<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________
Commission file number 0-16998
-------
A. Full title of the plan:
DRUG EMPORIUM, INC.
EMPLOYEES 401(K) PLAN
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office:
Drug Emporium, Inc.
155 Hidden Ravines Drive
Powell, OH 43065
<PAGE> 2
REQUIRED INFORMATION
In lieu of the requirements of Items 1-3 of Form 11-K, the Drug
Emporium, Inc. Employees 401(k) Plan which is subject to the requirements of
the Employee Retirement Income Security Act of 1974, ("ERISA"), is filing
herewith the plan financial statements and schedules in accordance with the
financial reporting requirements of ERISA.
a) Financial Statements
Independent Auditors' Report
Statement of Net Assets Available
for Plan Benefits
Statement of Changes in Net Assets
Available for Plan Benefits
Notes to Financial Statements
Schedules:
Assets Held for Investment
Transactions or Series of Transactions
in Excess of 5% of the Current Value
of Plan Assets
b) Exhibits
(24.1) Independent Auditors' Consent
Ernst & Young
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the employee benefit plan) have duly
caused this annual report to be signed on its behalf by the undersigned
hereunto duly authorized.
DRUG EMPORIUM, INC. EMPLOYEES 401(K) PLAN
Date: June 28, 1996 /s/ Jane H. Lagusch
------------- -------------------------------
Jane H. Lagusch, Vice President
<PAGE> 3
Audited Financial Statements
and Schedules
Drug Emporium, Inc.
Employees 401(k) Plan
Years ended December 31, 1995 and 1994
with Report of Independent Auditors
<PAGE> 4
Drug Emporium, Inc. Employees 401(k) Plan
Audited Financial Statements
and Schedules
Years ended December 31, 1995 and 1994
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Audited Financial Statements
Statements of Net Assets Available for Plan Benefits . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statements of Changes in Net Assets Available for Plan Benefits . . . . . . . . . . . . . . . . . . . 4
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Schedules
Assets Held for Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Transactions or Series of Transactions in Excess of 5%
of the Current Value of Plan Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
<PAGE> 5
Report of Independent Auditors
Participants of the
Drug Emporium, Inc.
Employees 401(k) Plan
We have audited the accompanying statements of net assets available for plan
benefits of the Drug Emporium, Inc. Employees 401(k) Plan (the Plan) as of
December 31, 1995 and 1994, and the related statements of changes in net assets
available for plan benefits for the years then ended. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements 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 net assets available for plan benefits of the Plan
at December 31, 1995 and 1994, and the changes in its net assets available for
plan benefits for the years then ended, in conformity with generally accepted
accounting principles.
Our audits were performed for the purpose of forming an opinion on the
financial statements taken as a whole. The accompanying supplemental schedules
of Assets Held for Investment as of December 31, 1995 and Transactions or
Series of Transactions in Excess of 5% of the Current Value of Plan Assets for
the year then ended, are presented for purposes of complying with the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974 and are not a required part
of the financial statements. The supplemental schedules have been subjected to
the auditing procedures applied in our audit of the 1995 financial statements
and, in our opinion, are fairly stated in all material respects in relation to
the 1995 financial statements taken as a whole.
June 20, 1996
Columbus, Ohio
1
<PAGE> 6
Drug Emporium, Inc. Employees 401(k) Plan
Statements of Net Assets Available for Plan Benefits
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------
RETIREMENT
CASH MANAGEMENT PRESERVATION INCOME AND
FUND TRUST GROWTH FUND
------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments - at fair value
(Notes 1, 2 and 3) $103,729 $727,961 $771,974
Participants loans receivable - - -
Receivables:
Contributions from participants - - -
Accrued investment income 25 349 -
------------------------------------------------
Total assets 103,754 728,310 771,974
LIABILITIES
Other $ 5,500 $ - $ -
------------------------------------------------
Total liabilities 5,500 - -
Net assets available for plan benefits
$98,254 $728,310 $771,974
================================================
</TABLE>
2
<PAGE> 7
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
DRUG EMPORIUM,
GROWTH INC. LOAN DECEMBER 31,
OPPORTUNITIES FUND COMMON STOCK FUND TOTAL 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,350,680 $512,857 $ - $3,467,201 $1,966,427
- - 42,308 42,308 30,027
- - - - 38,211
- - - 374 91
- -------------------------------------------------------------------------------------------------
1,350,680 512,857 42,308 3,509,883 2,034,756
- (5,138) 2,776 $ 3,138 -
- -------------------------------------------------------------------------------------------------
- (5,138) 2,776 3,138 -
- -------------------------------------------------------------------------------------------------
$1,350,680 $517,995 $39,532 $3,506,745 $2,034,756
=================================================================================================
</TABLE>
See accompanying notes.
