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Previous: KEMPER DOUBLE PLAY TRUST SERIES 3, 24F-2NT, 1995-03-01 |
Next: LONE STAR TECHNOLOGIES INC, SC 13D/A, 1995-03-01 |
<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended January 31, 1995 Commission File Number 0-14491
ARBOR DRUGS, INC.
(Exact name of registrant as specified in its charter)
State of Michigan 38-2054345
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3331 West Big Beaver, Troy, Michigan 48084
(Address of principal executive offices) Zip Code
810-643-9420
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date.
Class Outstanding at February 27, 1995
Common Stock, $.01 par value 16,471,624
1
<PAGE> 2
ARBOR DRUGS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
PART I FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
January 31, 1995 and July 31, 1994 3
Condensed Consolidated Statements of Income -
Three and Six Months ended January 31, 1995
and 1994 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended January 31, 1995 and 1994 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 7-8
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
2
<PAGE> 3
ARBOR DRUGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
January 31, July 31,
ASSETS 1995 1994
----------- ----------
<S> <C> <C>
Cash and cash equivalents $ 33,678 $ 36,420
Short-term investments --- 1,264
Accounts receivable 15,915 12,782
Inventory 90,231 83,398
Deferred taxes 3,843 4,673
Prepaid expenses 2,360 2,060
-------- --------
Total current assets 146,027 140,597
-------- --------
Property and equipment:
Land and land improvements 13,723 10,477
Buildings 15,333 14,824
Furniture, fixtures and equipment 54,953 51,563
Leasehold improvements 34,136 34,156
Less accumulated depreciation (45,351) (40,451)
-------- --------
72,794 70,569
Other assets: -------- --------
Intangible assets 22,439 22,494
-------- --------
$241,260 $233,660
======== ========
LIABILITIES
Current liabilities:
Notes payable, current portion $ 1,509 $ 1,483
Accounts payable 50,299 52,918
Liability for third-party settlement
and related expenses --- 5,000
Accrued rent 6,196 5,146
Accrued expenses 2,091 1,934
Accrued compensation and benefits 4,311 4,765
Income tax payable 5,527 1,197
-------- --------
Total current liabilities 69,933 72,443
-------- --------
Notes payable, net of current portion 22,976 23,679
Deferred income tax 6,310 6,991
Minority interest in subsidiaries 602 583
-------- --------
29,888 31,253
SHAREHOLDERS' EQUITY -------- --------
Preferred stock: $.01 par value; 2,000,000
share authorized; none issued --- ---
Common stock: $.01 par value; 40,000,000
shares authorized; 16,464,617 and 16,270,323
issued and outstanding, respectively 165 163
Additional paid-in capital 48,105 46,621
Retained earnings 93,169 83,180
-------- --------
141,439 129,964
-------- --------
$241,260 $233,660
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
3
<PAGE> 4
ARBOR DRUGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
(Amounts In Thousands, Except Three Months Ended Six Months Ended
Per Share Data) January 31, January 31,
---------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $185,134 $159,596 $352,474 $303,400
Costs and expenses:
Cost of sales 136,504 117,133 260,002 222,757
Selling, general and administrative 37,047 32,435 73,389 64,320
-------- -------- -------- --------
Income from operations 11,583 10,028 19,083 16,323
Interest expense (500) (456) (1,051) (889)
Interest income 313 260 581 531
-------- -------- -------- --------
Income before income tax 11,396 9,832 18,613 15,965
Provision for income tax 3,908 3,358 6,416 5,486
-------- -------- -------- --------
Net income $ 7,488 $ 6,474 $ 12,197 $ 10,479
======== ======== ======== ========
Earnings per common share $ .46 $ .40 $ .74 $ .64
======== ======== ======== ========
Weighted average number of
common shares outstanding 16,408 16,255 16,376 16,250
======== ======== ======== ========
Cash dividend per common share $ .075 $ 0.060 $ .135 $ 0.110
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE> 5
ARBOR DRUGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
January 31,
--------------------
(Dollars In Thousands)
1995 1994
---- ----
<S> <C> <C>
Operating activities:
Net income $ 12,197 $ 10,479
Adjustments to reconcile to net cash provided by operations:
Depreciation 5,339 4,397
Amortization 2,326 1,755
Deferred income tax 149 2,062
Changes in operating assets and liabilities:
Accounts receivable (3,133) (3,504)
Inventory (6,833) (13,366)
Prepaid expenses ( 300) 84
Accounts payable (2,619) 5,197
Third-party settlement
and related expenses (5,000) (5,425)
Accrued expenses 753 1,876
