<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1994
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-14491
ARBOR DRUGS, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-2054345
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3331 West Big Beaver, Troy, Michigan 48084
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (810) 643-9420
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
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. (X) Yes ( ) No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of the voting stock held by non-affiliates
of
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the registrant as of October 13, 1994, was $343,233,303.
The number of outstanding shares of the registrant's common stock as of
October 13, 1994 was 16,344,443.
Applicable portions of the Proxy Statement for the Annual Meeting of
Shareholders to be held on December 6, 1994, are incorporated by reference in
Part III of this Form.
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PART I
Item 1. Business
General
Arbor Drugs, Inc. (the "Company") is the second largest drugstore
chain in Michigan, based on total revenues, with 154 stores located primarily
in southeastern Michigan, as of July 31, 1994.
Unless the context otherwise requires, references to the "Company"
include the Company's consolidated subsidiaries. References to a fiscal year
are to the twelve months ended July 31.
Products
The Company's drugstores sell four principal categories of products:
prescription drugs, health and beauty aids (including proprietary drugs and
cosmetics), photofinishing and film and general merchandise. General
merchandise includes seasonal and promotional goods, greeting cards,
convenience foods and alcoholic and non-alcoholic beverages. In fiscal 1994,
prescription drugs accounted for approximately 49.0 percent, health and beauty
aids for approximately 21.6 percent, photofinishing and film for approximately
4.6 percent and general merchandise for approximately 24.8 percent of the
Company's net sales. Contributions to net sales are not indicative of
contributions to income from operations because gross margins vary among
product categories and products within each category.
The Company's business normally generates somewhat higher revenues
during its second and fourth fiscal quarters (the Christmas and summer
seasons). The Company believes that these higher revenues, in combination
with the fixed nature of certain administrative and store operating costs and
seasonal changes in product mix, result in higher operating income for these
periods.
Merchandising and Marketing
The Company's merchandising strategy is to offer a broad selection
of traditional drugstore items, including both nationally advertised and
private label brand products. Substantially all products are offered at
discounted prices. The Company emphasizes value and customer service in
attractive, conveniently located drugstores. It uses color, signs, packaging
and other merchandising aids to reinforce its name and low prices, and to
showcase its products.
The pharmacy department in each drugstore carries a complete line of
both brand name and generic drugs. The Company has been expanding its
prescription drug business by promoting the use of less costly generic drugs,
whenever possible, and by entering into arrangements with insurance companies,
health maintenance organizations ("HMOs") and other health care groups for the
sale of prescription drugs under third-party reimbursement
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programs. See "Significant Customers" below.
As part of the Company's merchandising of pharmaceutical products,
each pharmacy department utilizes Arbortech Plus(SM), a computerized pharmacy
system. Arbortech Plus(SM) enables the Company's pharmacists to recall a
customer's medical history, with a view to identifying possible allergies, drug
interactions or therapeutic duplication, and to provide customers with a
complete record for tax or reimbursement purposes. This system affords each of
the Company's drugstores access to this information, thus enabling customers to
be served by any store in the chain. Arbortech Plus(SM) also enables the
Company to identify generic equivalents of brand name drugs, centrally control
prescription prices, increase the speed of processing prescriptions and reduce
the paperwork normally involved in, and thus expedite the collection of amounts
due the Company under, third-party reimbursement programs.
The Company promotes its private label Arbor(TM) brand products and
presently offers approximately 1,000 such products, including a wide variety of
vitamins, products for skin, hair and personal care, health products and
proprietary drugs for colds, allergies and other ailments. Offering private
label products enables the Company to sell products, comparable in quality to
name brand products, at substantially lower prices to its customers, but at
higher gross margins for the Company.
The primary photo processing marketing program used by the Company is
Picture! Picture!(SM), which offers a "two for the price of one" photo
processing service with guaranteed overnight processing. Additional programs
are Picture! Plus!(SM) and the Picture! Picture! Club(SM), which offer
customers one print plus a free roll of film and prizes for volume
photofinishing. The Company has retained an independent contractor to provide
the necessary photo processing services. During fiscal 1994 the Company
introduced Picture Pronto(SM), installing one-hour photo processing equipment
in 34 stores.
During fiscal 1994, the Company introduced a home delivery service.
The Company entered into an agreement with an independent delivery service to
take orders by telephone and make deliveries. Orders are communicated to
Company employees and filled by them.
The Company advertises extensively, principally through the use of
television, radio, direct mail and advertising circulars.
Expansion Program
As of July 31, 1994, the Company operated 154 drugstores, a net
increase of 16 drugstores from the end of fiscal 1993. During fiscal 1994, the
Company opened eight drugstores, acquired an additional eleven locations
through acquisitions and purchased the prescription files of a number of
independent drugstores. Two of these acquired stores were later consolidated
with the operations of existing Arbor drugstores. During fiscal 1994, the
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Company also sold the prescription files of an underperforming drugstore and
closed the store. Assuming no significant construction delays, the Company
anticipates adding approximately 20 drugstore locations in Michigan during
fiscal 1995. The Company may also continue to purchase the prescription files
of various independent drugstores.
The Company believes that customers favor fresh, inviting and pleasant
stores. Approximately 70 percent of Arbor drugstores have been opened or
remodeled within the past five years.
In addition to adding drugstores in southeastern Michigan, the Company
has expanded, and plans to continue to expand, in other areas of Michigan. The
Company may also expand into contiguous states. The Company's 233,600 square
foot distribution center, opened in February 1988, is expected to serve the
Company's distribution needs for the next two years. The Company is studying
methods of improving the efficiency of the distribution center and has arranged
for the use of an additional 50,000 square feet of space, as required, in a
nearby location.
Purchasing and Distribution
The Company centrally purchases most of its merchandise directly from
manufacturers, enabling it to benefit from promotional programs and volume
discounts that certain manufacturers offer to retailers. Approximately 80
percent of the merchandise purchased by the Company is received at its
distribution center for redistribution to its drugstores. The balance of store
merchandise is shipped directly to the Company's drugstores by manufacturers
and distributors at prices negotiated at the corporate level.
Significant Customers
In fiscal 1994, 40.7 percent of the Company's net sales were
attributable to payments by third-party providers under prescription drug
plans. Five of such third-party providers accounted for approximately one-
third of fiscal 1994 net sales and one, Blue Cross Blue Shield of Michigan,
accounted for more than 10 percent of fiscal 1994 net sales (16.6 percent).
The Company participates in the majority of third-party plans offered
to employer groups in its primary marketplace, the greater metropolitan Detroit
area. Accordingly, if any employer group were to change its third-party plan,
the Company believes it is likely that it would continue to fill prescriptions
for such group under a different third-party plan. In the event the Company
were unable to service one or more of its principal third-party provider
plans, however, the Company's revenues would be adversely affected.
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For information relating to the Company's settlement of certain claims
relating to reimbursement by Blue Cross Blue Shield of Michigan and the
Medicaid Program administered by the State of Michigan, see Item 3 of this
Report. For information relating to the existing and proposed reimbursement
methodologies of third-party providers, see Item 7 of this Report.
Competition
The Company's primary competitors are other drugstore chains,
independent drugstore operators, mail order distributors, hospitals, HMOs,
department stores (including discount stores) and supermarkets. Many of the
businesses with which the Company competes are larger and have been in business
longer or have substantially greater financial resources than the Company.
Competition remained keen during fiscal 1994 with the Company
competing on the basis of price, convenience, store design, product selection,
quality and variety. See "Merchandising and Marketing" above.
Significant Proprietary Rights
The Arbor(TM) trade name is considered to be of material importance to
the business of the Company. The Company also holds servicemarks for some of
its photo finishing products.
Regulatory Matters and Insurance
All of the Company's pharmacy departments and all pharmacists
employed by the Company are licensed by the Michigan Board of Pharmacy. The
Company's drugstores and its warehouse facility are also registered with the
United States Drug Enforcement Administration and are subject to various
licensing and regulatory requirements. Beer and wine are sold in all of the
Company's drugstores, and liquor is sold in most of the drugstores. The sale
of alcoholic beverages is regulated by the Michigan Liquor Control Commission.
By virtue of these various license and registration requirements, the Company
is obligated to observe certain rules and regulations. A violation of these
rules and regulations could result in a suspension or revocation of such
licenses or registrations with respect to one or more of the Company's
drugstores or the distribution center.
The Company carries general liability insurance, subject to
self-insured retentions, with respect to druggist, product, premises and
"dram-shop" claims.
Employees
As of July 31, 1994, the Company had approximately 5,200 employees,
approximately 400 of whom were employed in the Company's executive office and
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distribution center and the remainder of whom were employed in the Company's
drugstores. A majority of the drugstore employees work on a part-time basis
(fewer than 35 hours per week).
