<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 March 31, 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 .
-----------------------------------------
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.
<TABLE>
<CAPTION>
Class of Common Stock Outstanding at April 30, 1995
- --------------------- -----------------------------
<S> <C>
$0.01 per share 7,751,585
</TABLE>
Exhibit index is on page 13.
1
<PAGE> 2
MEDICINE SHOPPE INTERNATIONAL, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS:
Balance Sheets - March 31, 1995 (Unaudited) and
September 30, 1994 ...................................... 3
Statements of Earnings (Unaudited) - For the Three and Six
Months Ended March 31, 1995 and 1994 .................... 5
Statements of Cash Flows (Unaudited) - For the Six Months
Ended March 31, 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
<PAGE> 3
MEDICINE SHOPPE INTERNATIONAL, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
March 31 September 30
----------- ------------
A S S E T S 1995 1994
- ---------------------------------------------------- ----------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,443,688 $ 5,989,274
Short-term investments 15,334,000 10,064,000
Accounts receivable, net 9,698,752 9,741,426
Notes and accrued interest receivable, net 4,878,889 4,647,824
Other current assets 2,125,124 2,351,651
- ---------------------------------------------------- ----------- -----------
Total Current Assets 37,480,453 32,794,175
- ---------------------------------------------------- ----------- -----------
Other Assets:
Long-term investments 4,666,000 7,078,000
Finance notes and accrued interest receivable, net 33,605,341 32,981,110
Other assets 7,700,079 8,338,459
- ---------------------------------------------------- ----------- -----------
Total Other Assets 45,971,420 48,397,569
- ---------------------------------------------------- ----------- -----------
Property and Equipment, at Cost:
Furniture and equipment 5,366,325 4,851,525
Leasehold improvements 595,342 548,437
- ---------------------------------------------------- ----------- -----------
5,961,667 5,399,962
Less- Accumulated depreciation and
amortization (4,001,275) (3,712,334)
- ---------------------------------------------------- ----------- -----------
Net Property and Equipment 1,960,392 1,687,628
- ---------------------------------------------------- ----------- -----------
Total Assets $ 85,412,265 $ 82,879,372
==================================================== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
Page 3
<PAGE> 4
MEDICINE SHOPPE INTERNATIONAL, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
(Unaudited)
-----------------------
- -------------------------------------------------------------------------------
March 31 September 30
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
- ---------------------------------------------------- ----------- ------------
<S> <C> <C>
Current Liabilities:
Accounts payable $ 2,036,326 $ 1,850,999
Accrued income taxes 543,000 566,000
Other accrued expenses 756,525 1,552,524
- ---------------------------------------------------- ----------- -----------
Total Current Liabilities 3,335,851 3,969,523
- ---------------------------------------------------- ----------- -----------
Deferred Origination Fee Income, net of
related direct expenses incurred to date
of $1,236,731 and $1,220,884, respectively 1,130,575 940,185
- ---------------------------------------------------- ----------- -----------
Stockholders' Equity:
Common stock-$.01 par value, 10,000,000 shares
authorized; 7,737,675 and 7,851,432 shares
issued and outstanding, respectively 77,377 78,514
Paid-in capital 14,318,390 14,047,328
Retained earnings 66,550,072 63,843,822
- ---------------------------------------------------- ----------- -----------
Total Stockholders' Equity 80,945,839 77,969,664
- ---------------------------------------------------- ----------- -----------
Total Liabilities and Stockholders' Equity $ 85,412,265 $ 82,879,372
==================================================== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
Page 4
<PAGE> 5
MEDICINE SHOPPE INTERNATIONAL, INC.
