<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 December 31, 1994.
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 .
MEDICINE SHOPPE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
State of Delaware 43-0950846
(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
(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 January 31, 1995
$0.01 per share 7,721,258
Exhibit index is on page 13.
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MEDICINE SHOPPE INTERNATIONAL, INC.
TABLE OF CONTENTS
PAGE
Part I - FINANCIAL INFORMATION ----
Item 1. FINANCIAL STATEMENTS:
Balance Sheets - December 31, 1994 (Unaudited) and
September 30, 1994 ...................................... 3
Statements of Earnings (Unaudited) - For the Three Months
Ended December 31, 1994 and 1993 ........................ 5
Statements of Cash Flows (Unaudited) - For the Three Months
Ended December 31, 1994 and 1993 ........................ 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
Page 2
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MEDICINE SHOPPE INTERNATIONAL, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
(Unaudited)
-----------------------
- - -------------------------------------------------------------------------------
December 31 September 30
----------- ------------
A S S E T S 1994 1994
- - ---------------------------------------------------- ----------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,084,798 $ 5,989,274
Short-term investments 14,193,000 10,064,000
Accounts receivable, net 10,135,173 9,741,426
Notes and accrued interest receivable, net 4,810,574 4,647,824
Other current assets 2,391,394 2,351,651
- - ---------------------------------------------------- ----------- -----------
Total Current Assets 36,614,939 32,794,175
- - ---------------------------------------------------- ----------- -----------
Other Assets:
Long-term investments 4,858,000 7,078,000
Finance notes and accrued interest receivable, net 32,968,174 32,981,110
Other assets 7,958,081 8,338,459
- - ---------------------------------------------------- ----------- -----------
Total Other Assets 45,784,255 48,397,569
- - ---------------------------------------------------- ----------- -----------
Property and Equipment, at Cost:
Furniture and equipment 5,252,008 4,851,525
Leasehold improvements 594,985 548,437
- - ---------------------------------------------------- ----------- -----------
5,846,993 5,399,962
Less- Accumulated depreciation and
amortization (3,853,568) (3,712,334)
- - ---------------------------------------------------- ----------- -----------
Net Property and Equipment 1,993,425 1,687,628
- - ---------------------------------------------------- ----------- -----------
Total Assets $ 84,392,619 $ 82,879,372
==================================================== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
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MEDICINE SHOPPE INTERNATIONAL, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
(Unaudited)
-----------------------
- - -------------------------------------------------------------------------------
December 31 September 30
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1994
- - ---------------------------------------------------- ----------- ------------
<S> <C> <C>
Current Liabilities:
Accounts payable $ 2,021,774 $ 1,850,999
Accrued income taxes 2,495,000 566,000
Other accrued expenses 414,406 1,552,524
- - ---------------------------------------------------- ----------- -----------
Total Current Liabilities 4,931,180 3,969,523
- - ---------------------------------------------------- ----------- -----------
Deferred Origination Fee Income, net of
related direct expenses incurred to date
of $1,236,731 and $1,220,884, respectively 1,058,463 940,185
- - ---------------------------------------------------- ----------- -----------
Stockholders' Equity:
Common stock-$.01 par value, 10,000,000 shares
authorized; 7,752,082 and 7,851,432 shares
issued and outstanding, respectively 77,521 78,514
Paid-in capital 13,884,039 14,047,328
Retained earnings 64,441,416 63,843,822
- - ---------------------------------------------------- ----------- -----------
Total Stockholders' Equity 78,402,976 77,969,664
- - ---------------------------------------------------- ----------- -----------
Total Liabilities and Stockholders' Equity $ 84,392,619 $ 82,879,372
==================================================== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
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MEDICINE SHOPPE INTERNATIONAL, INC.
<TABLE>
<CAPTION>
STATEMENTS OF EARNINGS
(Unaudited)
----------------------
- - -------------------------------------------------------------
Quarter Ended
December 31
----------------------
1994 1993
- - ------------------------------------- ---------- ----------
<S> <C> <C>
Revenues:
Sales to franchisees $ 2,726,996 $ 2,562,370
Franchise fees 9,378,329 8,632,770
Origination fees 172,575 213,386
Interest income on financing
and other revenues 1,126,039 871,295
- - ------------------------------------- ---------- ----------
13,403,939 12,279,821
- - ------------------------------------- ---------- ----------
Costs and Expenses:
Cost of sales to franchisees 2,251,685 2,160,382
Selling, general &
administrative 5,023,873 4,772,724
- - ------------------------------------- ---------- ----------
7,275,558 6,933,106
- - ------------------------------------- ---------- ----------
Earnings From Operations 6,128,381 5,346,715
- - ------------------------------------- ---------- ----------
Income on Investments, net 249,000 183,413
- - ------------------------------------- ---------- ----------
Earnings Before Taxes 6,377,381 5,530,128
- - ------------------------------------- ---------- ----------
Income Tax Provision 2,312,000 1,980,000
- - ------------------------------------- ---------- ----------
Net Earnings $ 4,065,381 $ 3,550,128
===================================== ========== ==========
Earnings Per Share $ 0.52 $ 0.45
===================================== ========== ==========
Dividends Per Share $ 0.14 $ 0.12
===================================== ========== ==========
Average Shares Outstanding 7,826,782 7,927,085
===================================== ========== ==========
See Accompanying Notes to Financial Statements.
