<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 30, 1997
/ / 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. [ ]
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 8, 1997, was approximately
$937,514,380.
There were 39,267,618 shares of common stock outstanding as of April 8, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
The Longs Drug Stores Corporation Annual Report to Shareholders for the year
ended January 30, 1997, (hereinafter referred to as the Annual Report), has been
incorporated by reference into:
Part I - Items 1 and 3
Part II - Items 5, 6, 7, and 8
Part IV - Item 14(a)(1)
The definitive proxy statement dated April 18, 1997, as filed with the
Commission on April 17, 1997, 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)
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PART I
ITEM 1. BUSINESS
Longs Drug Stores was founded by two brothers, Joe and Tom Long, in May of 1938
in Oakland, California.
Pharmacy is the cornerstone of Longs' business, accounting for about 33% of
sales, with script volume per day per store among the leaders in the industry.
Complementing the pharmacy business are the core categories of over-the-counter
health care products, photo and photo processing, cosmetics, and greeting cards.
The Company's decentralized philosophy allows store managers to enhance the
product mix of their store based on customer preference in the communities they
serve. Longs sells nationally advertised name-brand merchandise. Customers are
provided extra value with items sold under Longs' private label.
Longs competes in the retail drug industry with local and national chains as
well as with independent merchants. The Company's stores are located in
California, Colorado, Hawaii, and Nevada. Merchandise of the kind sold by the
Company can be found in variety stores, discount stores, supermarkets, and other
retail facilities. Price, quality of goods and services, product mix, and
convenience to the customer are a few principal elements of competition. The
business is seasonal, peaking in the fourth quarter due to the Thanksgiving and
Christmas holidays and cold and flu season. Seasonality is consistent with our
competitors in the retail drug industry.
The remainder of the information required by this item is contained in the
Annual Report under the headings "Management's Discussion and Analysis" (pages
12-13), "Significant Accounting Policies" and "Employee Compensation and
Benefits" (pages 18-19).
ITEM 2. PROPERTIES
As of January 30, 1997, Longs operates 337 stores; 291 in California, 32 in
Hawaii, 8 in Nevada, and 6 in Colorado. Our stores vary in size, with the
majority ranging from 15,000 to 25,000 square feet, approximately 68% of
which is devoted to selling space. The average size of the stores opened
this past fiscal year is 18,000 square feet. The 2 corporate offices, 2
warehouses and 121 of our stores are Company-owned buildings on Company-owned
land; 43 stores are Company-owned buildings on leased land; and 173 are
totally leased. The Company's properties are consistently maintained and
updated and are in good condition and suitable to meet its needs.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not a party to any material pending legal proceedings other
than described in the Annual Report under the heading "Settlement of Lawsuit"
(page 20).
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
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following persons are now executive officers of the Company and the Board of
Directors intends to reelect them to their current offices.
<TABLE>
<CAPTION>
POSITION
HELD
NAME AGE PRIMARY EXECUTIVE POSITION WITH REGISTRANT SINCE(1)(2)
- -------------- --------- ------------------------------------------------ -------------
<S> <C> <C> <C>
R. M. Long 58 Chairman of the Board and 1991
Chief Executive Officer(3) 1977
S. D. Roath 56 President(3) 1991
B. M. Brandon 58 Senior Vice President 1988
G. A. Duey 64 Senior Vice President 1988
D. J. Fong 48 Senior Vice President, Pharmacy 1995
O. D. Jones 58 Senior Vice President, Properties, 1987
and Secretary 1976
R. A. Plomgren 63 Senior Vice President, Development 1976
and Chief Financial Officer(3) 1995
G. H. Saito 52 Senior Vice President, District Manager(3) 1995
D. R. Wilson 55 Senior Vice President, Marketing 1988
G. L. White 56 Vice President, Controller, 1988
and Secretary
C. E. Selland 40 Treasurer, Assistant Secretary 1994
</TABLE>
(1) Each officer is elected 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.
2
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The principal market on which the Company's common stock is traded is the New
York Stock Exchange under the symbol "LDG." The number of shareholders as of
April 8, 1997 was 15,075. The additional information required by this item is
contained in the Annual Report under the headings "Statements of Consolidated
Stockholders' Equity" (page 17), "Stockholders' Equity" (pages 19-20), and
"Quarterly Financial Data (Unaudited)" (page 20). Such information is hereby
incorporated by reference and filed herewith.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is contained in the Annual Report under the
heading "Management's Discussion and Analysis" (pages 12-13) and "Five Year
Selected Financial Data" (page 20). Such information is hereby incorporated
by reference and filed herewith.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information required by this item is contained in the Annual Report under the
heading "Management's Discussion and Analysis" (pages 12-13). Such information
is hereby incorporated by reference and filed herewith.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is contained in the Annual Report (pages
14-20). 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
Information required by this item with respect to directors is contained in a
definitive proxy statement dated April 18, 1997, as filed with the Securities
and Exchange Commission on April 17, 1997. Such information is hereby
incorporated by reference. Certain information relating to executive officers
of the Company is reported in Part I, Item 4 (page 2) of this report, entitled
"Executive Officers of the Registrant."
Information regarding compliance with Section 16 of the Securities and Exchange
Act of 1934 is set forth in the definitive proxy statement dated April 18, 1997,
as filed with the Commission on April 17, 1997, and is hereby incorporated by
reference.
Items 11, 12, and 13 are omitted since the Company filed on April 17, 1997, with
the Securities and Exchange Commission a definitive proxy statement dated April
18, 1997, involving the election of directors, for the Annual Meeting on May 20,
1997. Such information is hereby incorporated by reference.
3
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
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The following financial statements and independent auditors' report
appearing in the Annual Report on pages 14 through 20 are incorporated
herein by reference:
Independent Auditors' Report.
Statements of Consolidated Income for the fiscal years ended
January 30, 1997, January 25, 1996, and January 26, 1995.
Consolidated Balance Sheets as of January 30, 1997, and January 25,
1996.
Statements of Consolidated Cash Flows for the fiscal years ended
January 30, 1997, January 25, 1996, and January 26, 1995.
Statements of Consolidated Stockholders' Equity for the fiscal years
ended January 30, 1997, January 25, 1996, and January 26, 1995.
Notes to Consolidated Financial Statements.
(a)(2) Not applicable.
(a)(3) EXHIBITS
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Exhibit
No.
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.
b. By-Laws of Longs Drug Stores Corporation.
10. Material Contracts
a. 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.
b. 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.
4
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<TABLE>
<CAPTION>
Exhibit Page
No.: Number
<S> <C>
c. 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.
d. 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.
e. 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.
f. 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.
g. 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.
h. A copy of the 1995 Long-Term Incentive Plan of Longs Drug Stores
Corporation is incorporated herein by reference as previously
filed with the Commission on August 5, 1994, on Form S-8,
Registration No. 033-54959.
i. A copy of the Longs Drug Stores Corporation Deferred Compensation
Plan of 1995 is incorporated herein by reference as previously
filed with the Commission on June 6, 1995, on Form S-8,
Registration No. 033-60005.
j. A copy of the Amended Articles of Incorporation, amended May 22,
1996, is incorporated herein by reference as previously filed
with the Commission on May 22, 1996, as Exhibit 1 to Form 10-Q.
k. Copies of the renewal of the Agreements for Termination Benefits
dated August 22, 1996, are incorporated herein by reference as
previously filed with the Commission on April 28, 1986, as
Exhibits 1-3 to Form 10-Q.
l. A copy of the Shareholder Rights Agreement of Longs Drug Stores
Corporation dated August 20, 1996, is incorporated herein by
reference as previously filed with the Commission on September
16, 1996, as Exhibit 1 to Form 8-K.
13. Annual Report. . . . . . . . . . . . . . . . . . . . . .(Enclosed)
21. Subsidiary of the Registrant - Longs Drug Stores California, Inc.,
a California Corporation.
23. Consent of Auditors
a. Independent Auditors' Consent . . . . . . . . . . . .(Enclosed)
27. Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K
There have been no reports on Form 8-K filed during the quarter ended
January 30, 1997.
5
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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 17, 1997 /s/ G. L. White
------------------------ ----------------------------------------
(G. L. White)
Vice President - Controller
(PRINCIPAL ACCOUNTING OFFICER)
Date April 17, 1997 /s/ R. A. Plomgren
------------------------ ----------------------------------------
(R. A. Plomgren)
Senior Vice President - Development
and Director
(CHIEF 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 17, 1997 By /s/ R. M. Long
-------------------------- --------------------------------------
(R. M. Long)
Chairman of the Board
Chief Executive Officer and Director
April 17, 1997 By /s/ S. D. Roath
-------------------------- --------------------------------------
(S. D. Roath)
President and Director
6
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Date Signature
---- ---------
April 17, 1997 By
-------------------------- --------------------------------------
(R. M. Brooks)
Director
April 17, 1997 By /s/ W. G. Combs
-------------------------- --------------------------------------
(W. G. Combs)
Retired Vice President and Director
April 17, 1997 By
-------------------------- --------------------------------------
(D. G. DeSchane)
Director
April 17, 1997 By /s/ E. E. Johnston
-------------------------- --------------------------------------
(E. E. Johnston)
Director
April 17, 1997 By /s/ M. S. Metz
-------------------------- --------------------------------------
(M. S. Metz)
Director
April 17, 1997 By /s/ G. H. Saito
-------------------------- --------------------------------------
(G. H. Saito)
Director
April 17, 1997 By
-------------------------- --------------------------------------
(H. R. Somerset)
Director
April 17, 1997 By /s/ D. L. Sorby, Ph.D.
