<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
- -------------------------------------------------------------------------------
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended January 27, 1994
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -----------------------
Common Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
- -------------------------------------------------------------------------------
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
--- ---
The Exhibit Index is located on page 4 of this form.
(Cover page 1 of 2 pages)
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. /X/
The aggregate market value of voting stock held by non-affiliates of the
registrant as computed by the price of the registrant's shares on the New York
Stock Exchange at the close of business on April 5, 1994, was approximately
$690,767,027.
There were 20,850,197 shares of common stock outstanding as of April 5, 1994.
DOCUMENTS INCORPORATED BY REFERENCE
The Longs Drug Stores Corporation Annual Report to Shareholders for the year
ended January 27, 1994 (hereinafter referred to as the Annual Report), has been
incorporated by reference into:
Part I - Items 1 and 2
Part II - Items 5, 6, 7, and 8
Part IV - Item 14(a)(1)
The definitive proxy statement filed April 5, 1994, involving the election of
directors, has been incorporated by reference into Part III, Items 10, 11, 12,
and 13.
(Cover page 2 of 2 pages)
<PAGE>
PART I
ITEM 1. BUSINESS
The Company's business is highly competitive. It competes in the retail drug
industry with local and national chains as well as with independent merchants.
Merchandise of the kind sold by the Company can be found in variety stores,
discount houses, supermarkets, and other retail facilities.
The remainder of the information required by this item is contained in the
Annual Report under the headings "DESCRIPTION OF THE COMPANY" (page 12),
"MANAGEMENT'S DISCUSSION AND ANALYSIS" (page 12), and "QUARTERLY FINANCIAL DATA
(UNAUDITED) AND FIVE YEAR SELECTED FINANCIAL DATA" (page 19). Such information
is hereby incorporated by reference and filed herewith.
ITEM 2. PROPERTIES
The information required by this item is contained in the Annual Report under
the heading "DESCRIPTION OF THE COMPANY" (page 12). Such information is hereby
incorporated by reference and filed herewith.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
There were no matters submitted to a vote of stockholders during the fourth
quarter period covered by this report.
-1-
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The information required by this item is contained in the Annual Report under
the headings "STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY" (page 16),
"STOCKHOLDERS' EQUITY" (page 18), "QUARTERLY FINANCIAL DATA (UNAUDITED) AND FIVE
YEAR SELECTED FINANCIAL DATA" (page 19), and "STOCK LISTING" (page 20). Such
information is hereby incorporated by reference and filed herewith.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is contained in the Annual Report under
the heading "MANAGEMENT'S DISCUSSION AND ANALYSIS" (page 12), and "QUARTERLY
FINANCIAL DATA (UNAUDITED) AND FIVE YEAR SELECTED FINANCIAL DATA" (page 19).
Such information is hereby incorporated by reference and filed herewith.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by this item is contained in the Annual Report under
the headings "TO OUR SHAREHOLDERS" (pages 3, 4, 6, and 8) and "MANAGEMENT'S
DISCUSSION AND ANALYSIS" (page 12). Such information is hereby incorporated by
reference and filed herewith.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is contained in the Annual Report (pages
13 through 19). Such information is hereby incorporated by reference and filed
herewith.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to directors is contained in
a definitive proxy statement filed April 5, 1994, with the Securities and
Exchange Commission. Such information is hereby incorporated by reference.
Certain information relating to executive officers of the Company appears at
page 3 of this Form 10-K Annual Report.
Items 11, 12, and 13 are omitted since the Company filed on April 5, 1994, with
the Securities and Exchange Commission a definitive proxy statement, involving
the election of directors, for the Annual Meeting on May 17, 1994. Such
information is hereby incorporated by reference.
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<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following persons are now executive officers of the Company and the Board
of Directors intends to reappoint them to their current offices.
EXECUTIVE OFFICER'S
PRIMARY EXECUTIVE POSITION
NAME AGE POSITION WITH REGISTRANT HELD SINCE(1)(2)
- ---------------- ----- ------------------------------ -------------------
R. M. Long 55 Chairman of the Board 1991
Chief Executive Officer(3) 1977
S. D. Roath 53 President(3) 1991
B. M. Brandon 55 Senior Vice President 1988
G. A. Duey 61 Senior Vice President 1988
O. D. Jones 55 Senior Vice President, Properties and 1975
Secretary
R. A. Plomgren 60 Senior Vice President, Development(3) 1976
D. R. Wilson 52 Senior Vice President, Marketing 1988
W. G. Combs 63 Vice President, Administration, 1961
Corporate Relations(3)
G. L. White 53 Vice President, Controller 1988
- ---------------
(1)Each officer is appointed for a one-year term.
(2)All of the executive officers of the Company have been employed by the
Company for at least the past five years in executive capacities or in
related areas of responsibility.
(3)Also serves as a Director of the Company.
-3-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
----------------------------------------------------------------------
The following financial statements and independent auditors' report
appearing in the Annual Report, on pages 13 through 19, are
incorporated herein by reference:
Statements of Consolidated Income for the fiscal years ended
January 27, 1994, January 28, 1993 and January 30, 1992.
Consolidated Balance Sheets as of January 27, 1994 and January
28, 1993.
Statements of Consolidated Cash Flows for the fiscal years ended
January 27, 1994, January 28, 1993, and January 30, 1992.
Statements of Consolidated Stockholders' Equity for the fiscal
years ended January 27, 1994, January 28, 1993, and January 30,
1992.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
(a)(2) FINANCIAL STATEMENT SCHEDULES for the fiscal years ended January 27,
1994, January 28, 1993, and January 30, 1992.
----------------------------------------------------------------------
Page
Number
Independent Auditors' Report on Financial Statement
Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Schedule
Number
V Property, Plant and Equipment. . . . . . . . . . . . . 10
VI Accumulated Depreciation of Property, Plant
and Equipment. . . . . . . . . . . . . . . . . . . . . 11
X Supplementary Income Statement Information . . . . . . 12
(a)(3) EXHIBITS
----------------------------------------------------------------------
Exhibit Page
No. Number
3. Articles of Incorporation and By-Laws
a. A copy of the Articles of Incorporation and By-Laws
of Longs Drug Stores Corporation is incorporated
herein by reference as previously filed with the
Commission on March 18, 1985, as Exhibit 3 to Form
S-14, Registration No. 2-96486.
-4-
<PAGE>
Exhibit Page
Number: Number
10. Material Contracts
a. A copy of the 1980 Employees' Stock Option Plan of
Longs Drug Stores, Inc., is incorporated herein by
reference as previously filed with the Commission on
April 22, 1980, as Exhibit B to the Company's proxy
statement.
b. A copy of the 1975 Employees' Stock Option Plan of
Longs Drug Stores, Inc., is incorporated herein by
reference as previously filed with the Commission on
April 23, 1976, as Exhibit 1B to Form S-8,
Registration No. 2-56127.
c. A copy of the Stock Option Agreement of Longs Drug
Stores, Inc., dated February 8, 1980, is incorporated
herein by reference as previously filed with the
Commission on April 8, 1980, as Exhibit 2C to Post-
Effective Amendment No. 3 to Form S-8, Registration
No. 2-56127.
d. A copy of the Stock Option Agreement of Longs Drug
Stores, Inc., dated January 17, 1980, is incorporated
herein by reference as previously filed with the
Commission on April 8, 1980, as Exhibit 2B to Post-
Effective Amendment No. 3 to Form S-8, Registration
No. 2-56127.
e. A copy of the Stock Option Agreement of Longs Drug
Stores, Inc., dated April 29, 1977, is incorporated
herein by reference as previously filed with the
Commission on April 17, 1978, as Exhibit 2C to Post-
Effective Amendment No. 2 to Form S-8, Registration
No. 2-56127.