</TABLE>
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MEDICINE SHOPPE INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
-----------
<TABLE>
<CAPTION>
Three Months Ended
December 31
-------------------------
1994 1993
- - ---------------------------------------------------- ------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 4,065,381 $ 3,550,128
Depreciation and amortization 149,220 152,278
Change in working capital [excluding cash
and cash equivalents and short term investments] 365,417 323,431
Change in deferred orig. fee income, net 118,278 118,390
Increase in finance notes and accrued interest
receivable, net 12,936 (870,951)
Change in deferred income taxes (104,000) (153,590)
- - ---------------------------------------------------- ------------ -----------
Net cash provided by operating activities 4,607,232 3,119,686
- - ---------------------------------------------------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in investments (1,909,000) 834,387
Additions to property and equipment (447,031) (271,121)
Change in net investment in pharmacies 494,392 131,859
Other, net (14,868) 0
- - ---------------------------------------------------- ----------- -----------
Net cash (used) provided by investing activities (1,876,507) 695,125
- - ---------------------------------------------------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock (2,551,894) (626,260)
Proceeds from exercise of common stock options 15,998 17,159
Dividends paid (1,099,305) (952,221)
- - ---------------------------------------------------- ----------- -----------
Net cash used by financing activities (3,635,201) (1,561,322)
- - ---------------------------------------------------- ----------- -----------
Net change in cash and cash equivalents (904,476) 2,253,489
Cash and cash equivalents at beginning of period 5,989,274 1,500,258
- - ---------------------------------------------------- ----------- -----------
Cash and cash equivalents at end of period $ 5,084,798 $ 3,753,747
==================================================== =========== ===========
Supplemental disclosures:
Cash paid during the period for income taxes $ 487,000 $ 561,000
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
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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.
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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 7.4:1 at December 31, 1994 (versus 8.3:1 at
September 30, 1994) and an equity ratio of 93% at December 31, 1994 (versus 94%
at September 30, 1994). The reduction in the current ratio is due to the
accrual of income taxes which were paid with the first installment in January
1995 and the repurchase of the Company's common stock. The Company has no
external financing outstanding as of December 31, 1994 or September 30, 1994.
In November 1994 the Company's Board of Directors voted to increase the
quarterly dividend by 17% to $0.14 per share. The increased dividend was paid
as the regular quarterly dividend in December 1994. On January 19, 1995, the
Company's Board of Directors voted a regular quarterly dividend of $0.14 per
share which is payable in February 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 will 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 January 31, 1995, the Company has repurchased 528,400
shares at a cost of approximately $12 million. In the first fiscal quarter of
1995, 100,100 shares were repurchased.
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 December 31, 1994 and September 30, 1994 was
approximately $37 million, including both principal and accrued interest
receivable.
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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 9% to $13,404,000 in the first quarter fiscal 1995
compared to $12,280,000 in the first quarter fiscal 1994. The principal
component of Company revenues, franchise fees, increased 9% to $9,378,000 from
the $8,633,000 recorded in the quarter ended December 31, 1993. This increase
is primarily attributable to an increase of 11% in the retail sales at the
store level to approximately $233 million for the first quarter of fiscal 1995
from $209 million for the first quarter of fiscal 1994. For the three months,
store-for-store comparable sales were up 7% for fiscal 1995.
The revenue category of sales to franchisees which represents MEDICINE SHOPPE
brand label products, signage, fixtures and supplies rose 6% for the first
fiscal quarter of 1995 when compared to the same period in 1994. This category
benefitted from the 7% increase in the number of pharmacies in operation
between the two periods.
Twenty-one new stores were opened during the three months ended December 31,
1994 versus 26 openings in the first quarter of fiscal 1994. Ten of the fiscal
1995 openings and twelve of the fiscal 1994 openings were in foreign countries.
