33<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 July 28, 1994
/ / 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 1-8978
LONGS DRUG STORES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Maryland 68-0048627
- - ----------------------------------------- ------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
141 North Civic Drive
Walnut Creek, California 94596
- - ----------------------------------------- -----------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (510) 937-1170
--------------
- - -------------------------------------------------------------------------------
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 20,652,766 shares of common stock outstanding as of July 28, 1994.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
For the Two For the Two
Quarters Ended Quarters Ended
JULY 28 July 29 JULY 28 July 29
1994 1993 1994 1993
----------- --------- --------- ---------
-------(Thousands Except Per Share)--------
<S> <C> <C> <C> <C>
SALES $626,310 $609,346 $1,248,569 $1,217,325
COSTS AND EXPENSES:
Cost of merchandise sold 463,186 453,807 920,455 908,602
Operating and administrative 111,049 106,960 224,232 215,574
Occupancy 31,941 27,516 62,027 54,363
---------- ---------- ---------- ----------
INCOME BEFORE TAXES ON INCOME 20,134 21,063 41,855 38,786
TAXES ON INCOME 8,100 8,100 16,800 14,900
---------- ---------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 12,034 12,963 25,055 23,886
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE -- -- -- 3,031
---------- ---------- ---------- ----------
NET INCOME $ 12,034 $ 12,963 $ 25,055 $ 26,917
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
PER COMMON SHARE:
Net Income Before Cumulative
Effect of Accounting Change $.58 $.63 $1.21 $1.16
Cumulative Effect of Accounting
Change -- -- -- .15
---------- ---------- ---------- ----------
NET INCOME $.58 $.63 $1.21 $1.31
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
DIVIDENDS $.28 $.28 $.56 $.56
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 20,780 20,510 20,781 20,514
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-1-
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 28 July 29 JANUARY 27
1994 1993 1994
---------- ---------- ------------
--------------(Thousands)-------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 50,104 $ 39,148 $ 42,512
Pharmacy and other receivables 42,413 38,049 50,639
Merchandise inventories 276,322 256,944 280,524
Deferred income taxes 15,266 17,086 14,270
Other 1,772 1,142 2,537
-------- -------- --------
Total current assets 385,877 352,369 390,482
-------- -------- --------
PROPERTY:
Land 77,516 70,945 77,617
Buildings and leasehold improvements 292,716 267,640 286,871
Equipment and fixtures 233,294 214,518 228,533
Beverage licenses 7,047 6,989 6,961
-------- -------- --------
Total property-at cost 610,573 560,092 599,982
Less accumulated depreciation 212,766 186,025 199,272
-------- -------- --------
Property-net 397,807 374,067 400,710
-------- -------- --------
OTHER NON-CURRENT ASSETS 3,617 -- 3,612
-------- -------- --------
TOTAL $787,301 $726,436 $794,804
-------- -------- --------
-------- -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $140,149 $ 126,794 $ 142,578
Employee compensation and benefits 52,936 50,426 52,065
Taxes payable 14,243 12,178 23,179
Current portion of guarantee 2,533 2,331 1,841
Other 23,031 14,908 26,838
-------- -------- --------
Total current liabilities 232,892 206,637 246,501
-------- -------- --------
GUARANTEE OF PROFIT SHARING PLAN DEBT 12,528 15,061 13,821
-------- -------- --------
DEFERRED INCOME TAXES 35,010 31,701 34,875
-------- -------- --------
STOCKHOLDERS' EQUITY:
Common stock (20,653,000, 20,508,000,
and 20,654,000 shares outstanding) 10,327 10,254 10,327
Additional capital 108,668 97,179 104,518
Common stock contribution to
Profit Sharing Plan -- -- 5,530
Guarantee of Profit Sharing Plan debt (15,061) (17,392) (15,662)
Retained earnings 402,937 382,996 394,894
-------- -------- --------
Total stockholders' equity 506,871 473,037 499,607
-------- -------- --------
TOTAL $ 787,301 $ 726,436 $ 794,804
-------- -------- --------
-------- -------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-2-
<PAGE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
For the Two Quarters Ended
JULY 28 July 29
1994 1993
----------------------------
-------(Thousands)--------
<S> <C> <C>