The Company's employees are not represented by unions. The Company
believes that its relations with its employees are good.
Item 2. Properties
As of July 31, 1994, over 90% of the Company's 154 drugstores were
leased. Only four of the leases are due to expire within the next five years.
In addition to base rentals, the majority of the Company's store leases include
additional rentals based on a percentage of sales. In most instances, the
leases obligate the Company to pay its pro rata share of common area
maintenance charges, taxes and insurance.
The Company owns its 233,600 square foot distribution center, which is
located in Novi, Michigan. The Company leases its 54,000 square foot executive
offices, which are located in Troy, Michigan.
Item 3. Legal Proceedings
As previously reported by the Company, during the first quarter of
fiscal 1994 the Company agreed to pay $15 million in settlement of a
contractual dispute with Blue Cross Blue Shield of Michigan concerning whether
the Company had, since 1988, received reimbursement in excess of that
provided for in their agreements. As previously reported by the Company, the
Securities and Exchange Commission (the "SEC") is investigating the Company's
reporting with respect to this dispute. The Company has provided information
to the SEC regarding this matter.
As previously reported by the Company, the Company entered into a
settlement, dated June 7, 1994, with the United States and the State of
Michigan resolving claims under the Federal False Claims Act and other statutes
arising out of the Company's alleged overstatement of drug acquisition costs in
its billings to Blue Cross Blue Shield of Michigan and the Medicaid Program
during the period from 1988 to the date of settlement. In connection with the
settlement, the Company agreed, without admitting any fault, to pay to the
United States and the State of Michigan an aggregate of $7,000,000 and to
modify its drug acquisition cost formula for Medicaid reimbursement claims.
The Company is also involved in various routine litigation incidental
to its business, none of which, in the opinion of management, is deemed to be
material.
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Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters
The Company's Common Stock is regularly quoted on the National
Association of Securities Dealers Automated Quotation System (NASDAQ) National
Market System under the symbol ARBR. The following table sets forth, for the
periods indicated, the high and low closing sale prices for the Company's
Common Stock and cash dividends paid.
<TABLE>
<CAPTION>
Common Stock Prices
------------------- Dividends
Quarter Ended High Low Per Share
---- --- ---------
<S> <C> <C> <C>
Fiscal 1993
-----------
October 31 $23.25 $19.25 $.035
January 31 23.75 19.25 .050
April 30 20.25 17.50 .050
July 31 21.50 15.50 .050
Fiscal 1994
-----------
October 31 $20.00 $15.50 $.050
January 31 21.00 17.75 .060
April 30 20.25 16.00 .060
July 31 21.00 16.00 .060
Fiscal 1995
-----------
October 31 (through
October 13) $.060
</TABLE>
The Company intends to continue to declare quarterly cash dividends on
its Common Stock, subject to the Company's earnings, financial condition,
capital requirements and other such factors as are deemed relevant by the Board
of Directors.
On October 13, 1994, there were approximately 5,000 shareholders of
record of the Company (including individual participants in security position
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Item 6. Six Year Summary of Selected Financial Data
The following tables set forth selected consolidated financial data for each of
the fiscal years shown.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
(In thousands, except per
share data)
Net sales $618,562 $534,966 $476,848 $405,899 $341,286 $300,198
Operating costs and expenses:
Cost of sales 454,207 390,896 346,140 292,433 244,915 214,365
Selling, general and
administrative 132,759 117,337 105,783 91,509 78,134 70,129
Provision for third-party
settlement and related expenses 7,000 16,000 - - - -
-------- -------- ------- ------- ------- -------
Income from operations 24,596 10,733 24,925 21,957 18,237 15,704
Interest expense (1,667) (1,738) (2,763) (2,878) (2,918) (3,119)
Interest income 995 961 1,399 805 1,425 1,411
-------- -------- ------- ------- ------- -------
Income before income tax 23,924 9,956 23,561 19,884 16,744 13,996
Provision for income tax 9,846 3,047 7,787 6,831 5,740 4,828
-------- ------- ------- ------- ------- -------
Net income $ 14,078 $ 6,909 $ 15,774 $ 13,053 $ 11,004 $ 9,168
-------- ======== ======== ======== ======== ========
Earnings per common
share (a)(b) $ .86 $ .43 $ .98 $ .88 $ .77 $ .64
----- ===== ===== ===== ===== =====
FINANCIAL POSITION (at fiscal year end)
(In thousands)
Current assets $140,597 $133,827 $126,340 $107,604 $ 73,159 $ 71,474
Current liabilities 72,443 71,220 66,477 42,948 36,757 32,804
Total assets 233,660 215,579 200,423 175,673 131,897 118,913
Notes payable, net of
current portion 23,679 18,151 12,986 27,500 28,500 29,966
Shareholders' equity 129,964 118,473 113,874 99,191 62,091 52,474
Shareholders' equity per share (a) $ 7.95 $ 7.29 $ 7.04 $ 6.17 $ 4.34 $ 3.67
Dividends per share (a) $ .23 $ .185 $ .14 $ .128 $ .107 $ .071
</TABLE>
(a) Reflects 3-for-2 stock splits effected May 1991 and June 1989.
(b) 1994 and 1993 per share amounts include charges for the settlement of
third-party providers' reimbursement claims and related expenses and
the disposition of a lease dispute. Excluding these charges, 1994
and 1993 earnings per common share would have been $1.24 and $1.11,
respectively.
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Item 7. Management's Discussion and Analysis of
Results of Operations and Financial Condition
Results of Operations: Fiscal 1994 vs. Fiscal 1993
<TABLE>
<CAPTION>
Components of earnings: Percentage
Percentage Increase
of Fiscal (Decrease)
Fiscal 1994 1994 Net Compared to
(In Millions) Sales Fiscal 1993
------------- ---------- -----------
<S> <C> <C> <C>
Net sales $618.6 100.0% 15.6%
Cost of sales 454.2 73.4 16.2
Selling, general and
administrative expense 132.8 21.5 13.2
Provision for third-party
settlement and related
expenses 7.0 1.1 (56.3)
------ ------
Income from operations 24.6 4.0 129.2
Interest expense, net of
interest income 0.7 0.1 (12.5)
Income tax 9.8 1.6 223.1
------ ------
Net income $ 14.1 2.3% 103.8%
====== ======
</TABLE>
Net sales reached $618.6 million in fiscal 1994, an increase of 15.6
percent over fiscal 1993 net sales of $535.0 million. The increase reflected
an increase in comparable store sales (sales by stores in operation for at
least 12 months) of 7.7 percent and the sales made by the drugstores opened or
acquired in fiscal 1994.
Prescription drug sales accounted for 49.0 percent of net sales in
fiscal 1994, an increase from 47.5 percent in fiscal 1993. The increases in
both absolute amount and relative contribution were primarily attributable to
the larger store base, a greater number of prescriptions filled on a
comparable-store basis and an increase in the average prescription price. The
latter reflected price increases for certain existing brand name drugs and the
introduction of new brand name drugs, offset in part by the lower prices of
generic drugs, which are marketed as the corresponding brand name drugs lose
patent protection.
The net sales attributable to each of the Company's three other
principal product categories increased in absolute terms as a result of the
larger store base and increased comparable store sales. The health and beauty
aids category also increased its contribution to net sales (from 20.9% in
fiscal 1993 to 21.6% in fiscal 1994), although to a lesser extent than in
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fiscal 1993. The percentage of net sales attributable to the general
merchandise and photofinishing and film categories declined slightly (from
26.9% and 4.7%, respectively, in fiscal 1993 to 24.8% and 4.6%, respectively,
in fiscal 1994).
While net sales attributable to the general merchandise and
photofinishing and film categories continues to increase in absolute terms, as
a percentage of total sales, these categories declined slightly owing to
greater growth in the prescription drug sales category.
The Company's gross margin declined from 26.9 percent in fiscal 1993
to 26.6 percent in fiscal 1994 primarily due to the effect of increased
pharmaceutical costs. Third-party providers, which accounted for approximately
77 percent of the Company's prescription drug sales in fiscal 1994, generally
pay the Company an amount determined by formula to reimburse it for the cost of
the prescription drugs dispensed plus a fixed dispensing fee to compensate it
for the services rendered. As pharmaceutical costs increase, the gross margin
percentage on such sales decreases because the dispensing fee remains the same
pursuant to the applicable third-party program. Until recently, prescription
drug prices have increased at a rate far in excess of the national Consumer
Price Index. This rate of increase has lessened; however, changes in the
reimbursement formulas of the various third-party providers with which the
Company has contracts may also affect the Company's gross margin and operating
income.
