<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 August 16, 1996
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 number 1-7623
GENOVESE DRUG STORES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-1556812
(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)
(Zip Code)
(516) 420-1900
(Registrant's telephone number, including area code)
NONE
(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.
CLASS OUTSTANDING AT AUGUST 16, 1996
COMMON STOCK:
Class A, par value $1.00 per share 5,556,600
Class B, par value $1.00 per share 5,548,429
<PAGE> 2
GENOVESE DRUG STORES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Condensed Balance Sheets - August 16, 1996
(Unaudited) and February 2, 1996 2
Condensed Statements of Income - Twelve and
Twenty-Eight Weeks Ended August 16, 1996 and
August 18, 1995 (Unaudited) 3
Condensed Statements of Cash Flows -
Twenty-Eight Weeks Ended August 16, 1996
and August 18, 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 8
Exhibit 11 - Statement Re: Computation of Net Income
Per Common Share 9
</TABLE>
<PAGE> 3
GENOVESE DRUG STORES, INC.
CONDENSED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
August 16, February 2,
1996 1996
---- ----
(Unaudited) (Note 1)
<S> <C> <C>
Assets
Current Assets:
Cash $ 1,600 $ 2,251
Receivables 16,272 14,396
Merchandise inventory 106,210 104,855
Prepaid expenses and other 2,055 5,089
-------- --------
Total Current Assets 126,137 126,591
-------- --------
Property and Equipment, net 75,685 71,637
-------- --------
Other Assets 7,783 5,813
-------- --------
Total Assets $209,605 $204,041
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, accrued expenses and other $ 61,718 $ 69,651
Current portion of long-term debt 798 798
Notes payable to banks 24,850 15,250
-------- --------
Total Current Liabilities 87,366 85,699
-------- --------
Long-term liabilities 43,579 41,455
-------- --------
Deferred income taxes payable 7,219 7,219
-------- --------
Stockholders' Equity:
Common stock - $1.00 par value, 32,000,000
shares authorized, 11,237,673
shares and 11,236,673 shares issued
at August 16, 1996
and February 2, 1996, respectively 11,238 11,237
Capital in excess of par value 56,187 56,182
Retained earnings 5,324 3,556
-------- --------
72,749 70,975
Less: Common stock in treasury at cost -
132,644 shares at August 16, 1996 and 132,512
at February 2, 1996 1,308 1,307
-------- --------
Total Stockholders' Equity 71,441 69,668
-------- --------
Total Liabilities and Stockholders' Equity $209,605 $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 Twenty-Eight Weeks Ended
------------------ ------------------------
August 16, August 18, August 16, August 18,
1996 1995 1996 1995
---------- ---------- ----------- -------
<S> <C> <C> <C> <C>
Sales $ 155,792 $ 138,266 $ 356,615 $ 317,249
------------ ------------ ------------ ------------
Cost and Expenses:
Cost of merchandise sold 109,840 98,369 253,565 226,608
Selling, general and
administrative expenses 41,745 36,643 95,300 84,796
------------ ------------ ------------ ------------
151,585 135,012 348,865 311,404
------------ ------------ ------------ ------------
Operating Profit 4,207 3,254 7,750 5,845
Gain on sale of the
nursing home division -- -- -- 1,300
Interest expense (964) (940) (2,213) (2,025)
------------ ------------ ------------ ------------
Income Before Income Taxes 3,243 2,314 5,537 5,120
Income Taxes 1,427 1,041 2,436 2,304
------------ ------------ ------------ ------------
Net Income $ 1,816 $ 1,273 $ 3,101 $ 2,816
============ ============ ============ ============
Net Income Per Common Share (a) $ .16 $ .12 $ .28 $ .25
============ ============ ============ ============
Average Number of Common Shares
Outstanding (a) 11,105,000 11,064,000 11,105,000 11,060,000
============ ============ ============ ============
Cash Dividends Paid Per Common
Share (a) $ .06 $ .05 $ .12 $ .11
============ ============ ============ ============
</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>
Twenty-Eight Weeks Ended
------------------------
August 16, August 18,
1996 1995
----------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 3,101 $ 2,816
Adjustments to reconcile net income to
net cash used for operating activities:
Depreciation and amortization 5,999 4,924
Provision for LIFO inventory valuation 1,900 1,800
Gain on the sale of the nursing home
division -- (1,300)
Provision for other noncash expenses 139 214
Changes in certain assets and liabilities:
Receivables (2,015) 1,368
Merchandise inventory (3,255) (184)
Prepaid expenses and other 3,034 1,850
Deferred charges and other assets (2,415) (1,381)
Accounts payable, accrued expenses
and other (7,875) (11,317)
-------- --------
Net cash used for operating activities (1,387) (1,210)
-------- --------
Cash Flows From Investing Activities:
Purchase of property and equipment, net (9,602) (7,651)
Proceeds from the sale of the nursing
home division -- 2,719
-------- --------
Net cash used for investing activities (9,602) (4,932)
-------- --------
Cash Flows From Financing Activities:
Net increase in debt 12,100 7,250
Repayments of long term liabilities (434) (622)
Payment of cash dividends (1,333) (1,209)
Issuance of common stock under the Employee
Stock Option and Rights Appreciation Plan 6 21
Treasury stock purchased (1) (227)
-------- --------
Net cash provided by financing activities 10,338 5,213
-------- --------
Net Decrease in Cash (651) (929)
Cash at beginning of period 2,251 2,229
-------- --------
Cash at end of period $ 1,600 $ 1,300
======== ========
Supplemental Disclosure:
Interest paid $ 2,187 $ 2,113
Income taxes paid $ 3,486 $ 3,791
</TABLE>
See the accompanying notes to unaudited condensed financial statements.
