<PAGE>
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 May 22, 1998
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
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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
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(Address of principal executive offices)
(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.
CLASS OUTSTANDING AT MAY 22, 1998
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COMMON STOCK:
Class A, par value $1.00 per share 7,421,182
Class B, par value $1.00 per share 6,333,826
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GENOVESE DRUG STORES, INC.
INDEX
PART I FINANCIAL INFORMATION PAGE
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Condensed Balance Sheets - May 22, 1998
(Unaudited) and January 30, 1998 3
Condensed Statements of Income - Sixteen Weeks
Ended May 22, 1998 and May 23, 1997 (Unaudited) 4
Condensed Statements of Cash Flows -
Sixteen Weeks Ended May 22, 1998
and May 23, 1997 (Unaudited) 5
Notes to Unaudited Condensed Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II OTHER INFORMATION AND SIGNATURE 8
2
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GENOVESE DRUG STORES, INC.
CONDENSED BALANCE SHEETS
(Dollars in Thousands)
May 22, January 30,
1998 1998
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(Unaudited) (Note 1)
Assets
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Current Assets:
Cash $ 2,343 $ 2,487
Receivables 22,005 20,340
Merchandise inventory 116,163 116,046
Prepaid expenses and other 2,787 6,361
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Total Current Assets 143,298 145,234
Property and Equipment, net 84,388 85,475
Other Assets 11,284 11,280
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Total Assets $238,970 $241,989
========== =========
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
Accounts payable, accrued expenses and other $ 81,866 $ 90,208
Current portion of long-term debt 1,022 1,022
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Total Current Liabilities 82,888 91,230
Long-Term Liabilites 75,837 72,713
Deferred Income Taxes Payable 4,198 4,198
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Total Liabilities 162,923 168,141
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Stockholders' Equity 76,047 73,848
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Total Liabilities and Stockholders'
Equity $238,970 $241,989
========== ==========
See accompanying notes to unaudited condensed financial statements.
3
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GENOVESE DRUG STORES, INC.
CONDENSED STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
Sixteen Weeks Ended
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May 22, May 23,
1998 1998
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Sales $243,869 $226,906
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Costs and Expenses:
Cost of merchandise sold 177,981 165,114
Selling, general and
administrative expenses 60,512 57,531
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238,493 222,645
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Operating Profit 5,376 4,261
Interest Expense 1,366 1,012
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Income Before Income Taxes 4,010 3,249
Income Taxes 1,756 1,420
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Net Income $ 2,254 $ 1,829
========= =========
Net Income Per Common Share (a)
Basic $ .16 $ .13
========== =========
Fully diluted $ .16 $ .13
========== =========
Average Number of Common Shares
Outstanding (a)
Basic 13,717,000 13,575,000
========== ==========
Fully diluted 14,075,000 13,831,000
========== ==========
Cash Dividends Paid Per Common
Share (a) $ .07 $ .05
========== =========
(a) Adjusted, where appropriate, to retroactively reflect the effect of a 10
percent stock dividend distributed on January 14, 1998.
See accompanying notes to unaudited condensed financial statements.
4
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GENOVESE DRUG STORES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Sixteen Weeks Ended
-----------------------------
May 22, May 23,
1998 1998
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<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 2,254 $1,829
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation and amortization 4,641 3,918
Provision for LIFO inventory valuation 1,600 1,600
Provision for other noncash expenses 92 41
Changes in certain assets and liabilities:
Receivables (1,665) 563
Merchandise Inventory (1,717) 5,794
Prepaid Expenses and other 3,574 25
Other assets ( 462) (1,859)
Accounts payable, accrued expenses
and other (7,063) (15,116)
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Net cash provided by (used) for operating activities 1,254 (3,205)
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Cash Flows From Investing Activities:
Purchase of property and equipment (3,957) (6,155)
Net proceeds from the sale of the Living Color
photo processing lab - 3,952
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Net cash used for investing activities (3,957) (2,203)
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Cash Flows From Financing Activities:
Net increase in bank borrowings 3,000 5,800
Repayments of long term liabilities (294) (286)
Issuance of Common Stock - Employee Stock Ownership
and Appreciation Rights Plan 1,065 356
Treasury stock purchased (254) (120)
Payment of cash dividends (958) (740)
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Net cash provided by financing activities 2,559 5,010
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Net Decrease in Cash (144) (398)
Cash at Beginning of Period 2,487 2,368
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Cash at End of Period $2,343 $1,970
======= ======
Supplemental Disclosure:
Interest paid $1,288 $1,019
====== ======
Income taxes paid $ 961 $5,619
====== ======
</TABLE>
See the accompanying notes to unaudited condensed financial statements.
