<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Quarterly Period Ended April 27, 1995
/ / 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
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
141 North Civic Drive
Walnut Creek, California 94596
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (510) 937-1170
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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There were 20,431,576 shares of common stock outstanding as of April 27, 1995.
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PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
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STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
For the Quarters Ended
APRIL 27 April 28
1995 1994
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--(Thousands Except Per Share)--
<S> <C> <C>
SALES $639,801 $622,259
COSTS AND EXPENSES:
Cost of merchandise sold 470,569 457,269
Operating and administrative 114,588 113,183
Occupancy 32,540 30,086
-------- --------
INCOME BEFORE TAXES ON INCOME 22,104 21,721
TAXES ON INCOME 8,800 8,700
-------- --------
NET INCOME $ 13,304 $ 13,021
-------- --------
-------- --------
PER COMMON SHARE:
NET INCOME $ .65 $ .63
-------- --------
-------- --------
DIVIDENDS $ .28 $ .28
-------- --------
-------- --------
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 20,626 20,782
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 27 April 28 January 26
1995 1994 1995
---------- ---------- ----------
------------(Thousands)------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 37,288 $ 61,132 $ 57,518
Pharmacy and other receivables 48,647 46,391 53,904
Merchandise inventories 301,675 272,809 295,346
Deferred income taxes 16,570 14,774 17,165
Other 1,867 2,037 2,734
-------- -------- --------
Total current assets 406,047 397,143 426,667
-------- -------- --------
PROPERTY:
Land 76,952 77,525 76,952
Buildings and leasehold improvements 304,154 288,928 300,602
Equipment and fixtures 244,307 232,302 240,239
Beverage licenses 7,165 7,028 7,135
-------- -------- --------
Total property--at cost 632,578 605,783 624,928
Less accumulated depreciation 235,323 206,018 227,166
-------- -------- --------
Property--net 397,255 399,765 397,762
OTHER NON-CURRENT ASSETS 11,528 3,626 3,532
-------- -------- --------
TOTAL $814,830 $800,534 $827,961
-------- -------- --------
-------- -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $140,220 $140,071 $149,239
Employee compensation and benefits 54,042 50,814 56,274
Taxes payable 30,578 28,734 28,459
Current portion of guarantee 2,696 2,481 2,001
Other 21,306 24,041 21,908
-------- -------- --------
Total current liabilities 248,842 246,141 257,881
-------- -------- --------
GUARANTEE OF PROFIT SHARING PLAN DEBT 10,485 13,181 11,180
-------- -------- --------
DEFERRED INCOME TAXES 34,377 35,109 34,802
-------- -------- --------
STOCKHOLDERS' EQUITY:
Common stock (20,432,000, 20,850,000,
and 20,560,000 shares outstanding) 10,216 10,425 10,280
Additional capital 110,619 109,199 107,216
Common stock contribution to Profit
Sharing Plan -- -- 5,515
Guarantee of Profit Sharing Plan debt (13,181) (15,662) (13,181)
Retained earnings 413,472 402,141 414,268
-------- -------- --------
Total stockholders' equity 521,126 506,103 524,098
-------- -------- --------
TOTAL $814,830 $800,534 $827,961
-------- -------- --------
-------- -------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
For the Quarters Ended
APRIL 27 April 28
1995 1994
-------------------------
--------(Thousands)-------
<S> <C> <C>
OPERATING ACTIVITIES:
Receipts from customers $ 644,586 $ 627,166
Payments for merchandise (488,180) (452,061)
Payments for operating, administrative,
and occupancy expenses (139,446) (141,117)
Income tax payments (2,455) --
--------- ---------
Net cash provided by operating activities 14,505 33,988
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INVESTING ACTIVITIES:
Payments for property additions (18,271) (10,908)
Receipts from property dispositions 214 2,554
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Net cash used in investing activities (18,057) (8,354)
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FINANCING ACTIVITIES:
Repurchase of common stock (10,889) (1,200)
Dividend payments (5,789) (5,814)
--------- ---------
