<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 8, 1996
-------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-7623
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GENOVESE DRUG STORES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 11-1556812
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
80 Marcus Drive, Melville, New York, 11747
(Address of principal executive offices)
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(Zip Code)
(516) 420-1900
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(Registrant's telephone number, including area code)
NONE
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(Former name, former address and former fiscal year, if changed since last
report)
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 close of the period covered by this report.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT NOVEMBER 8, 1996
- ---------------------------------- -------------------------------
<S> <C>
COMMON STOCK:
Class A, par value $1.00 per share 5,646,621 Class A shares
Class B, par value $1.00 per share 5,514,189 Class B shares
</TABLE>
<PAGE> 2
GENOVESE DRUG STORES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Condensed Balance Sheets - November 8, 1996
(Unaudited) and February 2, 1996 2
Condensed Statements of Income - Twelve and
Forty Weeks Ended November 8, 1996 and
November 10, 1995 (Unaudited) 3
Condensed Statements of Cash Flows -
Forty Weeks Ended November 8, 1996
and November 10, 1995 (Unaudited) 4
Notes to Unaudited Condensed Financial Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-7
PART II. OTHER INFORMATION AND SIGNATURES 7-8
Exhibit 11 Statement Re: Computation of Net Income 9
Per Common Share
</TABLE>
<PAGE> 3
GENOVESE DRUG STORES, INC.
CONDENSED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Assets
------
November 8, February 2,
1996 1996
-------- --------
(Unaudited) (Note 1)
<S> <C> <C>
Current Assets:
Cash $ 1,800 $ 2,251
Receivables 18,662 14,396
Merchandise inventory 114,218 104,855
Prepaid expenses and other 1,384 5,089
-------- --------
Total Current Assets 136,064 126,591
-------- --------
Property and Equipment, net 77,413 71,637
-------- --------
Other Assets 8,635 5,813
-------- --------
Total Assets $222,112 $204,041
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
Accounts payable, accrued expenses and other $ 72,195 $ 69,651
Current portion of long-term debt 798 798
Notes payable to banks 25,200 15,250
-------- --------
Total Current Liabilities 98,193 85,699
-------- --------
Long-Term Liabilities 43,379 41,455
-------- --------
Deferred Income Taxes Payable 7,219 7,219
-------- --------
Stockholders' Equity:
Common stock - $1.00 par value, 32,000,000
shares authorized, 11,293,164 shares and
11,236,673 shares issued at November 8, 1996
and February 2, 1996, respectively 11,293 11,237
Capital in excess of par value 56,560 56,182
Retained earnings 7,008 3,556
-------- --------
74,861 70,975
Less: Common stock in treasury at cost -
132,354 shares at November 8, 1996 and
132,512 at February 2, 1996 1,540 1,307
-------- --------
Total Stockholders' Equity 73,321 69,668
-------- --------
Total Liabilities and Stockholders'
Equity $222,112 $204,041
======== ========
</TABLE>
See accompanying notes to unaudited condensed financial statements.
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<PAGE> 4
GENOVESE DRUG STORES, INC.
CONDENSED STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Twelve Weeks Ended Forty Weeks Ended
-------------------------------- --------------------------------
November 8, November 10, November 8, November 10,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 159,108 $ 137,719 $ 515,723 $ 454,968
------------ ------------ ------------ ------------
Cost and Expenses:
Cost of merchandise sold 111,450 95,744 365,015 322,352
Selling, general and
administrative expenses 42,541 37,932 137,841 122,728
------------ ------------ ------------ ------------
153,991 133,676 502,856 445,080
------------ ------------ ------------ ------------
Operating Profit 5,117 4,043 12,867 9,888
Gain on the sale of the
nursing home division -- -- -- 1,300
Interest Expense (918) (793) (3,131) (2,818)
------------ ------------ ------------ ------------
Income Before Income Taxes 4,199 3,250 9,736 8,370
Income Taxes 1,848 1,462 4,284 3,766
------------ ------------ ------------ ------------
Net Income $ 2,351 $ 1,788 $ 5,452 $ 4,604
============ ============ ============ ============
Net Income Per Common Share (a) $ .21 $ .16 $ .49 $ .42
============ ============ ============ ============
Average Number of Common Shares
Outstanding (a) 11,121,000 11,085,000 11,110,000 11,084,000
============ ============ ============ ============
Cash Dividends Paid Per Common
Share (a) $ .06 $ .05 $ .18 $ .16
============ ============ ============ ============
</TABLE>
(a) Adjusted, where appropriate, to retroactively reflect the effect of a
10 percent stock dividend distributed on January 4, 1996.
See accompanying notes to unaudited condensed financial statements.