As a result of the Company's settlements during fiscal 1994 described
in Item 3 of this Report, the Company operated during much of the fiscal year
under new reimbursement formulas for Blue Cross Blue Shield of Michigan plans
and the Medicaid Program. In the aggregate, the effect of these changes on the
Company's after-tax profits in fiscal 1994 was not significant. Both Blue
Cross Blue Shield of Michigan and the State of Michigan, which administers the
Medicaid Program, have announced that they intend to change their reimbursement
formulas for all participating pharmacies. Based upon its preliminary
assessment, the Company does not believe that these proposed changes will have
a material adverse effect upon the Company's results of operations in fiscal
1995.
Selling, general and administrative ("SG&A") expenses decreased as a
percentage of net sales to 21.5 percent in fiscal 1994 from 21.9 percent in
fiscal 1993. The decrease was primarily attributable to the Company's efforts
to control expenses and by the higher level of net sales.
The Company's provision for third-party settlement and related
expenses consisted of $7 million paid to the United States and the State of
Michigan in the fourth quarter of fiscal 1994 to settle certain governmental
claims related to the Company's reimbursement practices, as described in Item 3
of this Report.
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The Company's effective tax rate (the provision for income tax as a
percentage of income before income tax) increased to 41.2 percent in fiscal
1994 from 30.6 percent in fiscal 1993. The increase reflects the Company's
preliminary assessment that the after-tax effect of the settlement referred to
above will be approximately $6.1 million.
Results of Operations: Fiscal 1993 vs. Fiscal 1992
<TABLE>
<CAPTION>
Components of earnings: Percentage
Percentage Increase
of Fiscal (Decrease)
Fiscal 1993 1993 Net Compared to
(In Millions) Sales Fiscal 1992
------------- ---------- -----------
<S> <C> <C> <C>
Net sales $534.9 100.0% 12.2%
Cost of sales 390.9 73.1 12.9
Selling, general and
administrative expense 117.3 21.9 10.9
Provision for third-party
settlement and related
expenses 16.0 3.0 -
----- -----
Income from operations 10.7 2.0 (56.9)
Interest expense, net of
interest income 0.8 0.1 (43.0)
Income tax 3.0 0.6 (60.9)
------ -------
Net income $ 6.9 1.3% (56.2)%
------ -------
</TABLE>
Net sales reached $534.9 million in fiscal 1993, an increase of 12.2
percent over fiscal 1992 net sales of $476.8 million. The increase reflected
an increase in comparable store sales of 7.0 percent and the sales made by the
drugstores opened or acquired in fiscal 1993. Comparable store
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sales growth delcined from 10.4 percent in fiscal 1992 primarily as a result of
the declining rate of pharmaceutical inflation.
Prescription drug sales accounted for 47.5 percent of net sales in
fiscal 1993, an increase from 46.2 percent in fiscal 1992. The increases in
both absolute amount and relative contribution were primarily attributable to
the larger store base, a greater number of prescriptions filled on a
comparable-store basis and an increase in the average prescription price.
The net sales attributable to each of the Company's three other
principal product categories increased in absolute terms as a result of the
larger store base and increased comparable store sales. The health and beauty
aids category also increased its contribution to net sales (from 19.9 percent
in fiscal 1992 to 21.9 percent in fiscal 1993). The percentage of net sales
attributable to the general merchandise and photofinishing and film categories
declined (from 28.9 percent and 5.0 percent, respectively, in fiscal 1992 to
26.9 percent and 4.7 percent, respectively, in fiscal 1993).
While net sales attributable to the general merchandise and
photofinishing and film categories continues to increase in absolute terms, as
a percentage of total sales, these categories declined slightly owing to
greater growth in the prescription drug sales category.
The Company's gross margin declined from 27.4 percent in fiscal 1992
to 26.9 percent in fiscal 1993 primarily due to the effect of increased
pharmaceutical costs.
SG&A expenses decreased as a percentage of net sales to 21.9 percent
in fiscal 1993 from 22.2 percent in fiscal 1992. The decrease was primarily
attributable to the Company's efforts to control expenses and by the higher
level of sales. The decrease was partly restrained by a $1.0 million (after-
tax $0.7 million) charge related to the disposition of a lease dispute.
During the first quarter of fiscal 1994, the Company reached an
agreement to settle for $15 million a contractual dispute with Blue Cross Blue
Shield of Michigan as described in Item 3 of this Report. The results for
fiscal 1993 include a provision of $16 million (after-tax $10.4 million, or
$.64 per share) for this settlement and related expenses.
Interest expense, net of interest income, decreased to $0.8 million in
fiscal 1993 from $1.3 million in fiscal 1992. The decrease is principally due
to the repayment, at maturity, of a $20 million note on September 3, 1992.
The Company's effective tax rate decreased to 30.6 percent in fiscal
1993 from 33.1 percent in fiscal 1992. The decrease was principally due to the
Company's adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", and income earned on tax-exempt
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investments, partly offset by an increase, effective January 1, 1993, in the
corporate federal statutory tax rate to 35 percent.
Liquidity and Capital Resources
Net cash provided by operations during fiscal 1994 was $14.0 million,
before aggregate payments of $18.0 million for third-party settlements and
related expenses. Additional cash of $8.1 million was provided by borrowings
and other financing activities. Cash was principally used for capital
expenditures and acquisitions ($24.3 million), cash dividends ($3.7 million)
and principal payments on debt ($1.2 million). These activities resulted in a
net cash decrease of $5.0 million.
The Company's capital expenditures in fiscal 1994 were made primarily
to expand the Company's store base and remodel existing stores. In addition,
the Company continued to invest in various retailing systems, such as its
pharmacy (Arbortech Plus(SM)) and point-of-sale computer systems. The Company
anticipates fiscal 1995 capital expenditures of approximately $20 million for
these purposes.
During fiscal 1994, the Company added 16 drugstores by opening or
acquiring 19, consolidating two of these acquired stores into two existing
Arbor drugstores and closing one underperforming drugstore. The Company also
acquired the prescription files of various independent drugstores. The
Company's current expansion plan contemplates adding approximately 20 new Arbor
drugstores in fiscal 1995 through leasing new sites, developing new sites and,
if suitable opportunities arise, acquisitions. Four drugstores have been
opened in fiscal 1995 to date.
During fiscal 1994, the Company's capital expenditures included $4.0
million to develop and finish construction at four sites. In July 1994, the
Company obtained a mortgage in the amount of $6.9 million on these four sites
and intends to seek additional mortgage financing upon completion of future
sites. The Company currently plans to develop four new sites in fiscal 1995.
The Company believes that existing cash, cash equivalents and
short-term investments, cash provided from future operations and funds
available under a $50 million line of credit will support anticipated expansion
and working capital needs arising in the ordinary course of business during
fiscal 1995. As of July 31, 1994, the Company's credit line was fully
available.
Health Care Reform Proposals
The Company's revenues from its pharmacy operations may be affected by
various health care reform initiatives that are being considered by Congress.
It is uncertain whether or when any such legislative initiatives will be
enacted and, if implemented, the effect such legislation will have on the
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Company's results of operations or financial condition.
Item 8. Financial Statements and Supplementary Data
The financial statements required by this Item are included in the
Consolidated Financial Statements set forth on pages F-1 through F-13,
attached hereto and found immediately following the signature page of this
Report.
Item 9. Disagreements on Accounting and Financial Disclosures
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Set forth below is certain information with respect to the executive
officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
- - ---- --- --------
<S> <C> <C>
Eugene Applebaum 57 Chairman of the Board, President and Chief Executive Officer
Markus M. Ernst 57 Executive Vice President, Chief Operating Officer and Director
Gilbert C. Gerhard 52 Senior Vice President-Finance and Administration, Chief Financial
Officer, Treasurer and Director
Donald M. Stutrud 46 Senior Vice President-Store Operations
Eric B. Bolokofsky 42 Senior Vice President-Merchandising
Dennis J. Wozniak 38 Senior Vice President-Purchasing and Marketing
Robert R. Beale 56 Vice President-Real Estate
</TABLE>
Mr. Applebaum is a founder of the Company and has been the President
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and a Director of the Company and its predecessors since 1963. In January 1985,
Mr. Applebaum was elected Chairman of the Board and Chief Executive Officer.
Mr. Applebaum has been a licensed pharmacist in the State of Michigan since
1960.
Mr. Ernst has been Executive Vice President and a Director of the
Company since 1974, having served as a director and executive officer of one of
the Company's predecessors since 1968. Mr. Ernst has also served as Chief
Operating Officer since 1985. Mr. Ernst joined the Company in 1968.