f. A copy of the Amendment to the 1980 Employees' Stock
Option Plan of Longs Drug Stores, Inc., is incorporated
herein by reference as previously filed with the
Commission on July 22, 1982, as Exhibit 19a to Form
8-K.
g. A copy of the Amendments to Stock Option Agreements of
Longs Drug Stores, Inc., dated April 29, 1977,
January 17, 1980, and February 8, 1980, is incorporated
herein by reference as previously filed with the
Commission on July 22, 1982, as Exhibit 19b to Form
8-K.
h. A copy of the Amendments to the 1975 and 1980 Employees'
Stock Option Plans of Longs Drug Stores, Inc., is
incorporated herein by reference as previously filed
with the Commission on May 8, 1985, on Form S-8,
Registration No. 2-97578.
i. Agreement for terminal benefits in the event of
uninvited change in corporate control of Longs Drug
Stores California, Inc., is incorporated herein by
reference as previously filed with the Commission on
April 28, 1986, as Exhibit 10f to Form 10-K.
j. A copy of the Rights Agreement of Longs Drug Stores
Corporation dated August 19, 1986, is incorporated
herein by reference as previously filed with the
Commission on August 21, 1986, as Exhibits 1 and 2
to Form 8-A.
-5-
<PAGE>
Exhibit Page
No.: Number
k. A copy of the Long Term Incentive Plan of 1987 of
Longs Drug Stores Corporation is incorporated herein
by reference as previously filed with the Commission
on March 13, 1987, on Form S-8, Registration
No. 33-12653.
l. A copy of the undertakings of Longs Drug Stores
Corporation is incorporated herein by reference as
previously filed with the Commission on April 10, 1987,
into Form S-8, Registration No. 2-97578.
m. A copy of the First Amendment to Rights Agreement of
Longs Drug Stores Corporation dated November 15, 1988,
is incorporated herein by reference as previously filed
with the Commission on December 1, 1988, as Exhibit 1 to
Form 8-K.
n. A copy of the Note Purchase Agreement of Longs Drug
Stores California, Inc., dated April 28, 1989, is
incorporated herein by reference as previously filed
with the Commission on April 18, 1990, as Exhibit 10n
to Form 10-K.
o. A copy of the Proposal to acquire Bill's Drugs, Inc.
is incorporated herein by reference as previously filed
with the Commission on August 6, 1993, on Form S-4,
Registration No. 033-49935.
13. Annual Report . . . . . . . . . . . . . . . . . . . . . (Enclosed)
21. Subsidiary of the Registrant - Longs Drug Stores California, Inc.,
a California corporation.
23. Consents of Auditors and Counsel
a. Independent Auditors' Consent. . . . . . . . . . . . . 13
b. Consent of Counsel . . . . . . . . . . . . . . . . . . 14
(b) REPORTS ON FORM 8-K
There have been no reports on Form 8-K filed during the quarter
ended January 27, 1994.
-6-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 April 15, 1994 /s/ G. W. White
----------------------- ---------------------------------------------
Grover White
Vice President - Controller
(PRINCIPAL ACCOUNTING OFFICER)
Date April 15, 1994 /s/ W. G. Combs
----------------------- ---------------------------------------------
W. G. Combs
Vice President - Administration
(PRINCIPAL FINANCIAL OFFICER)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been duly signed by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
DATE SIGNATURE
April 15, 1994 By /s/ R. M. Long
------------------------- -------------------------------------------
(R. M. Long)
Chairman of the Board
Chief Executive Officer and Director
April 15, 1994 By /s/ S. D. Roath
------------------------- -------------------------------------------
(S. D. Roath)
President and Director
-7-
<PAGE>
April 15, 1994 By /s/ R. M. Brooks
------------------------- -------------------------------------------
(R. M. Brooks)
Director
April 15, 1994 By /s/ D. G. DeSchane
------------------------- -------------------------------------------
(D. G. DeSchane)
Director
April 15, 1994 By /s/ E. E. Johnston
------------------------- -------------------------------------------
(E. E. Johnston)
Director
April 15, 1994 By /s/ M. S. Metz
------------------------- -------------------------------------------
(M. S. Metz)
Director
April 15, 1994 By /s/ R. A. Plomgren
------------------------- -------------------------------------------
(R. A. Plomgren)
Senior Vice President - Development
and Director
April 15, 1994 By /s/ H. R. Somerset
------------------------- -------------------------------------------
(H. R. Somerset)
Director
April 15, 1994 By /s/ T. R. Sweeney
------------------------- -------------------------------------------
(T. R. Sweeney)
Retired Vice President
and Director
April 15, 1994 By /s/ F. E. Trotter
------------------------- -------------------------------------------
(F. E. Trotter)
Director
-8-
<PAGE>
Deloitte &
Touche
__________ ______________________________________________________________
50 Fremont Street Telephone: (415) 247-4000
San Francisco, California 94105-2230 Facsimile: (415) 247-4329
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
Board of Directors and Stockholders
Longs Drug Stores Corporation
Walnut Creek, California
We have audited the consolidated financial statements of Longs Drug Stores
Corporation and its subsidiary as of January 27, 1994 and January 28, 1993, and
for each of the three fiscal years in the period ended January 27, 1994, and
have issued our report thereon dated February 25, 1994; such financial
statements and report are included in your 1994 Annual Report to Shareholders
and are incorporated herein by reference. Our audits also comprehended the
financial statement schedules of Longs Drug Stores Corporation and its
subsidiary, listed in Item 14(a)(2). These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedules,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly in all material respects the information shown
therein.
/s/ Deloitte & Touche
February 25, 1994
_______________
Deloitte Touche
Tohmatsu
International
_______________
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<PAGE>
LONGS DRUG STORES CORPORATION
PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
SCHEDULE V
- ---------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
BALANCE AT OTHER BALANCE
BEGINNING ADDITIONS ADD AT
CLASSIFICATION OF YEAR AT COST(A) RETIREMENTS (DEDUCT)(B) END OF YEAR
- ----------------------------------------------------------------------------------
-------------------------(Thousands)--------------------------
<S> <C> <C> <C> <C> <C>
For the Year Ended
January 27, 1994:
Land $ 70,348 $ 3,979 $ -- $ 3,290 $ 77,617
Buildings and
leasehold
improvements 257,278 26,163 924 4,354 286,871
Equipment and
fixtures 203,476 31,163 6,106 -- 228,533
Beverage licenses 6,930 435 404 -- 6,961
-------- -------- -------- -------- --------
TOTAL $538,032 $ 61,740 $ 7,434 $ 7,644 $599,982
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
For the Year Ended
January 28, 1993:
Land $ 66,758 $ 5,770 $ 2,180 $ -- $ 70,348
Buildings and
leasehold
improvements 242,718 18,520 3,960 -- 257,278
Equipment and
fixtures 179,011 30,793 6,328 -- 203,476
Beverage licenses 6,860 301 231 -- 6,930
-------- -------- -------- -------- --------
TOTAL $495,347 $ 55,384 $ 12,699 $ -- $538,032
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
For the Year Ended
January 30, 1992:
Land $ 67,244 $ 565 $ 1,051 $ -- $ 66,758
Buildings and
leasehold
improvements 220,701 23,037 1,020 -- 242,718
Equipment and
fixtures 147,948 36,039 4,976 -- 179,011
Beverage licenses 6,947 52 139 -- 6,860
-------- -------- -------- -------- --------
TOTAL $442,840 $ 59,693 $ 7,186 $ -- $495,347
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
<FN>
- -------------------------------------------------------------------------------
(A)Primarily cash expenditures for construction costs and equipment for new
stores opened during the fiscal year, including systems development.