3
<PAGE> 8
Drug Emporium, Inc. Employees 401(k) Plan
Statements of Changes in Net Assets Available for Plan Benefits
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------
RETIREMENT
CASH MANAGEMENT PRESERVATION INCOME AND
FUND TRUST GROWTH FUND
------------------------------------------------
<S> <C> <C> <C>
ADDITIONS
Employee contributions $106,796 $705,164 $328,679
Interest and dividends 2,699 33,386 26,623
Net realized and unrealized appreciation
(depreciation) in fair value of
investments - - 52,073
------------------------------------------------
109,495 738,550 407,375
DEDUCTIONS
Benefit payments 78,588 63,039 77,857
------------------------------------------------
78,588 63,039 77,857
------------------------------------------------
Transfers from (to) other funds 16,482 (202,846) 4,470
Net assets available for plan benefits
at beginning of year 50,865 255,645 437,986
------------------------------------------------
Net assets available for plan benefits
at end of year $ 98,254 $728,310 $771,974
================================================
</TABLE>
4
<PAGE> 9
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
YEAR
DRUG EMPORIUM, ENDED
GROWTH INC. LOAN DECEMBER 31,
OPPORTUNITIES FUND COMMON STOCK FUND TOTAL 1994
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 517,202 $ - $ - $1,657,841 $1,179,435
33,724 96,432 45,971
204,438 (189,935) - 66,576 55,515
------------------------------------------------------------------------------------
755,364 (189,935) - 1,820,849 1,280,921
124,652 2,126 2,598 348,860 157,218
------------------------------------------------------------------------------------
124,652 2,126 2,598 348,860 157,218
------------------------------------------------------------------------------------
203,995 (34,204) 12,103 - -
515,973 744,260 30,027 2,034,756 911,053
------------------------------------------------------------------------------------
$1,350,680 $ 517,995 $39,532 $3,506,745 $2,034,756
====================================================================================
</TABLE>
See accompanying notes.
5
<PAGE> 10
1. DESCRIPTION OF THE PLAN
The following description of the Drug Emporium, Inc. Employees 401(k) Plan
(Plan) provides only general information. Participants should refer to the
Plan agreement for a more complete description of the Plan's provisions.
GENERAL
The Plan is a defined contribution plan covering all employees of the Company
who have at least one year of service, are age twenty-one or older and have
worked 1,000 hours or more. The Plan is subject to the provisions of the
Employee Retirement Income Security Act of 1974 (ERISA).
CONTRIBUTIONS
Participants may contribute up to 15% of annual compensation limited to the
maximum permitted by the Internal Revenue Code. The Company may make
discretionary contributions, as approved by the Company's Board of Directors.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's contributions,
allocations of the Company's discretionary contributions and Plan earnings.
Forfeited balances of terminated participants' nonvested accounts are used to
reduce future company contributions.
VESTING
Participants are immediately vested in their contributions plus actual earnings
thereon. Vesting in the Company contribution portion of their accounts plus
actual earnings thereon is based on years of vesting service. A participant is
100 percent vested after seven years of vesting service.
6
<PAGE> 11
Drug Emporium, Inc. Employees 401(k) Plan
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
INVESTMENT OPTIONS
Beginning in 1994, upon enrollment in the Plan, a participant may direct
contributions in 10% increments in any of four investment options.
o Retirement Preservation Trust - Funds are invested in units of a registered
investment company that invests in Guaranteed Investment Contracts, U.S.
Government and U.S. Government agency securities.
o Income and Growth Fund - Funds are invested in shares of a registered
investment company that invests in U.S. Government bonds, corporate bonds
and a diversified selection of common stocks.
o Growth Opportunities Fund - Funds are invested in shares of a registered
investment company that invests in growth, cyclical and value stocks, and
securities convertible to common stocks.
o Drug Emporium, Inc. Common Stock - Funds are invested in shares of Drug
Emporium, Inc., Common Stock through an investment company.
Participants may change their investment options quarterly.