Mr. Gerhard has been Senior Vice President - Finance and Administration
since February 1994. Mr. Gerhard has also served as Chief Financial Officer
and Treasurer since 1983 when he joined the Company. Mr. Gerhard was Vice
President-Finance and Administration from 1983 until February 1994, and
Secretary from 1983 until December 1993.
Mr. Stutrud has been Senior Vice President - Store Operations since
February 1991. Mr. Stutrud served as Vice President - Store Operations from
March 1986 until January 1991. Mr. Stutrud joined the Company in 1971.
Mr. Bolokofsky has been Senior Vice President - Merchandising since
February 1994. Mr. Bolokofsky served as Vice President - Merchandising from
October 1987 until February 1994. Mr. Bolokofsky joined the Company in 1976.
Mr. Wozniak has been Senior Vice President - Purchasing and Marketing
since February 1994. Mr. Wozniak served as Vice President - Purchasing from
October 1987 until February 1994. Mr. Wozniak joined the Company in 1982.
Mr. Beale has been Vice President - Real Estate since March 1986. Mr.
Beale joined the Company in March 1984.
Information required by this Item with respect to members of the Board
of Directors of the Company will be contained in the Proxy Statement for the
Annual Meeting of Shareholders (the "1994 Proxy Statement"), to be held on
December 6, 1994, under the caption "Election of Directors" and "Compliance
with Section 16(a) of the Securities Exchange Act of 1934", and is incorporated
herein by reference.
Item 11. Executive Compensation
Information required by this Item will be contained in the 1994 Proxy
Statement under the captions "Executive Compensation", "Compensation Committee
Interlocks and Insider Participation" and "Information Concerning
16
<PAGE> 17
Meetings of the Board of Directors and Board Committees and Director
Compensation", and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by this Item will be contained in the 1994 Proxy
Statement, under the captions "Election of Directors" and "Beneficial Ownership
of Common Stock", and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information required by this Item will be contained in the 1994 Proxy
Statement under the caption "Certain Relationships and Related Transactions",
and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statements and Reports on Form 8-K
(a) The following financial statements and financial statement
schedules are filed as part of this Report:
(1) Financial Statements:
Report of Independent Accountants
Consolidated Financial Statements:
Consolidated Balance Sheets -- July 31, 1994
and 1993
Consolidated Statements of Income -- Fiscal Years
ended July 31, 1994, 1993 and 1992
Consolidated Statements of Shareholders' Equity --
Fiscal Years ended July 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows -- Fiscal
Years ended July 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
17
<PAGE> 18
(2) Financial Statement Schedules:
Schedule V - Property, Plant and Equipment
Schedule VI - Accumulated Depreciation and
Amortization of Property and Equipment
Schedule VIII - Valuation and Qualifying Accounts
Schedule IX - Short Term Borrowings
All other schedules are omitted because they are not applicable, not
required, or because the information is included in the consolidated financial
statements or notes thereto.
(b) Reports on Form 8-K. No Reports on Form 8-K were filed by the
Company during the last quarter of the fiscal year ended
July 31, 1994.
(c) Exhibits
3.1 Restated Articles of Incorporation, as amended, filed
as Exhibit 3.1 to the Registrant's Annual Report on
Form 10-K for the year ended July 31, 1988, are
incorporated herein by reference.
3.2 Bylaws, filed as Exhibit 3.2 to the Registrant's
Form S-1 Registration Statement (Registration No.
33-4378), are incorporated herein by reference.
4. Note Agreement dated as of October 31, 1987, between
Arbor Drugs, Inc. and Principal Mutual Life Insurance
Company, filed as Exhibit 4 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
October 31, 1987, is incorporated herein by
reference.
10.1 Amended and restated Arbor Drugs, Inc. Stock Option
Plan, dated June 4, 1993, filed as Exhibit 10.1 to
the Registrant's Annual Report on Form 10-K for the
year ended July 31, 1993, is incorporated herein by
reference.
10.2 Credit Agreement (the "Credit Agreement") dated as of
May 14, 1992 among Arbor Drugs, Inc., NBD Bank, N.A.,
Manufacturers Bank, N.A., Continental Bank N.A., and
NBD Bank, N.A., as Agent, filed as Exhibit 10.5 to
the Registrant's Annual Report on Form 10-K for the
year ended July 31, 1992, is incorporated herein by
reference.
18
<PAGE> 19
10.3 Letter, dated June 2, 1994, from NBD Bank, N.A. (in
its capacity as a Bank and as Agent), Continental
Bank, N.A. and Comerica Bank to Arbor Drugs, Inc.
10.4 First Amendment to Credit Agreement, dated as of
August 29, 1994, among Arbor Drugs, Inc., NBD Bank,
N.A. (in its capacity as a Bank and as Agent),
Continental Bank, N.A. and Comerica Bank.
11. Computation of Earnings Per Share.
23.1 Consent of Coopers & Lybrand L.L.P., independent
accountants.
27. Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of Section 13 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, on October 14, 1994.
ARBOR DRUGS, INC.
By: /s/ Eugene Applebaum
---------------------------
Eugene Applebaum,
Chairman of the Board, Chief Executive
Officer and President
19
<PAGE> 20
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on October 14, 1994.
<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<S> <C>
/s/ Eugene Applebaum
- - ------------------------------
Eugene Applebaum Chairman of the Board, Chief Executive Officer and President
(Principal Executive Officer)
/s/ Markus M. Ernst
- - ------------------------------
Markus M. Ernst Executive Vice President, Chief Operating Officer and Director
/s/ Gilbert C. Gerhard
- - ------------------------------
Gilbert C. Gerhard Senior Vice President-Finance and Administration, Chief Financial
and Accounting Officer and Director (Principal Financial and
Accounting Officer)
/s/ David B. Hermelin
- - ------------------------------
David B. Hermelin Director
/s/ Spencer M. Partrich
- - ------------------------------
Spencer M. Partrich Director
/s/ Laurie M. Shahon
- - ------------------------------
Laurie M. Shahon Director
/s/ Samuel Valenti III
- - ------------------------------
Samuel Valenti III Director
</TABLE>
20
<PAGE> 21
ARBOR DRUGS, INC. AND SUBSIDIARIES
_____________
REPORT ON AUDITS OF CONSOLIDATED FINANCIAL STATEMENTS
AS OF JULY 31, 1994 AND 1993
AND FINANCIAL STATEMENT SCHEDULES
FOR THE YEARS ENDED JULY 31, 1994, 1993 AND 1992
21
<PAGE> 22
ARBOR DRUGS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
_____________
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Report of Independent Accountants F-2
Financial Statements:
Consolidated Balance Sheets -- July 31, 1994 and 1993 F-3
Consolidated Statements of Income -- Fiscal Years ended
July 31, 1994, 1993 and 1992 F-4
Consolidated Statements of Shareholders' Equity --
Fiscal Years ended July 31, 1994, 1993 and 1992 F-4
Consolidated Statements of Cash Flows -- Fiscal Years
ended July 31, 1994, 1993 and 1992 F-5
Notes to Consolidated Financial Statements F-6 - F-9
Financial Statement Schedules:
Schedule V - Property, Plant and Equipment F-10
Schedule VI - Accumulated Depreciation and Amortization
of Property and Equipment F-11
Schedule VIII - Valuation and Qualifying Accounts F-12
Schedule IX - Short Term Borrowings F-13
</TABLE>
All other schedules are omitted because they are not applicable,
not required, or because the information is included in the
consolidated financial statements or notes thereto.
22
<PAGE> 23
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of
Directors of Arbor Drugs, Inc.:
We have audited the consolidated financial statements and the financial
statement schedules of Arbor Drugs, Inc. and Subsidiaries listed in the index
on page F-1 of this Form 10-K. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Arbor Drugs, Inc.
and Subsidiaries as of July 31, 1994 and 1993, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended July 31, 1994 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedules
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly, in all material respects, the information
required to be included therein.
/s/ COOPERS & LYBRAND L.L.P.