(B)During the year ended January 27, 1994, the assets of Bill's Drug Stores,
Inc. were acquired in a stock transaction.
</TABLE>
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<PAGE>
LONGS DRUG STORES CORPORATION
ACCUMULATED DEPRECIATION
OF
PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
SCHEDULE VI
- ---------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
ADDITIONS
BALANCE AT CHARGED TO OTHER BALANCE
BEGINNING COSTS AND ADD AT
CLASSIFICATION OF YEAR EXPENSES(A) RETIREMENTS (DEDUCT) END OF YEAR
- ---------------------------------------------------------------------------------
-------------------------(Thousands)--------------------------
<S> <C> <C> <C> <C> <C>
For the Year Ended
January 27, 1994:
Buildings and
leasehold
improvements $ 67,439 $ 10,154 $ 37 $ -- $ 77,556
Equipment and
fixtures 103,931 22,469 5,048 -- 121,352
Beverage licenses -- 364 -- -- 364
-------- -------- -------- -------- --------
TOTAL $171,370 $ 32,987 $ 5,085 $ -- $199,272
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
For the Year Ended
January 28, 1993:
Buildings and
leasehold
improvements $ 58,704 $ 9,230 $ 495 $ -- $ 67,439
Equipment and
fixtures 89,626 19,199 4,894 -- 103,931
-------- -------- -------- -------- --------
TOTAL $148,330 $ 28,429 $ 5,389 $ -- $171,370
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
For the Year Ended
January 30, 1992:
Buildings and
leasehold
improvements $ 51,427 $ 7,834 $ 557 $ -- $ 58,704
Equipment and
fixtures 78,212 15,437 4,023 -- 89,626
-------- -------- -------- -------- --------
TOTAL $129,639 $23,271 $ 4,580 $ -- $148,330
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
<FN>
- -------------------------------------------------------------------------------
(A)Depreciation is calculated using the straight-line method and estimated
useful lives of twenty to thirty-three years for buildings, life of the
lease for leasehold improvements, and three to twenty years for equipment
and fixtures.
</TABLE>
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<PAGE>
LONGS DRUG STORES CORPORATION
SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
SCHEDULE X
- -------------------------------------------------------------------------------
COLUMN A COLUMN B
CLASSIFICATION CHARGED TO
COSTS & EXPENSES
(THOUSANDS)
- -------------------------------------------------------------------------------
<S> <C>
FOR THE YEAR ENDED JANUARY 27, 1994:
Advertising $20,589
-------
-------
For the Year Ended January 28, 1993:
Advertising $17,488
-------
-------
For the Year Ended January 30, 1992:
Advertising $20,555
-------
-------
</TABLE>
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<PAGE>
Deloitte &
Touche
__________ _________________________________________________________________
50 Fremont Street Telephone: (415) 247-4000
San Francisco, California 94105-2230 Facsimile: (415) 247-4329
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
No. 2-97578 and 33-12653 of Longs Drug Stores Corporation on Form S-8 of our
reports dated February 25, 1994 appearing in and incorporated by reference
in this Annual Report on Form 10-K of Longs Drug Stores Corporation for the
year ended January 27, 1994.
/s/ Deloitte & Touche
April 11, 1994
_______________
Deloitte Touche
Tohmatsu
International
_______________
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<PAGE>
LAW OFFICES
Howard H. Bell James Dunlavey
Robert Rosenberg* BELL, ROSENBERG & HUGHES Retired
Roger M. Hughes 1300 CLAY STREET, SUITE 1000
James C. Nelson P.O. BOX 70220 STATION "D" Telephone
Catherine M. Fisher OAKLAND, CALIFORNIA 94612-0220 (510) 832-8585
John H. Banister
Roland Nikles Telecopier
Teresa Jenkins Main (510) 839-6925
Howard G. Curtis
Jennifer M. V. Bergstrom
Joseph A. Creitz
*Certified Specialist-Probate,
Estate Planning & Trust Law
The State Bar of California
Board of Legal Specialization
March 21, 1994
Longs Drug Stores Corporation
P.O. Box 5222
Walnut Creek, CA 94596
Gentlemen:
We hereby consent to the use in the Annual Report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934, and amendments thereto, of Longs
Drug Stores Corporation (the Company), on Form 10-K, of
(a) our opinion dated May 7, 1985 to the Company's Registration Statement on
Form S-8 (Number 2-97578), under the Securities Act of 1933, as amended,
covering 474,576 shares of the Company's Common Stock to be issued upon
exercise of options granted under the Company's 1975 Employees' Stock
Option Plan and 1980 Employees' Stock Option Plan.
(b) our opinion dated April 2, 1985 to the Company's Registration Statement on
Form S-14 (Number 2-96486) under the Securities Act of 1933, as amended,
covering 21,900,000 shares of the Company's Common Stock.
(c) our opinion dated March 5, 1987 to the Company's Registration Statement on
Form S-8 (Number 33-12653), under the Securities Act of 1933, as amended,
covering 400,000 shares of the Company's Common Stock to be issued upon
exercise of awards under the Company's Long Term Incentive Plan of 1987.
Yours very truly,
BELL, ROSENBERG & HUGHES
/s/ Howard H. Bell
Howard H. Bell
-14-
<PAGE>
LONGS DRUGS
WORKING TOGETHER FOR A HEALTHY COMMUNITY
[Photograph]
1994 ANNUAL REPORT
<PAGE>
LONGS - 55 YEARS OF COMMUNITY INVOLVEMENT
[Photograph]
OUR FOUNDER'S LEGACY
When a business is created, it begins with an idea. Joe and Tom Long's idea when
they started Longs in 1938, was to open a general store, put a pharmacy in it,
and be among the first to offer self-service. They combined neighborly
convenience and value with the philosophy of "TREAT THE CUSTOMER AS YOU WOULD
LIKE TO BE TREATED."
These are good ideas, and they serve Longs well today; but the legacy left by
Tom and Joe involves much more. In 55 years they built a debt free business that
produces more than two billion dollars in annual sales. They established a
decentralized retail organization before empowerment and autonomy were
fashionable.
Over the years Joe and Tom impressed their philosophy upon the minds of those
who run the business today. Some of the cardinal tenets of that philosophy
include: "BE SURE TO OFFER THE CUSTOMER VALUE." "EACH STORE SHOULD SERVE IT'S
OWN CUSTOMERS." "WORK HARD." "THE ONLY WAY TO MAKE MONEY IS TO SHARE IT."
"WE VIEW OUR STORE MANGERS AS ENTREPRENEURS." "YOU CAN'T SELL FROM AN EMPTY
WAGON." "OUR STORES MUST BE BRIGHT AND CLEAN." "DARE TO BE DIFFERENT; STRIVE TO
IMPROVE."
Our founder's legacy can be seen in our people and in our commitment to the
communities that we serve. Their legacy also lives in the financial strength of
our company, and in the fertile environment that Joe and Tom nurtured which
offers a wealth of opportunity to us all. We will not forget.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(THOUSANDS EXCEPT PER SHARE DATA) 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
SALES $2,499,224 $2,475,475
- -------------------------------------------------------------------------------
NET INCOME 52,782 52,993
- -------------------------------------------------------------------------------
PER SHARE 2.56 2.58
- -------------------------------------------------------------------------------
DIVIDENDS 22,990 22,812
- -------------------------------------------------------------------------------
PER SHARE 1.12 1.11
- -------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 499,607 458,211
- -------------------------------------------------------------------------------
PER SHARE* 23.92 22.07
- -------------------------------------------------------------------------------
WORKING CAPITAL 143,981 136,676
- -------------------------------------------------------------------------------
<FN>
* BASED ON STOCKHOLDERS' EQUITY EXCLUDING COMMON STOCK CONTRIBUTION TO PROFIT
SHARING PLAN.