-------------------------- --------------------------------------
(D. L. Sorby, Ph.D.)
Director
April 17, 1997 By /s/ T. R. Sweeney
-------------------------- --------------------------------------
(T. R. Sweeney)
Director
April 17, 1997 By
-------------------------- --------------------------------------
(F. E. Trotter)
Director
7
<PAGE>
LONGS DRUG STORES CORPORATION
BY-LAWS
ARTICLE I.
STOCKHOLDERS
SECTION 1.01. ANNUAL MEETING. The Corporation shall hold an annual
meeting of its stockholders to elect directors and transact any other business
within its powers, either at 10:30 a.m. on the third Tuesday of May in each year
if not a legal holiday, or at such other time on such other day falling in the
month of May as shall be set by the Board of Directors. Except as the Charter
or statute provides otherwise, any business may be considered at an annual
meeting without the purpose of the meeting having been specified in the notice.
Failure to hold an annual meeting does not invalidate the Corporation's
existence or affect any otherwise valid corporate acts.
Section 1.02. SPECIAL MEETING. At any time in the interval between
annual meetings, a special meeting of the stockholders may be called by the
Chairman of the Board, by the President or by a majority of the Board of
Directors by vote at a meeting or in writing (addressed to the Secretary of the
Corporation) with or without a meeting. Special meetings of the stockholders
shall be called by the Secretary at the request of the stockholders only on the
written request of stockholders entitled
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to cast at least a majority of all the votes entitled to be cast at the
meeting and then only as may be required by law.
Section 1.03. PLACE OF MEETINGS. Meetings of stockholders shall be
held at such place in the United States as is set from time to time by the Board
of Directors.
Section 1.04. NOTICE OF MEETING; WAIVER OF NOTICE. Not less than ten
nor more than 90 days before each stockholders' meeting, the Secretary shall
give written notice of the meeting to each stockholder entitled to vote at the
meeting and each other stockholder entitled to notice of the meeting. The
notice shall state the time and place of the meeting and, if the meeting is a
special meeting or notice of the purpose is required by statute, the purpose of
the meeting. Notice is given to a stockholder when it is personally delivered
to him, left at his residence or usual place of business, or mailed to him at
his address as it appears on the records of the Corporation. Notwithstanding
the foregoing provisions, each person who is entitled to notice waives notice if
he before or after the meeting signs a waiver of the notice which is filed with
the records of stockholders' meetings, or is present at the meeting in person or
by proxy.
Section 1.05. QUORUM; VOTING. Unless statute or the Charter provides
otherwise, at a meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of all the votes, entitled to be cast
at the meeting constitutes a quorum, and a majority of all the votes cast at a
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meeting at which a quorum is present is sufficient to approve any matter which
properly comes before the meeting.
Section 1.06. ADJOURNMENTS. Whether or not a quorum is present, a
meeting of stockholders convened on the date for which it was called may be
adjourned from time to time by the stockholders present in person or by proxy by
a majority vote. Any business which might have been transacted at the meeting
as originally notified may be deferred and transacted at any such adjourned
meeting at which a quorum shall be present. No further notice of an adjourned
meeting other than by announcement shall be necessary if held on a date not more
than 120 days after the original record date.
Section 1.07. GENERAL RIGHT TO VOTE; PROXIES. Unless the Charter
provides for a greater or lesser number of votes per share or limits or denies
voting rights, each outstanding share of stock, regardless of class, is entitled
to one vote on each matter submitted to a vote at a meeting of stockholders. In
all elections for directors, each share of stock may be voted for as many
individuals as there are directors to be elected and for whose election the
share is entitled to be voted. A stockholder may vote the stock he owns of
record either in person or by written proxy signed by the stockholder or by his
duly authorized attorney in fact. Unless a proxy provides otherwise, it is not
valid more than 11 months after its date.
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Section 1.08. List OF STOCKHOLDERS. At each meeting of stockholders,
a full, true and complete list of all stockholders entitled to vote at such
meeting, showing the number and class of shares held by each and certified by
the transfer agent for such class or by the Secretary, shall be furnished by the
Secretary.
Section 1.09. NOMINATIONS OF DIRECTORS. In addition to any other
requirements, only persons who are nominated in accordance with the following
procedures shall be eligible for election to the Board of Directors of the
Corporation. Nominations of persons for election to the Board of Directors of
the Corporation shall be made at a meeting of stockholders at which directors
are to be elected exclusively in accordance with this Section. Nominations of
persons for such elections shall be deemed properly made if (i) set forth in
proxy materials prepared for such a meeting by or at the direction of the Board
of Directors, (ii) made by a stockholder at such a meeting at the direction of
the Board of Directors, or (iii) made by a stockholder at such a meetings (other
than at the direction of the Board of Directors) if timely notice has been given
to the Secretary of the Corporation at the principal executive offices of the
Corporation of such intent to make a nomination. To be timely, such
stockholder's notice must be received by the Corporation not less than 30 days
nor more than 60 days prior to the stockholder meeting; provided, however, that
if less than 40 days' notice or prior public disclosure of the date of the
stockholders' meeting is given or made to the stockholders
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by the Corporation, then notice by the stockholder of intent to make a
nomination must be received by the Corporation no later than the close of
business on the 10th day following the day on which the Corporation mailed
the notice of the date of the meeting or public or otherwise made disclosure
of such meeting date.
Such shareholder's notice shall set forth (a) as to each person whom
the stockholder proposes to nominate for election as a director, (i) the name,
age, business address and residence address of such person, (ii) the principal
occupation or employment of the person, (iii) the class and number of shares of
the Corporation which are beneficially owned by such person, if any, and (iv)
any other information relating to such person which is required to be disclosed
in solicitations for proxies for election of directors pursuant to Regulation
14A under the Securities and Exchange Act of 1934, as amended, or any successor
act or Regulation; and (b) as to the stockholder giving the notice (i) the name
and record address of the stockholder and (ii) the class and number of shares of
the Corporation which are beneficially owned by the stockholder. The
Corporation may require any proposed nominee to furnish such other information
as may be reasonably required by the Corporation to determine the qualifications
of such proposed nominee to serve as a director of the Corporation.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 1.09. These procedures shall not apply
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to the nomination of any persons entitled to be separately elected by holders
of Preferred Stock. The chairman of a stockholder meeting may, if the facts
warrant, determine and declare to the meeting that a nomination has not been
made in accordance with the foregoing procedure and that such defective
nomination shall be disregarded.
Section 1.10. STOCKHOLDER PROPOSALS. In addition to any other
requirements, any motions, resolutions, or proposals by stockholders
(hereinafter "proposals") made at a meeting of stockholders shall be exclusively
in accordance with this Section. Proposals shall be deemed properly made if (i)
set forth in proxy materials prepared for such a meeting by or at the direction
of the Board of Directors, (ii) made by a stockholder at such a meeting at the
direction of the Board of Directors, or (iii) made by a stockholder at such a
meeting (other than at the direction of the Board of Directors) if timely notice
has been given to the Secretary of the Corporation at the principal executive
offices of the Corporation of such intent to make the proposal. To be timely,
such stockholder's notice must be received by the Corporation not less than 30
days nor more than 60 days prior to the stockholder meeting; provided, however,
that if less than 40 days' notice or prior public disclosure of the date is
given or made to the stockholders by the Corporation, then notice by the
stockholder of,intent to make the proposal must be received by the Corporation
no later than the close of business on the 10th day following the
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day on which the Corporation mailed the notice of the date of the meeting or
public disclosure of such meeting date.
Such shareholder's notice shall set forth a brief description of any
proposal the stockholder intends to make, the reasons for bringing such proposal
before the meeting, the name and address of the stockholder, and the class and
number of shares of the Corporation which are beneficially owned by the
stockholder, and any material interest of the stockholder in the subject of the
proposal.
No stockholder shall make a proposal at a stockholder meeting except
in accordance with the procedures set forth in this Section 1.10. The chairman
of a stockholder meeting may determine and declare to the meeting that a
proposal has not been made in accordance with the foregoing procedure and that
such defective proposal shall be disregarded.
Section 1.11. CONDUCT OF VOTING. At all meetings of stockholders,
unless the voting is conducted by inspectors, the proxies and ballots shall be
received, and all questions touching the qualification of voters and the
validity of proxies and the acceptance or rejection of votes shall be decided,
by the chairman of the meeting. If demanded by stockholders, present in person
or by proxy, entitled to cast 10% in number of votes entitled to be cast, or if
ordered by the chairman of the meeting, the vote upon any election or question
shall be taken by ballot and, upon like demand or order, the voting shall be
conducted by two inspectors,
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in which event the proxies and ballots shall be received, and all questions
touching the qualification of voters and the validity of proxies and the
acceptance or rejection of votes shall be decided by such inspectors. Unless
so demanded or ordered, no vote need be by ballot and voting need not be
conducted by inspectors. The stockholders at any meeting may choose an
inspector or inspectors to act at such meeting, and in default of such
election the chairman of the meeting may appoint an inspector or inspectors.