OPERATING ACTIVITIES:
Receipts from customers $1,256,319 $1,219,697
Payments for merchandise (918,682) (886,802)
Payments for operating, administrative,
and occupancy expenses (277,010) (263,442)
Income tax payments (17,878) (17,212)
---------- ----------
Net cash provided by operating activities 42,749 52,241
---------- ----------
INVESTING ACTIVITIES:
Payments for property additions (16,546) (24,053)
Receipts from property dispositions 739 885
---------- ----------
Net cash used in investing activities (15,807) (23,168)
---------- ----------
FINANCING ACTIVITIES:
Repayment of short-term borrowings -- (10,000)
Repurchase of common stock (7,698) (1,500)
Dividend payments (11,652) (11,495)
---------- ----------
Net cash used in financing activities (19,350) (22,995)
---------- ----------
INCREASE IN CASH AND EQUIVALENTS 7,592 6,078
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 42,512 33,070
---------- ----------
CASH AND EQUIVALENTS AT END OF PERIOD $ 50,104 $ 39,148
---------- ----------
---------- ----------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 25,055 $ 26,917
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting change -- (3,031)
Depreciation and amortization 18,718 15,763
Deferred income taxes (860) (61)
Restricted stock awards 864 766
Tax benefits credited to stockholders' equity 81 97
Effects of changes in:
Pharmacy and other receivables 8,226 2,439
Merchandise inventories 4,202 16,989
Other current assets 765 827
Current liabilities (14,302) (8,465)
---------- ----------
Net cash provided by
operating activities $ 42,749 $ 52,241
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-3-
<PAGE>
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
For the Year Ended January 27, 1994 and Two Quarters Ended July 28, 1994
<TABLE>
<CAPTION>
PROFIT GUARANTEE
COMMON STOCK SHARING OF PROFIT STOCK-
------------------ ADDITIONAL PLAN SHARING RETAINED HOLDERS'
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
Restricted stock awards 5 1 1,349 1,350
Tax benefits related to employee stock plans (512) 188 (324)
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)
- - ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 27, 1994 20,654 $10,327 $104,518 $5,530 ($15,662) $394,894 $499,607
Net income 25,055 25,055
Dividends ($.56 per share) (11,652) (11,652)
Profit Sharing Plan:
Issuance of stock for FY94 contribution 147 74 5,456 (5,530) 0
Purchase of stock from plan (32) (16) (1,204) (1,220)
Reduction of plan debt 601 601
Restricted stock awards 78 39 825 864
Tax benefits related to employee stock plans 81 81
Repurchase of common stock (195) (98) (939) (5,441) (6,478)
Acquisition of Bill's Drugs, Inc.,
net of related costs 1 1 12 13
- - ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JULY 28, 1994 20,653 $10,327 $108,668 $ 0 ($15,061) $402,937 $506,871
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-4-
<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 July 28, 1994
and July 29, 1993 are unaudited. The balance sheet at January 27, 1994 and
statement of Stockholders' Equity for the year then ended, presented
herein, have 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.
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 $128,000,000 at July 28, 1994, and $124,200,000 at July 29,
1993, and $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 two quarters ended July 29,
1993.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
5. The Company repurchased 31,765 shares of its common stock from the Profit
Sharing Plan and 401(k) Plan during the two quarters ended July 28, 1994 in
accordance with a plan adopted by the Board of Directors in August 1989.
The stock was purchased at current market values, totalling $1,220,000.
-5-
<PAGE>
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>
As of
July 28, 1994
-------------
<S> <C>
Allocated shares..................................... 375,672
Unallocated shares................................... 321,192
-------
Total Plan Shares.................................... 696,864
-------
-------
</TABLE>
7. 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 for the quarter and two
quarters ended July 28,1994. The following pro forma information assumes
that the acquisition had taken place as of the beginning of the quarter and
two quarters ended July 29, 1993, 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
periods 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.
