<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, 1996
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
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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
Statements of Net Assets Available
for Plan Benefits
Statements of Changes in Net Assets
Available for Plan Benefits
Notes to Financial Statements
Schedules:
Assets Held for Investment Purposes
Reportable Transactions
b) Exhibits
(23.1) Independent Auditors' Consent
Ernst & Young LLP
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 30, 1997 /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, 1996 and 1995
with Report of Independent Auditors
<PAGE> 4
Drug Emporium, Inc. Employees 401(k) Plan
Audited Financial Statements
and Schedules
Years ended December 31, 1996 and 1995
Contents
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
Supplemental Schedules
Schedule of Assets Held for Investment Purposes.....................11
Schedule of Reportable Transactions.................................12
<PAGE> 5
Report of Independent Auditors
Administrative Committee 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, 1996 and 1995, 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, 1996 and 1995, 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 purposes as of December 31, 1996 and reportable transactions
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 Fund Information in the statement of net assets
available for benefits and the statement of changes in net assets available for
benefits is presented for purposes of additional analysis rather than to present
the net assets available for benefits and changes in net assets available for
benefits of each fund. The supplemental schedules and Fund Information have been
subjected to the auditing procedures applied in our audits of the financial
statements and, in our opinion, are fairly stated in all material respects in
relation to the financial statements taken as a whole.
June 3, 1997 /s/ Ernst & Young LLP
Columbus, Ohio
1
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<TABLE>
Drug Emporium, Inc. Employees 401(k) Plan
Statements of Net Assets Available for Plan Benefits
<CAPTION>
December 31, 1996
-----------------------------------------------------------------------------------------
Drug
Emporium
Cash Retirement Income and Growth Inc.
Management Preservation Growth Opportunities Common Loan
Fund Trust Fund Fund Stock Fund Total
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments - at fair value
(Notes 1, 2 and 3) $ 13,224 $918,674 $1,464,160 $2,924,279 $536,248 $ - $5,856,585
Participants loans receivable - - - - - 109,075 109,075
Receivables:
Contributions from participants 7,504 19,322 31,213 68,448 - - 126,487
Accrued investment income - 160 - - - - 160
Other 911 381 578 1,412 17,342 - 20,624
-----------------------------------------------------------------------------------------
Total assets 21,639 938,537 1,495,951 2,994,139 553,590 109,075 6,112,931
LIABILITIES
Other 18,417 937 - 9,485 - 3,730 32,569
-----------------------------------------------------------------------------------------
Total liabilities 18,417 937 - 9,485 - 3,730 32,569
-----------------------------------------------------------------------------------------
Net assets available for plan benefits $ 3,222 $937,600 $1,495,951 $2,984,654 $553,590 $105,345 $6,080,362
=========================================================================================
See accompanying notes.
</TABLE>
2
<PAGE> 7
<TABLE>
Drug Emporium, Inc. Employees 401(k) Plan
Statements of Net Assets Available for Plan Benefits
<CAPTION>
December 31, 1995
-----------------------------------------------------------------------------------------
Drug
Emporium
Cash Retirement Income and Growth Inc.
Management Preservation Growth Opportunities Common Loan
Fund Trust Fund Fund Stock Fund Total
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments - at fair value
(Notes 1, 2 and 3) $103,729 $727,961 $771,974 $1,350,680 $512,857 $ - $3,467,201
Participants loans receivable - - - - - 42,308 42,308
Receivables:
Contributions from participants - - - - - - -
Accrued investment income - - - - - - -
Other 25 349 - - - - 374
------------------------------------------------------------------------------------------
Total assets 103,754 728,310 771,974 1,350,680 512,857 42,308 3,509,883
LIABILITIES
Other 5,500 - - - (5,138) 2,776 3,138
------------------------------------------------------------------------------------------
Total liabilities 5,500 - - - (5,138) 2,776 3,138
------------------------------------------------------------------------------------------
Net assets available for plan benefits $ 98,254 $728,310 $771,974 $1,350,680 $517,995 $39,532 $3,506,745
==========================================================================================
See accompanying notes.
</TABLE>
3
<PAGE> 8
<TABLE>
Drug Emporium, Inc. Employees 401(k) Plan
Statements of Changes in Net Assets Available for Plan Benefits
<CAPTION>
Year ended December 31, 1996
------------------------------------------------------------------------------------------
Drug
Emporium
Cash Retirement Income and Growth Inc.
