------------------
1995 1994 1995 1994
---- ---- ---- ----
NET EARNINGS PER SHARE
<S> <C> <C> <C> <C>
Net earnings 4,196,578 3,616,017 12,342,027 10,781,897
Average number of shares
outstanding during
the period 7,767,661 7,841,647 7,785,374 7,887,627
Net earnings per share $ 0.54 $ 0.46 $ 1.59 $ 1.37
=========== =========== =========== ===========
PRIMARY EARNINGS PER SHARE
Net earnings $ 4,196,578 $ 3,616,017 $12,342,027 $10,781,897
Average number of shares
outstanding during
the period 7,767,661 7,841,647 7,785,374 7,887,627
Plus shares outstanding
considering conversion
of stock options 44,849 0 27,300 0
----------- ----------- ----------- -----------
Average shares for primary
earnings per share 7,812,510 7,841,647 7,812,674 7,887,627
Primary earnings
per share $ 0.54 $ 0.46 $ 1.58 $ 1.37
=========== =========== =========== ===========
FULLY DILUTED
EARNINGS PER SHARE
Net earnings $ 4,196,578 $ 3,616,017 $12,342,027 $10,781,897
Average number of shares
outstanding during
the period 7,767,661 7,841,647 7,785,374 7,887,627
Plus shares outstanding
considering conversion
of stock options 52,768 0 52,768 0
----------- ----------- ----------- -----------
Average shares for fully
diluted earnings
per share 7,820,429 7,841,647 7,838,142 7,887,627
Fully diluted earnings
per share $ 0.54 $ 0.46 $ 1.57 $ 1.37
=========== =========== =========== ===========
</TABLE>
Page 14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,906,262
<SECURITIES> 18,119,000
<RECEIVABLES> 10,881,008
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 37,659,333
<PP&E> 6,002,567
<DEPRECIATION> 4,148,686
<TOTAL-ASSETS> 88,530,603
<CURRENT-LIABILITIES> 4,288,408
<BONDS> 0
<COMMON> 77,138
0
0
<OTHER-SE> 82,961,970
<TOTAL-LIABILITY-AND-EQUITY> 88,530,603
<SALES> 7,539,068
<TOTAL-REVENUES> 40,386,385
<CGS> 6,356,424
<TOTAL-COSTS> 6,356,424
<OTHER-EXPENSES> 15,539,934
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 19,299,027
<INCOME-TAX> 6,957,000
<INCOME-CONTINUING> 12,342,027
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,342,027
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 1.59
</TABLE>