Income tax payable 4,330 (1,154)
--------- ---------
Net cash provided by operations 7,209 2,401
--------- ---------
Investing activities:
Purchase of property and equipment, net (7,564) (2,210)
Purchase of intangible assets (2,252) (7,367)
Maturity of short-term investments 1,264 2,522
Purchase of property held for development or resale --- (3,243)
--------- ---------
Net cash used in investing activities (8,552) (10,298)
--------- ---------
Financing activities:
Principal payments on debt (677) (611)
Dividends paid (2,208) (1,787)
Proceeds from exercise of stock options 1,486 333
--------- ---------
Net cash used in financing activities (1,399) (2,065)
--------- ---------
Net decrease in cash and cash equivalents (2,742) (9,962)
Cash and cash equivalents at beginning of period 36,420 41,392
--------- ---------
Cash and cash equivalents at end of period $ 33,678 $ 31,430
========= =========
Cash paid for income tax $ 1,400 $ 4,376
========= =========
Cash paid for interest $ 1,111 $ 943
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE> 6
ARBOR DRUGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
and reflect, in the opinion of management, all adjustments, consisting
of normal recurring adjustments, necessary for a fair presentation of
financial position, results of operations and cash flows at January
31, 1995 and for all periods presented. The condensed consolidated
financial statements should be read in conjunction with the annual
consolidated financial statements and notes contained in Arbor's
Annual Report on Form 10-K for the fiscal year ended July 31, 1994.
The results of operations for any interim period should not
necessarily be considered indicative of the results of operations for
the full year.
2. INVENTORY VALUATION
Inventory at interim periods is valued on a last-in, first-out
(LIFO) basis and is determined based upon estimates of gross profit
rates, inflation rates and inventory levels, and is adjusted for the
results of physical inventories when taken.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
References to years are to the Company's fiscal years, which end
July 31.
NET SALES
Net sales reached $185.1 million and $352.5 million for the
three and six months ended January 31, 1995, respectively, an increase
of 16.0 percent and 16.2 percent, respectively, over the comparable
periods of the prior year. The increases reflect an increase in
comparable store sales (stores open for more than one year) of 9.7
percent and 8.9 percent for the three and six months ended January 31,
1995, respectively, and sales made by stores opened in the last 12
months. As of January 31, 1995, the Company operated 159 stores,
compared to 152 stores as of January 31, 1994, and 154 stores as of
July 31, 1994.
Prescription drug sales reached $89.3 million and $172.4 million
for the three and six months ended January 31, 1995, respectively, an
increase of 16.8 percent and 17.8 percent, respectively, over the
comparable periods of the prior year. Prescription drug sales
represented 48.2 percent and 48.9 percent of total sales for the three
and six months ended January 31, 1995, respectively, compared to 47.9
percent and 48.2 percent for the three and six months ended January
31, 1994. The increases in both absolute amount and relative
contribution reflect both an increase in comparable store pharmacy
sales (due to increases both in the number of prescriptions filled and
the average prescription price) of 11.4 percent for the three and six
months ended January 31, 1995, and the Company's larger store base.
COST OF SALES
Cost of sales represented 73.7 percent and 73.8 percent of net
sales for the three and six months ended January 31, 1995,
respectively, compared to 73.4 percent for the three and six months
ended January 31, 1994. The increases reflect rising pharmaceutical
product costs and gross margin percentage pressure due to the
reimbursement practices of the Company's third-party providers.
Third-party providers 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 as compensation for 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. 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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative ("SG&A") expenses as a
percentage of net sales, amounted to 20.0 percent and 20.8 percent for
the three and six months ended January 31, 1995, respectively, as
compared to 20.3 percent and 21.2 percent respectively, for the
comparable periods of the prior year. The decrease in the three and
six month percentages was primarily attributable to the Company's
efforts to control operating expenses and by the higher level of net
sales.