Management Preservation Growth Opportunities Common Loan
Fund Trust Fund Fund Stock Fund Total
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ADDITIONS
Employee contributions $117,786 $479,177 $689,515 $1,203,115 $ - $ - $2,489,593
Interest and dividends 5,441 46,881 50,083 181,145 - - 283,550
Net realized and unrealized
appreciation in fair value
of investments - - 57,069 204,659 13,295 - 275,023
------------------------------------------------------------------------------------------
123,227 526,058 796,667 1,588,919 13,295 - 3,048,166
DEDUCTIONS
Benefit payments 71,268 66,293 88,492 245,620 1,120 1,756 474,549
------------------------------------------------------------------------------------------
71,268 66,293 88,492 245,620 1,120 1,756 474,549
------------------------------------------------------------------------------------------
Transfers from (to) other funds (146,991) (250,475) 15,802 290,675 23,420 67,569 -
Net assets available for plan
benefits at beginning of year 98,254 728,310 771,974 1,350,680 517,995 39,532 3,506,745
------------------------------------------------------------------------------------------
Net assets available for plan
benefits at end of year $ 3,222 $937,600 $1,495,951 $2,984,654 $553,590 $105,345 $6,080,362
==========================================================================================
See accompanying notes.
</TABLE>
4
<PAGE> 9
<TABLE>
Drug Emporium, Inc. Employees 401(k) Plan
Statements of Changes in Net Assets Available for Plan Benefits
<CAPTION>
Year ended December 31, 1995
----------------------------------------------------------------------------------------
Drug
Emporium
Cash Retirement Income and Growth Inc.
Management Preservation Growth Opportunities Common Loan
Fund Trust Fund Fund Stock Fund Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ADDITIONS
Employee contributions $106,796 $705,164 $328,679 $ 517,202 $ - $ - $1,657,841
Interest and dividends 2,699 33,386 26,623 33,724 - - 96,432
Net realized and unrealized
appreciation in fair value
of investments - - 52,073 204,438 (189,935) - 66,576
----------------------------------------------------------------------------------------
109,495 738,550 407,375 755,364 (189,935) - 1,820,849
DEDUCTIONS
Benefit payments 78,588 63,039 77,857 124,652 2,126 2,598 348,860
----------------------------------------------------------------------------------------
78,588 63,039 77,857 124,652 2,126 2,598 348,860
----------------------------------------------------------------------------------------
Transfers from (to) other funds 16,482 (202,846) 4,470 203,995 (34,204) 12,103 -
Net assets available for plan
benefits at beginning of year 50,865 255,645 437,986 515,973 744,260 30,027 2,034,756
----------------------------------------------------------------------------------------
Net assets available for plan
benefits at end of year $ 98,254 $728,310 $771,974 $1,350,680 $517,995 $39,532 $3,506,745
========================================================================================
See accompanying notes.
</TABLE>
5
<PAGE> 10
Drug Emporium, Inc. Employees 401(k) Plan
Notes to Financial Statements
December 31, 1996
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 Drug Emporium,
Inc. and its subsidiaries (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
Upon enrollment in the Plan, a participant may direct contributions in 10%
increments in any of four investment options.
- - 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.
- - 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.
- - 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.
- - 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
Participants may borrow from their accounts a minimum of $1,000 up to the lessor
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.
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
1996 1995
-------------------------
<S> <C> <C>
Merrill Lynch Retirement Preservation Trust $ 918,674 $ 727,961
Fidelity Advisor Income and Growth Fund 1,464,160 771,974
Fidelity Advisor Growth Opportunities Fund 2,924,279 1,350,680
Drug Emporium, Inc. Common Stock 536,248 512,857
</TABLE>
During the years ended December 31, 1996 and 1995, 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>
1996 1995
---------------------------
<S> <C> <C>
Fidelity Advisor Income and Growth Fund $ 57,069 $ 52,073
Fidelity Advisor Growth Opportunities Fund 204,659 204,438
Drug Emporium, Inc. Common Stock 13,295 (189,935)
--------------------------
Net change in fair value $275,023 $ 66,576
==========================
</TABLE>
9
<PAGE> 14
Drug Emporium, Inc. Employees 401(k) Plan
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
At December 31, 1996, the market value of Drug Emporium, Inc. Common Stock was
approximately $4.25 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. Once
qualified, the Plan is required to operate in conformity with the IRC to
maintain its qualification. The Company is not aware of any course of action or
series of events that have occurred that might adversely affect the Plan's
qualified status.