Detroit, Michigan
September 30, 1994
F-2
<PAGE> 24
Consolidated Balance Sheets
Arbor Drugs, Inc. and Subsidiaries
<TABLE>
<CAPTION>
July 31, 1994 1993
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars in thousands)
ASSETS Current assets:
Cash and cash equivalents $ 36,420 $ 41,392
Short-term investments 1,264 3,475
Accounts receivable 12,782 8,313
Inventory 83,398 70,341
Prepaid expenses 6,733 10,306
----------------------------------------------------------------------------------------
Total current assets 140,597 133,827
----------------------------------------------------------------------------------------
Property and equipment:
Land and land improvements 10,477 8,937
Buildings 14,824 14,194
Furniture, fixtures and equipment 51,563 47,207
Leasehold improvements 34,156 27,982
Less accumulated depreciation (40,451) (33,095)
----------------------------------------------------------------------------------------
70,569 65,225
----------------------------------------------------------------------------------------
Intangible assets 22,494 16,527
----------------------------------------------------------------------------------------
Total assets $233,660 $215,579
========================================================================================
LIABILITIES Current liabilities:
Notes payable, current portion $ 1,483 $ 1,339
Accounts payable 52,918 41,561
Liability for third-party settlement
and related expenses 5,000 16,000
Accrued expenses 7,080 5,232
Accrued compensation and benefits 4,765 3,461
Income tax payable 1,197 3,627
----------------------------------------------------------------------------------------
Total current liabilities 72,443 71,220
----------------------------------------------------------------------------------------
Notes payable, net of current portion 23,679 18,151
Deferred income tax 6,991 7,008
Minority interest in subsidiaries 583 727
----------------------------------------------------------------------------------------
31,253 25,886
----------------------------------------------------------------------------------------
SHAREHOLDERS' Preferred stock: $.01 par value;
EQUITY 2,000,000 shares authorized;
none issued _ _
Common stock: $.01 par value;
40,000,000 shares authorized;
16,340,193 and 16,242,873 issued
and outstanding, respectively 163 162
Additional paid-in capital 46,621 45,463
Retained earnings 83,180 72,848
----------------------------------------------------------------------------------------
129,964 118,473
----------------------------------------------------------------------------------------
Total liabilities & shareholders'equity $233,660 $215,579
========================================================================================
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-3
<PAGE> 25
Consolidated Statements of Income
Arbor Drugs, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Fiscal Years Ended July 31, 1994 1993 1992
- - ------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Net sales $618,562 $534,966 $476,848
Costs and expenses:
Cost of sales 454,207 390,896 346,140
Selling, general and administrative 132,759 117,337 105,783
Provision for third-party settlement
and related expenses 7,000 16,000 _
- - ------------------------------------------------------------------------------------------------------------------------------
Income from operations 24,596 10,733 24,925
Interest expense (1,667) (1,738) (2,763)
Interest income 995 961 1,399
- - ------------------------------------------------------------------------------------------------------------------------------
Income before income tax 23,924 9,956 23,561
Provision for income tax 9,846 3,047 7,787
- - ------------------------------------------------------------------------------------------------------------------------------
Net income $ 14,078 $ 6,909 $ 15,774
==============================================================================================================================
Weighted average number of common
shares outstanding (in thousands) 16,284 16,217 16,138
==============================================================================================================================
Earnings per common share $0.86 $0.43 $0.98
==============================================================================================================================
Cash dividend per common share $0.23 $0.185 $0.140
==============================================================================================================================
</TABLE>
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Additional
----------------- Paid-In Retained
(In thousands) Shares Amount Capital Earnings Total
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, July 31, 1991 16,078 $161 $43,606 $55,424 $ 99,191
Net income _ _ _ 15,774 15,774
Cash dividends of $.140
per share _ _ _ (2,259) (2,259)
Exercise of stock options 105 1 1,167 _ 1,168
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1992 16,183 162 44,773 68,939 113,874
Net income _ _ _ 6,909 6,909
Cash dividends of $.185
per share _ _ _ (3,000) (3,000)
Exercise of stock options 59 _ 690 _ 690
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1993 16,242 162 45,463 72,848 118,473
Net income _ _ _ 14,078 14,078
Cash dividends of $.23
per share _ _ _ (3,746) (3,746)
Exercise of stock options 98 1 1,158 _ 1,159
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1994 16,340 $163 $46,621 $83,180 $129,964
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-4
<PAGE> 26
Consolidated Statements of Cash Flows
Arbor Drugs, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Fiscal Years Ended July 31, 1994 1993 1992
(Dollars in thousands)
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $14,078 $ 6,909 $15,774
Adjustments to reconcile net
cash provided by operations:
Depreciation 9,027 8,210 7,484
Amortization 3,940 2,916 2,446
Changes in operating assets
and liabilities:
Accounts receivable (4,469) 4,896 (653)
Inventory (13,057) (8,102) (6,612)
Prepaid expenses 3,573 (7,639) (335)
Accounts payable 11,357 4,801 1,795
Third-party settlement
and related expenses (11,000) 16,000 _
Accrued expenses 3,008 1,729 1,021
Income tax payable (2,430) 2,289 508
Deferred income tax (17) 615 1,090
------------------------------------------------------------------------------------------------
Net cash provided
by operations 14,010 32,624 22,518
------------------------------------------------------------------------------------------------
Investing activities:
Purchase of property and
equipment, net (14,371) (13,431) (12,609)
Purchase of intangible assets (9,907) (5,330) (3,373)
Sale or maturity (purchase) of
short-term investments 2,211 (3,005) 1,530
------------------------------------------------------------------------------------------------
Net cash used in
investing activities (22,067) (21,766) (14,452)
------------------------------------------------------------------------------------------------
Financing activities:
Proceeds from borrowings 6,900 6,450 6,691
Principal payments on debt (1,228) (21,361) (1,000)
Dividends paid (3,746) (3,000) (2,259)
Proceeds from exercise of
stock options 1,159 690 1,168
------------------------------------------------------------------------------------------------
Net cash provided by
(used in) financing
activities 3,085 (17,221) 4,600
------------------------------------------------------------------------------------------------
Net (decrease) increase in cash
and cash equivalents (4,972) (6,363) 12,666
Cash and cash equivalents at
beginning of year 41,392 47,755 35,089
------------------------------------------------------------------------------------------------
Cash and cash equivalents at
end of year $36,420 $41,392 $47,755
================================================================================================
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-5
<PAGE> 27
Notes to Consolidated Financial Statements
Arbor Drugs, Inc. and Subsidiaries
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF OPERATION
The consolidated financial statements include Arbor Drugs, Inc.
("Company") and its subsidiaries, whose primary business activity is the
operation of drugstores, principally in southeastern Michigan. All significant
intercompany transactions have been eliminated in consolidation.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents. Short-term investments include all
liquid investments with a maturity greater than three months and are stated at
cost, which approximates market.
INVENTORY VALUATION
Inventories are stated at the lower of cost or market assuming a
last-in, first-out cost flow. Had the first-in, first- out method for
determining cost been used, inventories would have been increased by
approximately $20,511,000 and $18,505,000 at July 31, 1994 and 1993,
respectively.
PROPERTY AND EQUIPMENT
All property and equipment are recorded at cost. Maintenance and repair
costs are charged to expense as incurred. Upon retirement or disposal, the
asset cost and related accumulated depreciation are eliminated from the
respective accounts and the resulting gain or loss is included in the results
of operations for the period.
DEPRECIATION
Depreciation is computed using primarily the straight-line method based
on the following range of estimated useful lives:
Buildings ................... 40 years
Furniture, fixtures and
equipment and land
improvements ................ 5 to 20 years
Leasehold
improvements ................ Lesser of lease term or useful lives,
ranging from 5 to 20 years.
INCOME TAX
Deferred tax assets and liabilities are recognized for temporary
differences at the tax rate expected to be in effect when the related asset is
recovered or the related liability is settled.
PREOPENING EXPENSES
Preopening expenses of retail drugstores are charged to income as
incurred.
2. INTANGIBLE ASSETS:
<TABLE>
<CAPTION>
Intangible assets consist of the following:
July 31,
- - ------------------------------------------------------------------------
1994 1993
- - ------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Prescription
customer files $19,572 $14,673
Leaseholds 3,917 3,409
Developed software 4,630 3,913
Other 10,200 8,589
- - ------------------------------------------------------------------------
38,319 30,584
Less accumulated
amortization 15,825 14,057
- - ------------------------------------------------------------------------
$22,494 $16,527
========================================================================
</TABLE>
Prescription customer files and other intangible assets consist
primarily of amounts, other than leaseholds, allocated upon the purchase of
assets of existing retail operations and are generally amortized over a period
not to exceed 15 years.
Leaseholds represent the amounts paid for, or allocated to, beneficial
lease agreements assumed by the Company upon purchase of assets of existing
retail operations or leases. Amortization is recorded using the straight-line
method over the term of the related lease agreement.