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<PAGE> 5
GENOVESE DRUG STORES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Forty Weeks Ended
---------------------------
November 8, November 10,
1996 1995
----------- ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 5,452 $ 4,604
Adjustments to reconcile net income to
net cash provided by (used for) operating
activities:
Depreciation and amortization 8,739 6,889
Provision for LIFO inventory valuation 1,300 1,100
Gain on the sale of the nursing home
division -- (1,300)
Provision for other noncash expenses-net (45) 214
Changes in certain assets and liabilities:
Receivables (4,126) (1,047)
Merchandise inventory (10,663) (15,496)
Prepaid expenses and other 3,705 1,801
Other assets (3,484) (1,440)
Accounts payable, accrued expenses
and other 2,614 463
-------- --------
Net cash provided (used) by operating activities 3,492 (4,212)
-------- --------
Cash Flows From Investing Activities:
Purchase of property and equipment, net (13,853) (11,782)
Proceeds from the sale of the nursing
home division -- 2,719
-------- --------
Net cash used for investing activities (13,853) (9,063)
-------- --------
Cash Flows From Financing Activities:
Net increase in debt 12,450 15,450
Repayments of long term liabilities (646) (834)
Issuance of common stock under the Employee
Stock Option and Appreciation Rights Plan 340 21
Treasury stock purchased (234) (227)
Payment of cash dividends (2,000) (1,814)
-------- --------
Net cash provided by financing activities 9,910 12,596
-------- --------
Net Decrease in Cash (451) (679)
Cash at Beginning of Period 2,251 2,229
-------- --------
Cash at End of Period $ 1,800 $ 1,550
======== ========
Supplemental Disclosure:
Interest paid $ 2,914 $ 2,941
Income taxes paid $ 3,486 $ 5,826
</TABLE>
See the accompanying notes to unaudited condensed financial statements.
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<PAGE> 6
GENOVESE DRUG STORES, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. The condensed balance sheet as of November 8, 1996, the condensed
statements of income for the twelve and forty week periods ended
November 8, 1996 and November 10, 1995 and the condensed statements of
cash flows for the forty week periods ended November 8, 1996 and
November 10, 1995 have been prepared in accordance with generally
accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X by
the Company, without audit. The condensed balance sheet as of February
2, 1996 was derived from the audited balance sheet included in the
Company's Annual Report on Form 10-K. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary
to present fairly the financial condition, results of operations and
cash flows at November 8, 1996 and for the periods presented have been
made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the year ended February 2, 1996.
2. The results of operations for the twelve and forty weeks ended November
8, 1996 and November 10, 1995 are not necessarily indicative of the
results to be expected for the full year.
3. Merchandise inventory is valued at the lower of cost or market, cost
being determined by the last in first out (LIFO) method. LIFO inventory
costs are determined at the end of each fiscal year when inflation
rates are finalized. Therefore, LIFO inventory costs and cost of
merchandise sold for interim periods are estimated and adjusted based
on periodic physical inventories. At November 8, 1996 and February 2,
1996, inventories would have been greater by $20,250,000 and
$18,950,000, respectively, if they had been valued at replacement
costs.
4. On December 10, 1996, the Company's Board of Directors declared a 10%
stock dividend payable on January 14, 1997 to holders of record as of
December 26, 1996.
The Board of Directors also declared a cash dividend of $.06 per common
share payable on January 14, 1997 to holders of record as of December
27, 1996. The cash dividend will be payable on the shares represented
by the stock dividend.
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<PAGE> 7
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FOR THE TWELVE AND FORTY WEEKS ENDED NOVEMBER 8, 1996
Sales increased by 15.5% for the third quarter and 13.4% for the year to date.
On a comparable store basis (stores open during all of fiscal 1996 and fiscal
1997 to date) sales increased 9.2% for the quarter and 8.1% for the year to
date. The sales contribution of the 16 stores opened during fiscal 1996 and
1997, the continued maturation of existing stores and the effects of the
Company's marketing programs were the primary causes for the increase in sales.
Cost of good sold, expressed as a percentage of sales, was 70.0% for the third
quarter versus 69.5% last year. On a year to date basis, cost of goods sold was
slightly improved 70.8% this year versus 70.9% last year. The primary factors
affecting cost of goods sold are product mix, efficiencies in merchandise
acquisition practices and a slowing of the decline in pharmacy margins related
to third party prescription plans.
Selling, general and administrative expenses, expressed as a percentage of
sales, declined to 26.7% from 27.5% for the quarter and to 26.7% from 27.0% for
the year to date. These decreases are the result of cost management programs
implemented by the Company.
Interest expense was $918,000 for the quarter versus $793,000 last year and
$3,131,000 for the year to date versus $2,818,000 for the corresponding period
last year. The increases in interest expenses are due to higher average
borrowings this year versus last year.
Net income per share increased 31.5% to $2,351,000 or $.21 per share from
$1,788,000 or $.16 last year. Net income for the year to date increased 18.4% to
$5,452,000 or $.49 per share versus $4,604,000 or $.42 last year. Last year's
net income for the forty weeks included a gain of $722,000 or $.07 per share
related to the sale of the Company's nursing home division.