</TABLE>
2
<PAGE>
TO OUR SHAREHOLDERS
We believe that we will look back upon fiscal 1994 in the years to come as the
time during which we achieved a new sense of focus and direction. As a result of
that focus, we have made significant progress and initiated important changes in
our operations.
MILESTONES ACHIEVED
[Photograph]
This past year your company reached several milestones in a challenging business
environment.
- - We added a record number of stores, including the acquisition of a small drug
chain.
- - We refined our "store within a store" concept with new merchandising
strategies, fixtures, and layouts.
- - We realigned district boundaries and enhanced our executive ranks with a few
new faces and fresh ideas.
- - We performed well in highly competitive and recessionary circumstances.
- - We defined our mission and outlined our plans for the future.
The details that surround these milestones illustrate why fiscal 1994 will prove
to be pivotal for your company.
RECORD EXPANSION
[Photograph]
We added an unprecedented 31 stores to our roster this fiscal year. In September
we purchased Bill's Drugs, a northern California chain of 20 stores. In
addition, we opened seven traditional Longs stores, four Longs Pharmacies and
relocated two stores. As of March 29, 1994, Longs operates 308 stores in five
western states.
Along with the acquisition of Bill's came new customers, new employees, and
fresh ideas that have energized our Longs family and enhanced our stores.
The four Longs Pharmacies opened during the year are a part of our growing small
store program. A Longs Pharmacy is smaller than our typical 15,000 to 25,000
square foot store, and usually does not stock all the categories found in our
larger stores. We are gratified by the growth and the strength of this smaller
store format. Longs Pharmacies provide entry into markets that would otherwise
be denied us. Longs currently operates a total of 15 such pharmacies.
EVOLVING ROLE OF PHARMACY
The pharmacy is central to our business. Significant and ongoing changes in
health care affect how we conduct that business. The growing national debate
about the delivery and cost of health care, new regulatory requirements such
as mandatory consultation on all new prescriptions, and the growing presence
of third party payors compels us to
3
<PAGE>
further strengthen our pharmacy operation and practices.
This year we placed Diabetes Centers in all of our stores to help underscore the
growing presence of the pharmacy in the delivery of health care. Stronger links
are being forged with service organizations such as the American Diabetes
Association and the American Heart Association to assist in their efforts to
improve the health of our communities.
LONGS FOR A HEALTHY COMMUNITY
[Photograph]
Longs stores and our corporate organization alike are involved in many
community-directed initiatives. This past year we organized the 11th Annual
Senior Citizens Thank-you Party in Reno; inoculated thousands of customers
against the flu in our stores, and distributed thousands of gallons of drinking
water and other emergency supplies to victims of the Los Angeles earthquake. All
of these projects and many more are all part of LONGS FOR A HEALTHY COMMUNITY.
Community service projects, like the ones just described, illustrate the essence
of Longs service agenda. LONGS FOR A HEALTHY COMMUNITY is more than a slogan, it
describes how we view our business.
[Photograph]
TECHNOLOGY UPDATE
The roll-out of our scanning project is 90% complete as of March 1994. We are
now entering a phase that will focus on systems specifically designed to
increase profitability, identify new business opportunities, and much more.
We are starting to reap the benefits of this significant investment. Faster and
easier sales tracking, excess inventory reports, and ability to easily
coordinate pricing in groups of stores are just three ways that our information
system improves our operation.
Much of the success of this new system is due to the outstanding efforts of our
MIS Department headed by Brian Kilcourse who was promoted to Chief Information
Officer last summer.
4
<PAGE>
[Photograph]
5
<PAGE>
EXECUTIVE CHANGES
Other changes were made in our executive ranks. These changes were prompted by
the retirement of some district managers, the reassignment of others, and the
realignment of some of our store districts.
Over the past six months seven new district managers have been appointed. All of
our new District Managers have many years of experience as Longs store managers.
They are effective leaders and are recognized retail experts who know how to
make a store profitable.
Terry Burnside, who joins us as Merchandise Manager, served as Vice President of
Operations at Bill's Drugs prior to coming to Longs. Terry brings considerable
marketing and retail experience to his position.
[Photograph]
PEOPLE
We recognize that it is our people who will provide the real differentiation in
the marketplace of the 90s. Fortunately, we have a strong existing base of
educated and skilled people in our stores, and we have ongoing, developmental
programs on line to ensure we retain this competitive edge.
Our strong family culture and the commitment of our people to excellence in
service make a profound contribution to our success. The recent earthquake
disaster in Southern California again brought this fact into sharp focus. Senior
Vice President Bill Brandon recently said, "The quick response and hard work of
our people following the quake kept our losses to a minimum!"
[Photograph]
LONGS PERFORMANCE
The economic climate this past year yielded some solid results, especially when
compared to other retailers in our markets. Our stores performed particularly
well in the fourth quarter which saw growth in both sales and earnings compared
to last year. We achieved these positive results in spite of one-time costs
associated with the Los Angeles earthquake and the acquisition of 20 Bill's Drug
Stores.
6
<PAGE>
[PHOTOGRAPH]
7
<PAGE>
MISSION AND STRATEGY
Over the past year we outlined your company's mission and identified the
principle elements of our plan. Those elements include:
- - Reducing overall operating costs
- - Changing the role of our Marketing Department to reduce acquisition costs
- - Enhancing our growth strategy for the pharmacy
- - Further development of retail technology
- - Exploring additional growth opportunities
We assigned responsibility for each of those elements to a senior member of
management, and we are pleased to report that significant progress has already
been achieved.
[PHOTO]
THE YEAR AHEAD
The year ahead holds much promise for your company. Benefits from our scanning
system are now beginning to be achieved. Our executive ranks have been enlivened
through recent appointments, and with all management committed to our plan, we
anticipate significant progress.
We believe that Longs is poised for a new era of innovation and development that
honors the legacy left to us by our founders. We are confident that through
partnering with suppliers, the dedication of our people and the ongoing support
of you, our shareholders, we will realize the positive outcome that we all seek.
/s/ S.D. Roath
S.D. Roath
PRESIDENT
/s/ R.M. Long
R.M. Long
CHIEF EXECUTIVE OFFICER
Walnut Creek, California, March 29, 1994
8
<PAGE>
[PHOTOGRAPH]
9
<PAGE>
NEW STORES INCREASE OUR SALES BASE
[PHOTOGRAPH]
10
<PAGE>
BILL'S DRUGS JOINS OUR FAMILY
[PHOTOGRAPH]
<PAGE>
DESCRIPTION OF THE COMPANY
Longs Drug Stores has operated exclusively in the retail drug industry for over
55 years. By the end of January 1994, store count had grown to 305, including
267 stores in California, 24 in Hawaii, 6 each in Colorado and Nevada, and 2 in
Alaska.
Total retail sales square footage increased 8% to 4.9 million square feet during
1994. Although our stores vary in size, the average store opened in the last
five years is approximately 20,000 square feet, with 67% devoted to selling
space. Sales per store averaged $9.0 million for fiscal 1994.
The Company's decentralized philosophy allows store managers to enhance the
product mix of their store based on customer preferences in the communities they
serve. Longs sells nationally advertised name-brand merchandise. Customers are
provided additional value with other items sold under Longs private label.
Longs General Offices provide accounting, personnel, real estate, and legal
services to the stores in addition to acting as a communications center for
information on marketing and merchandising. The General Offices and 117 stores
are Company-owned buildings on Company-owned land; 42 stores are Company owned
buildings on leased land; and 146 stores are totally leased.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Sales for fiscal year 1994 increased 1% over fiscal year 1993, which increased
5% over fiscal year 1992. Sales in stores acquired from Bill's Drugs, Inc.
totaled $28.6 million for 1994. The Company estimates that 2% of sales in fiscal
1994, 3% in 1993, and 3% in 1992 were attributable to inflation.
