<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Quarterly Period Ended April 28, 1994
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 1-8978
LONGS DRUG STORES CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 68-0048627
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
141 North Civic Drive
Walnut Creek, California 94596
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (510) 937-1170
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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
--- ---
There were 20,849,647 shares of common stock outstanding as of April 28, 1994.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
<TABLE>
<CAPTION>
STATEMENTS OF CONSOLIDATED INCOME For the Quarters Ended
April 28 April 29
1994 1993
----------- ----------
(Thousands Except Per Share)
<S> <C> <C>
SALES $ 622,259 $ 607,979
COSTS AND EXPENSES:
Cost of merchandise sold 457,269 454,795
Operating and administrative 113,183 108,614
Occupancy 30,086 26,847
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Total costs and expenses 600,538 590,256
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INCOME BEFORE TAXES ON INCOME AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 21,721 17,723
TAXES ON INCOME 8,700 6,800
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INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 13,021 10,923
CUMULATIVE EFFECT OF ACCOUNTING CHANGE -- 3,031
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NET INCOME $ 13,021 $ 13,954
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PER COMMON SHARE:
Income before cumulative effect of accounting change $ .63 $ .53
Cumulative effect of accounting change -- .15
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EARNINGS $ .63 $ .68
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DIVIDENDS $ .28 $ .28
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WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 20,782 20,517
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 28 April 29 January 27
1994 1993 1994
---------- ---------- ----------
--------------(Thousands)------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 61,132 $ 33,524 $ 42,512
Pharmacy and other receivables 46,391 35,990 50,639
Merchandise inventories 272,809 268,409 280,524
Deferred income taxes 14,774 20,270 14,270
Other 2,037 1,824 2,537
--------- --------- ---------
Total current assets 397,143 360,017 390,482
--------- --------- ---------
PROPERTY:
Land 77,525 70,740 77,617
Buildings and leasehold improvements 288,928 261,007 286,871
Equipment and fixtures 232,302 209,318 228,533
Beverage licenses 7,028 6,945 6,961
--------- --------- ---------
Total property-at cost 605,783 548,010 599,982
Less accumulated depreciation 206,018 178,381 199,272
--------- --------- ---------
Property-net 399,765 369,629 400,710
OTHER NON-CURRENT ASSETS 3,626 -- 3,612
--------- --------- ---------
TOTAL $ 800,534 $ 729,646 $ 794,804
--------- --------- ---------
--------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 140,071 $ 125,395 $ 142,578
Employee compensation and benefits 50,814 47,893 52,065
Taxes payable 28,734 23,352 23,179
Current portion of guarantee 2,481 2,283 1,841
Other 24,041 16,945 26,838
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Total current liabilities 246,141 215,868 246,501
--------- --------- ---------
--------- --------- ---------
GUARANTEE OF PROFIT SHARING PLAN DEBT 13,181 15,662 13,821
--------- --------- ---------
DEFERRED INCOME TAXES 35,109 31,639 34,875
_________ _________ _________
STOCKHOLDERS' EQUITY:
Common stock (20,850,000,
20,556,000, and 20,654,000
shares outstanding) 10,425 10,279 10,327
Additional capital 109,199 98,378 104,518
Common stock contribution to
Profit Sharing Plan -- -- 5,530
Guarantee of Profit Sharing
Plan debt (15,662) (17,945) (15,662)
Retained earnings 402,141 375,765 394,894
--------- --------- ---------
Total stockholders' equity 506,103 466,477 499,607
--------- --------- ---------
TOTAL $ 800,534 $ 729,646 $ 794,804
--------- --------- ---------
--------- --------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
For the Quarters Ended
April 28 April 29
1994 1993
---------- ---------
-------(Thousands)------
<S> <C> <C>
OPERATING ACTIVITIES:
Receipts from customers $ 627,166 $ 611,355
Payments for merchandise (452,061) (445,859)
Payments for operating, administrative,
and occupancy expenses (141,117) (135,239)
Income tax payments -- (3,427)
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Net cash provided by operating activities 33,988 26,830
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INVESTING ACTIVITIES:
Payments for property additions (10,908) (11,421)
Receipts from property dispositions 2,554 761
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Net cash used in investing activities (8,354) (10,660)
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FINANCING ACTIVITIES:
Repayment of short-term borrowings -- (10,000)
Repurchase of common stock (1,200) --
Dividend payments (5,814) (5,716)
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Net cash used in financing activities (7,014) (15,716)
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INCREASE IN CASH AND EQUIVALENTS 18,620 454
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 42,512 33,070
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CASH AND EQUIVALENTS AT END OF PERIOD $ 61,132 $ 33,524
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RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 13,021 $ 13,954
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of a change in
accounting principle -- (3,031)
Depreciation and amortization 9,307 7,693
Deferred income taxes (270) (1,127)
Restricted stock awards 427 490
Tax benefits credited to retained earnings 40 50
Effects of changes in:
Pharmacy and other receivables 4,248 4,498
Merchandise inventories 7,715 5,524
