<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 25, 1996
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 19,831,508 shares of common stock outstanding as of
May 22, 1996.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
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STATEMENTS OF CONSOLIDATED INCOME For the Quarters Ended
APRIL 25 April 27
1996 1995
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----(Thousands Except Per Share)----
SALES $ 665,408 $ 639,801
COSTS AND EXPENSES:
Cost of merchandise sold 484,577 470,569
Operating and administrative 122,536 114,478
Occupancy 34,847 32,650
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INCOME BEFORE TAXES ON INCOME 23,448 22,104
TAXES ON INCOME 9,400 8,800
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NET INCOME $ 14,048 $ 13,304
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PER COMMON SHARE:
NET INCOME $ .71 $ .65
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DIVIDENDS $ .28 $ .28
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WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 19,868 20,626
See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
APRIL 25 April 27 January 25
1996 1995 1996
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------------------(Thousands)----------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 55,799 $ 37,288 $ 49,314
Pharmacy and other receivables 51,460 48,647 54,388
Merchandise inventories 317,731 301,675 316,497
Deferred income taxes 24,766 16,570 23,640
Other 1,718 1,867 2,687
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Total current assets 451,474 406,047 446,526
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PROPERTY:
Land 79,391 76,952 79,998
Buildings and leasehold improvements 313,554 304,154 313,766
Equipment and fixtures 253,273 244,307 247,831
Beverage licenses 7,189 7,165 7,163
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Total property--at cost 653,407 632,578 648,758
Less accumulated depreciation 260,280 235,323 253,461
----------- ----------- ----------
Property--net 393,127 397,255 395,297
OTHER NON-CURRENT ASSETS 11,376 11,528 11,734
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TOTAL $ 855,977 $ 814,830 $ 853,557
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----------- ----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 146,727 $ 140,220 $ 148,428
Employee compensation and benefits 58,524 54,042 59,843
Taxes payable 39,612 30,578 37,808
Current portion of guarantee 2,930 2,696 2,174
Other 39,240 21,306 39,094
----------- ----------- ----------
Total current liabilities 287,033 248,842 287,347
----------- ----------- ----------
GUARANTEE OF PROFIT SHARING PLAN DEBT 7,555 10,485 8,311
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DEFERRED INCOME TAXES 34,988 34,377 35,132
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STOCKHOLDERS' EQUITY:
Common stock (19,819,000, 20,432,000,
and 19,816,000 shares outstanding) 9,909 10,216 9,908
Additional capital 110,409 110,619 107,608
Common stock contribution to Profit Sharing Plan -- -- 4,550
Guarantee of Profit Sharing Plan debt (10,485) (13,181) (10,485)
Retained earnings 416,568 413,472 411,186
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Total stockholders' equity 526,401 521,126 522,767
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TOTAL $ 855,977 $ 814,830 $ 853,557
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<TABLE>
<CAPTION>
STATEMENTS OF CONSOLIDATED CASH FLOWS For the Quarters Ended
APRIL 25 April 27
1996 1995
------------------------------
----------(Thousands)---------
<S> <C> <C>
OPERATING ACTIVITIES:
Receipts from customers $ 669,547 $ 644,586
Payments for merchandise (487,512) (488,180)
Payments for operating, administrative, and occupancy expenses (150,161) (139,446)
Income tax payments (6,967) (2,455)
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Net cash provided by operating activities 24,907 14,505
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INVESTING ACTIVITIES:
Payments for property additions and other assets (10,510) (18,271)
Receipts from property dispositions 2,422 214
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Net cash used in investing activities (8,088) (18,057)
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FINANCING ACTIVITIES:
Repurchase of common stock (4,768) (10,889)
Dividend payments (5,566) (5,789)
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Net cash used in financing activities (10,334) (16,678)
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INCREASE (DECREASE) IN CASH AND EQUIVALENTS 6,485 (20,230)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 49,314 57,518
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CASH AND EQUIVALENTS AT END OF PERIOD $ 55,799 $ 37,288
------------ ------------
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RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 14,048 $ 13,304
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,616 10,567
Deferred income taxes (1,270) 512
Restricted stock awards 390 369
Common stock contribution to benefit plan (495) --
Tax benefits credited to stockholders' equity 25 33
Changes in assets and liabilities:
Pharmacy and other receivables 2,928 5,257
Merchandise inventories (1,234) (6,329)
Other current assets 969 867
Current liabilities (1,070) (10,075)
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Net cash provided by operating activities $ 24,907 $ 14,505
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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 25, 1996 and Quarter Ended April 25, 1996
<TABLE>
<CAPTION>
PROFIT GUARANTEE
COMMON STOCK SHARING OF PROFIT TOTAL
---------------- ADDITIONAL PLAN SHARING RETAINED STOCKHOLDERS'
(Thousands) SHARES AMOUNT CAPITAL CONTRIBUTIONS PLAN DEBT EARNINGS EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
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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 46,228 46,228
Dividends ($1.12 per share) (22,697) (22,697)
Profit Sharing Plan:
Issuance of stock for
FY95 contributions 176 88 5,427 (5,515) 0
Stock portion of
FY96 contribution 4,550 4,550
Sale of stock to plan 59 29 1,988 2,017
Purchase of stock from plan (114) (57) (2,644) (2,701)
Reduction of plan debt 2,696 2,696
Restricted stock awards 30 15 1,463 1,478
Tax benefits related to
employee stock plans 127 127
Repurchase of common stock (895) (447) (5,842) (26,740) (33,029)
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BALANCE AT JANUARY 25, 1996 19,816 9,908 107,608 4,550 (10,485) 411,186 522,767
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Net income 14,048 14,048
Dividends ($.28 per share) (5,566) (5,566)
Profit Sharing Plan:
Issuance of stock for
FY96 contributions 91 45 4,010 (4,550) (495)
Stock portion of
FY97 contribution
Purchase of stock from plan (27) (14) (1,196) (1,210)
Restricted stock awards 18 10 380 390
Tax benefits related to
employee stock plans 25 25
Repurchase of common stock (79) (40) (393) (3,125) (3,558)
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BALANCE AT APRIL 25, 1996 19,819 $ 9,909 $110,409 $ 0 ($10,485) $416,568 $526,401
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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 25, 1996, 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 25,
1996, and April 27, 1995 are unaudited. The Balance Sheet at January 25,
1996, 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 $131.0 million at April 25, 1996, $126.1 million at
April 27, 1995, and $129.8 million at January 25, 1996. 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. During the first quarter of 1997, the Company repurchased 106,000 shares of
its common stock at a cost of $4.8 million in accordance with a stock
repurchase plan adopted by the Board of Directors in November 1994.