Net cash used in financing activities (16,678) (7,014)
--------- ---------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (20,230) 18,620
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 57,518 42,512
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CASH AND EQUIVALENTS AT END OF PERIOD $ 37,288 $ 61,132
--------- ---------
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RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 13,304 $ 13,021
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,567 9,307
Deferred income taxes 512 (270)
Restricted stock awards 369 427
Tax benefits credited to stockholders' equity 33 40
Effects of changes in:
Pharmacy and other receivables 5,257 4,248
Merchandise inventories (6,329) 7,715
Other current assets 867 500
Current liabilities (10,075) (1,000)
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Net cash provided by operating activities $ 14,505 $ 33,988
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--------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
For the Year Ended January 26, 1995 and Quarter Ended April 27, 1995
<TABLE>
<CAPTION>
PROFIT GUARANTEE
COMMON STOCK SHARING OF PROFIT TOTAL
------------ ADDITIONAL PLAN SHARING RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL CONTRIBUTIONS PLAN DEBT EARNINGS EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
----------------------------------(Thousands)----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 27, 1994 20,654 $10,327 $104,518 $5,530 ($15,662) $394,894 $499,607
Net income 48,731 48,731
Dividends ($1.12 per share) (23,213) (23,213)
Profit Sharing Plan:
Issuance of stock for
FY94 contributions 148 74 5,456 (5,530) 0
Stock portion of FY95 contributions 5,515 5,515
Purchase of stock from plan (105) (52) (3,517) (3,569)
Reduction of plan debt 2,481 2,481
Restricted stock awards 90 44 1,845 1,889
Tax benefits related to employee
stock plans 155 155
Repurchase of common stock (228) (114) (1,095) (6,299) (7,508)
Acquisition of Bill's Drugs, Inc.
Net of related costs 1 1 9 10
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BALANCE AT JANUARY 26, 1995 20,560 10,280 107,216 5,515 (13,181) 414,268 524,098
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Net income 13,304 13,304
Dividends($.28 per share) (5,789) (5,789)
Profit Sharing Plan:
Issuance of stock for
FY95 contribution 176 88 5,427 (5,515) 0
Purchase of stock from plan (29) (15) (925) (940)
Restricted stock awards 20 10 359 369
Tax benefits related to employee
stock plans 33 33
Repurchase of common stock (295) (147) (1,458) (8,344) (9,949)
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BALANCE AT APRIL 27, 1995 20,432 $10,216 $110,619 $ 0 ($13,181) $413,472 $521,126
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements include Longs Drug Stores Corporation
(Company) and Longs Drug Stores California, Inc., its wholly-owned
subsidiary. All intercompany accounts and transactions have been
eliminated. The statements have been prepared on a basis consistent with
the accounting policies described in the Annual Report of the Company
previously filed with the Commission on Form 10-K for the year ended
January 26, 1995, and reflect all adjustments and eliminations which are,
in management's opinion, necessary for a fair statement of the results for
the periods. The financial statements for the periods ended April 27, 1995
and April 28, 1994 are unaudited. The Balance Sheet at January 26,1995,
and Statement of Stockholders' Equity for the year then ended, presented
herein, has been prepared from the audited financial statements of the
Company.
2. Certain reclassifications have been made to prior year financial statements
in order to conform to current financial statement presentation.
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 $126,100,000 at April 27, 1995, $127,400,000 at April
28, 1994, and $127,700,000 at January 26, 1995. 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 repurchased 29,000 shares of its common stock from the Profit
Sharing Plan during the quarter ended April 27, 1995, in accordance with a
stock repurchase plan adopted by the Board of Directors in November 1994.
The stock was repurchased at current market values totalling $940,000.
5. 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.
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.