F-6
<PAGE> 28
3. NOTES PAYABLE:
<TABLE>
<CAPTION>
July 31,
- - --------------------------------------------------------------------
1994 1993
- - --------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Mortgage note payable, interest
at 8.75 percent, monthly
interest and principal
installments of $60,976 through
July 1, 2014 $ 6,900 $ _
Senior note, interest at 9.93
percent, semiannual interest
and $500,000 principal payments,
final payment due October 31, 1997 5,500 $6,500
Mortgage note payable, Interest at
9.68 percent, monthly interest and
principal installments of $62,298
through July 1, 2012 6,361 6,486
Term loan, interest at 7.16 percent,
quarterly interest only payments,
due December 15, 1997 1,500 1,500
Mortgage note payable, interest at
8.49 percent, monthly interest
and principal installments of
$42,926 through December 1, 2012 4,790 4,893
Other borrowings 111 111
- - --------------------------------------------------------------------
25,162 19,490
Less current portion 1,483 1,339
- - --------------------------------------------------------------------
$23,679 $18,151
====================================================================
</TABLE>
As of July 31, 1994, the Company had a $50 million line of credit with
no outstanding balance. This credit facility expires November 30, 1997.
Maturities of notes payable for the next five fiscal years are
approximately as follows:
<TABLE>
<S> <C>
1995 $1,372,000
1996 $1,419,000
1997 $1,458,000
1998 $4,501,000
1999 $ 548,000
</TABLE>
The senior note, term loan and revolving credit agreement contain
certain covenants, the most restrictive of which require the Company to
maintain minimum current, debt service and equity ratios and maintain a minimum
amount of net worth. Certain property has been pledged as collateral under
terms of the mortgage notes payable.
Interest costs capitalized for the years ended July 31, 1994, 1993 and
1992 were approximately $264,000, $270,000 and $149,000, respectively.
Cash paid for interest, net of capitalized interest, was approximately
$1,700,000, $1,588,000 and $2,758,000 for the years ended July 31, 1994, 1993
and 1992, respectively.
4. RENTAL EXPENSE AND LEASE COMMITMENTS:
The Company leases certain facilities, transportation equipment and
data processing equipment under operating lease agreements expiring on various
dates through the year 2017. In addition to minimum rentals, certain lease
agreements provide for contingent rental payments based upon attainment of
specified sales volume or increases in the consumer price index. Most leases
contain renewal options for periods ranging from 5 to 30 years. The following
are summaries of rental expense and the future minimum annual rental payments
required under all operating leases:
<TABLE>
<CAPTION>
Year Ended July 31,
- - ------------------------------------------------------------------------------
1994 1993
- - ------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Rental expense:
Minimum rentals $14,792 $14,048
Contingent rentals 1,567 1,465
- - ------------------------------------------------------------------------------
$16,359 $15,513
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
Minimum annual rentals:
Year ending July 31:
<S> <C>
1995 $ 15,207
1996 15,505
1997 15,186
1998 14,439
1999 13,666
Remaining lease term 119,542
- - -------------------------------------------
$193,545
===========================================
</TABLE>
Accrued rent of $5,146,000 and $3,795,000 is included in accrued
expenses as of July 31, 1994 and 1993, respectively.
F-7
<PAGE> 29
Notes to Consolidated Financial Statements Continued
Arbor Drugs, Inc. and Subsidiaries
5. EMPLOYEE
RETIREMENT PLANS:
The Company maintains an employee savings plan, pursuant to section
401(k) of the Internal Revenue Code. Eligible participating employees may
contribute up to 15 percent of their salaries, subject to certain limitations,
for investment in either the common stock of the Company or various other
investment options. Contributions by the Company are discretionary.
6. INCOME TAX:
The provision for federal income tax consists of the following:
<TABLE>
<CAPTION>
Year Ended July 31,
--------------------------------------------------
1994 1993 1992
--------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Currently payable $6,112 $10,084 $6,561
Deferred 3,734 (7,037) 1,226
--------------------------------------------------
$9,846 $ 3,047 $7,787
==================================================
</TABLE>
The provision for deferred income tax is attributed to the tax effect
of differences caused by the timing of expense and revenue recognition, between
financial statement and tax accounting, for certain transactions, at the tax
rates expected to be in effect when the related asset is recovered or liability
is settled. In 1994 and 1993, respectively, these differences are primarily
attributed to the provision for third-party settlements of $3,500,000 and
$(5,425,000), discounts under vendor agreements of $437,000 and $(2,078,000)
and depreciation and amortization of property, equipment and intangible assets
of $17,000 and $587,000. In 1992, the provision was primarily attributed to the
difference between financial statements and tax accounting for property and
equipment of $747,000.
The provision for income tax, as a percentage of income before tax, was
41.2 percent, 30.6 percent and 33.1 percent in 1994, 1993 and 1992,
respectively. These rates differ from the statutory rate due to:
In 1994, the provision reflects the Company's preliminary assessment
that the after-tax effect of the Company's settlement with the United States
and the State of Michigan will be approximately $6.1 million. Also, income
earned on tax-exempt investments, which are not subject to federal income tax,
reduced the provision by approximately $255,000.
In 1993, the Company's adoption of "Statement of Financial Accounting
Standards No. 109" reduced the tax provision by $285,000, and income earned on
tax-exempt investments reduced the tax provision by approximately $190,000.
Prepaid expenses includes the current portion of deferred income taxes
of $4,673,000 and $8,424,000 in 1994 and 1993, respectively.
Cash paid for income taxes was approximately $8,135,000, $6,374,000 and
$5,526,000 in 1994, 1993 and 1992, respectively.
F-8
<PAGE> 30
7. STOCK OPTION PLAN:
Under the Company's Stock Option Plan, certain of the Company's key
employees have been granted nonqualified stock options which allow the employee
to purchase shares of common stock at prices equal to market value at the date
of grant and become exercisable 12 months after grant, on a pro rata basis over
a five-year period. There were approximately 445,000 shares exercisable at July
31, 1994.
The Company is currently authorized to grant options to purchase up to
an aggregate of 2,537,500 shares of its common stock of which 1,806,330 shares
have been granted and 1,395,815 shares were outstanding as of July 31, 1994.
Stock option transactions are summarized as follows.
<TABLE>
<CAPTION>
Number of Option
Shares Price Range
- - ---------------------------------------------------------------------------
<S> <C> <C>
Balance, July 31, 1991 605,670 $4.00-13.00
Granted 300,200 18.00-23.75
Terminated (12,425) 4.00-23.75
Exercised (104,925) 4.00-13.00
- - ---------------------------------------------------------------------------
Balance, July 31, 1992 788,520 $4.00-23.75
Granted 365,750 17.50-19.75
Terminated (15,625) 4.95-23.75
Exercised (59,460) 4.00-13.00
- - ---------------------------------------------------------------------------
Balance, July 31, 1993 1,079,185 $4.00-23.75
Granted 426,950 16.25-18.75
Terminated (13,000) 12.50-23.75
Exercised (97,320) 4.00-17.50
- - ---------------------------------------------------------------------------
Balance, July 31, 1994 1,395,815 $6.00-23.75
===========================================================================
</TABLE>
8. QUARTERLY FINANCIAL SUMMARY (UNAUDITED):
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
For the Three Months Ended
- - ----------------------------------------------------------------------------------
Fiscal Year Oct. 31, Jan. 31, April 30, July 31,
1994 1993 1994 1994 1994
- - ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $143,804 $159,596 $155,629 $159,533
Gross profit 38,180 42,463 41,348 42,364
Net income
(loss) 4,006 6,474 (1,623)* 5,223
Earnings (loss)
per share $.25 $.40 $(.10)* $.32
==================================================================================
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended
- - ----------------------------------------------------------------------------------
Fiscal Year Oct. 31, Jan. 31, April 30, July 31,
1993 1992 1993 1993 1993
- - ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $124,249 $140,412 $133,572 $136,733
Gross profit 33,335 37,843 35,947 36,945
Net income
(loss) 3,842 5,201** 3,878 (6,012)***
Earnings (loss)
per share $.24 $.32** $.24 $(.37)***
==================================================================================
</TABLE>
Amounts may not total due to rounding.
*Results include a third quarter charge in the amount of $7.0 million
(after-tax $6.1 million, or $.38 per share) relating to the settlement of a
third-party provider's reimbursement claim.
**Results include a second quarter charge in the amount of $1.025 million
(after-tax $.7 million, or $.04 per share) resulting from the disposition of a
lease dispute.
***Results include a fourth quarter charge in the amount of $16.0 million
(after-tax $10.4 million, or $.64 per share) relating to the settlement of a
third-party provider's reimbursement claim and related expenses.