The Company's master licensee, Dallas Pharma de Mexico, opened its first
franchise in Mexico. Six stores were closed during the first quarter of fiscal
1995 as compared to eleven closings during the first quarter fiscal 1994. At
December 31, 1994, there were 1,067 MEDICINE SHOPPE Pharmacies in operation,
including 92 units operating outside of the United States.
Origination fee revenue for fiscal 1995 declined 19% due to the fewer
number of openings when compared to fiscal 1994. Interest income on financing
and other revenues increased 29% due to an increase in financing notes and
related interest to $37 million at December 31, 1994 from $34 million at
December 31, 1993 and increases in the prime rate at which most of the
Company's loans are pegged.
Selling, general and administrative expenses of $5,024,000 for the first
quarter of fiscal 1995 were approximately 5% greater than the first quarter of
1994. Personnel costs primarily attributed to the fiscal 1995 increase.
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MEDICINE SHOPPE INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Income from investments increased 36% during the first quarter fiscal 1995 to
$249,000 from $183,000 during the first quarter fiscal 1994 due primarily to an
additional $3.8 million in investments and higher investment interest rates.
The Company expects this trend to continue.
The Company's income tax provision has risen 17% in the first three months of
1995 when compared to the 1994 periods. The increase in operating earnings,
reduction of tax-exempt interest as a percentage of total income and increased
state income taxes account for the increase.
Net earnings increased to $4,065,000, or 15%, during the first quarter of
fiscal 1995 from $3,550,000 during the first quarter of 1994. On a per share
basis, earnings for the respective periods were $0.52 and $0.45, respectively.
These increases primarily reflect the 15% increase in operating earnings and
income on investments, less the increase in tax provision. The earnings per
share amount in fiscal 1995 is enhanced by the Company's repurchase of its
common stock during the first quarter of fiscal 1995. The repurchase reduced
the Company's average shares outstanding during the quarter.
Page 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.
February 13, 1995 /s/ David A. Abrahamson
----------------- --------------------------------
Date DAVID A. ABRAHAMSON
President & Chief Executive Officer
February 13, 1995 /s/ Donald C. Schreiber
----------------- --------------------------------
Date DONALD C. SCHREIBER
Vice-President of Finance
Chief Financial Officer
Page 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 December 31,
1994.
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MEDICINE SHOPPE INTERNATIONAL, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- - -------------------------------------------------------------------------
<S> <C> <C>
11 Computation of Net Earnings Per Common Share 14
27 Financial Data Schedule
</TABLE>
Page 13
<PAGE> 1
MEDICINE SHOPPE INTERNATIONAL, INC.
EXHIBIT 11 - COMPUTATION OF NET EARNINGS
PER COMMON SHARE (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
December 31,
---------------------
1994 1993
NET EARNINGS PER SHARE ---- ----
- - ----------------------
<S> <C> <C>
Net earnings $ 4,065,381 $ 3,550,128
Average number of shares
outstanding during
the period 7,862,782 7,927,085
Net earnings per share $ 0.52 0.45
============ ===========
PRIMARY EARNINGS PER SHARE
- - --------------------------
Net earnings $ 4,065,381 $ 3,550,128
Average number of shares
outstanding during
the period 7,826,782 7,927,085
Plus shares outstanding
considering conversion
of stock options 746 0
------------ ------------
Average shares for primary
earnings per share 7,827,528 7,927,085
Primary earnings
per share $ 0.52 $ 0.45
============ ============
FULLY DILUTED
EARNINGS PER SHARE
- - --------------------
Net earnings $ 4,065,381 $ 3,550,128
Average number of shares
outstanding during
the period 7,826,782 7,927,085
Plus shares outstanding
considering conversion
of stock options 15,840 0
------------ ------------
Average shares for fully
diluted earnings
per share 7,842,622 7,927,085
Fully diluted earnings
per share $ 0.52 $ 0.45
============ ============
</TABLE>
Page 14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U. S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 5,084,798
<SECURITIES> 14,193,000
<RECEIVABLES> 14,945,747
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 36,614,939
<PP&E> 5,846,993
<DEPRECIATION> 3,853,568
<TOTAL-ASSETS> 84,392,619
<CURRENT-LIABILITIES> 4,931,180
<BONDS> 0
<COMMON> 77,521
0
0
<OTHER-SE> 78,325,455
<TOTAL-LIABILITY-AND-EQUITY> 84,392,619
<SALES> 2,726,996
<TOTAL-REVENUES> 13,403,939
<CGS> 2,251,685
<TOTAL-COSTS> 2,251,685
<OTHER-EXPENSES> 5,023,873
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,377,381
<INCOME-TAX> 2,312,000
<INCOME-CONTINUING> 4,065,381
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,065,381
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.52
</TABLE>