-4-
<PAGE> 6
GENOVESE DRUG STORES, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. The condensed balance sheet as of August 16, 1996, the condensed
statements of income for the twelve and twenty-eight week periods
ended August 16, 1996 and August 18, 1995 and the condensed
statements of cash flows for the twenty-eight week periods ended
August 16, 1996 and August 18, 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 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 August 16, 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 twenty-eight weeks ended
August 16, 1996 and August 18, 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 August 16, 1996 and February 2,
1996, inventories would have been greater by $20,850,000 and
$18,950,000, respectively, if they had been valued at replacement
costs.
4. During the twenty-eight weeks ended August 18, 1995, the Company sold
the assets of its nursing home pharmacy division to a third party and
record a gain of $1,300,000.
5. On September 10, 1996, the Company's Board of Directors declared a cash
dividend of $.06 per common share payable on October 3, 1996 to holders
of record as of September 26, 1996.
-5-
<PAGE> 7
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FOR THE TWELVE AND TWENTY-EIGHT WEEKS ENDED AUGUST 16, 1996
Sales increased by 12.7% for the second quarter and 12.4% for the first half. On
a comparable store basis (stores opened during all of fiscal 1996 and 1997 to
date), sales increased by 7.5% for the quarter and 7.7% for the half. The sales
contribution of the 14 stores opened during the past eighteen months in addition
to the maturation of existing stores and indeterminable amount of inflation were
the primary components of the sales increases.
Cost of merchandise sold, expressed as a percentage of sales, decreased to 70.5%
for the second quarter versus 71.1% last year. The results for the first half
followed the same trend with the cost of merchandise sold at 71.1% this year
versus 71.4% last year. The primary factors resulting in the increases in gross
profit are change in product mix and improvements in merchandise acquisition
practices, partially offset by a decrease in pharmacy margins due to continued
reductions in third party reimbursement rates.
Selling, general and administrative expenses remained constant at 26.7% of sales
for the first half and increased from 26.5% to 26.8% for the quarter.
Interest expense was $964,000 versus $940,000 for the quarter and $2,436,000
versus $2,304,000 for the first half. This increase was due to higher levels of
borrowings during this year.
Net income for the second quarter increased 42.7% to $1,816,000 or $.16 per
share from $1,273,000 or $.12 per share last year. Net income for the first half
was $3,101,000 or $.28 per share versus $2,816,000 or $.25 per share last year.
Last years net income for the first half includes 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 twenty-eight
weeks ended August 16, 1996 utilized net cash of $651,000 as follows:
- - Operating activities utilized $1,387,000 primarily due to the reduction
of accounts payable and other current liability balances, an increase
in accounts receivable and merchandise inventories offset by cash
generated by operations.
- - Investing activities utilized $9,602,000 due to purchases of property
and equipment.
- - Financing activities provided $10,338,000 primarily from short-term
borrowings partially offset by the repayment of long-term debt and the
payment of cash dividends.
-6-
<PAGE> 8
Working capital at August 16, 1996 was $38.8 million. The working capital ratio
was 1.44 to 1.0 at August 16, 1996 versus of 1.48 to 1.0 at February 2, 1996.
The Company is currently restructuring its debt. Negotiations are in process for
a $90 million credit facility with several banks.
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.
-7-
<PAGE> 9
PART II. OTHER INFORMATION
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
August 16, 1996.
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: September 30, 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 Twenty-Eight Weeks Ended
------------------ ------------------------
August 16, August 18, August 16, August 18,
1996 1995 1996 1995
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary:
Weighted average shares
outstanding (A) 11,105 11,064 11,105 11,060
Equivalent shares--
dilutive stock options (B) -- -- -- --
------- ------- ------- -------
11,105 11,064 11,105 11,060
------- ------- ------- -------
Net income $ 1,816 $ 1,273 $ 3,101 $ 2,816
------- ------- ------- -------
Net income per common
share (A) $ .16 $ .12 $ .28 $ .25
======= ======= ======= =======
</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> 1000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-02-1996
<PERIOD-END> AUG-16-1996
<CASH> 1,600
<SECURITIES> 0
<RECEIVABLES> 16,272
<ALLOWANCES> 0
<INVENTORY> 106,210
<CURRENT-ASSETS> 126,137
<PP&E> 140,931
<DEPRECIATION> 65,246
<TOTAL-ASSETS> 209,605
<CURRENT-LIABILITIES> 87,366
<BONDS> 43,579
0
0
<COMMON> 11,238
<OTHER-SE> 60,203
<TOTAL-LIABILITY-AND-EQUITY> 209,605
<SALES> 356,615
<TOTAL-REVENUES> 356,615
<CGS> 253,565
<TOTAL-COSTS> 253,565
<OTHER-EXPENSES> 95,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2213
<INCOME-PRETAX> 5537
<INCOME-TAX> 2436
<INCOME-CONTINUING> 3101
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3101
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