Pharmacy continues as the focal point of our business, accounting for 28.7% of
sales in 1994 as compared to 27.0% in 1993 and 25.2% in 1992. Photo, Cosmetics,
and Greeting Cards are other core categories complementing our business.
The Company's gross margin improved to 25.5% in 1994, compared to 24.7% in 1993,
and 24.9% in 1992. Stronger margins in 1994 resulted from our pricing and
product acquisition strategies which utilize information gathered through our
new Scanning Project.
Operating, administrative, and occupancy expenses as a percentage of sales were
22.2% in 1994, 21.2% in 1993, and 21.1% in 1992. Costs were in line with our
expectations. The roll-out of the Scanning Project and the addition of 31 new
stores have increased expenses, while the sluggish California economy and stiff
competition have continued to restrain sales growth. Expenses, as a result,
increased as a percentage of sales.
The acquisition of Bill's Drugs, Inc. was made with the issuance of
approximately $10.3 million in Longs common stock and the assumption of
approximately $13.6 million in liabilities.
Adoption in 1994 of mandated rules (SFAS 109) relating to income taxes resulted
in a one-time increase in earnings of $3.0 million. The Omnibus Budget
Reconciliation Act of 1993 increased the federal statutory rate from 34 percent
to 35 percent, resulting in additional income tax expense of $1.2 million,
including $376 thousand to revalue existing deferred liabilities to reflect the
increased rate.
During 1994 the Company repurchased 213 thousand shares of its common stock at
market values totaling $7.1 million.
FINANCIAL CONDITION OF THE COMPANY
Net cash provided by operations in 1994 was $114.2 million, compared with $71.1
million in 1993, and $83.6 million in 1992. Improvement was primarily the result
of lower store inventories achieved through better inventory management, a
benefit of the Scanning Project. Expenditures for new store construction, store
remodels, the Scanning Project, dividends, and stock repurchases have been and
will continue to be funded from operations and cash reserves. To maintain
desired working capital the Company utilizes short-term lines of credit
available from several banks.
The Company has invested $62.4 million in capital expenditures for 1994, $55.4
million for 1993, and $59.7 million for 1992, including $7.5 million, $11.8
million, and $18.3 million in each of these years relating to the rollout of the
Scanning Project.
12
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CONSOLIDATED INCOME
- ---------------------------------------------------------------------------------------------
FOR THE FISCAL YEARS ENDED
January 27 January 28 January 30
1994 1993 1992
- ---------------------------------------------------------------------------------------------
-----THOUSANDS EXCEPT PER SHARE-----
<S> <C> <C> <C>
SALES $2,499,224 $2,475,475 $2,365,916
COST AND EXPENSES:
Cost of merchandise sold 1,863,092 1,863,172 1,775,927
Operating and administrative 439,004 423,959 406,579
Occupancy 114,877 100,851 92,131
- ---------------------------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME 82,251 87,493 91,279
TAXES ON INCOME 32,500 34,500 35,900
- ---------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 49,751 52,993 55,379
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 3,031 -- --
- ---------------------------------------------------------------------------------------------
NET INCOME $ 52,782 $ 52,993 $ 55,379
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
PER COMMON SHARE:
Income Before Cumulative Effect of Accounting Change $2.41 $2.58 $2.71
Cumulative Effect of Accounting Change .15 -- --
-------------------------------------------------------------------------------------------
NET INCOME $2.56 $2.58 $2.71
DIVIDENDS $1.12 $1.11 $1.07
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 20,592 20,538 20,417
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
INDEPENDENT AUDITORS' REPORT
LONGS DRUG STORES CORPORATION:
WE HAVE AUDITED THE ACCOMPANYING CONSOLIDATED BALANCE SHEETS OF LONGS DRUG
STORES CORPORATION AND ITS SUBSIDIARY AS OF JANUARY 27, 1994 AND JANUARY 28,
1993, AND THE RELATED STATEMENTS OF CONSOLIDATED INCOME, CONSOLIDATED
STOCKHOLDERS' EQUITY AND CONSOLIDATED CASH FLOWS FOR EACH OF THE THREE FISCAL
YEARS IN THE PERIOD ENDED JANUARY 27, 1994. THESE FINANCIAL STATEMENTS ARE THE
RESPONSIBILITY OF THE COMPANY'S MANAGEMENT. OUR RESPONSIBILITY IS TO EXPRESS AN
OPINION ON THESE FINANCIAL STATEMENTS BASED ON OUR AUDITS.
WE CONDUCTED OUR AUDITS IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING
STANDARDS. THOSE STANDARDS REQUIRE THAT WE PLAN AND PERFORM THE AUDIT TO OBTAIN
REASONABLE ASSURANCE ABOUT WHETHER THE FINANCIAL STATEMENTS ARE FREE OF MATERIAL
MISSTATEMENT. AN AUDIT INCLUDES EXAMINING, ON A TEST BASIS, EVIDENCE SUPPORTING
THE AMOUNTS AND DISCLOSURES IN THE FINANCIAL STATEMENTS. AN AUDIT ALSO INCLUDES
ASSESSING THE ACCOUNTING PRINCIPLES USED AND SIGNIFICANT ESTIMATES MADE BY
MANAGEMENT, AS WELL AS EVALUATING THE OVERALL FINANCIAL STATEMENT PRESENTATION.
WE BELIEVE THAT OUR AUDITS PROVIDE A REASONABLE BASIS FOR OUR OPINION.
IN OUR OPINION, SUCH CONSOLIDATED FINANCIAL STATEMENTS PRESENT FAIRLY, IN ALL
MATERIAL RESPECTS, THE FINANCIAL POSITION OF THE COMPANIES AT JANUARY 27, 1994
AND JANUARY 28, 1993, AND THE RESULTS OF THEIR OPERATIONS AND THEIR CASH FLOWS
FOR EACH OF THE THREE FISCAL YEARS IN THE PERIOD ENDED JANUARY 27, 1994 IN
CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
AS DISCUSSED IN THE NOTE TO THE FINANCIAL STATEMENTS ENTITLED "TAXES ON INCOME",
THE COMPANY CHANGED ITS METHOD OF ACCOUNTING FOR INCOME TAXES EFFECTIVE
JANUARY 29, 1993 TO CONFORM WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
NO. 109.