<TABLE>
<CAPTION>
STATEMENTS OF EARNINGS
(Unaudited)
----------------------
- --------------------------------------------------------------------------------
Quarter Ended Six Months Ended
March 31 March 31
---------------------- ----------------------
1995 1994 1995 1994
- -------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Sales to franchisees $ 2,282,233 $ 2,576,001 $ 5,009,229 $ 5,138,371
Franchise fees 9,618,203 8,542,360 18,996,532 17,175,130
Origination fees 149,075 442,088 321,650 655,474
Interest income on financing
and other revenues 1,227,668 922,278 2,353,707 1,793,573
- -------------------------------- ---------- ---------- ---------- ----------
13,277,179 12,482,727 26,681,118 24,762,548
- -------------------------------- ---------- ---------- ---------- ----------
Costs and Expenses:
Cost of sales to franchisees 1,988,582 2,178,397 4,240,267 4,338,779
Selling, general &
administrative 5,172,529 4,826,860 10,196,402 9,599,584
- -------------------------------- ---------- ---------- ---------- ----------
7,161,111 7,005,257 14,436,669 13,938,363
- -------------------------------- ---------- ---------- ---------- ----------
Earnings From Operations 6,116,068 5,477,470 12,244,449 10,824,185
- -------------------------------- ---------- ---------- ---------- ----------
Income on Investments, net 269,000 180,282 518,000 363,695
- -------------------------------- ---------- ---------- ---------- ----------
Earnings Before Taxes 6,385,068 5,657,752 12,762,449 11,187,880
- -------------------------------- ---------- ---------- ---------- ----------
Income Tax Provision 2,305,000 2,042,000 4,617,000 4,022,000
- -------------------------------- ---------- ---------- ---------- ----------
Net Earnings $ 4,080,068 $ 3,615,752 $ 8,145,449 $ 7,165,880
================================ ========== ========== ========== ==========
Earnings Per Share $ 0.53 $ 0.46 $ 1.05 $ 0.91
================================ ========== ========== ========== ==========
Dividends Per Share $ 0.14 $ 0.12 $ 0.28 $ 0.24
================================ ========== ========== ========== ==========
Average Shares Outstanding 7,748,775 7,894,222 7,792,878 7,911,440
================================ ========== ========== ========== ==========
</TABLE>
See Accompanying Notes to Financial Statements.
Page 5
<PAGE> 6
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
(Unaudited)
------------------------
- --------------------------------------------------------------------------------
Six Months Ended
March 31
-------------------------
1995 1994
- ---------------------------------------------------- ------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 8,145,449 $ 7,165,880
Depreciation and amortization 304,913 309,479
Change in working capital [excluding cash
and cash equivalents and short term investments] (595,536) (978,431)
Change in deferred orig. fee income, net 190,390 125,549
Increase in finance notes and accrued interest
receivable, net (624,231) (1,592,801)
Change in deferred income taxes (261,000) (268,590)
- ---------------------------------------------------- ------------ -----------
Net cash provided by operating activities 7,159,985 4,761,086
- ---------------------------------------------------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in investments (2,858,000) (997,139)
Additions to property and equipment (561,705) (390,076)
Change in net investment in pharmacies 904,725 294,455
Other, net (18,185) 6,000
- ---------------------------------------------------- ----------- -----------
Net cash used by investing activities (2,533,165) (1,086,760)
- ---------------------------------------------------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock (3,506,192) (1,432,073)
Proceeds from exercise of common stock options 514,141 36,660
Dividends paid (2,180,355) (1,900,364)
- ---------------------------------------------------- ----------- -----------
Net cash used by financing activities (5,172,406) (3,295,777)
- ---------------------------------------------------- ----------- -----------
Net change in cash and cash equivalents (545,586) 378,549
Cash and cash equivalents at beginning of period 5,989,274 1,500,258
- ---------------------------------------------------- ----------- -----------
Cash and cash equivalents at end of period $ 5,443,688 $ 1,878,807
- ---------------------------------------------------- =========== ===========
Supplemental disclosures:
Cash paid during the period for income taxes $ 4,901,000 $ 4,537,000
=========== ===========
</TABLE>
Page 6
<PAGE> 7
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
<PAGE> 8
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 11.2:1 at March 31, 1995 (versus
8.3:1 at September 30, 1994) and an equity ratio of 95% at March 31, 1995
(versus 94% at September 30, 1994). The improvement in the current ratio in
1995 versus 1994 is due primarily from the accumulation of cash and short-term
investments from operations. The Company had no external financing outstanding
as of March 31, 1995 or September 30, 1994.