Members are allocated shares of Longs common stock equal in value to the
cash dividends on their allocated shares used to repay the loan. Dividends
paid to the Plan, used in part to repay principal and interest on the
loan, totaled $806,163 for the quarter ended April 27, 1995.
Plan shares of the leveraged Employee Stock Ownership Plan were as follows
as of April 27, 1995:
Allocated shares 425,409
Unallocated shares 271,455
---------
Total 696,864
---------
---------
The Company has no obligation to purchase outstanding shares held by the
Plan. However, the Company has periodically repurchased shares to provide
the Plan with needed liquidity.
6. In April 1995, the Board of Directors approved the Longs Drug Stores
Corporation Deferred Compensation Plan of 1995. The Plan provides eligible
employees with the opportunity to defer a specified percentage of their
cash compensation. Resulting obligations will be payable on a date
selected by the employee participant in accordance with the terms of the
Plan. The total Deferred Compensation Obligations under the Plan may not
exceed $10,000,000.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Sales for the quarter ended April 27, 1995, grew 3% to $639,801,000 as compared
to $622,259,000 for the same period last year. Net income for the quarter
increased 2% to $13,304,000, or $.65 per share, as compared to last year's
$13,021,000, or $.63 per share.
Gross margins remained constant at 26.5% of sales despite continuing competition
in the retail environment. Operating, administrative, and occupancy expenses
also remained constant at 23.0% of sales reflecting our continued efforts to
control costs. We have challenged ourselves to increase operating earnings
this fiscal year to $96 million as compared to $83 million a year ago. While
it will be a stretch, it is our Company goal, and we will do everything
possible to achieve it.
The Company repurchased 29,000 shares of its common stock from the Profit
Sharing Plan during the quarter ended April 27, 1995, at a market value totaling
$940,000. In addition, the Company purchased 295,000 shares in the open market
with a total cost of $9,949,000 in a continuing effort to increase shareholder
value.
Expenditures for property additions include six stores in Hawaii acquired from
PayLess Drug Stores, capital expenditures for other new stores, store remodels,
mini-labs, and information system equipment.
Expenditures for capital projects, dividends, and stock repurchases have been,
and are expected to continue to be, funded from operations and cash reserves.
To maintain desired working capital, the Company may periodically use short-term
lines of credit available from several banks.
Seven stores were opened during the quarter, including the six Hawaii stores
acquired from PayLess, resulting in a total of 324 stores in operation at April
27, 1995. Six additional stores are currently under construction, and other
potential new stores are in various stages of planning.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
There have been no reports on Form 8-K filed during the quarter
ended April 27, 1995.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LONGS DRUG STORES CORPORATION
---------------------------------------
(REGISTRANT)
Date June 9, 1995 /s/ G. L. White
--------------- ---------------------------------------
G. L. White
Vice President - Controller
(PRINCIPAL ACCOUNTING OFFICER)
/s/ C. E. Selland
---------------------------------------
C. E. Selland
Treasurer
(PRINCIPAL FINANCIAL OFFICER)
- 8 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-25-1996
<PERIOD-START> JAN-27-1995
<PERIOD-END> APR-27-1995
<CASH> 37,288
<SECURITIES> 0
<RECEIVABLES> 48,647
<ALLOWANCES> 0
<INVENTORY> 301,675
<CURRENT-ASSETS> 406,047
<PP&E> 632,578
<DEPRECIATION> 235,323
<TOTAL-ASSETS> 814,830
<CURRENT-LIABILITIES> 248,842
<BONDS> 0
<COMMON> 10,216
0
0
<OTHER-SE> 510,910
<TOTAL-LIABILITY-AND-EQUITY> 814,830
<SALES> 639,801
<TOTAL-REVENUES> 639,801
<CGS> 470,569
<TOTAL-COSTS> 617,697
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 22,104
<INCOME-TAX> 8,800
<INCOME-CONTINUING> 13,304
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,304
<EPS-PRIMARY> .65
<EPS-DILUTED> 0
</TABLE>