/s/ Deloitte & Touche
DELOITTE & TOUCHE
SAN FRANCISCO, CALIFORNIA
FEBRUARY 25, 1994
13
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------
JANUARY 27 JANUARY 28
1994 1993
- --------------------------------------------------------------------------------------
-------THOUSANDS------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 42,512 $ 33,070
Pharmacy and other receivables 50,639 40,488
Merchandise inventories 280,524 273,933
Deferred income taxes 14,270 10,070
Other 2,537 1,967
- -------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 390,482 359,528
- -------------------------------------------------------------------------------------
PROPERTY:
Land 77,617 70,348
Buildings and leasehold improvements 286,871 257,278
Equipment and fixtures 228,533 203,476
Beverage licenses 6,961 6,930
- -------------------------------------------------------------------------------------
Total property - at cost 599,982 538,032
Less accumulated depreciation 199,272 171,370
- -------------------------------------------------------------------------------------
PROPERTY - NET 400,710 366,662
- -------------------------------------------------------------------------------------
OTHER NON-CURRENT ASSETS 3,612 --
- -------------------------------------------------------------------------------------
TOTAL $794,804 $726,190
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $142,578 $121,983
Short-term borrowings -- 10,000
Employee compensation and benefits 52,065 48,999
Taxes payable 23,179 22,723
Current portion of guarantee 1,841 1,694
Other 26,838 17,453
- -------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 246,501 222,852
- -------------------------------------------------------------------------------------
GUARANTEE OF PROFIT SHARING PLAN DEBT 13,821 16,251
- -------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 34,875 28,876
- -------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock (20,654,000 and 20,413,000 shares outstanding) 10,327 10,207
Additional capital 104,518 93,697
Common stock contribution to Profit Sharing Plan 5,530 4,775
Guarantee of Profit Sharing Plan debt (15,662) (17,945)
Retained earnings 394,894 367,477
- -------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 499,607 458,211
- -------------------------------------------------------------------------------------
TOTAL $794,804 $726,190
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
14
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CONSOLIDATED CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------------------
FOR THE FISCAL YEARS ENDED
January 27 January 28 January 30
1994 1993 1992
--------------THOUSANDS-------------
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Receipts from customers $2,490,558 $2,472,834 $2,367,643
Payments for merchandise (1,840,876) (1,883,001) (1,798,042)
Payments for operating, administrative, and occupancy expenses (503,891) (483,319) (447,778)
Income tax payments (31,628) (35,366) (38,227)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 114,163 71,148 83,596
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Payments for property additions (62,402) (55,384) (59,693)
Receipts from property dispositions 2,349 7,310 2,606
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (60,053) (48,074) (57,087)
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from (repayment of) short-term borrowings (10,000) 10,000 (12,000)
Repayment of debt assumed from Bill's Drugs, Inc. (4,613) -- --
Proceeds from sale of common stock to Profit Sharing Plan -- 357 859
Repurchase of common stock (7,065) (6,004) --
Dividend payments (22,990) (22,812) (21,858)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (44,668) (18,459) (32,999)
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 9,442 4,615 (6,490)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 33,070 28,455 34,945
- ---------------------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF YEAR $ 42,512 $ 33,070 $ 28,455
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net income $ 52,782 $ 52,993 $ 55,379
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 33,241 28,429 23,271
Deferred income taxes 2,857 (1,519) 763
Restricted stock awards 1,350 1,993 1,936
Common stock contribution to benefit plans 5,530 4,775 4,120
Tax benefits credited to Stockholders' equity (324) 1,394 1,591
Cumulative effect of accounting change 3,031 -- --
Changes in assets and liabilities net of effects from acquisition of Bill's Drugs, Inc.:
Pharmacy and other receivables (8,868) (3,663) 3,392
Merchandise inventories 4,586 (5,625) (17,134)
Other current assets (433) 803 163
Current liabilities 20,411 (8,432) 10,115
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 114,163 $ 71,148 $ 83,596
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
15
<PAGE>
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Profit Sharing Guarantee of Total
-------------- Additional Plan Profit Sharing Retained Stockholders'
(THOUSANDS) Shares Amount Capital Contributions Plan Debt Earnings Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 31, 1991 20,170 $10,085 $ 73,774 $8,410 ($21,980) $308,964 $379,253
Net income 55,379 55,379
Dividends ($1.07 per share) (21,858) (21,858)
Profit Sharing Plan:
Issuance of stock for FY91 contribution 231 116 8,294 (8,410) 0
Stock portion of FY92 contribution 4,120 4,120
Sale of stock to plan 19 10 849 859
Reduction of plan debt 1,934 1,934
Restricted stock awards 21 10 1,926 1,936
Tax benefits related to employee stock plans 1,591 1,591
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 30, 1992 20,441 10,221 86,434 4,120 (20,046) 342,485 423,214
Net income 52,993 52,993
Dividends ($1.11 per share) (22,812) (22,812)
Profit Sharing Plan:
Issuance of stock for FY92 contribution 117 59 4,261 (4,120) 200
Stock portion of FY93 contribution 4,775 4,775
Sale of stock to plan 10 5 352 357
Reduction of plan debt 2,101 2,101
Restricted stock awards 18 9 1,984 1,993
Tax benefits related to employee stock plans 1,394 1,394
Repurchase of common stock (173) (87) (728) (5,189) (6,004)
- ----------------------------------------------------------------------------------------------------------------------------------
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 contribution 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
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES
THE CONSOLIDATED FINANCIAL STATEMENTS include Longs Drug Stores Corporation and
Longs Drug Stores California, Inc., its wholly-owned subsidiary. All inter-
company accounts and transactions have been eliminated.
FISCAL YEARS end the last Thursday of January. Certain reclassifications have
been made to the fiscal 1993 and 1992 financial statements in order to conform
to fiscal 1994 presentation.
CASH AND EQUIVALENTS include all highly liquid investments with maturities of
three months or less.
MERCHANDISE INVENTORIES are valued using the last-in, first-out (LIFO) method.
The excess of specific cost over LIFO values was $126.0 and $119.5 million at
the 1994 and 1993 year ends.
ACCOUNTS PAYABLE includes $18.4 million and $17.0 million of outstanding checks
at year end 1994 and 1993. This classification was adopted in 1994 and reported
"Net cash provided by operating activities" was increased by $.5 million in 1993
and decreased by $8.8 million in 1992.
PROPERTY is depreciated using the straight-line method and estimated useful
lives of twenty to thirty-three years for buildings, life of the lease for
leasehold improvements, and three to twenty years for equipment and fixtures.
Software development costs associated with the Scanning Project are amortized
over estimated useful lives of eight years. Maintenance and repairs are charged
to expense as incurred and major improvements are capitalized.
OTHER NON-CURRENT ASSETS consist of pharmacy files and goodwill (resulting from
Bill's acquisition) and are amortized under a straight line method over
estimated useful lives of five to ten years.
NEW STORE OPENING COSTS, primarily labor to stock shelves, pre-opening
advertising and store supplies, are charged to expense as incurred.
INCOME TAXES - In 1994, the Company adopted Statement of Financial Accounting
Standards No. 109 - "Accounting for Income Taxes" (SFAS 109) which requires the
use of the liability method of accounting for deferred income taxes. Deferred
income taxes are recorded based upon the differences between the financial
statement and tax basis of assets and liabilities.
EARNINGS PER COMMON SHARE are calculated by dividing net income by the weighted
average number of shares outstanding.
LEASES AND OTHER OBLIGATIONS
A significant portion of store properties are leased, having original terms
ranging from ten to twenty-five years with renewal options covering
approximately twenty additional years in five-year to ten-year increments.
Leases provide for minimum annual rent with provisions for additional rent based
on a percentage of sales. Lease rentals for 1994, 1993, and 1992 were $26.5,
$24.5, and $23.1 million, of which $19.5, $17.3, and $16.4 million represent
minimum payments.
Total minimum rental commitments for noncancelable leases in effect at the 1994
year end were $22.9, $23.3, $23.0, $22.8, and $22.8 million for fiscal years
1995 through 1999, and $237.9 million thereafter.
Construction commitments outstanding at January 27, 1994 totaled $4,595,000.
These are expected to be completed in fiscal year 1995.
On January 27, 1994, the Company had an unsecured revolving line of credit of
$20 million with prevailing interest rates. The line of credit expired January
31, 1994 and was renewed for $30 million expiring June 30, 1996. There was $19
million available for use at January 27, 1994.
EMPLOYEE COMPENSATION AND BENEFITS
The Company has approximately 15,600 full-time and part-time employees as of
January 27, 1994. Virtually all full-time employees are covered by medical,
dental, hospitalization and life insurance programs paid primarily by the
Company. The Company also has a 401(k) plan under which employees may make
voluntary contributions.
