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Previous: NATIONS FUND INC, N-30D, 1996-05-30 |
Next: UNICOMP INC, NT 10-K, 1996-05-30 |
<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 April 30, 1996 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.
<TABLE>
<CAPTION>
Class Outstanding at May 29, 1996
- ---------------------------- ---------------------------
<S> <C>
Common Stock, $.01 par value 25,053,444
</TABLE>
1
<PAGE> 2
ARBOR DRUGS, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
April 30, 1996 and July 31, 1995 3
Condensed Consolidated Statements of Income-
Three and Nine Months Ended April 30, 1996
and 1995 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended April 30, 1996 and 1995 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 6. Exhibits and Reports on Form 8-K 9
2
<PAGE> 3
ARBOR DRUGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in Thousands)
April 30, July 31,
ASSETS 1996 1995
--------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 31,450 $ 39,798
Short-term investments 3,200 170
Accounts receivable 20,270 14,020
Inventory 105,983 89,553
Deferred taxes 2,706 2,494
Prepaid expenses 1,867 2,410
-------- --------
Total current assets 165,476 148,445
-------- --------
Property and equipment:
Land and land improvements 16,452 14,591
Buildings 19,896 17,433
Furniture, fixtures and equipment 62,791 58,369
Leasehold improvements 39,131 35,695
Less accumulated depreciation (55,273) (49,705)
-------- --------
82,997 76,383
-------- --------
Other assets:
Intangible assets 21,471 21,766
-------- --------
$269,944 $246,594
======== ========
LIABILITIES
Current liabilities:
Notes payable, current portion $ 1,558 $ 1,529
Accounts payable 53,416 50,341
Accrued rent 6,467 5,781
Accrued expenses 2,673 1,931
Accrued compensation and benefits 6,169 5,144
Income tax payable 2,009 2,333
-------- --------
Total current liabilities 72,292 67,059
-------- --------
Notes payable, net of current portion 20,920 22,260
Deferred income tax 5,911 5,938
Minority interest in subsidiaries 676 621
-------- --------
27,507 28,819
-------- --------
SHAREHOLDERS' EQUITY
Preferred stock: $.01 par value; 2,000,000
share authorized; none issued -- --
Common stock: $.01 par value; 40,000,000
shares authorized; 25,052,544 and 24,765,602
issued and outstanding, respectively 250 248
Additional paid-in capital 53,166 48,902
Retained earnings 116,729 101,566
-------- --------
170,145 150,716
-------- --------
$269,944 $246,594
======== ========
</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 Nine Months Ended
Per Share Data) April 30, April 30,
--------------------------------------- -------------------------------------
1996 1995 1996 1995
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net Sales $208,242 $174,806 $613,447 $527,280
Costs and expenses:
Cost of sales 154,682 129,013 454,206 389,015
Selling, general and administrative 44,279 37,466 128,708 110,855
-------- -------- -------- --------
Income from operations 9,281 8,327 30,533 27,410
Interest expense (387) (694) (1,360) (1,745)
Interest income 339 379 1,129 960
-------- -------- -------- --------
Income before income tax 9,233 8,012 30,302 26,625
-------- -------- -------- --------
Provision for income tax 3,176 2,782 10,409 9,198
-------- -------- -------- --------
Net income $ 6,057 $ 5,230 $ 19,893 $ 17,427
======== ======== ======== ========
Earnings per common share $ .24 $ .21 $ .80 $ .71
======== ======== ======== ========
Weighted average number of shares 25,029 24,713 24,904 24,612
======== ======== ======== ========
Cash dividend per common share $ .07 $ .05 $ .19 $ .14
======== ======== ======== ========
</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>
Nine Months Ended
April 30,
---------------------------------
(Dollars In Thousands)
1996 1995
--------- ---------
<S> <C> <C>
Operating activities:
Net income $19,893 $17,427
Adjustments to reconcile to net cash provided by operations:
Depreciation 8,945 8,359
Amortization 3,324 3,459
Deferred income tax (239) 472
Changes in operating assets and liabilities:
Accounts receivable (6,250) (3,105)
Inventory (16,430) (5,528)
Prepaid expenses 543 (607)
Accounts payable 3,075 3,122
Third-party settlement
and related expenses - (5,000)
Accrued expenses 2,508 1,407
Income tax payable (324) 2,020
-------- --------
Net cash provided by operations 15,045 22,026
-------- --------
Investing activities:
Purchase of property and equipment, net (15,559) (13,464)
Purchase of intangible assets (3,029) (2,724)
Purchase of short-term investments (3,030) (2,326)
-------- --------
Net cash used in investing activities (21,618) (18,514)
-------- --------
Financing activities:
Principal payments on debt (1,311) (1,274)
Dividends paid (4,730) (3,442)
Proceeds from exercise of stock options
and stock purchase plan 4,266 2,023
-------- --------
Net cash used in financing activities (1,775) (2,693)
-------- --------
Net increase (decrease) in cash and cash equivalents (8,348) 819
-------- --------
Cash and cash equivalents at beginning of period 39,798 36,420
-------- --------
Cash and cash equivalents at end of period $31,450 $37,239
======== ========
Cash paid for income tax $10,102 $6,098
======== ========
Cash paid for interest $1,758 $2,026
======== ========
</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 necessary for a fair presentation of
financial position, results of operations and cash flows at April 30, 1996,
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, 1995. The results of operations for
any interim period should not necessarily be considered indicative of the
results of operations for the full year.
On April 17, 1995, the Board of Directors declared a 3 for 2 stock split
which was effected in the form of a dividend paid on May 15, 1995.