No candidate for election as a director at a meeting shall serve as an
inspector thereat.
Section 1.12. INFORMAL ACTION BY STOCKHOLDERS. Any act required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if there is filed with the records of stockholders meetings a unanimous
written consent which sets forth the action and is signed by each stockholder
entitled to vote on the matter and a written waiver of any right to dissent
signed by each stockholder entitled to notice of the meeting but not entitled to
vote at it.
Section 1.13. VOTING BY CERTAIN HOLDERS OF STOCK. Voting shall be
subject to the following provisions:
(a) A fiduciary may vote, either in person,or by proxy, stock registered
in his name as fiduciary. A fiduciary may vote, either in person or
by proxy, stock registered in the name of another person on proof of
the fact that legal title to the stock has devolved on him in a
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fiduciary capacity and that he is qualified to act in that capacity.
(b) A stockholder of record who pledges his shares may vote them, but as
between the pledgor and the pledgee, this subsection does not affect
the validity of any agreement between them as to the giving of proxies
or the exercise of voting rights.
(c) If stock is registered in the names of two or more persons, whether as
fiduciaries, members of a partnership, joint tenants, tenants in
common, tenants by the entirety, or otherwise, or if two or more
persons have the same fiduciary relationship with respect to the same
stock, unless the Secretary of the Corporation is given written notice
to the contrary and is furnished with a copy of the instrument or
order which so provides, their acts with respect to voting have the
following effects:
(1) If only one votes, his vote binds all, and if more than one vote,
the vote of the majority binds all.
(2) If more than one vote and the vote is evenly split on any
particular matter, then (i) each faction may vote the stock in
question proportionately unless otherwise provided by court
order; or (ii) any person voting the stock or any beneficiary may
apply to a court of competent jurisdiction to
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appoint an additional person to act with the persons voting the
stock and the stock shall then be voted as determined by a
majority of those persons and the person appointed by the court.
(d) Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent or proxyholder as
the By-Laws of such other corporation may prescribe or, in the
absence of such provision, by such officer, agent or proxyholder
as the Board of Directors of such other corporation may
determine; or, in the absence of such determination, by the
Chairman of the Board, President or any Vice-President of such
other corporation, or by any other person or proxyholder
authorized to do so by the Board, President or any Vice-President
of such other corporation. Whenever the authority of a person
voting shares standing in the name of another corporation is
based upon a By-law determination of the Board of Directors, or
authorization of the Board of Directors, President or Vice-
President of the other corporation, the person seeking to vote
said shares may first be required to file with the chairman of
the meeting, or with the inspectors if the voting be conducted by
inspectors a copy of the By-laws, Board of
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Directors' determination or authorization of the Board of
Directors, President or Vice-President of the other corporation,
certified to be true, complete, and effective by the Secretary or
an Assistant Secretary of the other corporation, and sealed with
the corporate seal of that corporation. Shares which are
purported to be voted or any proxy purported to be executed in
the name of another corporation (whether or not any title of the
person so voting or executing the proxy is indicated) may be
presumed to be voted or the proxy executed in accordance with the
provisions of this subdivision, in the discretion of the chairman
of the meeting, or of the inspectors if the voting be conducted
by inspectors.
(e) Shares of a corporation's own stock owned directly or indirectly
by it may not be voted at any meeting and may not be counted in
determining the total number of outstanding shares entitled to be
voted at any given time unless they are held by it in a fiduciary
capacity, in which case they may be voted and shall be counted in
determining the total number of outstanding shares at any given
time.
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<PAGE>
ARTICLE II.
BOARD OF DIRECTORS
Section 2.01. FUNCTION OF DIRECTORS. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors. All
powers of the Corporation may be exercised by or under authority of the Board of
Directors, except as conferred on or reserved to the stockholders by statute or
by the Charter or By-Laws.
Section 2.02. NUMBER OF DIRECTORS. The Corporation shall have at
least three directors; provided that, if there is not stock outstanding, the
number of Directors may be less than three but not less than one, and, if there
is stock outstanding and so long as there are less than three stockholders, the
number of Directors may be less than three but not less than the number of
stockholders. The Corporation shall have the number of directors provided in
the Charter until changed as herein provided. A majority of the entire Board of
Directors may alter the number of directors set by the Charter to not exceeding
15 nor less than the minimum number then permitted herein, but the action may
not affect the tenure of office of any director.
Beginning with the election of directors in 1985, the Board of
Directors shall be divided into three classes, Class I, Class II and Class III.
Each such class shall consist, as nearly
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as possible, of one-third of the total number of directors, and any remaining
directors shall be included within such class or classes as the Board of
Directors shall designate. At the annual meeting of stockholders in 1985,
Class I directors shall be elected for a one-year term, Class II directors
for a two-year term, and Class III directors for a three-year term. At each
succeeding annual meeting of stockholders beginning in 1986, successors to
the class of directors whose term expires at that annual meeting shall be
elected for a three-year term. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes so as to maintain
the number of directors in each class as nearly equal as possible. A director
shall hold office, subject to removal, death, resignation, retirement or
disqualification, until the annual meeting for the year in which his term
expires and until his successor shall be elected and qualify. The provisions
of this Section 2.02 shall not apply to directors governed by Section 2.10 of
this Article II.
Section 2.03. VACANCY ON BOARD. The stockholders may elect a
successor to fill a vacancy on the Board of Directors which results from the
removal of a director. A director elected by the stockholders to fill a vacancy
which results from the removal of a director serves for the balance of the term
of the removed director. A majority of t he remaining directors, whether or not
sufficient to constitute a quorum, may fill a vacancy on the Board of Directors
which results from any cause except an increase in the
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number of directors and a majority of the entire Board of Directors may fill
a vacancy which results from an increase in the number of directors. A
director elected by the Board of Directors to fill a vacancy serves until the
next annual meeting of shareholders and until his successor is elected and
qualifies. The provisions of this Section shall not apply to directors
governed by Section 2.10 of this Article II.
Section 2.04. REGULAR MEETINGS. After each annual meeting of
stockholders, the Board of Directors shall meet as soon as practicable for the
purpose of organization and the transaction of other business. In addition, the
Board of Directors shall meet on the fourth Tuesday of February and on the third
Tuesday of August and November of each year at 1:30 p.m. of each of said days at
the principal offices of the Corporation, unless the Board of Directors sets
such regular meeting at a different place, date, or time, in which case notice
shall be given to each director pursuant to Section 2.06.
Regular meetings shall be held at any place within or without the
State which has been designated by these By-Laws or from time to time by
resolution of the Board. The first regular meeting shall be held after each
annual meeting of stockholders. No notice of such first meeting, or of any
regular meeting, shall be necessary if held as provided herein.
Section 2.05. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called at any time by the Chairman of the
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Board or by the Chief Executive or by a majority of the then-acting
directors. A special meeting of the Board of Directors shall be held on such
date and at any place as may be designated from time to time by the Board of
Directors. In the absence of designation such meeting shall be held at such
place as may be designated in the call.
Section 2.06. NOTICE OF MEETING. Except as provided in Section 2.04,
the Secretary shall give notice to each director of each meeting of the Board of
Directors. The notice shall state the time and place of the meeting. Notice is
given to a director when it is delivered personally to him, left at his
residence or usual place of business, or sent by telegraph or telephone, at
least 24 hours before the time of the meeting or, in the alternative by mail to
his address as it shall appear on the records of the Corporation, at least 72
hours before the time of the meeting. Unless the By-Laws or a resolution of the
Board of Directors provides otherwise, the notice need not state the business to
be transacted at or the purposes of any meeting of the Board of Directors. No
notice of any meeting of the Board of Directors need be given to any director
who attends, or to any director who, in writing executed and filed with the
records of the meeting either before or after the holding thereof, waives such
notice. Any meeting of the Board of Directors, regular or special, may adjourn
from time to time to reconvene at the same or some other place, and
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no notice need be given of any such adjourned meeting other than by
announcement.
Section 2.07. ACTION BY DIRECTORS. Unless statute or the Charter or
By-Laws requires a greater proportion, the action of a majority of the directors
present at a meeting at which a quorum is present is action of the Board of
Directors. A majority of the entire Board of Directors shall constitute a
quorum for the transaction of business. in the absence of a quorum, the
directors present by majority vote and without notice other than by announcement
may adjourn the meeting from time to time until a quorum shall attend. At any
such adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified. Any action required or permitted to be taken at a meeting of the
Board of Directors may be taken without a meeting, if a unanimous written
consent which sets forth the action is signed by each member of the Board and
filed with the minutes of proceedings of the Board.