PARTICIPANT LOANS RECEIVABLE
The plan was amended in 1994 to allow for participant loans. Participants may
borrow from their accounts a minimum of $1,000 up to a maximum of $50,000 or
50% of their account balance. Loan transactions are treated as transfers
between the investment funds and the loan fund. Principal and interest is paid
ratably, through bi-weekly (payroll) deductions.
7
<PAGE> 12
Drug Emporium, Inc. Employees 401(k) Plan
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
DISTRIBUTION OF BENEFITS
Participants, or their beneficiaries, are entitled to receive 100% of their
vested portion of Company contributions and related earnings thereon upon
termination, normal retirement (age 65), early retirement (age 59 1/2), death,
or total and permanent disability.
PLAN TERMINATION
The Company has the right to discontinue and terminate the Plan. In the event
of a termination or partial termination of the Plan, the right of each
participant to benefits accrued to the date of such termination or partial
termination shall be nonforfeitable.
2. SUMMARY OF ACCOUNTING POLICIES
BASIS OF ACCOUNTING AND PRESENTATION
The financial statements of the Plan have been prepared in conformity with
generally accepted accounting principles, which requires the use of
management's estimates, as applied to defined contribution employee benefit
plans.
The accounting records of the Plan are maintained on an accrual basis. The
Plan includes participants who are employees of Drug Emporium, Inc. and its
subsidiaries (the Company).
ADMINISTRATIVE EXPENSES
Administrative expenses of the Plan are paid by the Company.
8
<PAGE> 13
Drug Emporium, Inc. Employees 401(k) Plan
Notes to Financial Statements (continued)
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
INVESTMENT VALUATION AND INCOME RECOGNITION
The Plan's investments are stated at fair value. The shares of registered
investment companies are valued at quoted market prices which represent the net
asset values of shares held by the Plan at year-end. The participant loans
receivable are valued at cost which approximates fair value.
Purchases and sales of securities are recorded on a trade-date basis. Interest
income is recorded on the accrual basis. Dividends are recorded on the
ex-dividend date.
3. INVESTMENTS
The Plan's investments are held and administered by Merrill Lynch Trust
Company. The fair value of individual investments that represent 5% or more of
the Plan's net assets is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
-------------------------
<S> <C> <C>
Merrill Lynch Retirement Preservation Trust $ 727,961 $249,376
Fidelity Advisor Income and Growth Fund 771,974 425,847
Fidelity Advisor Growth Opportunities Fund 1,350,680 501,240
Drug Emporium, Inc. Common Stock 512,857 744,260
</TABLE>
During the years ended December 31, 1995 and 1994, the Plan's investments
(including investments bought and sold, as well as held during the year)
appreciated (depreciated) in fair value as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------
<S> <C> <C>
Fidelity Advisor Income and Growth Fund $ 52,073 $(20,854)
Fidelity Advisor Growth Opportunities Fund 204,438 (29,862)
Drug Emporium, Inc. Common Stock (189,935) 106,231
-------------------------
Net change in fair value $ 66,576 $ 55,515
=========================
</TABLE>
9
<PAGE> 14
Drug Emporium, Inc. Employees 401(k) Plan
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
At December 31, 1995, the market value of Drug Emporium, Inc. Common Stock was
approximately $4.125 per share.
4. INCOME TAX STATUS
The Internal Revenue Service ruled on January 18, 1995 that the Plan qualifies
under Section 401(a) of the Internal Revenue Code (IRC) and, therefore, the
related trust is not subject to tax under present income tax law.
5. TRANSACTIONS WITH PARTIES-IN-INTEREST
At December 31, 1995 and 1994, the Plan owned 124,329 and 135,320 shares of the
Company's common stock, respectively. The Plan purchased 11,202 and 39,867
shares in 1995 and 1994 for $54,068 and $217,481, respectively. The Plan sold
20,813 and 94,660 shares in 1995 and 1994 for $123,500 and $578,447,
respectively. The market value of the Company's common stock at December 31,
1995 and 1994 was based on quoted market values. There were no cash dividends
received during the years ended December 31, 1995 and 1994 from the Company.