5
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GENOVESE DRUG STORES, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. The condensed balance sheet as of May 22, 1998, the condensed statements
of income for the sixteen week periods ended May 22, 1998 and May 23,
1997 and the condensed statements of cash flows for the sixteen week
periods ended May 22, 1998 and May 23, 1997 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 January 30, 1998 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 May 22, 1998 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 January 30, 1998.
2. The results of operations for the sixteen week periods ended May 22, 1998
and May 23, 1997 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 May 22, 1998 and January 30, 1998, inventories
would have been greater by $20,000,000 and $18,400,000, respectively, if
they had been valued at replacement costs.
4. On June 15, 1998, the Company's Board of Directors declared a cash
dividend of $.07 per common share payable on July 7, 1998 to holders of
record as of June 30, 1998.
5. During the quarter ended May 23, 1997, the Company sold the assets of its
Living Color photo processing plant. Simultaneously with the sale of the
processing plant, the company entered into an agreement whereby the
Company will outsource all of its out of store photofinishing.
6
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MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINACIAL CONDITION AND
RESULTS OF OPERATIONS
FOR THE SIXTEEN WEEKS ENDED MAY 22, 1998
Sales increased 7.5% to $243,869,000 for the first quarter ended May 22,
1998. On a comparable store basis (store open all of fiscal 1998), sales
increased by 4.0%. The sales increases were led by pharmacy sales which
increased 13.4%, during the quarter.
Pharmacy sales represented 43.0% of total sales during the quarter versus
40.8% in the corresponding period last year.
Cost of merchandise sold, expressed as a percentage of sales, increased to
73.0% from 72.8% during the first quarter of fiscal 1998. Gross profit
margins were impacted by total pharmacy sales representing a greater portion
of total sales, and continued pressure on pharmacy margins offset by an
increase in non-pharmacy margins of more than one percent.
Selling, general and administrative expenses, expressed as a percentage of
sales, decreased to 25.4% from 25.8% last year. The decrease was led by
reductions in payroll expense which, expressed as a percentage of sales,
decreased by more than .5%.
Interest expense increased to $1,366,000 from $1,012,000 for the first
quarter. The increase is primarily a result of higher borrowings during the
quarter.
Net income was $2,254,000, $.16 per common share, versus $1,829,000, $.13
per common share, last year.
FINANCIAL CONDITION
The Company's operating, investing and financing activities for the sixteen
weeks ended May 22, 1998 utilized net cash of $144,000 as follows:
o Operating activities provided $1,254,000 primarily due to cash generated
by operations and a decrease in prepaid expenses and other offset by
increases in receivables and merchandise inventory and a decrease in
accrued expenses.
o Investing activities utilized $3,957,000 for the purchase of property and
equipment.
o Financing activities provided $2,559,000 primarily due to increased bank
borrowings and issuance of common stock through the exercise of stock
options partially offset by the payment of cash dividends.
Working capital at May 22, 1998 was $60.4 million. The working capital
ratio at May 22, 1998 was 1.73 to 1.00 versus 1.59 to 1.00 at
January 30, 1998.
The Company maintains a revolving term loan agreement with three banks which
allows for aggregate borrowings of $90 million. As of May 22, 1998, the
Company had $33 million available under the facility.
The Company anticipates that its working capital needs for the remainder of
fiscal 1999 will be satisfied through operating results and, as necessary,
through borrowings under facilities available to the Company.
7
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PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
NONE
There were no reports on Form 8-K filed during the sixteen weeks ended May 22,
1998.
SIGNATURES
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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: July 1, 1998 By: /s/ Christopher D. Noonan
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Christopher D. Noonan
Chief Financial Officer
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JAN-29-1998
<PERIOD-START> JAN-31-1998
<PERIOD-END> MAY-22-1998
<CASH> 2,343
<SECURITIES> 0
<RECEIVABLES> 22,005
<ALLOWANCES> 0
<INVENTORY> 116,163
<CURRENT-ASSETS> 143,298
<PP&E> 165,799
<DEPRECIATION> 81,411
<TOTAL-ASSETS> 238,970
<CURRENT-LIABILITIES> 82,888
<BONDS> 75,837
0
0
<COMMON> 13,825
<OTHER-SE> 62,222
<TOTAL-LIABILITY-AND-EQUITY> 238,970
<SALES> 243,869
<TOTAL-REVENUES> 243,869
<CGS> 177,981
<TOTAL-COSTS> 177,981
<OTHER-EXPENSES> 60,512
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,366
<INCOME-PRETAX> 4,010
<INCOME-TAX> 1,756
<INCOME-CONTINUING> 2,254
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,254
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
