UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Twelve Weeks Ended April 26, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-4844
ECKERD CORPORATION
(Exact name of registrant as specified in charter)
DELAWARE 51-0378122
(State of incorporation) (I.R.S. Employer Identification No.)
8333 Bryan Dairy Road
Largo, Florida 33777
(Address and zip code of principal executive offices)
(813) 399-6000
(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
_____
As of May 31, 1997 the registrant had 100 shares of common stock
outstanding.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q
WITH THE REDUCED DISCLOSURE FORMAT PROVIDED FOR IN GENERAL INSTRUCTION
H TO FORM 10-Q.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ECKERD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
ASSETS Unaudited Audited
Current assets: 4/26/97 2/1/97
---------- ----------
<S> <C> <C>
Cash (including short-term investments of $47,746 and $57,000) $ 55,686 71,874
Receivables 78,209 102,393
Merchandise inventories 1,011,961 973,265
Prepaid expenses and other current assets 7,393 3,909
---------- ----------
Total current assets 1,153,249 1,151,441
--------- ----------
Property and equipment, at cost 804,522 775,690
Less accumulated depreciation 343,919 329,490
---------- ----------
Net property and equipment 460,603 446,200
---------- ----------
Excess of cost over net assets acquired, less
accumulated amortization 84,783 85,656
Favorable lease interests, less accumulated amortization 102,458 108,125
Unamortized debt expenses 3,418 3,553
Other assets 126,175 96,977
--------- ----------
$1,930,686 1,891,952
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Bank debit balances $ 70,519 54,252
Current installments of long-term debt 782 768
Accounts payable 383,994 404,945
Accrued expenses 314,052 323,717
--------- ----------
Total current liabilities 769,347 783,682
--------- ----------
Other noncurrent liabilities 161,857 168,240
Long-term debt, excluding current installments 791,150 779,951
Stockholders' equity:
Voting common stock of $.01 par value.
Authorized 1,000 shares; issued 100 - -
Capital in excess of par value 321,254 321,254
Retained deficit (112,922) (161,175)
--------- ----------
Total stockholders' equity 208,332 160,079
--------- ----------
$1,930,686 1,891,952
========= ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<TABLE>
<CAPTION>
ECKERD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(IN THOUSANDS)
Twelve Weeks Thirteen Weeks
Ended 4/26/97 Ended 5/4/96
------------- --------------
<S> <C> <C>
Sales and other operating revenue $1,381,638 1,354,619
--------- ---------
Costs and expenses:
Cost of sales, including store
occupancy, warehousing and
delivery expense 1,070,108 1,051,423
Operating and administrative expenses 230,099 237,533
--------- ---------
Earnings before interest expense 81,431 65,663
Interest expense:
Interest expense, net 11,776 14,886
Amortization of original issue discount
and deferred debt expenses 135 253
--------- ---------
Total interest expense 11,911 15,139
--------- ---------
Earnings before income taxes 69,520 50,524
Income tax expense 21,267 11,114
--------- ---------
Net earnings $ 48,253 39,410
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<TABLE>
<CAPTION>
ECKERD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Twelve Weeks Thirteen Weeks
Ended 4/26/97 Ended 5/4/96
------------- ------------
<S> <C> <C>
Cash Flows from operating activities:
Net earnings $ 48,253 39,410
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 23,143 22,362
Amortization of original issue discount
and deferred debt expenses 135 253
Increase in receivables, merchandise
inventories and prepaid expenses (27,127) (39,718)
Decrease in accounts payable and
accrued expenses (35,028) (2,052)
Management fee receivable from affiliate (18,000) -
-------- --------
Net cash provided by (used in) operating activities (8,624) 20,255
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (32,890) (25,804)
Sale of property, plant and equipment 1,171 242
Acquisition of certain drug store assets (894) (860)
Other (2,433) (2,529)
-------- --------
Net cash used in investing activities (35,046) (28,951)
-------- --------
Cash flows from financing activities:
Increase (decrease) in bank debit balances 16,267 (26,712)
Additions to long-term debt 22 -
Reductions of long-term debt (32,579) (472)
Net additions under intercompany note to J. C. Penney Company, Inc. 45,098 -
Net additions under credit agreements - 36,000
Redemption of 9.25% Senior Subordinated Notes (1,327) -
Other 1 664
-------- --------
Net cash provided by financing activities 27,482 9,480
-------- --------
Net increase (decrease) in cash and short-term investments (16,188) 784
Cash and short-term investments at beginning of period 71,874 7,922
-------- --------
Cash and short-term investments at end of period $ 55,686 8,706
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
ECKERD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
Note 1.