Section 2.08. MEETING BY CONFERENCE TELEPHONE. Members of the Board
of Directors may participate in a meeting by means of a conference telephone or
similar Communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
constitutes presence in person at a meeting.
Section 2.09. COMPENSATION. By resolution of the Board of Directors a
fixed sum and expenses, if any, for attendance at
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each regular or special meeting of the Board of Directors or of committees
thereof, and other compensation for their services as such or on committees
of the Board of Directors, may be paid to directors.
Section 2.10. DIRECTORS ELECTED BY SPECIAL CLASS OR SERIES. To
the extent that any holders of any class or series of stock other than Common
Stock issued by the Corporation shall have the separate right, voting as a
class or series, to elect directors, the directors elected by such class or
series shall be deemed to constitute an additional class of directors and
shall have a term of office for one year or such other period as may be
designated by the provisions of such class or series providing such separate
voting right to the holders of such class or series of stock, and any such
class of directors shall be in addition to the classes referred to in Section
2.02 of this Article II. Any directors so elected shall be subject to removal
in such manner as may be provided by law or by the Charter of this
Corporation. The provisions of Sections 2.02 and 2.03 of this Article II do
not apply to directors governed by this Section 2.
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<PAGE>
ARTICLE III.
COMMITTEES
Section 3.01. COMMITTEES. The Board of Directors may appoint from
among its members one or more committees composed of one or more directors and
delegate to these committees any of the powers of the Board of Directors, except
the power to declare dividends on stock, elect directors, issue stock other than
as provided in the next sentence, recommend to the stockholders any action which
requires stockholder approval, amend the By-Laws, or approve any merger or share
exchange which does not require stockholder approval. If the Board of Directors
has given general authorization for the issuance of stock, a committee of the
Board, in accordance with that general authorization or any stock option or
other plan or program adopted by the Board of Directors, may fix the terms of
stock subject to classification or reclassification and the terms on which any
stock may be issued, including all terms and conditions required or permitted to
be established or authorized by the Board of Directors.
Section 3.02. COMMITTEE PROCEDURE. The Board of Directors shall have the
power to prescribe the manner in which proceedings of each committee, shall be
held. Unless the Board of Directors shall otherwise provide, the actions of
each committee shall be
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governed by the following rules of procedure: A majority of the members of a
committee shall constitute a quorum for the transaction of business and the
act of a majority of those present at a meeting at which a quorum is present
shall be the act of the committee. The members of a committee present at any
meeting, whether or not they constitute a quorum, may appoint a director to
act in the place of an absent member. Any action required or permitted to be
taken at a meeting of a committee may be taken without meeting, if a
unanimous written consent which sets forth the action is signed by each
member of the committee and filed with the minutes of the committee. The
members of a committee may conduct any meeting thereof by conference
telephone in accordance with the provisions of Section 2.08. In the absence
of any prescription by the Board of Directors or any applicable provision of
the By-Laws, each committee may prescribe the manner in which its proceedings
shall be conducted.
Section 3.03. EMERGENCY PROVISIONS. The provisions of this Section
shall be operative only during a national emergency declared by the President of
the United States or the person performing the President's functions, or in the
event of a nuclear, atomic, or other attack on the United States or a disaster
making it impossible or impracticable for the Corporation to conduct its
business without recourse to the provisions of this Section. Said provisions in
such event shall override all other By-Laws of the Corporation in conflict with
any provisions of this Section, and
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<PAGE>
shall remain operative so long as it remains impossible or impracticable to
continue the business of the Corporation otherwise, but thereafter shall be
inoperative; provided that all actions taken in good faith pursuant to such
provisions shall thereafter remain in full force and effect unless and until
revoked by action taken pursuant to the provisions of the By-Laws other than
those contained in this Section.
(a) UNAVAILABLE DIRECTORS. All Directors of the Corporation who are
not available to perform their duties as Directors by reason of
physical or mental incapacity, or for any other reason, or who
are unwilling to perform their duties, or whose whereabouts are
unknown shall automatically cease to be Directors, with like
effect as if such persons had resigned as Directors, so long as
such unavailability continues.
(b) AUTHORIZED NUMBER OF DIRECTORS. The authorized number of
Directors shall be the number of Directors remaining after
eliminating those who have ceased to be Directors pursuant to
Subsection (a) or the minimum number required by law, whichever
number is greater.
(c) QUORUM. The number of Directors necessary to constitute a quorum
shall be one-third, (1/3) of the authorized number of Directors
as specified in
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<PAGE>
the foregoing Subsection, or such other minimum number as,
pursuant to the law or lawful decree then in force, it is
possible for the By-Laws of a corporation to specify.
(d) CREATION OF EMERGENCY COMMITTEE. In the event the number of
Directors remaining after eliminating those who have ceased to be
Directors pursuant to Subsection (a) is less than the minimum
number of authorized Directors required by law, then until the
appointment of additional Directors to make up such required
minimum, all the powers and authorities which the Board could by
law delegate, including all powers and authorities which the
Board could delegate to a committee, shall be automatically
vested in an emergency committee, and the emergency committee
shall thereafter manage the affairs of the Corporation, pursuant
to such powers and authorities, and shall have all such other
powers and authorities as may by law or lawful decree be
conferred on any person or body of persons during a period of
emergency.
(e) CONSTITUTION OF EMERGENCY COMMITTEE. The emergency committee
shall consist of all the Directors remaining after eliminating
those who have ceased to be Directors pursuant to Subsection (a),
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provided that such remaining Directors are not less than three
(3) in number. In the event such remaining Directors are less
than three (3) in number, the emergency committee shall consist
of three (3) persons, who shall be the remaining Director or
Directors and either one (1) or two (2) officers or employees of
the Corporation, as the remaining Director or Directors may in
writing designate. If there is no remaining Director, the
emergency committee shall consist of the three (3) most senior
officers of the Corporation who are available to serve, and if to
the extent that officers are not available, the most senior
employees of the Corporation. Seniority shall be determined in
accordance with any designation of seniority in the minutes of
the proceedings of the Board, and in the absence of such
designation, shall be determined by rate of remuneration. In the
event that there are no remaining Directors and no officers or
employees of the Corporation available, the emergency committee
shall consist of three (3) persons designated in writing by
Stockholders owning twenty percent (20%) or more of the shares of
record as of the date of the last record date.
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<PAGE>
(f) POWERS OF EMERGENCY COMMITTEE. The emergency committee, once
appointed, shall govern its own procedures and shall have power
to increase the number of members thereof beyond the original
number, and in the event of a vacancy or vacancies therein,
arising at any time, the remaining member or members of the
emergency committee shall have the power to fill such vacancy or
vacancies. In the event at any time after its appointment, all
members of the emergency committee shall die or resign or become
unavailable to act for any reason whatsoever, a new emergency
committee shall be appointed in accordance with the foregoing
provisions of this Section.
(g) DIRECTORS BECOMING AVAILABLE. Any person who has ceased to be a
Director pursuant to the provisions of Subsection (a) and who
thereafter becomes available to serve as a Director shall
automatically become a member of the emergency committee.
(h) ELECTION OF BOARD OF DIRECTORS. The emergency committee shall,
as soon after its appointment as is practicable, take all
requisite action to secure the election of a Board of Directors,
and upon such
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election all the powers and authorities of the emergency
committee shall cease.
(i) TERMINATION OF EMERGENCY COMMITTEE. In the event, after the
appointment of an emergency committee, a sufficient number of
persons who ceased to be Directors pursuant to Section 2 become
available to serve as Directors, so that if they had not ceased
to be Directors as aforesaid, there would be enough Directors to
constitute the minimum number of Directors required by law, then
all persons shall automatically be deemed to be reappointed as
Directors and the powers and authorities of the emergency
committee shall be at an end.
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ARTICLE IV.
OFFICERS
Section 4.01. EXECUTIVE AND OTHER OFFICERS. The Corporation shall
have a President, a Secretary, and a Treasurer who shall be the executive
officers of the Corporation. It may also have a Chairman of the Board. The
Board of Directors may designate who shall serve as Chief Executive Officer,
having general supervision of the business and affairs of the Corporation, or as
Chief Operating Officer, having supervision of the operations of the
Corporation; in the absence of designation the President shall serve as Chief
Executive Officer. It may also have one or more Vice-Presidents, assistant
officers, and subordinate officers as may be established by the Board of
Directors. A person may hold more than one office in the Corporation but may
not serve concurrently as both President and Vice-President of the Corporation.
The Chairman of the Board shall be a director; the other officers may be
directors.
Section 4.02 CHAIRMAN OF THE BOARD. The Chairman of the Board, if
one be elected, shall perform all such duties as are from time to time assigned
to him by the Board of Directors.
Section 4.03 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer,
if one be designated, shall preside at meetings
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of the Board of Directors at which he shall be present; he shall preside at
meetings of the stockholders at which he shall be present; he may sign and
execute, in the name of the Corporation, all authorized deeds, mortgages,
bonds, contracts or other instruments, except in cases in which the signing
and execution thereof shall have been delegated to some other officer or
agent of the Corporation; he shall be a member, ex-officio, of all committees
of the Board of Directors, except the Audit Committee, unless the Board
provides to the contrary when appointing any committee; and, in general, he
shall perform all duties usually performed by a Chief Executive Officer of a
corporation and such other duties as are from time to time assigned to him by
the Board of Directors.