<TABLE>
<CAPTION>
For the For the Two
Quarter Ended Quarters Ended
July 29, 1993 July 29, 1993
------------- -------------
(Thousands Except Per Share)
<S> <C> <C>
Sales................................... $628,259 $1,259,881
Income before cumulative effect
of accounting change.................... $12,765 $23,261
Earnings per share before cumulative
effect of accounting change............. $.62 $1.12
</TABLE>
-6-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Sales increased 3% to $626,310,000 for the quarter ended July 28, 1994 as
compared to $609,346,000 for the similar period last year. Sales for the two
quarters increased 3% to $1,248,569,000 as compared to $1,217,325,000 in the
prior year. Sales in the stores acquired from Bill's Drugs, Inc. was $19,800,000
for the quarter and $39,000,000 for the two quarters ended July 28, 1994.
The soft economy continues to hamper sales growth in California and Hawaii,
where the majority of Longs' stores are located.
Net income for the quarter was $12,034,000, or $.58 per share, as compared with
$12,963,000 or $.63 per share a year ago. Net income for the two quarters,
without the cumulative effect of last year's accounting change was $25,055,000,
or $1.21 per share, as compared with $23,886,000, or $1.16 per share. Net income
for the two quarters ended last year was increased by the adoption of mandated
accounting rules (SFAS 109), relating to income taxes by $3,031,000, or $.15 per
share.
Gross margins increased to 26.0% as compared to 25.5% last year, reflecting
continued benefit of the scanning systems and efforts to reduce cost of goods
sold. Operating, administrative, and occupancy expenses were in line with
expectations, increasing from 22.1% to 22.8% as a percent of sales, due
principally to wages, occupancy, and facility costs associated with a net
increase of 30 stores since the comparable period a year ago.
The acquisition of Bill's Drugs, Inc. was completed during third quarter of the
prior fiscal year. The purchase was made with the issuance of approximately
$10,300,000 in Longs common stock and the assumption of approximately
$13,600,000 in liabilities.
The Company repurchased 31,765 shares of its common stock from the Profit
Sharing Plan and 401(k) Plan during the two quarters ended July 28, 1994, at
market values totalling $1,220,000.
Expenditures for the scanning system, new store construction, store remodels,
dividends, and stock repurchases have been, and are expected to be in the
future, 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.
Two new stores were opened during the quarter and one underperforming store was
closed. A total of 308 stores were in operation at July 28, 1994. Nine new
stores, including one store to be relocated, are under construction and
additional stores are in various stages of planning.
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. The shares are awarded at the discretion of the Stock
Bonus and Compensation Review Committee, and the aggregate number of shares of
stock awarded 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.
-7-
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On May 17, 1994, the Annual Meeting of Shareholders of the Company
was held in Walnut Creek, California. There were 20,850,197 shares
of common stock outstanding on the record date and entitled to
vote at the Annual Meeting.
(b) The following directors were elected: S.D. Roath
E.E. Johnston
T.R. Sweeney
M.S. Metz
There were 18,942,188 votes in favor and 149,313 votes against.
There were no abstentions and no broker non-votes.
(c) The approval of the 1995 Long-Term Incentive Plan was ratified
with 16,624,718 votes in favor, 2,290,458 votes against, 176,814
abstentions and no broker non-votes.
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 July 28, 1994.
-8-
<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 September 9, 1994 /s/ W. G. Combs
------------------------ ----------------------------------
W. G. Combs
Vice President - Administration and Treasurer
(PRINCIPAL FINANCIAL OFFICER)
/s/ G. L. White
----------------------------------
G. L. White
Vice President - Controller
(PRINCIPAL ACCOUNTING OFFICER)
-9-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-27-1994
<PERIOD-START> JAN-28-1994
<PERIOD-END> JUL-28-1994
<CASH> 50,104
<SECURITIES> 0
<RECEIVABLES> 42,413
<ALLOWANCES> 0
<INVENTORY> 276,322
<CURRENT-ASSETS> 385,877
<PP&E> 610,573
<DEPRECIATION> 212,766
<TOTAL-ASSETS> 787,301
<CURRENT-LIABILITIES> 232,892
<BONDS> 0
<COMMON> 10,327
0
0
<OTHER-SE> 496,544
<TOTAL-LIABILITY-AND-EQUITY> 787,301
<SALES> 1,248,569
<TOTAL-REVENUES> 0
<CGS> 920,455
<TOTAL-COSTS> 1,206,714
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 41,855
<INCOME-TAX> 16,800
<INCOME-CONTINUING> 25,055
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,055
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
</TABLE>