10
<PAGE> 15
Drug Emporium, Inc. Employee 401(k) Plan
Assets Held for Investment
December 31, 1995
<TABLE>
<CAPTION>
IDENTITY OF ISSUE, BORROWER, DESCRIPTION OF
LESSOR OR SIMILAR PARTY INVESTMENT COST CURRENT VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash $ 45,228 $ 45,228
CMA Money Fund 58,501 shares 58,501 58,501
Merrill Lynch Retirement Preservation Fund
727,961 shares 727,961 727,961
Fidelity Advisor Income and Growth Fund
49,139 shares 740,130 771,974
Fidelity Advisor Growth Opportunities Fund
42,689 shares 1,175,792 1,350,680
Drug Emporium, Inc. Common Stock 124,329 shares 731,950 512,857
---------------------------
$3,479,562 $3,467,201
===========================
</TABLE>
11
<PAGE> 16
Drug Emporium, Inc. Employees 401(k) Plan
Transactions or Series of Transactions in Excess of 5%
of the Current Value of Plan Assets
Year ended December 31, 1995
<TABLE>
<CAPTION>
DESCRIPTION PURCHASE SELLING
IDENTITY OF PARTY INVOLVED OF ASSET PRICE PRICE
--------------------------------------------------------------------------------------------------------
Category (i) - Individual transactions in a securities issue aggregating in excess of 5% of plan assets.
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Merrill Lynch ML RP Trust, 500,000 shares $500,000 $ -
Merrill Lynch CMA Money Fund, 525,519 shares 525,519 -
Merrill Lynch CMA Money Fund, 190,723 shares - 190,723
Merrill Lynch CMA Money Fund, 235,983 shares - 235,983
Merrill Lynch ML RP Trust, 235,983 shares - 235,983
Merrill Lynch CMA Money Fund, 500,000 shares - 500,000
Category (iii) - Series of transactions in a securities issue aggregating in excess of 5% of plan assets.
---------------------------------------------------------------------------------------------------------
Drug Emporium, Inc. 15 sales, 20,813 shares - 91,062
6 purchases, 11,202 shares 54,068 -
Fidelity Advisor Growth 19 sales, 1,059 shares - 28,651
Opportunities Fund 19 purchases 23,207 shares 673,690 -
</TABLE>
12
<PAGE> 17
<TABLE>
<CAPTION>
CURRENT VALUE
OF ASSET ON
COST OF TRANSACTION NET
ASSET DATE GAIN (LOSS)
<S> <C> <C>
$500,000 $500,000 $ -
525,519 525,519 -
190,723 190,723 -
235,983 235,983 -
235,983 235,983 -
500,000 500,000 -
123,500 123,500 (32,438)
54,068 54,068 -
27,435 27,435 1,216
673,690 673,690 -
</TABLE>
13
<PAGE> 18
Transactions or Series of Transactions in Excess of 5%
of the Current Value of Plan Assets (continued)
<TABLE>
<CAPTION>
DESCRIPTION PURCHASE SELLING
IDENTITY OF PARTY INVOLVED OF ASSET PRICE PRICE
--------------------------------------------------------------------------------------------------------
Category (iii) - Series of transactions in a securities issue aggregating in excess of 5% of plan assets
--------------------------------------------------------------------------------------------------------
(continued)
<S> <C> <C> <C>
Fidelity Advisor Income & 20 sales, 3,340 shares - 50,636
Growth Fund 15 purchases, 22,824 shares 344,690 -
ML RP Trust 18 sales, 253,294 shares - 253,294
264 purchases, 731,879 shares 731,879 -
CMA Money Fund 52 sales, 1,814,806 shares - 1,814,806
84 purchases, 1,827,567 shares 1,827,567 -
</TABLE>
There were no Category (ii) or (iv) transactions or series of transactions in
excess of 5% of plan assets which occurred during 1994.
14
<PAGE> 19
<TABLE>
<CAPTION>
CURRENT VALUE
OF ASSET ON
COST OF TRANSACTION NET
ASSET DATE GAIN (LOSS)
-------------------------------------------------
<S> <C> <C>
49,952 49,952 684
344,690 344,690 -
253,294 253,294 -
731,879 731,879 -
1,814,806 1,814,806 -
1,827,567 1,827,567 -
</TABLE>
15
<PAGE> 20
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the
Registration Statement (Form S-8 No. 33-25768) pertaining to the Drug Emporium,
Inc. Employees 401(k) Plan of our report dated June 20, 1996, with respect to
the financial statements and schedules of Drug Emporium, Inc. Employees 401(k)
Plan included in this Annual Report (Form 11-K) for the year ended December 31,
1995.
ERNST & YOUNG LLP
Columbus, Ohio
June 28, 1996
