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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, 1999
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
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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
Report of Independent Auditors
Statements of Net Assets Available
for Benefits
Statement of Changes in Net Assets
Available for Benefits
Notes to Financial Statements
Supplemental Schedule:
Assets Held for Investment Purposes
b) Exhibits
(23.1) Consent of Independent Auditors
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 26, 2000 /s/ Jane H. Lagusch
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Jane H. Lagusch, Vice President
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Audited Financial Statements
and Schedule
Drug Emporium, Inc. Employees
401(k) Plan
December 31, 1999 and 1998 and for
The Year ended December 31, 1999
with Report of Independent Auditors
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Drug Emporium, Inc. Employees 401(k) Plan
Audited Financial Statements
and Schedule
December 31, 1999 and 1998 and for
the Year ended December 31, 1999
CONTENTS
Report of Independent Auditors .............................................1
Audited Financial Statements
Statements of Net Assets Available for Benefits ............................2
Statement of Changes in Net Assets Available for Benefits ..................3
Notes to Financial Statements ..............................................4
Supplemental Schedule
Schedule of Assets Held for Investment Purposes.............................9
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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 benefits
of the Drug Emporium, Inc. Employees 401(k) Plan (the Plan) as of December 31,
1999 and 1998, and the related statement of changes in net assets available for
benefits for the year ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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 benefits of the Plan at
December 31, 1999 and 1998, and the changes in its net assets available for
benefits for the year ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of assets
held for investment purposes as of December 31, 1999 is presented for purposes
of additional analysis and is not a required part of the financial statements
but is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of Plan's
management. The supplemental schedule has been subjected to the auditing
procedures applied in our audits of the financial statements and, in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ Ernst & Young LLP
June 21, 2000
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Drug Emporium, Inc.
Employees 401(k) Plan
Statements of Net Assets Available for Benefits
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
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<S> <C> <C>
Investments, at fair value:
Scudder Cash Investment Trust $ 2,971 $ 43,518
Scudder Stable Value Fund 2,349,097 1,490,318
Scudder Income Fund 297,332 169,469
Scudder Pathway Series Balanced 2,002,014 2,005,290
Scudder Pathway Series Conservative 158,828 106,636
Scudder Pathway Series Growth 1,035,685 520,525
Stock Index Fund 636,793 --
Scudder Small Co. Value Fund 35,556 --
Scudder Growth and Income Fund 5,645,184 5,582,612
Scudder International Fund 953,413 409,851
Scudder Development Fund 1,074,986 571,597
Drug Emporium, Inc. Common Stock 578,673 635,644
Loan Fund 388,646 336,976
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Total investments 15,159,178 11,872,436
Receivables:
Employer's contributions 150,000 121,000
Participants' contributions 92,675 74,523
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242,675 195,523
Net assets available for benefits $15,401,853 $12,067,959
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</TABLE>
See accompanying notes.
2
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Drug Emporium, Inc.
Employees 401(k) Plan
Statements of Changes in Net Assets Available for Benefits
<TABLE>
<CAPTION>
Year ended December 31, 1999
<S> <C>
Additions:
Contributions from participants $ 2,444,067
Contributions from employer 159,210
Rollover contributions 218,359
Investment income:
Net appreciation in fair value of investments 836,662
Interest and dividend income 830,609
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4,488,907
Deductions:
Benefits paid to participants 1,151,834
Administrative expenses 3,179
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1,155,013
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Net increase in net assets 3,333,894
Net assets available for benefits,
beginning of year 12,067,959
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Net assets available for benefits,
end of year $15,401,853
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</TABLE>
See accompanying notes.
3
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Drug Emporium, Inc. Employees 401(k) Plan
Notes to Financial Statements
December 31, 1999
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
Summary Plan Description for a more complete description of the Plan's
provisions.
GENERAL
The Plan is a defined contribution plan covering substantially 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 matching contributions, as approved by the Company's Board of
Directors.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's contributions and
allocations of the Company's discretionary contributions and Plan earnings.
Allocations are based on participant earnings or account balances, as defined.
Forfeited balances of terminated participants' nonvested accounts are used to
reduce future company contributions. The benefit to which a participant is
entitled is the benefit that can be provided from the participant's account.
VESTING
Participants are immediately vested in their contributions plus actual earnings
thereon. Vesting in the Company's discretionary contribution portion of their
accounts plus actual earnings thereon is based on years of vesting service. A
participant is 100 percent vested after four years of credited service.
4
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Drug Emporium, Inc. Employees 401(k) Plan
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
INVESTMENT OPTIONS
The Plan's investments are held by Scudder Trust Company. Upon enrollment, a
participant may direct employee and employer contributions to any of the Plan's
fund options.
Scudder Stable Value Fund -- A collective investment trust which invests
primarily in high-quality instrument, including guaranteed investment contracts,
bank investment contracts, money market instruments, and synthetic contracts.
These synthetic contracts are composed of triple-A-rated securities and
high-quality bond portfolios wrapped by insurance companies or banks rated AA or
higher.
Scudder Income Fund -- A mutual fund that invests primarily in high-grade
corporate bonds and government securities.
Scudder Pathway Series - Conservative -- A mutual fund that invests in a mix of
other Scudder mutual funds. The portfolio is typically invested 40%-80% in bond
funds, 20%-50% in stock funds, and 0%-15% in stable value funds.