5. TRANSACTIONS WITH PARTIES-IN-INTEREST
At December 31, 1996 and 1995, the Plan owned 126,176 and 124,329 shares of the
Company's common stock, respectively. The Plan purchased 18,573 and 11,202
shares in 1996 and 1995 for $79,364 and $54,068, respectively. The Plan sold
16,726 and 20,813 shares in 1996 and 1995 for $66,672 and $123,500,
respectively. The market value of the Company's common stock at December 31,
1996 and 1995 was based on quoted market values. There were no cash dividends
received during the years ended December 31, 1996 and 1995 from the Company.
6. SUBSEQUENT EVENT
Subsequent to December 31, 1996, the Plan's assets were transferred from Merrill
Lynch Trust Company to Scudder, Stevens & Clark, Inc.
10
<PAGE> 15
<TABLE>
Drug Emporium, Inc. Employee 401(k) Plan
Schedule of Assets Held for Investment Purposes
December 31, 1996
<CAPTION>
IDENTITY OF ISSUE, BORROWER, DESCRIPTION OF CURRENT
LESSOR OR SIMILAR PARTY INVESTMENT COST VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CMA Money Fund 13,830 shares $ 13,224 $ 13,224
Merrill Lynch Retirement Preservation Trust 918,466 shares 918,674 918,674
Fidelity Advisor Income and Growth Fund 89,378 shares 1,377,116 1,464,160
Fidelity Advisor Growth Opportunities Fund 82,833 shares 2,553,153 2,924,279
Drug Emporium, Inc. Common Stock 126,176 shares 708,150 536,248
-------------------------
$5,570,317 $5,856,585
=========================
</TABLE>
11
<PAGE> 16
<TABLE>
Drug Emporium, Inc. Employees 401(k) Plan
Schedule of Reportable Transactions
Year ended December 31, 1996
<CAPTION>
CURRENT
VALUE
OF ASSET ON NET
IDENTITY OF PARTY DESCRIPTION PURCHASE SELLING COST OF TRANSACTION GAIN
INVOLVED OF ASSET PRICE PRICE ASSET DATE (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CATEGORY (i) - INDIVIDUAL TRANSACTIONS IN A SECURITIES ISSUE
AGGREGATING IN EXCESS OF 5% OF PLAN ASSETS.
Merrill Lynch CMA Money Fund, 290,258 shares $ 290,258 $ 290,258 $ 290,258 $ -
Merrill Lynch ML RP Trust, 234,357 shares 234,357 234,357 234,357 -
Merrill Lynch CMA Money Fund, 244,611 shares 244,611 244,611 244,611 -
Merrill Lynch CMA Money Fund, 180,829 shares 180,829 180,829 180,829 -
Merrill Lynch CMA Money Fund, 324,025 shares 324,025 324,025 324,025 -
CATEGORY (iii) - SERIES OF TRANSACTIONS IN A SECURITIES ISSUE
AGGREGATING IN EXCESS OF 5% OF PLAN ASSETS.
Drug Emporium, Inc. 9 sales, 16,726 shares 66,672 95,665 95,665 (28,993)
13 purchases, 18,573 shares 79,364 79,364 79,364 -
Fidelity Advisor Growth 35 sales, 5,523 shares 200,042 165,370 200,042 34,672
Opportunities Fund 41 purchases, 45,667 shares 1,542,731 1,542,731 1,542,731 -
Fidelity Advisor Income & 32 sales, 10,682 shares 168,120 162,446 168,120 5,674
Growth Fund 35 purchases, 50,921 shares 799,432 799,432 799,432 -
ML RP Trust 29 sales, 328,145 shares 328,145 328,145 328,145 -
282 purchases, 518,650 shares 518,650 518,650 518,650 -
CMA Money Fund 125 sales, 3,305,379 shares 3,305,379 3,305,379 3,305,379 -
137 purchases, 3,260,708 shares 3,260,708 3,260,708 3,260,708 -
THERE WERE NO CATEGORY (ii) OR (iv) REPORTABLE TRANSACTIONS.
</TABLE>
12
<PAGE> 1
Exhibit 23.1
------------
Consent of 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 3, 1997, 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, 1996.
/s/ ERNST & YOUNG LLP
Columbus, Ohio
June 26, 1997