Accordingly, all per share and stock amounts have been restated to reflect
this dividend.
2. INVENTORY VALUATION
Inventory at interim periods is valued on a last-in, first-out (LIFO)
basis which is determined based upon estimates of gross profit rates,
inflation rates and inventory levels, which 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 $208.2 million and $613.4 million for the three and
nine months ended April 30, 1996, respectively, an increase of 19.1 percent
and 16.3 percent, respectively, over the comparable periods of the prior
year. The increases reflect an increase in comparable store sales (stores
open for one year or more) of 10.8 percent and 9.7 percent for three and nine
months ended April 30, 1996, respectively, and sales made by stores opened in
the last 12 months. As of April 30, 1996, the Company operated 177 stores,
compared to 160 stores as of April 30, 1995, and 167 stores as of July 31,
1995.
Prescription drug sales were $109.2 million and $311.0 million for the
three and nine months ended April 30, 1996, respectively, an increase of 22.8
percent and 19.1 percent, respectively, over the comparable periods of the
prior year. Prescription drug sales represented 52.4 percent and 50.7
percent of total sales for the three and nine months ended April 30, 1996,
respectively, compared to 50.8 percent and 49.5 percent for the three and
nine months ended April 30, 1995. 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.
COST OF SALES
Cost of sales represented 74.3 percent and 74.0 percent of net sales for
the three and nine months ended April 30, 1996, respectively, compared to
73.8 percent for the three and nine months ended April 30, 1995. Generally,
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 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. 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 21.3 percent and 21.0 percent for the three and
nine months ended April 30, 1996, respectively, compared to 21.4 percent and
21.0 percent for the three and nine months ended April 30, 1995.
7
<PAGE> 8
PROVISION FOR INCOME TAX
The provision for income tax as a percentage of income before income tax
was 34.4 percent for the three and nine months ended April 30, 1996, compared to
34.7 percent and 34.5 percent, respectively, for the three and nine months ended
April 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations for the nine months ended April 30, 1996
was $15.0 million. Net cash used in investing and financing activities
principally consisted of capital expenditures and acquisitions ($18.6 million),
cash dividends ($4.7 million) and principal payments on debt ($1.3 million). In
the aggregate, the Company's net cash decreased by $8.3 million.
The Company anticipates fiscal 1996 capital expenditures to total
approximately $22 million for expanding the Company's store base, remodeling
existing stores and investing in retailing systems. Additionally, during the
fiscal year, the Company plans to expend approximately $8 million for the
expansion of its warehouse and distribution center.
The Company's current expansion plan contemplates adding approximately
15 new Arbor drugstores in fiscal 1996 through leasing new sites, developing new
sites and, if suitable opportunities arise, acquisitions. As of April 30, 1996,
10 new stores have been opened.
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 1996. As
of April 30, 1996, the Company had outstanding borrowings against its line of
credit aggregating $1.5 million.
8
<PAGE> 9
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11: Computation of Earnings Per Share Page 11
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: May 30, 1996 /s/ Gilbert C. Gerhard
------------- --------------------------------
Gilbert C. Gerhard
(Duly Authorized Officer and
Principal Financial Officer)
9
<PAGE> 10
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
Exhibit 11 Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
10
<PAGE> 1
EXHIBIT 11
ARBOR DRUGS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(In thousands, except per share data) April 30, April 30,
------------------ ------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
A. Net Income $ 6,057 (a) $ 5,230 (a) $ 19,893 (a) $ 17,427 (a)
Weighted average number of ======== ======== ======== =========
common shares outstanding 25,029 (a) 24,713 (a) 24,904 (a) 24,612 (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 689 375 663 300
-------- ------- ------- --------
B. Average number of common
shares and common
equivalent shares for
primary earnings per share 25,718 25,088 25,567 24,912
======== ======== ======== =========
Weighted average number of common
shares outstanding (a) 25,029 24,713 24,904 24,612
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 price of the common shares 689 473 693 450
during the period, using the treasury -------- -------- -------- ---------
stock method
C. Average number of common shares
and common equivalent shares 25,718 25,186 25,597 25,062
for fully diluted earnings per share ======== ======== ======== =========
Primary earnings
per share A $ .24 $ .21 $ .78 $ .70
B ======== ======== ======== =========
Fully diluted earnings
per share A $ .24 $ .21 $ .78 $ .70
C ======== ======== ======== =========
</TABLE>
(a) These amounts agree with the related amounts in the Condensed Consolidated
Statements of Income. All share amounts have been restated to give effect
to the stock split declared on April 17, 1995 and distributed on May 15,
1995.
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> FEB-01-1996
<PERIOD-END> APR-30-1996
<CASH> 31,450
<SECURITIES> 3,200
<RECEIVABLES> 20,270
<ALLOWANCES> 0
<INVENTORY> 105,983
<CURRENT-ASSETS> 165,476
<PP&E> 138,270
<DEPRECIATION> 55,273
<TOTAL-ASSETS> 269,944
<CURRENT-LIABILITIES> 72,292
<BONDS> 0
0
0
<COMMON> 250
<OTHER-SE> 169,895
<TOTAL-LIABILITY-AND-EQUITY> 269,944
<SALES> 613,447
<TOTAL-REVENUES> 613,447
<CGS> 454,206
<TOTAL-COSTS> 454,206
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,360
<INCOME-PRETAX> 30,302
<INCOME-TAX> 10,409
<INCOME-CONTINUING> 19,893
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,893
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
</TABLE>
|
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