F-9
<PAGE> 31
ARBOR DRUGS, INC. AND SUBSIDIARIES
SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
---------------
<TABLE>
<CAPTION>
(Dollars in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- -------- -------- -------- -------- --------
Balance at Balance
Beginning Additions Other Changes at End
Classification of Period at Cost Retirements Add (Deduct) of Period
-------------- ---------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1994:
Land and land improvements $ 8,937 $ 1,540 $ - $ - $ 10,477
Building 14,194 630 - - 14,824
Furniture, fixtures and
equipment 47,207 6,299 1,943 -
51,563
Leasehold improvements 27,982 6,547 373 - 34,156
------- ------- ------- ------- --------
Total $98,320 $15,016 $ 2,316 $ - $111,020
======= ======= ======= ======= ========
Year ended July 31, 1993:
Land and land improvements $ 6,408 $ 2,560 $ (31) $ - 8,937
Buildings 11,448 2,746 - - 14,194
Furniture, fixtures and
equipment 44,630 4,533 (1,956) -
47,207
Leasehold improvements 24,319 4,183 (520) - 27,982
------- ------- ------- ------- --------
Total $86,805 $14,022 ($2,507) $ - $ 98,320
======= ======= ======= ======= ========
Year ended July 31, 1992:
Land and land improvements $ 2,268 $ 2,100 $ - $ 2,040 $ 6,408
Building 5,490 2,396 - 3,562 11,448
Furniture, fixtures and
equipment 40,510 6,209 2,089 - 44,630
Leasehold improvements 22,136 2,258 146 71 24,319
------- ------- ------- ------- --------
Total $70,404 $12,963 $ 2,235 $ 5,673 $ 86,805
======= ======= ======= ======= ========
</TABLE>
F-10
<PAGE> 32
ARBOR DRUGS, INC. AND SUBSIDIARIES
SCHEDULE VI
ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY AND EQUIPMENT
--------------
<TABLE>
<CAPTION>
(Dollars in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- -------- -------- -------- -------- --------
Additions
Balance at Charged to Balance
Beginning Costs and Other Changes at End
Classification of Period Expenses Retirements Add (Deduct) of Period
-------------- ---------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1994:
Land and land improvements $ 508 $ 246 $ - $ - $ 754
Building 1,359 534 - - 1,893
Furniture, fixtures and
equipment 21,179 6,009 1,493 - 25,695
Leasehold improvements 10,049 2,238 178 - 13,109
------- ------- ------- ------ -------
Total $33,095 $ 9,027 $ 1,671 $ - $40,451
======= ======= ======= ====== =======
Year ended July 31, 1993:
Land and land improvements $ 310 $ 198 $ - $ - $ 508
Buildings 941 418 - - 1,359
Furniture, fixtures and
equipment 17,007 5,620 (1,448) - 21,179
Leasehold improvements 8,543 1,974 (468) - 10,049
------- ------- -------- ------- -------
Total $26,801 $ 8,210 ($1,916) $ - $33,095
======= ------- ======== ======= =======
Year ended July 31, 1992:
Land and land improvements $ 114 $ 196 $ - $ - $ 310
Building 437 504 - - 941
Furniture, fixtures and
equipment 13,456 5,334 1,783 - 17,007
Leasehold improvements 7,191 1,450 98 - 8,543
------- ------- ------- ------- -------
Total $21,198 $ 7,484 $ 1,881 $ - $26,801
======= ======= ======= ======= =======
</TABLE>
F-11
<PAGE> 33
ARBOR DRUGS, INC. AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
---------------------------------
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- ---------------------- -------- --------
Balance at Charges Charges To Balance
Beginning To Cost/ Other at End
Description of Period Expenses Accounts Deductions of Period
- - ----------- ---------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year End July 31, 1994:
======================
Allowance For Doubtful
Accounts $1,014,652 $ 236,526 - $ 232,668 $1,018,510
Year End July 31, 1993:
======================
Allowance For Doubtful
Accounts $ 756,765 $ 350,385 - $ 92,498 $1,014,652
Year End July 31, 1992:
=======================
Allowance For Doubtful
Accounts $ 803,231 $ 95,520 - $ 141,986 $ 756,765
</TABLE>
F-12
<PAGE> 34
ARBOR DRUGS, INC. AND SUBSIDIARIES
SCHEDULE IX
SHORT TERM BORROWING
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- - -------- -------- -------- -------- -------- ---------
Weighted Maximum Average Weighted
Balance Average Outstanding Outstanding Average
At End Interest During During Int During
Category Of Borrowings Of Period Rate Period Period (1) Period (2)
- - ---------------------- --------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
July 31, 1994:
=============
Notes Payable, Bank $ 0 N/A $ 0 $ 0 N/A
July 31, 1993:
=============
Notes Payable, Bank $ 0 N/A $ 200,000 $ 54,167 7.92%
July 31, 1992:
=============
Notes Payable, Bank $ 200,000 6.50% $ 250,000 $ 216,667 8.06%
</TABLE>
(1) The average amount outstanding during the period was calculated by
averaging the month end balance outstanding divided by 12.
(2) The weighted average interest rate during the period represents
total annual short-term debt interest expense divided by monthly
average short-term debt outstanding for the year.
F-13
<PAGE> 35
<TABLE>
<CAPTION>
INDEX TO EXHIBITS Page#
<S> <C> <C>
3.1 Restated Articles of Incorporation, as amended, filed as Exhibit 3.1
to the Registrant's Annual Report on Form 10-K for the year ended July
31, 1988, are incorporated herein by reference.
3.2 Bylaws, filed as Exhibit 3.2 to the Registrant's Form S-1
Registration Statement (Registration No. 33-4378), are incorporated
herein by reference.
4. Note Agreement dated as of October 31, 1987, between Arbor Drugs, Inc.
and Principal Mutual Life Insurance Company, filed as Exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
October 31, 1987, is incorporated herein by reference.
10.1 Amended and restated Arbor Drugs, Inc. Stock Option Plan, dated June
4, 1993, filed as Exhibit 10.1 to the Registrant's Annual Report on
Form 10-K for the year ended July 31, 1993, is incorporated herein by
reference.
10.2 Credit Agreement (the "Credit Agreement") dated as of May 14, 1992
among Arbor Drugs, Inc., NBD Bank, N.A., Manufacturers Bank, N.A.,
Continental Bank N.A., and NBD Bank, N.A., as Agent, filed as Exhibit
10.5 to the Registrant's Annual Report on Form 10-K for the year ended
July 31, 1992, is incorporated herein by reference.
10.3 Letter, dated June 2, 1994, from NBD Bank, N.A. (in its capacity as a
Bank and as Agent), Continental Bank, N.A. and Comerica Bank to Arbor
Drugs, Inc.
10.4 First Amendment to Credit Agreement, dated as of August 29, 1994,
among Arbor Drugs, Inc., NBD Bank, N.A. (in its capacity as a Bank and
as Agent), Continental Bank, N.A. and Comerica Bank.
11. Computation of Earnings Per Share.
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants.
27. Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.3
NBD Bank, N.A., as a Bank and as Agent
Continental Bank N.A.
Comerica Bank
June 2, 1994
Arbor Drugs, Inc.
3331 West Big Beaver Road
Troy, Michigan 48007-2510
Attention: Gilbert C. Gerhard
RE: Credit Agreement dated as of May 14, 1992 (the "Credit
Agreement") between Arbor Drugs, Inc., the banks named therein and NBD Bank,
N.A., as agent for the banks
Ladies and Gentlemen:
The Company has informed the Banks that an Event of Default (the
"Existing Default") has occurred as a result of a breach of Section 7.2(c) of
the Credit Agreement due solely to the effect of a one time charge (the
"Charge") taken by the Company in the fiscal quarter ending April 30, 1994 for
reimbursing Medicaid in such fiscal quarter in an amount not to exceed
$10,000,000. The Company has requested that the Banks and the Agent waive the
Existing Default, subject to the terms and conditions set forth herein.
Accordingly, the Banks and the Agent waive the Existing Default subject to the
other terms and conditions set forth in this letter an provided that the
Existing Default would not have occurred but for the occurrence of the Charge.
Additionally, the Company, the Banks and the Agent agree that the Credit
Agreement is hereby modified by adding the following after the words
"Consolidated net income" contained in the second line of Section 7.2(c):
"(without reduction of such net income due to the one time charge taken by the
Company in the fiscal quarter ending April 30, 1994 for reimbursement to
Medicaid in an aggregate amount not exceeding $10,000,000)".
The Company acknowledges and agrees that the waiver contained herein
is a limited waiver, limited to the specific one time waiver described above.