Section 4.04. PRESIDENT. The President, in the absence of the Chief
Executive Officer, shall preside at meetings of the Board of Directors and
stockholders at which he shall be present. Except in cases in which the signing
and execution of certain documents and instruments has been delegated to some
other officer or agent of the Corporation, the President may sign and execute,
in the name of the Corporation, all authorized deeds, mortgages, bonds,
contracts and other instruments. The President shall perform all duties usually
performed by a President of a corporation and such other duties as are from time
to time assigned to him by the Board of Directors and the, Chief Executive
Officer. The President, at the request of the Chief Executive Officer, or in
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the Chief Executive Officer's absence or during his inability to act, shall
perform the duties and exercise the functions of the Chief Executive Officer,
and when so acting, shall have the powers of the Chief Executive Officer.
Section 4.05. VICE-PRESIDENTS. The Vice-President or Vice-
Presidents, at the request of the President, or in the President's absence or
during his inability to act, shall perform the duties and exercise the functions
of the President, and when so acting shall have the powers of the President. If
there be more than one Vice-President, the Board of Directors may determine
which one or more of the Vice-Presidents shall perform any of such duties or
exercise any of said functions, or if such determination is not made by the
Board of Directors, the Chief Executive Officer may make such determination;
otherwise any of the Vice-Presidents may perform. any of such duties or exercise
any of such functions. The Vice-President or Vice-Presidents shall have such
other powers and perform such other duties, and have such additional descriptive
designations in their titles (if any), as are from time to time assigned to them
by the Board of Directors, or the Chief Executive Officer.
Section 4.06. SECRETARY. The Secretary shall keep the minutes of the
meetings of the stockholders, of the Board of Directors and of any committees,
in books provided for the purpose; he shall see that all notices are duly given
in accordance with provisions of the By-Laws or as required by law; he shall be
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custodian of the records of the Corporation; except where delegated to some
other officer or agent of the Corporation, he may witness any document on behalf
of the Corporation, the execution of which is duly authorized, see that the
corporate seal is affixed where such document is required or desired to be under
its seal, and, when so affixed, may attest the same; and, in general, he shall
perform all duties incident to the office of a secretary of a corporation, and
such other duties as are from time to time assigned to him by the Board of
Directors, or the Chief Executive Officer.
Section 4.07. TREASURER. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by the Board of
Directors; he shall render to the Chief Executive Officer and to the Board of
Directors, whenever requested, an account of the financial condition of the
Corporation; and, in general, he shall perform all the duties incident to the
office of a treasurer of a corporation, and such other duties as are From time
to time assigned to him by,the Board of Directors, or the Chief Executive
Officer.
Section 4.06. ASSISTANT AND SUBORDINATE OFFICERS. The assistant and
subordinate officers of the Corporation are all
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officers below the office of Vice-President, Secretary, or Treasurer. The
assistant or subordinate officers shall have such duties as are from time to
time assigned to them by the Board of Directors, or the Chief Executive
Officer.
Section 4.09. ELECTION, TENURE AND REMOVAL OF OFFICERS. The Board of
Directors shall elect the officers. The Board of Directors may from time to
time authorize any committee or officer to appoint assistant and subordinate
officers. All officers shall be appointed to hold their offices, respectively,
during the pleasure of the Board. The Board of Directors (or any committee or
officer authorized by the Board) may remove an officer at any time. The Board
of Directors (or, as to any assistant or subordinate officer, any committee or
officer authorized by the Board) may fill a vacancy which occurs in any office
for the unexpired portion of the term.
Section 4.10. COMPENSATION. The Board of Directors shall have power to
fix the salaries and other compensation and remuneration, of whatever kind, of
all officers of the Corporation. It may authorize any committee or officer, to
fix the salaries, compensation and remuneration of any subordinate officer.
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ARTICLE V.
STOCK
Section 5.01. CERTIFICATES FOR STOCK. Each stockholder is entitled
to certificates which represent and certify the shares of stock he holds in the
Corporation. Each stock certificate shall include on its face the name of the
corporation that issues it, the name of the stockholder or other person to whom
it is issued, and the class of stock and number of shares it represents. It
shall be in such form, not inconsistent with law or with the Charter, as shall
be approved by the Board of Directors or any officer or officers designated for
such purpose by resolution of the Board of Directors. Each stock certificate
shall be signed by the Chief Executive Officer, the President or a Vice-
President, and countersigned by the Secretary, an Assistant Secretary, the
Treasurer, or an Assistant Treasurer. Each certificate may be sealed with the
actual corporate seal or a facsimile of it or in any other form and the
signatures may be either manual or facsimile signatures. A certificate is valid
and may be issued whether or not an officer who signed it is still an officer
when it is issued.
Section 5.02. TRANSFERS. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the, issue, transfer and registration of certificates of stock; and may appoint
transfer agents and
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registrars thereof. The duties of transfer Agent and registrar may be
combined.
Section 5.03. RECORD DATE AND CLOSE OF TRANSFER BOOKS. The Board of
Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted other
rights. The record date may not be more than 90 days before the date on which
the action requiring the determination will be taken; the transfer books may not
be closed for a period longer than 20 days; and, in the case of a meeting of
stockholders, the record date or the closing of the transfer books shall be at
least ten days before the date of the meeting.
Section 5.04. STOCK LEDGER. The Corporation shall maintain a stock
ledger which contains the name and address of each stockholder and the number of
shares of stock of each class which the stockholder holds. The stock ledger may
be in written form or in any other form which can be converted within a
reasonable time into written form for visual inspection. The original or a
duplicate of the stock ledger shall be kept at the offices of a transfer agent
for the particular class of stock, or, if none, at the principal office in the
State of Maryland or the principal executive offices of the Corporation.
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Section 5.05. LOST STOCK CERTIFICATES. The Board of Directors of the
Corporation may determine the conditions for issuing a new stock certificate in
place of one which is alleged to have been lost, stolen, or destroyed, or the
Board of Directors may delegate such power to any officer or officers of the
Corporation. In their discretion, the Board of Directors or such officer or
officers may refuse to issue such new certificate save upon the order of some
court having jurisdiction in the premises.
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ARTICLE VI.
SUNDRY PROVISIONS
Section 6.01. FISCAL YEAR. The fiscal year of the Corporation shall
be the twelve calendar months period commencing on the last Friday in the month
of January in each year, and ending on the last Thursday in the month of January
in the immediately succeeding year, unless otherwise provided by the Board of
Directors.
Section 6.02. DIVIDENDS. If declared by the Board of Directors at
any meeting thereof, the Corporation may pay dividends on its shares in cash,
property, or in shares of the capital stock of the Corporation, unless such
dividend is contrary to law or to a restriction contained in the Charter.
Section 6.03. BOOKS AND RECORDS. The Corporation shall keep correct
and complete books and records of its accounts and transactions and minutes of
the proceedings of its stockholders and Board of Directors and of any executive
or other committee when exercising any of the powers of the Board of Directors.
The books and records of a Corporation may be in written form or in any other
form which can be converted within a reasonable time into written form for
visual inspection. Minutes shall be recorded in written form but may be
maintained in the form of a reproduction. The
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original or a certified copy of the By-Laws shall be kept at the principal
office of the Corporation.
Section 6.04. CORPORATE SEAL. The Board of Directors shall provide a
suitable seal, bearing the name of the Corporation, which shall be in the charge
of the Secretary. The Board of Directors may authorize one or more duplicate
seals and provide for the custody thereof. If the Corporation is required to
place its corporate seal to a document, it is sufficient to meet the requirement
of any law, rule, or regulation relating to a corporate seal to place the word
"Seal" adjacent to the signature of the person authorized to sign the document
on behalf of the Corporation.
Section 6.05. BONDS. The Board of Directors may require any officer,
agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his duties, with one or more sureties
and in such amount as may be satisfactory to the Board of Directors.
Section 6.06. VOTING UPON SHARES IN OTHER CORPORATIONS. Stock of
other corporations or associations, registered in the name of the Corporation,
may be voted by the President; provided, however, that if the Board of Directors
has designated a Chief Executive Officer who is not the President, that officer
and not the President, may vote such stock. A proxy appointed by the officer
having the authority to vote such stock may also vote such stock, or a proxy
appointed by any of them. The Board of Directors, however, may by resolution
appoint some other person to
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vote such shares, in which case each person shall be entitled to vote such
shares upon the production of a certified copy of such resolution.
Section 6.07. MAIL. Any notice or other document which is required
by these By-Laws to be mailed shall be deposited in the United States mails,
postage prepaid.
Section 6.08. EXECUTION OF DOCUMENTS. A person who holds more than
one office in the Corporation may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer.
Section 6.09. AMENDMENT. These By-Laws may be altered, amended, or
repealed and new by-laws may be adopted to the extent and as provided in the
Charter of the Corporation.