Full-time employees with over 1,000 hours of service are entitled to Profit
Sharing Plan benefits that are funded entirely by the Company. Contributions to
the plan were $11.0, $10.0, and $10.4 million for 1994, 1993, and 1992. The
1994 contribution to the Plan will be made in cash and common stock.
TAXES ON INCOME
The cumulative effect of adopting SFAS 109 on the Company's financial statement
was to increase net income by $3.0 million ($.15 per share) for the year ended
January 27, 1994. The Company elected not to restate prior years' consolidated
financial statements.
Significant components of the Company's deferred tax assets and liabilities as
of January 27, 1994 and January 29, 1993 are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
(THOUSANDS) 1994 1993
- ----------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets:
Reserve for vacation pay $ 6,862 $ 5,880
Reserve for worker's compensation 5,522 5,020
State Income Tax 3,662 4,431
Reserve for restricted stock awards 1,562 2,624
Other 3,342 4,389
------- -------
20,950 22,344
------- -------
Deferred Tax Liabilities:
Depreciation 30,048 29,480
Basis of property 4,253 3,941
Inventories 2,019 --
Other 5,235 2,521
------- -------
41,555 35,942
------- -------
Net deferred tax liability $20,605 $13,598
- ----------------------------------------------------------
- ----------------------------------------------------------
</TABLE>
No valuation allowances were considered necessary in the calculation of deferred
tax assets as of January 27, 1994 and January 29, 1993.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------
For the Fiscal Years Ended
1994 1993 1992
-------------------------------
-----------THOUSANDS-----------
<S> <C> <C> <C>
CURRENT
Federal $22,986 $27,970 $27,465
State 6,657 8,049 7,672
------- ------- -------
29,643 36,019 35,137
DEFERRED 2,857 (1,519) 763
-------------------------------
Total $32,500 $34,500 $35,900
- --------------------------------------------
- --------------------------------------------
</TABLE>
The reconciliation between the federal statutory tax rate and the Company's
effective tax rates are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
(THOUSANDS) FOR THE FISCAL YEAR ENDED
1994 PERCENT
- ----------------------------------------------------------
<S> <C> <C>
Federal income taxes
at statutory rate $28,788 35.0%
State income tax net of
federal benefits 4,521 5.5
Benefits of ESOP dividends (1,213) (1.5)
Other 404 .5
------- ----
$32,500 39.5%
- ----------------------------------------------------------
- ----------------------------------------------------------
</TABLE>
The effective tax rate in 1993 and 1992 differ from the federal statutory rate
of 34% primarily due to state income taxes.
In accordance with SFAS 109, a tax benefit of $188 thousand was recorded to
retained earnings and a benefit of $1.2 million was recorded in the tax
provision for 1994. Prior to 1994, the tax benefit of these dividends was
credited to additional paid in capital and during 1994, this benefit for prior
years was re-determined resulting in a reduction of $512 thousand.
In August 1993, a new federal income tax bill was signed into law, which was
retroactive to January 1993. The most significant impact of this bill on the
Company was to increase the federal statutory tax rate from 34 percent to 35
percent for all future periods, and resulted in a one-time charge to tax expense
of approximately $376,000 in the third quarter of 1994. The charge was to
restate the Company's deferred tax liability to reflect the new rate.
GUARANTEE OF PROFIT SHARING PLAN DEBT
In March 1989, the Company sold 696,864 shares of Longs' common stock to the
Profit Sharing Plan for $25,000,000. The Plan financed this purchase with a
ten-year loan which is guaranteed by Longs Drug Stores California, Inc.
Consequently, a Guarantee of Profit Sharing Plan debt is shown on the
accompanying balance sheets with a corresponding reduction of Stockholders'
Equity. Shares purchased with the loan proceeds are allocated to the Plan
participants as principal and interest payments are made on the loan.
Loan payments are made in equal quarterly installments of $930,000 which
includes interest at 8.4% per year. The loan is being repaid from dividends on
Longs' stock held by the Plan, and Company contributions to the Plan.
Dividends paid to the Plan, and used in part to repay principal and interest on
the loan totaled $3,243,000, $3,233,000 and $3,138,000 for 1994, 1993, and 1992.
STOCKHOLDERS' EQUITY
Authorized capital stock consists of 120,000,000 shares of common stock, $.50
par value, and 30,000,000 shares of preferred stock. There were approximately
16,100 (UNAUDITED) shareholders at the end of 1994.
Each outstanding share of common stock has a Preferred Stock Purchase Right
(expiring in September 1996) which is exercisable only upon the occurrence of
certain changes in control events. There have been no events that would allow
these rights to be exercised.
During 1988, a Restricted Stock Award program was adopted whereby certain
individuals may be granted stock in the Company. The restrictions provide that
while recipients have voting rights to the shares, transfer of ownership of the
shares is dependent on continued employment for a period of five years. The
unrecognized portion ($1.8 million) at January 27, 1994 has been netted against
Additional Capital. During 1994, 1993, and 1992; 11,700, 21,200, and 27,250
shares were awarded under the program.
The Board of Directors approved a program in August 1989, under which the
Company may repurchase up to three million shares of its outstanding common
stock. As of January 27, 1994, the Company had repurchased 1,222,000 shares at
a cost of $47.4 million.
During 1994, the Company repurchased 121,000 shares of its common stock from the
Profit sharing Plan at market value totalling $4.0 million.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires
disclosure of the estimated fair value of financial instruments. The carrying
value of cash and equivalents, pharmacy and other receivables, accounts payable,
and short-term borrowings approximate the estimated fair value. The carrying
value of the Guarantee of Profit Sharing Plan debt, both current and long-term,
is $15,662,000. Its estimated fair value based on debt with similar terms and
remaining maturities is $16,477,000.
LITIGATION
The Company had announced during the first quarter of 1994 that an inquiry into
its Medicaid billing was being conducted by the states of Nevada and Hawaii and
Federal regulatory agencies. A settlement was reached for $750,000 with the
state of Nevada. The Company does not expect any additional reimbursements or
penalties in this matter to be material.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 is being reported under
the purchase method of accounting. The purchase was made by issuing
approximately 317,000 shares of the Company's stock with a value of $10,343,000
and by assuming liabilities of $13,614,000 for a total purchase price of
approximately $23,957,000. Following is a summary of the assets and liabilities
acquired at their approximate fair value.
<TABLE>
<CAPTION>
(THOUSANDS)
<S> <C>
ASSETS
- -------------------------
Inventory $11,177
Other current assets 1,419
Property 7,644
Other long-term assets 3,717
-------
Total assets acquired $23,957
-------
-------
LIABILITIES
- -------------------------
Accounts Payable, other $ 4,950
Debt 4,764
Deferred Income taxes 3,900
-------
Total liabilities assumed $13,614
-------
-------
Net Assets Acquired $10,343
-------
-------
</TABLE>
Results of operation of the Bill's stores after the purchase date are included
in the Statements of Consolidated Income presented herein. The following
proforma information assumes that the acquisition had taken place as of the
beginning of each 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 each period presented.