7
<PAGE> 8
PROVISION FOR INCOME TAX
The provision for income tax as a percentage of income before
income tax was 34.3 percent and 34.5 percent, respectively, for the
three and six months ended January 31, 1995, compared to 34.2 percent
and 34.4 percent for the three and six months ended January 31, 1994,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $2.7 million during the six
months ended January 31, 1995. The Company expended $12.0 million for
dividends and capital expenditures, of which $7.2 million was provided
by operations.
The Company believes that existing cash, cash equivalents, cash
provided from 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.
During fiscal 1995, the Company plans to open or acquire 17 to
20 stores. As of March 1,1995, six new stores have been opened.
During the fiscal quarter ended January 31, 1995, the Company also
consolidated an existing drugstore with the operations of another
existing drugstore.
8
<PAGE> 9
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on
December 6, 1994. At the annual meeting, the following persons were
elected as directors of the Company and the following votes were cast
for or were withheld from voting with respect to the election of each
such person:
<TABLE>
<CAPTION>
Votes
-----
Name For Withheld
---- --- --------
<S> <C> <C>
Eugene Applebaum 13,238,358 75,528
Markus M. Ernst 13,238,458 75,430
Gilbert C. Gerhard 13,238,458 75,428
David B. Hermelin 13,238,458 75,428
Spencer M. Partrich 13,238,458 75,428
Laurie M. Shahon 13,238,358 75,528
Samuel Valenti III 13,238,458 75,428
</TABLE>
There were 900 broker non-votes and 74,628 abstentions in
connection with the election of the directors at the annual meeting.
In addition, at the annual meeting, the adoption of the
Company's Employee Stock Purchase Plan was approved by the Company's
shareholders by a vote of 13,264,055 shares for the adoption and
28,144 shares against adoption, with 20,787 shares abstaining and 900
broker non-votes.
9
<PAGE> 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11: Computation of Earnings Per Share Page 12
Exhibit 27: Financial Data Schedule
(b) Reports on Form 8-K:
NONE
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.
ARBOR DRUGS, INC.
(Registrant)
DATED: March 1, 1995 /s/ Gilbert C. Gerhard
Gilbert C. Gerhard
(Duly Authorized Officer and
Principal Financial Officer)
10
<PAGE> 11
EXHIBIT INDEX
Exhibit No. Description
Exhibit 11 Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
11
<PAGE> 1
EXHIBIT 11
ARBOR DRUGS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(In Thousands) January 31, January 31,
----------------------- ----------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
A. Net Income (a) $ 7,488 $ 6,474 $ 12,197 $ 10,479
======== ======== ======== =========
Weighted average number of
common shares outstanding (a) 16,408 16,255 16,376 16,250
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 178 167 170 144
-------- -------- -------- ---------
B. Average number of common
shares and common
equivalent shares for
primary earnings per share 16,586 16,422 16,546 16,394
======== ======== ======== =========
Weighted average number of common
shares outstanding (a) 16,408 16,255 16,376 16,250
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 255 169 255 172
-------- -------- -------- ---------
C. Common shares, assuming full
dilution 16,663 16,424 16,631 16,422
======== ======== ======== =========
Primary earnings
per share A (b) $ .45 $ .39 $ 0.74 $ .64
- ======== ======= ======== ========
B
Fully diluted earnings
per share A (b) $ .45 $ .39 $ 0.73 $ .64
- ========= ========= ======== =========
C
</TABLE>
(a) These amounts agree with the related amounts in the Condensed Consolidated
Statements of Income.
(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.
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-END> JAN-31-1995
<CASH> 33,678
<SECURITIES> 0
<RECEIVABLES> 15,915
<ALLOWANCES> 0
<INVENTORY> 90,231
<CURRENT-ASSETS> 146,027
<PP&E> 118,145
<DEPRECIATION> 45,351
<TOTAL-ASSETS> 241,260
<CURRENT-LIABILITIES> 69,933
<BONDS> 22,976
<COMMON> 165
0
0
<OTHER-SE> 141,439
<TOTAL-LIABILITY-AND-EQUITY> 241,260
<SALES> 185,134
<TOTAL-REVENUES> 185,134
<CGS> 136,504
<TOTAL-COSTS> 136,504
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (500)
<INCOME-PRETAX> 11,396
<INCOME-TAX> 3,908
<INCOME-CONTINUING> 7,488
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,488
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
</TABLE>
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