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[LONGS DRUGS LOGO]
"THE SUCCESSFUL INITIATIVES OF
THE PAST TWO YEARS HAVE SET A STRONG FOUNDATION
FOR CONTINUED GROWTH AT LONGS"
A n n u a l R e p o r t 1 9 9 7
<PAGE>
[MAP]
NUMBER OF STORES AT FISCAL YEAR END
- ------------------------------------
California 291
Hawaii 32
Nevada 8
Colorado 6
- ------------------------------------
Total 337
COMPANY-OWNED
PROPERTIES AT FISCAL YEAR END
- ------------------------------------
Store Building and Land 121
Store Building on Leased Land 43
Corporate Offices 2
Warehouses 2
C O R P O R A T E P R O F I L E
Longs Drug Stores is one of the largest drug store chains in North America,
operating 337 stores in California, Hawaii, Nevada and Colorado. The
Company offers a uniquely broad assortment of merchandise--including
pharmaceutical products, personal care items, photography supplies and greeting
cards--along with excellent value and a high degree of customer service.
Longs common stock is traded on the New York Stock Exchange under the
symbol LDG.
- ---------------------------------------
TABLE OF CONTENTS
- ---------------------------------------
1 Financial Highlights
3 Message to Stockholders
8 Internal Initiatives
11 External Expansion
12 Management's Discussion & Analysis
14 Financial Review
21 Board of Directors and Officers
<PAGE>
[Longs Drugs logo]
F I N A N C I A L H I G H L I G H T S
(MILLIONS EXCEPT SALES PER SQUARE FT., PER SHARE DATA AND NUMBER OF STORES)
- ----------------------------------------------------------------------------
FY 1997 FY 1996 FY 1995
Sales $ 2,828 $ 2,644 $ 2,558
Net Income $ 59 $ 55(1) $ 49
PER SHARE DATA (2)
Net Income $ 1.49 $ 1.35(1) $ 1.18
Dividends $ 0.56 $ 0.56 $ 0.56
BALANCE SHEET DATA
Total Assets $ 880 $ 854 $ 828
Stockholders' Equity $ 554 $ 523 $ 524
KEY FINANCIAL RATIO
Return on Average Stockholders' Equity 10.9% 10.4%(1) 9.5%
STORE DATA
Number of Stores at Year End 337 328 317
Selling Square Footage at Year End 5.4 5.2 5.1
Sales Per Selling Square Foot (52-week basis) $ 518 $ 505 $ 506
(1) Excluding $14 million lawsuit settlement in FY 1996 which reduced after tax
net income by $8.4 million, or $.21 per share.
(2) Reflects 2-for-1 stock dividend on January 10, 1997
SALES
95 . . . . . . . $2.56 Billion
96 . . . . . . . . . . . $2.64 Billion
97 . . . . . . . . . . . . . . $2.83 Billion
EARNINGS PER SHARE
95 . . . . . . . $1.18
96 . . . . . . . . . . . $1.35(1)
97 . . . . . . . . . . . . . . $1.49
LONGS DRUG STORES 1
<PAGE>
[LOGO]
"SHARPER MARKETING,
A CUTTING EDGE PHARMACY AND UNSURPASSED SERVICE
ARE FUELING OUR GROWTH"
LONGS DRUG STORES 2
<PAGE>
Bob Long
Chairman of the Board
Chief Executive Officer
[PHOTO]
Steve Roath
President
M E S S A G E T O S T O C K H O L D E R S
Fiscal 1997 was an excellent year for Longs. The many strategic
initiatives we began implementing two years ago continued to drive improved
performance at all levels of the Company. We achieved solid revenue and
earnings growth, as well as increases in same store sales, pharmacy sales,
customer count, average transaction and sales per square foot.
Beyond these important financial measures, Longs has also grown stronger
in the key elements that underlie any successful retailer. By applying
customer-focused category management techniques, upgrading our information
technologies and significantly strengthening our pharmacy operations, we've
given our store management and employees the tools they need to do their jobs
better. And it shows, in the excitement and enthusiasm of Longs employees, in
the positive remarks we hear from our customers, and in our improved sales
performance.
Today, Longs is a stronger, better positioned, and more competitive
chain than it was just two and a half years ago, and we intend to continue
building on the momentum we have established.
STRONG SALES AND EARNINGS GROWTH
For the 53 weeks ended January 30, 1997, Longs sales were $2.8 billion, up 7%
from $2.6 billion in the 52 weeks of fiscal 1996. On a 52-week comparable
basis, same store sales rose 4.1% in fiscal 1997, and pharmacy sales
increased 9.0%. We are especially encouraged by the strong performance in
pharmacy, as this category represents 33% of our total sales.
LONGS DRUG STORES 3
<PAGE>
[PHOTO]
Net income grew to $58.6 million, or $1.49 per share, from $46.2 million a
year ago when we took a one-time pre-tax charge of $14 million to settle a
lawsuit. Without the charge, our fiscal 1996 earnings would have been $54.6
million, or $1.35 per share. These earnings per share figures reflect the
two-for-one stock split that we declared in January 1997.
This solid 7% growth in Longs' sales and profitability--which we achieved
despite a weaker than expected holiday selling season for Longs and most
retailers and a still sluggish economy in Hawaii that held back our sales
growth in the state--was in line with our goals for the year, and we feel our
results illustrate how our initiatives to enhance value, convenience and the
overall shopping experience for our customers have translated into strong
performance throughout our chain.
MEETING AND EXCEEDING CUSTOMER EXPECTATIONS
Longs has always had a tradition of decentralized decision making, giving
store managers broad authority to stock selected merchandise based on their
knowledge of local customer demand. Over the past two years, we have begun
augmenting this proven approach with more active management of core
categories by our merchandising team at the corporate office.
In this program--which has been a tremendous success--category managers at
our corporate headquarters analyze customer buying behavior throughout our
339 store chain and develop fact-based strategies for enhancing core product
selection, display and promotion. With store managers and employees doing an
excellent job tailoring execution of these plans to their stores, the result
has been a product offering that provides greater focus and consumer appeal.
LONGS DRUG STORES 4
<PAGE>
Category management leverages our greatly enhanced management information
system, which enables us to track chainwide sales through our checkout
scanning system, analyze operating data at both the store and regional level,
develop detailed product layout designs, and much more. It has significantly
strengthened sales in each of the categories under management, including
cosmetics/toiletries, photo and over-the-counter drugs.
A PHARMACY "BETTER THAN THE BEST"
Technology is also key to the improvements we have made in our pharmacy
departments. For example, in fiscal 1997 we completed testing and began
rolling out our new computer-aided prescription filling system, which frees
our pharmacists to spend more time consulting with customers. And our
automated Pharmacy Replenishment Ordering System has greatly increased the
efficiency and speed of re-stocking pharmaceutical products.
Fiscal 1997 was also the first full year of our Integrated Health Concepts
(IHC) subsidiary. IHC is designed to maintain Longs' leadership in the
rapidly changing healthcare marketplace by marketing value-added pharmacy
services to managed care providers, including large employer groups, HMOs,
insurance companies and others. Response to IHC has been excellent, and, as
the managed care revolution has put inevitable downward pressure on
pharmaceutical prices, we believe Longs will be well positioned to offset
much of this margin decline with both growing sales and enhanced service
offerings.
[PHOTO]
LONGS DRUG STORES 5
<PAGE>
AN EXPANDING MARKET PRESENCE
In addition to improving our sales performance and operating efficiency over
the past 24 months, we continued to broaden our store base. In fiscal 1997,
we opened ten new stores, relocated one store and closed one underperforming
unit.
Our growth strategy requires an expansion into markets other than those in
which we already have stores. Such an opportunity is Las Vegas. With our
strong presence in Southern California and seven successful stores in and
around Reno, Nevada, Las Vegas is a natural extension for Longs. We are now
developing a presence in Las Vegas and plan to have a total of six stores
there by the end of this fiscal year. Overall, our expansion plans for fiscal
1998 are to open a total of 15 to 17 new stores.
GROWING MOMENTUM IN FISCAL 1998 AND BEYOND
Longs has accomplished a great deal in the past year, but we believe there is
still plenty of room for further improvement. In fiscal 1998 we will continue
to refine our category management implementation to fuel our same store sales
growth. We will also assess other customer-service initiatives, such as
increasing the number of stores that offer either extended hours or 24-hour
operation. We will implement new applications to maximize the value of our
information systems investment. And we will continue to hire and train the
best managers and employees in the industry.
[PHOTO]
LONGS DRUG STORES 6
<PAGE>
[PHOTOS]
Indeed, people have always been the key to Longs' success, and we want to
thank each of the 16,500 individuals in the Longs family for their
contributions to our past and future accomplishments. We also thank you, our
stockholders--including the nearly 11,000 Longs employees who are members of
the Company's profit sharing plan--for your continued support.