Other current assets 500 143
Current liabilities (1,000) (1,364)
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Net cash provided by operating activities $ 33,988 $ 26,830
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
For the Year Ended January 27, 1994 and Quarter Ended April 28, 1994
<TABLE>
<CAPTION>
PROFIT GUARANTEE
COMMON STOCK SHARING OF PROFIT TOTAL
---------------- ADDITIONAL PLAN SHARING RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL CONTRIBUTIONS PLAN DEBT EARNINGS EQUITY
- - --------------------------------------------------------------------------------------------------------------------------------
-----------------------------------(Thousands)-----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 28, 1993 20,413 $10,207 $93,697 $4,775 ($17,945) $367,477 $458,211
Net income 52,782 52,782
Dividends ($1.12 per share) (22,990) (22,990)
Profit Sharing Plan:
Issuance of stock for FY93 contributions 132 66 4,709 (4,775) 0
Stock portion of FY94 contributions 5,530 5,530
Purchase of stock from plan (121) (60) (3,965) (4,025)
Reduction of plan debt 2,283 2,283
Tax benefits (512) 188 (324)
Restricted stock awards 5 1 1,349 1,350
Repurchase of common stock (92) (46) (431) (2,563) (3,040)
Acquisition of Bill's Drugs, Inc.:
Stock issued 317 159 10,184 10,343
Related costs (513) (513)
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BALANCE AT JANUARY 27, 1994 20,654 10,327 104,518 5,530 (15,662) 394,894 499,607
Net income 13,021 13,021
Dividends ($.28 per share) (5,814) (5,814)
Profit Sharing Plan:
Issuance of stock for FY94 contribution 147 74 5,456 (5,530) 0
Purchase of stock from plan (31) (16) (1,184) (1,200)
Tax benefits 40 40
Restricted stock awards 79 39 388 427
Acquisition of Bill's Drugs, Inc. 1 1 21 22
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BALANCE AT APRIL 28, 1994 20,850 $10,425 $109,199 $ 0 ($15,662) $402,141 $506,103
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements include Longs Drug Stores Corporation
(Company) and Longs Drug Stores California, Inc., its wholly-owned
subsidiary. All intercompany accounts and transactions have been
eliminated. The statements have been prepared on a basis consistent with
the accounting policies described in the Annual Report of the Company
previously filed with the Commission on Form 10-K for the year ended
January 27, 1994, and reflect all adjustments and eliminations which are,
in management's opinion, necessary for a fair statement of the results for
the periods. The financial statements for the periods ended April 28, 1994
and April 29, 1993 are unaudited. The balance sheet at January 27, 1994,
and Statement of Stockholders' Equity for the year then ended, presented
herein, has been prepared from the audited financial statements of the
Company.
2. Certain reclassifications have been made to prior year financial statements
in order to conform to current financial statement presentation.
Outstanding checks of $19.5 million at April 28, 1994, $17.2 million at
April 29, 1993, and $18.4 million at January 27, 1994 are included in
accounts payable. This classification was adopted during the second quarter
of fiscal 1994, and reported "net cash provided by operating activities"
was increased by $262,000 for the quarter ended April 29, 1993.
3. The financial statements have been prepared using the LIFO method of
accounting for inventories. The excess of specific cost inventory over LIFO
valuation was $127,400,000 at April 28, 1994, $122,000,000 at April 29,
1993, $126,000,000 at January 27, 1994. A final valuation of inventory
under the LIFO method can be made only after year-end based on ending
inventory levels and inflation rates for the year. Interim LIFO
calculations are based on management's estimates of year-end inventory
levels and inflation rates for the year.
4. The Company adopted Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," effective January 29, 1993. This
statement requires that the liability method of accounting for income taxes
be used rather than the deferred method. The cumulative effect of adopting
SFAS No. 109 on the Company's financial statement was to increase net
income by $3,031,000 ($.15 per share) for the three months ended April 29,
1993.
Taxes on income consists of the following:
<TABLE>
<CAPTION>
For the
(THOUSANDS) Quarter Ended
April 28, 1994
--------------
<S> <C>
Current:
Federal.................................. $6,975
State.................................... 1,995
------
8,970
Deferred:
Federal.................................. (175)
State.................................... (95)
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(270)
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$8,700
------
------
</TABLE>
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<PAGE>
5. The Company repurchased 31,000 shares of its common stock from the Profit
Sharing Plan during the quarter ended April 28, 1994, in accordance with a
stock repurchase plan adopted by the Board of Directors in August 1989. The
stock was repurchased at current market values totalling $1,200,000.
6. The Company has a Profit Sharing Plan covering all full-time employees with
over 1,000 hours of service. The Company makes annual contributions subject
to provisions of the Plan. Company contributions are allocated to
individual employees' accounts based upon wages paid up to a $75,000 wage
maximum for each employee.
In 1989, the Company sold 696,864 shares of Longs' common stock to the
Plan for $25 million. The Plan financed this purchase with a ten-year loan
which is guaranteed by Longs Drug Stores California, Inc. A Guarantee of
Profit Sharing Plan Debt is shown on the Company's balance sheets with
corresponding reduction of Stockholders'Equity. The Company considers all
shares allocated to the Plan as outstanding for Earnings per Share
calculations. Dividends on all shares are recorded as a reduction of
Retained Earnings.