Included are 27,000 shares from the Profit Sharing Plan at market values
totaling $1.2 million.
5. 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 $10.0 million. As of April 25, 1996, there was $853,000 in
compensation that had been deferred under this plan.
6. The legal settlement, as described in the 1996 Annual Report on page 18,
remains subject to the completion of a definitive settlement agreement and
to court approval, in respect of which plaintiffs have agreed to give their
unconditional support. The Company has reflected the obligation as a
current liability.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Sales for the first quarter ended April 25, 1996 increased 4.0% to $665.4
million as compared to $639.8 million for the same period last year. Solid
sales growth is attributed to same store sales, which increased 2.5% over the
prior year, accompanied by sales in new stores and the stores acquired in
Hawaii in the middle of first quarter last year.
Pharmacy sales increased 7.6% and represented 34.2% of total sales for the
quarter as compared to 33.1% a year ago. Pharmacy sales through third-party
arrangements as a percent of total pharmacy sales has increased to 78.2% from
73.8%.
Gross margins for the first quarter increased to 27.2% from 26.5% a year ago.
Steady progress in category management, rapid replenishment and market
pricing contributed to the improvement in non-pharmacy margins in the first
quarter. Pharmacy margins decreased as the percentage of third party plans
increased and the reduction in reimbursement rates from third party plans
continued.
Operating, administrative, and occupancy expenses as a percent of sales
increased to 23.7% from 23.0% in the first quarter last year. Increases were
due to slightly higher wages and other costs as a percent of sales.
As a result of the foregoing factors, net income for the quarter increased
5.6% to $14.0 million compared to $13.3 million and earnings per share
increased 9.6% to $.71 per share compared to $.65 last year. Earnings per share
increased at a rate greater than net income due to share repurchases.
The retail drug store business is seasonal, peaking in the fourth quarter, due
to the Thanksgiving and Christmas holidays and cold and flu season.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased to $55.8 million from $37.3 million a
year ago due to improved cash flows from operating activities and fewer stock
repurchases. Net expenditures for property additions totaled $8.1 million
compared to $18.1 million a year ago which reflects the acquisition of six
stores in Hawaii. The current quarter includes the addition of two new
stores, and the closure of one store bringing our total stores in operation
to 329. Several stores and a new warehouse are currently under construction,
and other new stores are in various stages of planning.
In a continuing effort to improve shareholder value, the Company repurchased
a total of 106,000 shares of its common stock during the quarter. Of these,
27,000 shares were repurchased from the Company's profit sharing plan at
market values totaling $1.2 million, and 79,000 shares in the open market
with a total cost of $3.6 million.
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 lines of credit were not utilized in the current
quarter.
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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 25, 1996.
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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 7, 1996 /s/ G. L. White
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G. L. White
Vice President, Controller
(PRINCIPAL ACCOUNTING OFFICER)
/s/ C. E. Selland
--------------------------------
C. E. Selland
Treasurer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1997
<PERIOD-START> JAN-25-1996
<PERIOD-END> APR-25-1996
<CASH> 55,799
<SECURITIES> 0
<RECEIVABLES> 51,460
<ALLOWANCES> 0
<INVENTORY> 317,731
<CURRENT-ASSETS> 451,474
<PP&E> 653,407
<DEPRECIATION> 260,280
<TOTAL-ASSETS> 855,977
<CURRENT-LIABILITIES> 287,033
<BONDS> 0
9,909
0
<COMMON> 0
<OTHER-SE> 516,492
<TOTAL-LIABILITY-AND-EQUITY> 855,977
<SALES> 665,408
<TOTAL-REVENUES> 0
<CGS> 484,577
<TOTAL-COSTS> 641,960
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 23,448
<INCOME-TAX> 9,400
<INCOME-CONTINUING> 14,048
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,048
<EPS-PRIMARY> .71
<EPS-DILUTED> 0
</TABLE>