Scudder Pathway Series - Balanced -- A mutual fund that invests in a mix of
other Scudder mutual funds. The portfolio is typically invested 40%-70% stock
funds, 25%-60% in bond funds, and 0%-10% in stable value funds.
Scudder Pathway Series - Growth -- A mutual fund that invests in a mix of other
Scudder mutual funds. The portfolio is typically invested 60%-90% in stock
funds, 10%-40% in bond funds, and 0%-5% in stable value funds.
Scudder Stock Index Fund - A collective investment trust that invests in either
S&P 500 stocks or mutual funds that mirror the S&P 500 in their weightings
Scudder Small Company Value Fund - A mutual fund that primarily invests in
undervalued common stocks of small companies.
Scudder Growth and Income Fund --A mutual fund that primarily invests in common
and preferred stocks and convertible securities of established companies.
Scudder International Fund -- A mutual fund that primarily invests in foreign
stocks of established companies.
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Drug Emporium, Inc. Employees 401(k) Plan
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
Scudder Development Fund -- A mutual fund that typically invests in small,
emerging, or developing companies.
Drug Emporium, Inc. Common Stock - Funds are invested in shares of Drug
Emporium, Inc., Common Stock through an investment company.
PARTICIPANT LOANS RECEIVABLE
Participants may borrow from their accounts a minimum of $1,000 up to a maximum
of the lesser of $50,000 or 50% of their vested account balance. Loan
transactions are treated as transfers between the investment funds and the loan
fund. Loan terms range from 1-5 years or up to 15 years for the purchase of a
primary residence. The loans are secured by the balance in the participant's
account and bear interest at the prime rate determined monthly. Principal and
interest is paid ratably, through bi-weekly payroll deductions.
DISTRIBUTION OF BENEFITS
Participants, or their beneficiaries, are entitled to receive 100% of their
vested value of his or her account upon termination, normal retirement (age 65),
early retirement (age 59 1/2), death, or total and permanent disability.
PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue and to terminate the Plan subject to the
provisions of ERISA. 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 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.
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Drug Emporium, Inc. Employees 401(k) Plan
Notes to Financial Statements (continued)
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
ADMINISTRATIVE EXPENSES
Substantially all administrative expenses of the Plan are paid by the Company.
INVESTMENT VALUATION AND INCOME RECOGNITION
The Plan's investments are stated at fair value. The shares of mutual funds are
valued at quoted market prices which represent the net asset values of shares
held by the Plan at year-end. The investment in the collective investment trust
is stated at fair value as determined by the Trustee. The participant loans are
valued at cost which approximates fair value. Purchases and sales of investments
are recorded on a trade-date basis. Interest income is recorded on the accrual
basis. Dividends are recorded on the ex-dividend date.
During 1999, the Plan's investments (including investments bought, sold,
exchanged, as well as held during the year) appreciated in fair value as
follows: common stock, $34,550 and mutual and collective funds, $802,112.
3. INCOME TAX STATUS
The Plan has applied for but has not received a determination letter from the
Internal Revenue Service stating that the Plan is qualified under Section 401(a)
of the Internal Revenue Code. However, the Plan Administrator believes that the
plan is qualified and, therefore, the related trust is exempt from taxation.
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Drug Emporium, Inc. Employees 401(k) Plan
Notes to Financial Statements (continued)
4. TRANSACTIONS WITH PARTIES-IN-INTEREST
At December 31, 1999 and 1998, the Plan owned 130,404 and 124,027 shares of the
Company's common, respectively. The Plan purchased 54,761 and 41,376 shares in
1999 and 1998 for $298,670 and $172,486, respectively. The Plan sold 49,996 and
35,947 shares in 1999 and 1998 for $398,504 and $147,789, respectively. The
market value of the Company's common stock at December 31, 1999 and 1998 was
based on quoted market values. At December 31, 1999, the market value of Drug
Emporium, Inc. Common Stock was approximately $4.44 per share. There were no
cash dividends received during the years ended December 31, 1999 and 1998 from
the Company.
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Drug Emporium, Inc.
Employees 401(k) Plan
EIN 31-1064888 Plan No. 001
Schedule H, 4i - Schedule of Assets Held for Investment Purposes
December 31, 1999
<TABLE>
<CAPTION>
IDENTITY OF ISSUE, BORROWER DESCRIPTION FAIR
LESSOR OR SIMILAR PARTY OF ASSET COST VALUE
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Investment Trust 2,971 Shares 2,971 $ 2,971
Stable Value Fund 2,349,097 Shares 2,349,097 2,349,097
Income Fund 24,292 Shares 320,752 297,332
Pathway Series Balanced 142,695 Shares 1,751,040 2,002,014
Pathway Series Conservative 13,029 Shares 167,506 158,828
Pathway Series Growth 58,913 Shares 851,006 1,035,685
Stock Index Fund 15,528 Shares 556,844 636,793
Growth and Income Fund 211,509 Shares 5,397,151 5,645,184
Small Company Value Fund 2,072 Shares 37,408 35,556
International Fund 13,478 Shares 709,407 953,413
Development Fund 24,487 Shares 971,353 1,074,986
Drug Emporium, Inc. Common Stock 130,404 Shares 462,747 578,673
Participant Loans 7.75% - 8.50% par -- 388,646
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Total investments $ 13,577,282 $ 15,159,178
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</TABLE>
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