On April 27, 1995, the Company's Board of Directors voted a regular
quarterly dividend of $0.14 per share which is payable May 25, 1995 to
stockholders of record on May 12, 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 April 30, 1995, the Company has repurchased, through
prior repurchase authorizations, 528,400 shares at a cost of approximately $12
million, including 135,600 shares repurchased in the first half 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 March 31, 1995 and September 30, 1994 was
approximately $38 million, including both principal and accrued interest
receivable.
8
<PAGE> 9
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 6% to $13,277,000 in the second quarter
fiscal 1995 compared to $12,483,000 in the second quarter fiscal 1994. Year-
to-date revenues have increased 8% to $26,681,000 in fiscal 1995 compared to
$24,763,000 in fiscal 1994. The principal component of Company revenues,
franchise fees, increased 13% to $9,618,000 from the $8,542,000 recorded in the
quarter ended March 31, 1995. Year-to-date franchise fees have increased 11% in
fiscal 1995 versus the six months of 1994. These increases are primarily
attributable to an increase of 12% in the six months fiscal 1995 retail sales at
the store level to approximately $468 million from $419 million for the six
months of fiscal 1994. For the six months, store-for-store comparable sales
were up 8% for fiscal 1995.
The revenue category of sales to franchisees which represents MEDICINE
SHOPPE brand label products, signage, fixtures and supplies showed a decrease
of 11% in the second fiscal quarter of 1995 versus the comparable period of
1994. Year-to-date sales to franchisees are down by 3%. The decrease in sales
in the second quarter of 1995 is primarily 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 66% for the second fiscal quarter and
51% on for the year to date. The 1994 figures include revenues from the signing
of a master license contract in Thailand. 1995 has no similar master contract.
Also, domestic store openings were 21 for the six months ended March 31, 1995
compared with 31 for the same period in fiscal 1994.
Interest income on financing and other revenues increased 33% in the
second quarter and 31% for the first six months of 1995 due to an increase in
financing notes and related interest to $38 million at March 31, 1995 from $35
million at March 31, 1994 and increases in the prime rate at which most of the
Company's loans are pegged.
9
<PAGE> 10
MEDICINE SHOPPE INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Twenty-four new stores were opened during the three months ended March
31, 1995 versus 27 openings in the second quarter of fiscal 1994. Fourteen of
the 1995 openings and ten of the 1994 openings were in foreign countries. Six
stores were closed during the second quarter of fiscal 1995 and 11 closed during
the second quarter fiscal 1994. At March 31, 1995, there were 1,085 MEDICINE
SHOPPE Pharmacies in operation, including 106 units operating outside of the
United States.
Selling, general and administrative expenses increased 7% to $5,173,000
and 6% to $10,196,000 for the quarter and six months ended March 31, 1995
compared to $4,827,000 and $9,600,000 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 42% during the first half of fiscal
1995 to $518,000 from $364,000 during the first half of fiscal 1994 due
primarily to an additional $2.9 million in investments and higher investment
interest rates.
The Company's income tax provision has risen 13% in the second three
months of 1995 when compared to the 1994 period and 15% on a year-to-date
basis. The Company's effective tax rate increased to 36.2% in the first six
months of 1995 from 35.9% 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 $4,080,000, or 13%, during the second quarter
of fiscal 1995 from $3,616,000 during the second quarter of 1994. A comparable
14% increase in net earnings to $8,145,000 from $7,166,000 has been recorded
during the six month period ended March 31, 1995. On a per share basis,
earnings for the periods were $0.53 and $0.46 and $1.05 and $0.91,
respectively. These increases primarily reflect the 13% increase in operating
earnings during the first half 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 half of 1995.
10
<PAGE> 11
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.