FINANCIAL CONDITION
The Company's operating, investing and financing activities for the forty weeks
ended November 8, 1996 utilized net cash of $451,000 as follows:
- Operating activities provided $3,492,000. Operations provided
$15,446,000 which was offset primarily by increases in
merchandise inventory and receivables.
- Investing activities utilized $13,853,000 through the purchase of
property and equipment.
- Financing activities provided $9,910,000 primarily from
short-term borrowings partially offset by the repayment of
long-term debt and the payment of cash dividends.
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<PAGE> 8
Working capital at November 8, 1996 was $37.9 million. The working capital ratio
was 1.4 to 1.0 at November 8, 1996 versus 1.5 to 1.0 at February 2, 1996.
The Company is currently renegotiating its credit facilities and has received a
letter of commitment from three banks to increase its credit facility from a $70
million facility to a $90 million credit facility.
The Company anticipates that its working capital needs for the remainder of
fiscal 1997 will be satisfied through operating results and, as necessary,
through borrowings under facilities available to the Company.
PART II.
Item 5. Other Information
The Private Securities Litigation Reform Act of 1995 ("the Act") provides a safe
harbor for forward-looking statements made by or on behalf of the Company. All
statements, other than statements of historical facts, which address activities,
events or developments that the Company expects or anticipates will or may occur
in the future, including such things as future capital expenditures (including
the amount and nature thereof), expansion and other development trends of
industry segments in which the Company is active, business strategy, expansion
and growth of the Company's business and operations and other such matters are
forward looking statements. To take advantage of the safe harbor provided by the
Act, Genovese Drug Stores, Inc. is identifying certain factors that could cause
actual results to differ materially from those expressed in any forward-looking
statements, whether oral or written, made by or on behalf of the Company. Many
of these factors have previously been identified in filings or statements made
by or on behalf of the Company.
All phases of the Company's operations are subject to influences outside its
control. Any one, or a combination, of these factors could materially affect the
results of the Company's operations. These factors include: competitive
pressures, inflation, consumer debt levels, currency exchange fluctuations,
trade restrictions, changes in tariff and freight rates, political instability,
interest rate fluctuations and other capital market conditions. Forward-looking
statements made by or on behalf of the Company are based on a knowledge of its
business and the environment in which it operates, but because of the factors
listed above, actual results may differ from those in the forward-looking
statements. Consequently, all of the forward-looking statements made are
qualified by these cautionary statements and there can be no assurance that the
actual results or developments anticipated by the Company will be realized or,
even if substantially realized, that they will have the they will have the
expected consequences to or effect on the Company or its business or operations.
Item 6. Exhibits and Reports on Form 8-K
The following exhibit is included herein:
(11) Statement re: computation of net income per common share.
There were no reports on Form 8-K filed during the twelve week period ended
November 8, 1996.
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<PAGE> 9
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.
GENOVESE DRUG STORES, INC.
--------------------------
(Registrant)
Date: December 19, 1996 By: /s/ Jerome Stengel
--------------------- ---------------------------------
Jerome Stengel
(Vice President & Treasurer)
(Principal Financial Officer)
-8-
<PAGE> 1
GENOVESE DRUG STORES, INC.
Exhibit 11
STATEMENT RE: COMPUTATION OF NET INCOME PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Twelve Weeks Ended Forty Weeks Ended
------------------------- -------------------------
November 8, November 10, November 8, November 10,
1996 1995 1996 1995
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Primary:
Weighted average shares
outstanding (A) 11,121 11,085 11,110 11,084
Equivalent shares--
dilutive stock options (B) -- -- -- --
------- ------- ------- -------
11,121 11,085 11,110 11,084
------- ------- ------- -------
Net income $ 2,351 $ 1,788 $ 5,452 $ 4,604
------- ------- ------- -------
Net income per common
share (A) $ .21 $ .16 $ .49 $ .42
======= ======= ======= =======
</TABLE>
(A) Adjusted, where appropriate, to reflect the effect of the 10 percent stock
dividend distributed on January 4, 1996.
(B) The effect of equivalent shares of dilutive stock options is not
significant to net income per common share for any period presented.
There is no significant difference between primary and fully diluted net income
per common share.
-9-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> NOV-08-1996
<CASH> 1,800
<SECURITIES> 0
<RECEIVABLES> 18,662
<ALLOWANCES> 0
<INVENTORY> 114,218
<CURRENT-ASSETS> 136,064
<PP&E> 145,182
<DEPRECIATION> 67,769
<TOTAL-ASSETS> 222,112
<CURRENT-LIABILITIES> 98,193
<BONDS> 43,379
0
0
<COMMON> 11,293
<OTHER-SE> 62,028
<TOTAL-LIABILITY-AND-EQUITY> 222,112
<SALES> 515,723
<TOTAL-REVENUES> 515,723
<CGS> 365,015
<TOTAL-COSTS> 365,015
<OTHER-EXPENSES> 137,841
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,131
<INCOME-PRETAX> 9,736
<INCOME-TAX> 4,284
<INCOME-CONTINUING> 5,452
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,452
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
</TABLE>