Shares are released for allocation to member accounts over the ten-year
term of the loan as principal and interest payments are made. Loan
repayments are made with dividends on allocated and unallocated shares
held by the Plan and with Company contributions. Members are allocated
shares of Longs common stock equal in value to the cash dividends on their
allocated shares used to repay the loan. The Company has no obligation to
repurchase outstanding shares held by the Plan. Periodically, the Company
has been willing to repurchase shares to provide the Plan with needed
liquidity.
Plan shares of the leveraged Employee Stock Ownership Plan:
<TABLE>
<CAPTION>
For the
Quarter Ended
April 28, 1994
--------------
<S> <C>
Allocated shares....................................... 355,771
Unallocated shares..................................... 341,093
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Total Plan Share....................................... 696,864
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</TABLE>
7. ACQUISITION OF BILL'S DRUGS, INC.
In September 1993, the Company purchased (in a non-cash transaction)
substantially all of the assets of Bill's Drugs, Inc. (Bill's), a chain of
drug stores located in Northern California. The transaction was reported
under the purchase method of accounting.
Results of operations of the Bill's stores after the purchase date are
included in the Statement of Consolidated Income presented herein. The
following pro forma information assumes that the acquisition had taken
place as of the beginning of the period presented and includes adjustments
for additional depreciation and amortization reflecting the fair market
value of the assets acquired. Earnings per share were computed as if the
shares issued in the acquisition of Bill's had been issued at the beginning
of the period presented. The pro forma information is not necessarily
indicative of the results of operations as they may be in the future or as
they would have been had the transaction been effected on the assumed
dates.
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<PAGE>
<TABLE>
<CAPTION>
For the
Quarter Ended
April 29, 1993
--------------
(Thousands Except Per Share)
<S> <C>
Sales.................................... $631,622
Income before cumulative effect
of accounting change..................... $10,496
Earnings per share before cumulative
effect of accounting change.............. $.50
</TABLE>
8. Subsequent Event
----------------
On May 17, 1994, the shareholders of the Company approved the 1995
Long-Term Incentive Plan. Key employees will be rewarded with opportunities
in the form of stock options, stock appreciation rights, restricted stock
awards, or performance share awards. Awards are made at the discretion of
the Stock Bonus and Compensation Review Committee, and the aggregate number
of shares may not exceed 700,000.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Sales for the quarter ended April 28, 1994, grew 2.3% to $622,259,000 as
compared to $607,979,000 for the similar period last year. Sales in the stores
acquired from Bill's Drugs, Inc. totaled $19.2 million. Net income for the
quarter increased 19.2% to $13,021,0000, or $.63 per share, as compared to last
year's $10,923,000, or $.53 per share before last year's one-time accounting
change. Net income for the first quarter of last year was increased by the
adoption of mandated rules (SFAS 109) relating to income taxes by $3,031,000, or
$.15 per share.
Gross margins increased to 26.5% as compared to 25.2% last year, reflecting
purchasing efforts to reduce cost of merchandise sold. Operating,
administrative, and occupancy expenses were in line with expectations. They
increased from 22.3% to 23.0% of sales, due principally to wages, occupancy and
facility charges associated with the increase of 33 stores.
The acquisition of Bill's Drugs, Inc. was completed during the quarter ended
October 28, 1993. The purchase was made with the issuance of approximately $10.4
million in Longs common stock and the assumption of approximately $13.6 million
in liabilities.
The Company repurchased 31,000 shares of its common stock from the Profit
Sharing Plan for the quarter ended April 28, 1994, at market values totalling
$1.2 million.
Expenditures for the scanning system, new store construction, store remodels,
dividends, and stock repurchases have been, and are expected in the future to be
funded from operations and cash reserves. To maintain desired working capital,
the Company may periodically use short-term lines of credit available from
several banks.
Four new stores were opened during the quarter and two underperforming stores
were closed. A total of 307 stores were in operation at April 28, 1994. Six
new stores are under construction, and additional stores are in various stages
ofplanning.
On May 17, 1994, the shareholders of the Company approved the 1995 Long-Term
Incentive Plan. Key employees will be rewarded with opportunities in the form
of stock options, stock appreciation rights, restricted stock awards, or
performance share awards. Awards are made at the discretion of the Stock Bonus
and Compensation Review Committee, and the aggregate number of shares may not
exceed 700,000. This plan is designed to enhance the profitable growth of the
Company by strengthening the employees' commitment to the welfare of the
Company.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
There have been no reports on Form 8-K filed during the quarter ended
April 28, 1994.
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<PAGE>
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.
LONGS DRUG STORES CORPORATION
---------------------------------
(Registrant)
Date June 10, 1994 /s/ W. G. Combs
-------------------- ---------------------------------
W. G. Combs
Vice President - Administration
(PRINCIPAL FINANCIAL OFFICER)
/s/ G. L. White
---------------------------------
G. L. White
Vice President - Controller
(PRINCIPAL ACCOUNTING OFFICER)