/s/ S.D. Roath /s/ Bob Long
-------------------- ------------------------------
S.D. Roath R. M. Long
President Chief Executive Officer
April 7, 1997
LONGS DRUG STORES 7
<PAGE>
I N T E R N A L I N I T I A T I V E S
Longs' success begins with store-level performance. A fast, friendly and
fruitful shopping experience has been the hallmark of Longs stores for almost
six decades. Today we are building on that tradition with a variety of
initiatives designed to ensure that our customers find what they want and
find it easily, while receiving unsurpassed service and value.
CATEGORY MANAGEMENT
Longs stores are well known for carrying unique and often unusual merchandise
that reflects the particular needs of local customers. To accomplish this,
our store managers have the authority to make independent buying decisions.
This autonomy is a key reason why our customers think of Longs as their local
corner drug store and why they make us a regular stop on their weekly
shopping trips. It is an aspect of our Company that will never change.
[PHOTO]
Recently, however, we have added a valuable element of control in managing
the standard core product categories in all our stores. Category managers at
our headquarters now use information gathered from our entire 339 store chain
to develop successful product mix, to position categories effectively on the
sales floor, and to carry out traffic building promotions.
TECHNOLOGY-DRIVEN PRODUCTIVITY
Controlling core categories from the corporate office also improves our
purchasing efficiency. It leverages our buying clout and enhances our ability
to negotiate consistent supply and better costs of goods. In addition,
automated repurchasing systems help reduce inventory costs while improving
the speed of our replenishment capability. It has also improved our ability
to maintain in-stock positions throughout the chain.
We now have approximately 11,000 stock keeping units available for rapid
replenishment--more than 25% of the non-prescription items we carry in our
stores. Equally encouraging, we are steadily increasing the share of our
product volume that is controlled by our own distribution system--in fiscal
1997, we surpassed 45%--a trend that improves our gross margin and inventory
control.
LONGS DRUG STORES 8
<PAGE>
[LOGO]
"WE HAVE STEADILY
IMPROVED OUR STORE-LEVEL PRODUCTIVITY AND
OVERALL OPERATING EFFICIENCY"
LONGS DRUG STORES 9
<PAGE>
[LOGO]
"LONGS IS EXTENDING
ITS PRESENCE IN BOTH NEW AND
EXISTING MARKETS"
LONGS DRUG STORES 10
<PAGE>
E X T E R N A L E X P A N S I O N
As we have strengthened our internal performance, Longs has also
continued to expand its store base. Our strategy has been to focus on finding
high quality sites in our existing markets that enhance our strong position
in our four-state operating area. At the same time, we continue to assess
opportunities to expand into new markets. As we do so, we often seek multiple
unit acquisitions that will give us an immediate strong market presence and
enable us to capitalize on economies of scale in distribution, marketing and
training.
EXISTING MARKETS
While Longs has a very strong presence and name recognition in California,
there are still opportunities to add new stores, as well as to upgrade and
expand existing units. In fiscal 1997, we added nine new stores in the state,
both in urban markets as well as smaller towns. To serve the thriving San
Diego metropolitan area, for example, we added three stores. At the same
time, we also entered the smaller Central Valley ranching town of Prather,
and expanded the size of an existing store in the growing community of
Orcutt, near Santa Maria.
Before opening any new store, we conduct extensive research to evaluate
market demand and existing store capacity. And, of course, we always hit the
ground running by stocking key local items--such as fishing tackle at our new
Reno store--to serve the unique needs of the local customer base.
NEW MARKETS
When we enter new operating areas, we choose markets that are logical
extensions of our established operations, such as communities near or
contiguous to current markets. We followed this strategy in fiscal 1997 when
we entered Las Vegas, which is between Reno, Nevada, where we now have a
strong base of seven stores, and Southern California. We entered this new
market by acquiring three stores from local retailers Rainbow Drugs and Drug
Emporium. Although not yet open as Longs units, these new stores provide us a
strong initial foundation on which to build. Based on our market research we
are very optimistic about this move. We believe Longs' proven combination of
service-oriented pharmacy, broad selection and unique merchandise mix will be
very well received in Las Vegas.
LONGS DRUG STORES 11
<PAGE>
M A N A G E M E N T ' S D I S C U S S I O N A N D A N A L Y S I S
RESULTS OF OPERATIONS
SEASONAL BUSINESS AND 53 WEEK YEAR
The retail drug store business is seasonal, peaking in the fourth quarter due
to the Thanksgiving and Christmas holidays and the cold and flu season. The
Company's fiscal year ends the last Thursday in January. Fiscal year and
fourth quarter of 1997 had one additional week of operations compared to
fiscal year and fourth quarter of 1996 and 1995. Sales benefited as a result,
offset somewhat by the impact of fewer holiday shopping days between the
Thanksgiving and Christmas holidays.
SALES
(THOUSANDS) FY 1997 FY 1996 FY 1995
- ------------------------------------------------------------------
Total Sales $ 2,828,338 $ 2,644,376 $ 2,558,269
- ------------------------------------------------------------------
Sales Growth - 53rd week
(FY 97 only) 2.1%
Same Store Sales Growth
52 weeks 4.1% 0.7% (1.5%)
New Stores
52 weeks 0.8% 2.7% 3.9%
- ------------------------------------------------------------------
Total Sales Growth 7.0% 3.4% 2.4%
- ------------------------------------------------------------------
New Stores 10 15 18
Closed Stores (1) (4) (6)
- ------------------------------------------------------------------
Number of Stores 337 328 317
- ------------------------------------------------------------------
About one-third of the sales growth is due to an extra week of operations in
fiscal 1997, compared to fiscal 1996 and fiscal 1995. The steady improvement
in same store sales, stores open more than one year, was due to strong
pharmacy sales and successful marketing of non-pharmacy categories. Sales
were negatively impacted by five fewer shopping days between Thanksgiving and
Christmas and severe weather in California in the fourth quarter of fiscal
1997.
PHARMACY SALES
FY 1997 FY 1996 FY 1995
- -----------------------------------------------------
Pharmacy Percent of
Total Sales 33.1% 32.0% 30.1%
- -----------------------------------------------------
Managed Care Percent of
Pharmacy Sales 80.2% 76.5% 71.3%
- -----------------------------------------------------
Pharmacy sales grew slightly as a percentage of total sales as a result of
strong pharmacy sales growth. Pharmacy sales increased 9.0% in fiscal 1997 on
a 52-week comparable basis, 10.7% in fiscal 1996, and 7.2% in fiscal 1995.
Pharmacy sales reimbursed through managed care arrangements continues to
increase but at a lesser rate than prior years.
GROSS MARGIN
FY 1997 FY 1996 FY 1995
- -----------------------------------------------------
Gross Margin Percentage 26.7% 26.4% 26.0%
- -----------------------------------------------------
Increased gross margin in fiscal 1997 over fiscal 1996 was primarily the
result of improved buying, product mix, and promotional strategies. These
increases offset decreases in pharmacy gross margin consistent within the
drug chain industry.
The Company uses the LIFO (last-in first-out) method of accounting for its
inventories. The LIFO provision was $3.4 million in fiscal 1997, compared to
$4.8 million in fiscal 1996 and $1.7 million in fiscal 1995. The LIFO
provision fluctuates with inflation rates and product mix, and is included in
cost of merchandise sold.
OPERATING AND ADMINISTRATIVE EXPENSES
(THOUSANDS) FY 1997 FY 1996 FY 1995
- ---------------------------------------------------------
Operating and
Administrative Expenses $ 656,742 $ 607,157 $ 584,587
- ---------------------------------------------------------
Operating and
Administrative Expenses
as a Percent of Sales 23.2% 23.0% 22.9%
- ---------------------------------------------------------
Operating and administrative expenses as a percent of sales increased to
23.2% in fiscal 1997, compared to 23.0% in fiscal 1996, and 22.9% in fiscal
1995. The increase was primarily due to an increase in wages that resulted
from the new stores, costs related to the implementation of category
management, and other costs which were in line with our expectations.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AND AMORTIZATION (EBITDA)
(THOUSANDS) FY 1997 FY 1996 FY 1995
- ---------------------------------------------------------------
EBITDA $ 141,385 $ 117,184 $ 118,642
- ---------------------------------------------------------------
EBITDA as a Percent
of Sales 5.0% 4.4% 4.6%
- ---------------------------------------------------------------
EBITDA, excluding impact
of lawsuit settlement
in FY 1996 $ 141,385 $ 131,184 $118,642
EBITDA as a Percent
of Sales, excluding
impact of lawsuit settlement
in FY 1996 5.0% 5.0% 4.6%
- ---------------------------------------------------------------
EBITDA as a percent of sales continue to be strong, consistent with preceding
years.
INCOME BEFORE TAXES
FY 1997 FY 1996 FY 1995
- ------------------------------------------------------------------
Income Before Taxes as a
Percent of Sales 3.4% 2.9% 3.2%
- ------------------------------------------------------------------
Income Before Taxes as a
Percent of Sales, excluding impact
of lawsuit settlement in FY 1996 3.4% 3.4% 3.2%
- ------------------------------------------------------------------
Income before taxes as a percent of sales remained consistent with prior year
with an improvement in gross margin offset by increased operating and
administrative expenses.