On November 2, 1996, Eckerd Corporation ("Old Eckerd") entered into a
definitive agreement to be acquired by Omega Acquisition Corporation
("Omega"), a wholly-owned subsidiary of J. C. Penney Company, Inc.
("JCPenney"). The aggregate transaction value, including the assumption
of Old Eckerd debt and the cash out of certain outstanding Old Eckerd
employee stock options, was approximately $3.3 billion. The transaction
was effected through a two-step process consisting of (i) a cash tender
offer at $35.00 per share for 50.1% of the outstanding common stock of
Old Eckerd, which was completed in December 1996, and (ii) the February
27, 1997 exchange in which Old Eckerd stockholders received 0.6604 of a
share of JCPenney common stock for each share of Old Eckerd common
stock. After completing the acquisition of Old Eckerd on February 27,
1997, Omega changed its name to Eckerd Corporation (the "Company").
Note 2.
The condensed consolidated financial statements include the accounts of
the Company and its subsidiaries, and were prepared from the books and
records of the Company without audit or verification and in the opinion
of management include all adjustments (none of which were other than
normal recurring accruals) necessary to present a fair statement of
results for such periods. A management fee and certain business
integration expenses totaling $18,000 has been charged to affiliates.
The condensed consolidated financial statements should be read in
conjunction with the financial statements and notes filed as part of
the Company's Annual Report on Form 10-K405 for the fiscal year ended
February 1, 1997. The results of operations of the periods indicated
should not be considered as necessarily indicative of operations for
the full year. Prior to the acquisition, Old Eckerd's fiscal year ended
the Saturday closest to January 31st each year. In order to make its
fiscal year end conform to that of JCPenney, the Company changed its
fiscal year end to the last Saturday in January of each year.
Accordingly, to conform to the JCPenney fiscal calendar, the first
quarter of fiscal year 1997 consisted of the twelve week period ended
April 26, 1997.
Certain amounts in the February 1, 1997 condensed consolidated balance
sheet have been reclassified to conform to the April 26, 1997
presentation.
Note 3.
Substantially all inventories are determined on a last-in, first-out
(LIFO) cost basis. At April 26, 1997 and February 1, 1997, inventories
would have been greater by approximately $115,100 and $109,900,
respectively, if inventories were valued on a first-in, first-out
(FIFO) cost basis. Since LIFO inventory costs can only be determined at
the end of each fiscal year when inflation rates and inventory levels
are finalized, estimates of LIFO inventory costs are used for interim
financial statements. The cost of merchandise sold is calculated on an
estimated basis and adjusted based on inventories taken during the
fiscal year.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In Thousands)
Thirteen Weeks
--------------
Ended 4/26/97 Ended 5/4/96
----------- ------------
Sales and other operating revenue $1,489,304 1,354,619
Costs of sales 1,154,349 1,051,423
Operating and administrative expenses 248,446 237,533
--------- ---------
Operating earnings 86,509 65,663
Total interest expense 12,919 15,139
--------- ---------
Earnings before income taxes 73,590 50,524
Income tax expense 22,073 11,114
--------- ---------
Net earnings $ 51,517 39,410
========= =========
For comparative purposes only, the above Condensed Consolidated Statements of
Operations and the following analysis of results of operations for the first
quarter compares the thirteen weeks ended April 26, 1997 to the thirteen weeks
ended May 4, 1996. As noted previously, as a result of the change by the Company
of its fiscal year, Item 1 Financial Information is presented for the twelve
weeks ended April 26, 1997.
Sales and other operating revenue for the first quarter of 1997 increased 9.9%
over the 1996 first quarter to $1.5 billion. Sales benefited from significant
increases in drugstore prescription sales as well as from increases in
non-prescription (front end) sales. Drugstore prescription sales increased 13.4%
to $852 million and front end sales increased 5.6% to $635 million. Comparable
drugstore sales (stores open one year or more) increased 8.0% compared to a 9.6%
increase in 1996. The increase in comparable drugstore sales was primarily
attributable to the increase in sales of prescription drugs as well as increased
sales of non-prescription items in the health and convenience categories.
Prescription sales as a percentage of drugstore sales were 57.3% for the quarter
compared to 55.6% for the comparable 1996 period. The growth in prescription
sales was primarily the result of increased managed care prescription sales.
Managed care prescription sales increased to 78.3% of prescription sales
compared to 73.9% in 1996. Prescription sales to managed care payors, in terms
of both dollar volume and as a percentage of total prescription sales, are
expected to continue to increase in the current year and for the foreseeable
future. Managed care payors typically negotiate lower prescription prices than
those on non-managed care prescriptions, resulting in decreasing gross profit
margins on prescription sales. However, contracts with managed care payors
generally increase the volume of prescription sales and gross profit dollars.