May 12, 1995 /s/ David A. Abrahamson
- ------------- ------------------------------------------
Date DAVID A. ABRAHAMSON
President & Chief Executive Officer
May 12, 1995 /s/ Donald C. Schreiber
- ------------- ------------------------------------------
Date DONALD C. SCHREIBER
Vice-President of Finance
Chief Financial Officer
11
<PAGE> 12
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:
The shareholders of the Company re-elected all incumbent directors at
its annual meeting held February 23, 1995. The vote results with
respect to each director were as follows:
<TABLE>
<CAPTION>
DIRECTOR VOTES FOR VOTES WITHHELD
--------- --------- --------------
<S> <C> <C>
David A. Abrahamson 6,814,971 14,269
Melvin F. Brown 6,815,466 13,774
Ira C. Gall, MD 6,813,369 15,871
Donald P. Gallop 6,815,506 13,734
Aron Katzman 6,816,166 13,074
Leslie F. Loewe 6,812,160 17,080
Murray L. Wiedenbaum 6,799,970 29,270
Mitchell Yanow, MD 6,809,517 19,723
</TABLE>
APPROVAL OF MEDICINE SHOPPE INTERNATIONAL, INC. EXECUTIVE CHOICE PLAN:
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
<S> <C> <C> <C>
6,270,923 501,222 56,535 560
</TABLE>
APPROVAL OF AMENDMENT TO MEDICINE SHOPPE INTERNATIONAL, INC. 1990 STOCK
OPTION PLAN:
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
<S> <C> <C> <C>
6,593,776 174,702 60,662 100
</TABLE>
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
March 31, 1995.
12
<PAGE> 13
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>
13
<PAGE> 1
MEDICINE SHOPPE INTERNATIONAL, INC.
EXHIBIT 11 - COMPUTATION OF NET EARNINGS
PER COMMON SHARE (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
March 31, March 31,
------------------------- -------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET EARNINGS PER SHARE
Net earnings $ 4,080,068 $ 3,615,752 $ 8,145,449 $ 7,165,880
Average number of shares
outstanding during
the period 7,748,775 7,894,222 7,792,878 7,911,440
Net earnings per share $ 0.53 $ 0.46 $ 1.05 $ 0.91
========== ========== ========== ==========
PRIMARY EARNINGS PER SHARE
Net earnings $ 4,080,068 $ 3,615,752 $ 8,145,449 $ 7,165,880
Average number of shares
outstanding during
the period 7,748,775 7,894,222 7,792,878 7,911,440
Plus shares outstanding
considering conversion
of stock options 29,867 0 17,910 0
---------- ---------- ---------- ----------
Average shares for primary
earnings per share 7,778,642 7,894,222 7,810,788 7,911,440
Primary earnings
per share $ 0.52 $ 0.46 $ 1.04 $ 0.91
========== ========== ========== ==========
FULLY DILUTED
EARNINGS PER SHARE
Net earnings $ 4,080,068 $ 3,615,752 $ 8,145,449 $ 7,165,880
Average number of shares
outstanding during
the period 7,748,775 7,894,222 7,792,878 7,911,440
Plus shares outstanding
considering conversion
of stock options 40,530 0 40,530 0
---------- ---------- ---------- ----------
Average shares for fully
diluted earnings
per share 7,789,305 7,894,222 7,833,408 7,911,440
Fully diluted earnings
per share $ 0.52 $ 0.46 $ 1.04 $ 0.91
========== ========== ========== ==========
</TABLE>
Page 14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 5,443,688
<SECURITIES> 15,334,000
<RECEIVABLES> 14,577,641
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 37,480,453
<PP&E> 5,961,667
<DEPRECIATION> 4,001,275
<TOTAL-ASSETS> 85,412,265
<CURRENT-LIABILITIES> 3,335,851
<BONDS> 0
<COMMON> 77,377
0
0
<OTHER-SE> 80,868,462
<TOTAL-LIABILITY-AND-EQUITY> 85,412,265
<SALES> 5,009,229
<TOTAL-REVENUES> 26,681,118
<CGS> 4,240,267
<TOTAL-COSTS> 4,240,267
<OTHER-EXPENSES> 10,196,402
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,762,449
<INCOME-TAX> 4,617,000
<INCOME-CONTINUING> 8,125,449
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,145,449
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