Such limited waiver (a) shall not waive any other term, covenant or agreement
of the Credit Agreement or the Notes or any other agreement, instrument or
document referred to therein or executed
<PAGE> 2
pursuant thereto, or in connection therewith, (b) shall not be deemed to be a
waiver, or consent to any modification or amendment, of any other term,
covenant or agreement of the Credit Agreement, the Notes or any other
agreement, instrument or document referred to therein or executed pursuant
thereto or in connection therewith, (c) shall not be deemed to prejudice any
present or future right or rights which the Agent or any of the Banks now has
or may have thereunder, and (d) shall waive the Existing Default only to the
extent that it has occurred on or before the date hereof.
The effectiveness of the waiver in this letter is subject to the
satisfaction of each of the following: (a) the Company shall have signed this
letter where indicated below, (b) the Majority Banks shall have signed this
letter, and (c) the Company shall have paid a waiver fee of $10,000 to the
Agent for the pro rata benefit of the Banks.
The Company represents and warrants to the Agent and the Banks that:
(a) after giving effect to the waiver herein contained, the representations and
warranties contained in Article VI of the Credit Agreement are true on and as
of the date hereof with the same force and effect as if made on and as of the
date hereof, and (b) other than the Existing Default, no Event of Default or
Default exists or has occurred and is continuing on the date hereof.
The Company agrees that the Credit Agreement and the Notes and all
other documents and agreements executed by them in connection with the Credit
Agreement in favor of the Agent or the Banks are ratified and confirmed and
shall remain in full force and effect and that it has no set off, counterclaim,
defense or other claim or dispute with respect to any of the foregoing.
All capitalized terms used but not defined herein shall have the
meanings ascribed thereto in the Credit Agreement. This letter may be executed
in any number of counterparts.
Very truly yours,
NBD Bank, N.A., as a Bank and as agent
By: /s/ Mark McClure
Its: Vice President
CONTINENTAL BANK N.A.
<PAGE> 3
By: /s/ Ronald R. Richter
----------------------
Its: Vice President
COMERICA BANK
By: /s/ Linda A. Watters
-----------------------------
Its: Assistant Vice President
The above is acknowledged, accepted and agreed to by each of the undersigned:
ARBOR DRUGS, INC.
BY: /s/ Gilbert C. Gerhard
- - ----------------------------
Its: Senior Vice President
<PAGE> 1
EXHIBIT 10.4
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of August 29, 1994
(this "Amendment"), is among ARBOR DRUGS, INC., a Michigan corporation (the
"Company"), the banks set forth on the signature pages hereof (collectively,
the "Banks") and NBD BANK, N.A., as agent for the Banks (in such capacity, the
"Agent").
RECITALS
A. The Company, the Banks and the Agent are parties to a Credit
Agreement dated as of May 14, 1992 (the "Credit Agreement").
B. The Company, the Banks and the Agent desire to amend the
Credit Agreement as set forth herein.
TERMS
In consideration of the premises and of the mutual agreements herein
contained, the parties agree as follows:
ARTICLE I. AMENDMENT. The Credit Agreement shall be amended by deleting
reference in Section 7.2(e)(v) to "$18,000,000" and substituting "$36,000,000"
in place thereof.
ARTICLE II. REPRESENTATIONS. The Company represents and warrants to the
Agent and the Banks that:
2.1 The execution, delivery and performance of this Amendment is
within its powers, has been duly authorized and is not in contravention with
any law, of the terms of its Articles of Incorporation or By-laws, or any
undertaking to which it is a party or by which it is bound.
2.2 This Amendment is the legal, valid and binding obligation of
the Company enforceable against it in accordance with the terms hereof.
2.3 After giving effect to the amendments herein contained, the
representations and warranties contained in Article VI of the Credit Agreement
are true on and as of the date hereof with the same force and
<PAGE> 2
effect as if made on and as of the date hereof and no Default or Event of
Default exists.
ARTICLE III. MISCELLANEOUS
3.1 References in the Credit Agreement or in any note,
certificate, instrument or other document to the Credit Agreement shall be
deemed to be references to the Credit Agreement as amended hereby and as
further amended from time to time.
3.2 The Company agrees to pay and to save the Agent harmless for
the payment of all costs and expenses arising in connection with this
Amendment, including the reasonable fees of counsel to the Agent in connection
with preparing this Amendment.
3.3 Except as expressly amended hereby, the Company agrees that
the Credit Agreement, the Notes and all other documents and agreements executed
by the Company in connection with the Credit Agreement in favor of the Agent or
the Banks are ratified and confirmed and shall remain in full force and effect
and that it has no set off, counterclaim or defense with respect to any of the
foregoing. Terms used but not defined herein shall have the respective
meanings ascribed thereto in the Credit Agreement.
3.4 This Amendment may be signed upon any number of counterparts
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Amendment is a contract made under, and the rights and
obligations of the parties hereunder be governed by and construed in accordance
with, the laws of the State of Michigan applicable to contracts made and to be
performed entirely within Michigan.
IN WITNESS WHEREOF, the parties signing this Amendment have caused
this Amendment to be executed and delivered as of August 29, 1994, which shall
be the effective date of this Amendment.
ARBOR DRUGS, INC.
By: /s/ Gilbert C. Gerhard
----------------------------
Its: Senior Vice President
<PAGE> 3
NBD BANK, N.A., as a Bank and as Agent
By: /s/ Erik W. Bakker
---------------------------
Its: Second Vice President
COMERICA BANK
By: /s/ Michael Banks
---------------------------
Its: Vice President
CONTINENTAL BANK, formerly known as
Continental Bank, N.A.
By: /s/ Gary Peet
---------------------------
Its: Managing Director
<PAGE> 1
EXHIBIT 11
ARBOR DRUGS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Year Ended
(In thousands, except July 31, July 31,
for per share data) ------------------ ---------------------
1994 1993 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
A. Net Income (loss) $ 5,223 ($6,012) $14,080(a) $ 6,909(a)
======= ======= ======= =======
Weighted average number
of common shares
outstanding 16,332 16,240 16,284(a) 16,217(a)
Effect of the issuance
of stock options and
assumed exercise of
stock options at prices
which are lower than
the average market
price of the common
shares during the
period, using the
treasury stock method 110 155 129 191
------- ------- ------- -------
B. Average number of
common shares and
common equivalent
shares for primary
earnings per share 16,442 16,395 16,413 16,408
------- ------- ------- -------
Weighted average number
of common shares
outstanding 16,332 16,240 16,284(a) 16,217(a)
Effect of the issuance
of stock options and
assumed exercise of
options at prices which
are lower than the
market price of common
stock at end of the
period when such price
is higher than average
market 177 155 182 191
------- ------- ------- -------
C. Common shares,
assuming full
dilution 16,509 16,395 16,466 16,408
======= ======= ======= =======
Primary earnings (loss) per
share A $0.32 ($0.37) $0.86 $0.42(b)
- ======= ======= ======= =======
B
Fully diluted earnings (loss)
per share A $0.32 ($0.37) $0.86 $0.42(b)
- ======= ======= ======= =======
C
</TABLE>
(a) These amounts agree with the related amounts in the Consolidated
Statements of Income.
<PAGE> 2
(b) The actual difference between reported earnings per share and
both primary earnings per share and fully diluted earnings per
share is less than $.01, but due to rounding, is shown as
presented.
<PAGE> 1
[COOPERS & LYBRAND LETTERHEAD]
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Arbor Drugs, Inc. and Subsidiaries on Form S-8 (File Nos. 33-11830, 33-13102,
33-39259, and 33-54141) of our report dated September 30, 1994, on our audits
of the consolidated financial statements and financial statement schedules of
Arbor Drugs, Inc. and Subsidiaries as of July 31, 1994 and 1993, and for the
years ended July 31, 1994, 1993, and 1992, which report is included in this
Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
Detroit, Michigan
October 14, 1994
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-END> JUL-31-1994
<CASH> 36,420
<SECURITIES> 1,264
<RECEIVABLES> 12,782
<ALLOWANCES> 0
<INVENTORY> 83,398
<CURRENT-ASSETS> 140,597
<PP&E> 111,020
<DEPRECIATION> 40,451
<TOTAL-ASSETS> 233,660
<CURRENT-LIABILITIES> 72,443
<BONDS> 23,679
<COMMON> 163
0
0
<OTHER-SE> 129,801
<TOTAL-LIABILITY-AND-EQUITY> 233,660
<SALES> 618,562
<TOTAL-REVENUES> 618,562
<CGS> 454,207
<TOTAL-COSTS> 454,207
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,667
<INCOME-PRETAX> 23,924
<INCOME-TAX> 9,846
<INCOME-CONTINUING> 14,078
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,078
<EPS-PRIMARY> .86
<EPS-DILUTED> .86
</TABLE>