As a percentage of sales, cost of sales and related expenses were 77.5% for the
quarter compared to 77.6% for 1996's comparable quarter. The decrease in cost of
sales and related expenses is attributable to a slowing in the decline in
prescription gross profit margins as well as improvement in front end gross
profit margins. The LIFO charge was $5.2 million compared to $4.2 million for
1996's first quarter.
Operating and administrative expenses, net of $19.5 million of management fees
and business integration costs charged to affiliates, for the first quarter
increased 4.6% over 1996 to $248.4 million and decreased as a percentage of
sales to 16.7% from 17.5% in 1996. The decrease as a percentage of sales
resulted primarily from operating efficiencies, higher sales, and cost controls
which helped produce lower costs as a percentage of sales in such expense
categories as payroll and insurance, net of increased business integration
expenses.
Total interest expense for the first quarter decreased 14.7% from 1996 to $12.9
million. The decrease was due to lower average borrowings and lower interest
rates on borrowings compared to bank loan interest rate spreads in 1996.
Earnings before income taxes for the quarter increased 45.7% to $73.6 million.
The increase was due primarily to the increase in gross profit dollars as a
result of higher sales and other operating revenue, and the decrease in
operating and administrative expenses as a percentage of sales due to operating
efficiencies and expense control.
Income tax expense for the first quarter was $22.1 million (30%) compared to
$11.1 million (22%) in 1996. Income tax expense in both periods represents
federal and state income taxes. In addition, the income tax rate was lower in
1996 when compared to 1997 due to the use of net operating loss carryforwards,
which were fully utilized during fiscal year 1996.
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Company's independent public accountants have made a limited review of the
financial information furnished herein in accordance with standards established
by the American Institute of Certified Public Accountants. The Accountants'
Report is presented on page 8 of this report.
Accountants' Report
The Board of Directors
Eckerd Corporation:
We have reviewed the condensed consolidated balance sheet of Eckerd Corporation
and subsidiaries as of April 26, 1997, and the related condensed consolidated
statements of earnings and cash flows for the twelve weeks ended April 26, 1997
and thirteen weeks ended May 4, 1996. These condensed consolidated financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data, and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of February 1, 1997, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows, for the year then ended (not presented herein); and in our report dated
April 15, 1997, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of February 1, 1997 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ KPMG PEAT MARWICK LLP
June 6, 1997
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
15.1 Letter re unaudited interim financial information.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
twelve weeks ended April 26, 1997.
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.
ECKERD CORPORATION
(Registrant)
June 10, 1997 /s/ Samuel G. Wright
----------------------
Samuel G. Wright
Executive Vice President/
Chief Financial Officer
(Principal Accounting Officer)
Exhibit Index
Eckerd Corporation
Form 10-Q
Exhibit No. Description of Exhibit
15.1 Letter re unaudited interim financial information
27 Financial Data Schedule
EXHIBIT 15.1
The Board of Directors
Eckerd Corporation and Subsidiaries:
RE: Registration Statement on Form S-3 (No. 33-50223)
With respect to the above referenced registration statement, we
acknowledge our awareness of the incorporation by reference therein of
our report dated June 6, 1997 related to our review of interim
financial information, which report was included in the Form 10-Q of
Eckerd Corporation and Subsidiaries for the twelve weeks ended April
26, 1997.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report
is not considered a part of a registration statement prepared or
certified by an accountant or a report prepared or certified by an
accountant within the meaning of Sections 7 and 11 of the Act.
/s/ KPMG PEAT MARWICK LLP
Tampa, Florida
June 6, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000031364
<NAME> Eckerd Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Jan-31-1998
<PERIOD-START> Feb-02-1997
<PERIOD-END> Apr-26-1997
<CASH> 55,686
<SECURITIES> 0
<RECEIVABLES> 81,209
<ALLOWANCES> 3,000
<INVENTORY> 1,011,961
<CURRENT-ASSETS> 1,153,249
<PP&E> 804,522
<DEPRECIATION> 343,919
<TOTAL-ASSETS> 1,930,686
<CURRENT-LIABILITIES> 769,347
<BONDS> 791,150
<COMMON> 0
0
0
<OTHER-SE> 208,332
<TOTAL-LIABILITY-AND-EQUITY> 1,930,686
<SALES> 1,381,638
<TOTAL-REVENUES> 1,381,638
<CGS> 1,070,108
<TOTAL-COSTS> 1,070,108
<OTHER-EXPENSES> 229,285
<LOSS-PROVISION> 814
<INTEREST-EXPENSE> 11,911
<INCOME-PRETAX> 69,520
<INCOME-TAX> 21,267
<INCOME-CONTINUING> 48,253
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,253
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