The proforma 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>
- ---------------------------------------------------
(THOUSANDS EXCEPT FOR THE FISCAL YEAR ENDED
PER SHARE) 1994 1993
- ---------------------------------------------------
<S> <C> <C>
Sales $2,548,757 $2,555,013
Income before
cumulative effect of
accounting change 48,716 51,823
Per Share $2.34 $2.48
- ---------------------------------------------------
- ---------------------------------------------------
</TABLE>
QUARTERLY FINANCIAL DATA (UNAUDITED) AND FIVE YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(THOUSANDS EXCEPT PER SHARE)
NET SALES GROSS INCOME(1) NET INCOME EARNINGS EARNINGS DIVIDENDS STOCK PRICE TOTAL
MARGIN PER SHARE(1) PER SHARE PER SHARE RANGE ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
QUARTER
1st $ 607,979 $153,184 $10,923 $13,954 $ .53 $. 68 $ .28 $33-37 $729,646
2nd 609,346 155,539 12,963 12,963 .63 .63 .28 31-35 726,436
3rd 597,202 153,386 8,935 8,935 .43 .43 .28 31-34 778,197
4th 684,697 174,023 16,930 16,930 .82 .82 .28 31-34 794,804
- ----------------------------------------------------------------------------------------------------------------------------------
Total 1994 2,499,224 636,132 49,751 52,782 2.41 2.56 1.12 31-37 794,804
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
QUARTER
1st 601,695 149,759 13,693 13,693 .67 .67 .27 33-40 690,990
2nd 613,395 151,006 13,529 13,529 .66 .66 .28 33-37 711,460
3rd 593,669 146,175 9,275 9,275 .45 .45 .28 33-39 732,398
4th 666,716 165,363 16,496 16,496 .80 .80 .28 32-38 726,190
- ----------------------------------------------------------------------------------------------------------------------------------
Total 1993 2,475,475 612,303 52,933 52,993 2.58 2.58 1.11 32-40 726,190
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL 1992 2,365,916 589,989 55,379 55,379 2.71 2.71 1.07 33-44 689,251
TOTAL 1991 2,333,767 573,769 59,622 59,622 2.94 2.94 1.02 31-44 648,403
TOTAL 1990 2,110,574 527,287 61,294 61,294 3.01 3.01 .94 35-48 582,284
<FN>
(1) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE IN FIRST QUARTER AND FISCAL YEAR 1994.
</TABLE>
19
<PAGE>
DIRECTORS
- ----------------------------------
RICHARD M. BROOKS*
FINANCIAL CONSULTANT
WILLIAM G. COMBS
VICE PRESIDENT, ADMINISTRATION
AND TREASURER
DAVID G. DESCHANE
RETIRED
VICE PRESIDENT/DISTRICT MANAGER
EDWARD E. JOHNSTON*
INSURANCE CONSULTANT
ROBERT M. LONG
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
MARY S. METZ, PH.D.*
DEAN, U.C. BERKELEY EXTENSION
RONALD A. PLOMGREN
SENIOR VICE PRESIDENT,
DEVELOPMENT
STEPHEN D. ROATH
PRESIDENT
HAROLD R. SOMERSET*
BUSINESS CONSULTANT
THOMAS R. SWEENEY
RETIRED
VICE PRESIDENT/DISTRICT MANAGER
FREDERICK E. TROTTER*
PRESIDENT, F.E. TROTTER, INC.
*MEMBER OF THE AUDIT COMMITTEE
SENIOR OFFICERS
- ----------------------------------
BILL M. BRANDON**
SENIOR VICE PRESIDENT
GEORGE A. DUEY**
SENIOR VICE PRESIDENT
ORLO D. JONES
SENIOR VICE PRESIDENT, PROPERTIES
AND SECRETARY
ROBERT M. LONG
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
RONALD A. PLOMGREN
SENIOR VICE PRESIDENT,
DEVELOPMENT
STEPHEN D. ROATH
PRESIDENT
DAN R. WILSON**
SENIOR VICE PRESIDENT, MARKETING
OFFICERS
- ----------------------------------
LES C. ANDERSON**
VICE PRESIDENT, PERSONNEL
AL A. ARRIGONI**
VICE PRESIDENT, CONSTRUCTION
WILLIAM G. COMBS
VICE PRESIDENT, ADMINISTRATION
AND TREASURER
JACK G. DALETH**
VICE PRESIDENT/DISTRICT MANAGER
DON D. ENGLAND**
VICE PRESIDENT/DISTRICT MANAGER
JIM L. FAMINI**
VICE PRESIDENT/DISTRICT MANAGER
DAVE J. FONG**
VICE PRESIDENT, PHARMACY
RON E. LOVELADY**
VICE PRESIDENT/DISTRICT MANAGER
OFFICERS
- ----------------------------------
SAL PETRUCELLI**
VICE PRESIDENT/DISTRICT MANAGER
MIKE K. RAPHEL**
VICE PRESIDENT, REAL ESTATE
GERALD H. SAITO**
VICE PRESIDENT/DISTRICT MANAGER
JOE P. SPAMPINATO**
TREASURER
KYLE J. WESTOVER**
VICE PRESIDENT, TRAINING AND
COMMUNICATIONS
GROVER L. WHITE
VICE PRESIDENT, CONTROLLER
BOB W. WILSON**
VICE PRESIDENT/DISTRICT MANAGER
ANNUAL MEETING
- ----------------------------------
The Annual Meeting of Stockholders will be held at the Regional Center for the
Arts, 1601 Civic Drive, Walnut Creek, California on Tuesday, May 17, 1994 at
11:00am. All stockholders are cordially invited to attend.
**Officer of Longs Drug Stores California, Inc. only
GENERAL OFFICE
- ----------------------------------
141 North Civic Drive
P.O. Box 5222
Walnut Creek, California 94596
(510)937-1170
TRANSFER AGENT AND REGISTRAR
- ----------------------------------
Chemical Trust Co. of California
50 California Street
10th Floor
San Francisco, California 94111
(800)647-4273
For assistance on address change, consolidation of multiple holdings, dividend
payments or related matters, please contact the Transfer Agent.
AUDITORS
- ----------------------------------
Deloitte & Touche
50 Fremont Street
San Francisco, California 94105
GENERAL COUNSEL
- ----------------------------------
Bell, Rosenberg & Hughes
1300 Clay Street
Suite 1000
Oakland, California 94612-0220
STOCK LISTING
- ----------------------------------
New York Stock Exchange, Inc.
Ticker Symbol-LDG
Newspaper quotations:
"Longs Drg" W.S.J.
FORM 10-K
- ----------------------------------
A copy of the Company's Form 10-K Annual Report filed with the Securities and
Exchange Commission may be obtained without charge by writing to the Corporate
Treasurer, Longs Drug Stores, P.O. Box 5222, Walnut Creek, California 94596
<PAGE>
LONGS DRUGS 1994 ANNUAL REPORT ADDENDUM
LISTING OF PHOTOGRAPHS
FOUND IN 1994 ANNUAL REPORT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Page 1 - Employees of Longs Drug Stores
- The new Windsor, California store
Page 2 - Our founders, Tom Long and Joe Long
Page 3 - Steve Roath, Company President
- Bob Long, Chairman of the Board and Chief Executive Officer
Page 4 - Pharmacist helping a customer at the newly installed Diabetes
Center
- Pharmacist consulting a patient
Page 5 - A grandfather holding his grandchild
Page 6 - Martin Bennett and Larry Prato--newly promoted District Managers
- Steve Fryslie, Dick Johnston, Don Basile and Larry Gherlone--newly
appointed District Managers
Page 7 - Terry Burnside, our new Merchandising Manager, interacts with
Brian Kilcourse, our new Chief Information Officer
- Marty Stephenson--newly promoted District Manager
Page 8 - Cashier clerk being trained at a computer
Page 9 - A mother plays with her child
Page 10 - Customer leaving our new store in Santa Barbara, California
- A customer benefiting from our latest merchandise layout in an
upscale cosmetic boutique
- Customers enjoying the new combination soda fountain/capuccino bar
in Newport Beach, California
- Customer shopping at the unique health food section in our new
Santa Cruz, California store
Page 11 - Picture of our newly acquired store in Santa Rosa, California
- Customers shopping in our smaller format store in Lafayette,
California
- Customer shopping in our extended durable medical equipment
section
- Our newly acquired Gilroy, California store features a full-
service frame shop
-15-