LAWSUIT SETTLEMENT
In fiscal 1996 the Company had a one-time $14.0 million pre-tax charge to
operations to settle a lawsuit. The after tax impact of the settlement was
$8.4 million or $0.21 per share. The details of the settlement are discussed
in the footnotes to the financial statements. Operating comparisons to prior
year are made with and without the settlement to facilitate analysis.
LONGS DRUG STORES 12
<PAGE>
INCOME TAXES
The Company's effective income tax rates were 39.9% in fiscal 1997, 39.8% in
fiscal 1996 and 39.7% in fiscal 1995. The California corporate tax rate was
reduced from 9.3% to 8.8% for tax years beginning after January 1, 1997.
NET INCOME
FY 1997 FY 1996 FY 1995
- -------------------------------------------------------------
Net Income as a Percent
of Sales 2.1% 1.7% 1.9%
- -------------------------------------------------------------
Net Income as a Percent
of Sales, excluding impact
of lawsuit settlement in
FY 1996 2.1% 2.1% 1.9%
- -------------------------------------------------------------
Net income as a percent of sales is consistent with fiscal 1996 (excluding
the settlement) due to improved gross margins offset by increased operating
and administrative expenses.
EARNINGS PER SHARE
FY 1997 FY 1996 FY 1995
- ----------------------------------------------------------
Earnings per Share $ 1.49 $ 1.15 $ 1.18
Percent increase in
Earnings per Share 30.2% (2.7%) (8.2%)
- ----------------------------------------------------------
Earnings per Share,
excluding impact of lawsuit
settlement in FY 1996 $ 1.49 $ 1.35 $ 1.18
Percent increase in
Earnings per Share
excluding impact of lawsuit
settlement in FY 1996 10.1% 15.0% (8.2%)
- ----------------------------------------------------------
On January 10, 1997, the Company issued a two-for-one stock split effected in
the form of a stock dividend. All per share amounts have been adjusted to
reflect the split. Earnings per share increased at a greater rate than net
income due to stock repurchases in each of the last three fiscal years.
LIQUIDITY AND CAPITAL RESOURCES
CASH POSITION
(THOUSANDS) FY 1997 FY 1996 FY 1995
- ----------------------------------------------------------
Cash and Cash Equivalents
at Year End $ 22,834 $ 49,314 $ 57,518
- ----------------------------------------------------------
Cash and cash equivalents in fiscal 1997 were lower than fiscal 1996 due to
increased inventories, particularly in the stores' pharmacies and in the
pharmacy distribution warehouse, the purchase of a $12 million warehouse in
fourth quarter, and the actual payment of the lawsuit settlement. Cash and
cash equivalents in fiscal 1996 were lower than fiscal 1995 as a result of
the acquisition of six stores in Hawaii and approximately $25 million more in
stock repurchases in fiscal 1996 over fiscal 1995.
CASH FROM OPERATIONS
(THOUSANDS) FY 1997 FY 1996 FY 1995
- ---------------------------------------------------------
Cash provided by Operating
Activities $ 80,579 $ 94,299 $ 84,069
- ---------------------------------------------------------
The decrease in cash provided by operations was primarily due to the payment
of the lawsuit settlement in fiscal 1997. Offsetting this decrease were
improvements in sales and margins and the benefit from an extra week of
operations in fiscal 1997.
CAPITAL EXPENDITURES
(THOUSANDS) FY 1997 FY 1996 FY 1995
- ----------------------------------------------------------------
Cash used by Investing
Activities $ (65,117) $ (46,093) $ (34,773)
- ----------------------------------------------------------------
Capital expenditures increased in fiscal 1997 primarily due to the
construction and purchase of a $12 million warehouse in Southern California
that replaced a leased facility. Management information systems were also
expanded during fiscal 1997 to extend an open network system between the
corporate offices and all stores. Additionally, the company is continuing its
investment in open technologies to deliver new systems for pharmacy, human
resources management, category management, warehousing and product ordering.
Capital expenditures for fiscal 1998 are expected to rise with additional new
stores and fixture upgrades in existing stores due to category management
initiatives.
During fiscal 1997, the Company opened its first store in the Las Vegas
market. The Company agreed to acquire 3 stores, 2 of which will open in early
fiscal 1998, from existing operators in Las Vegas and will operate them under
the Rainbow Pharmacy name until fall of next year.
In fiscal 1996, the Company purchased the inventory and fixed assets of six
stores and the merchandise inventories of additional stores in Hawaii from
PayLess Drug Stores Northwest, Inc.
FINANCING ACTIVITIES
(THOUSANDS) FY 1997 FY 1996 FY 1995
- -----------------------------------------------------------------
Cash used by Financing
Activities $ (41,942) $ (56,410) $ (34,290)
- -----------------------------------------------------------------
Stock repurchases were $21.9 million in fiscal 1997, $35.7 million in fiscal
1996, and $11.1 million in fiscal 1995, the primary reason for fluctuations
in financing activities. Stock repurchases are at the discretion of the
Board of Directors under an authorization approved in November 1994 and are
impacted by stock price and available cashflow.
Expenditures for capital projects, dividends, and stock repurchases have
been, and are expected to continue to be, funded from operation and cash
reserves. To maintain desired working capital, the Company may periodically
use short-term lines of credit.
LONGS DRUG STORES 13
<PAGE>
STATEMENTS OF CONSOLIDATED INCOME
Years Ended Jan 30, 1997 Jan 25, 1996 Jan 26, 1995
-----------------------------------------------------
THOUSANDS EXCEPT PER SHARE
SALES $ 2,828,338 $ 2,644,376 $ 2,558,269
Cost and Expenses
Cost of merchandise sold 2,074,084 1,946,391 1,892,851
Operating and administrative 656,742 607,157 584,587
Lawsuit settlement 14,000
----------------------------------------
Income before taxes 97,512 76,828 80,831
Taxes on Income 38,900 30,600 32,100
----------------------------------------
NET INCOME $ 58,612 $ 46,228 $ 48,731
----------------------------------------
Per Common Share
Net Income $ 1.49 $ 1.15 $ 1.18
Dividends $ .56 $ .56 $ .56
Weighted Average Number of Shares
Outstanding 39,303 40,364 41,402
----------------------------------------
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 30, 1997 and January 25,
1996, 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 30, 1997. 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 30,
1997 and January 25, 1996, and the results of their operations and their cash
flows for each of the three fiscal years in the period ended January 30, 1997
in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
San Francisco, California
March 7, 1997
LONGS DRUG STORES 14
<PAGE>
CONSOLIDATED BALANCE SHEETS
JAN 30, 1997 JAN 25, 1996
----------------------------
THOUSANDS
ASSETS
Current Assets
Cash and equivalents $ 22,834 $ 49,314
Pharmacy and other receivables 49,911 54,388
Merchandise inventories 356,933 316,497
Deferred income taxes 19,757 23,640
Other 1,939 2,687
-------------------------
Total current assets 451,374 446,526
-------------------------
Property
Land 88,269 79,998
Buildings and leasehold improvements 337,486 313,766
Equipment and fixtures 270,337 247,831
Beverage licenses 7,240 7,163
-------------------------
Total property at cost 703,332 648,758
Less accumulated depreciation 285,943 253,461
-------------------------
Property, net 417,389 395,297
-------------------------
Other Non-Current Assets 10,886 11,734
-------------------------
Total $ 879,649 $ 853,557
-------------------------
-------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 164,369 $ 148,428
Employee compensation and benefits 55,957 59,843
Taxes payable 34,294 37,808
Current portion of guarantee of Profit Sharing
Plan debt 2,363 2,174
Other 29,526 39,094
-------------------------
Total current liabilities 286,509 287,347
-------------------------
Guarantee of Profit Sharing Plan Debt 5,192 8,311
-------------------------
Deferred Income Taxes 34,362 35,132
-------------------------
Stockholders' Equity
Common stock (38,968,000 and 39,632,000 outstanding) 19,484 19,816
Additional capital 109,327 107,608
Common stock contribution to Profit Sharing Plan 9,955 4,550
Guarantee of Profit Sharing Plan debt (7,555) (10,485)
Retained earnings 422,375 401,278
-------------------------
Total stockholders' equity 553,586 522,767
-------------------------
Total $ 879,649 $ 853,557
-------------------------
-------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
LONGS DRUG STORES 15
<PAGE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
------------------------------------------------------
YEARS ENDED JAN 30, 1997 JAN 25, 1996 JAN 26, 1995
------------------------------------------------------
THOUSANDS
<S> <C> <C> <C>
OPERATING ACTIVITIES
Receipts from customers $ 2,832,563 $ 2,645,211 $ 2,554,596
Payments for merchandise (2,098,579) (1,968,353) (1,901,012)
Payments for operating and administrative expenses (607,127) (551,179) (541,421)
Income tax payments (46,278) (31,380) (28,094)
----------------------------------------
Net cash provided by operating activities 80,579 94,299 84,069
----------------------------------------
INVESTING ACTIVITIES
Payments for property additions and other assets (70,023) (49,174) (39,195)
Receipts from property dispositions 4,906 3,081 4,422
----------------------------------------
Net cash used in investing activities (65,117) (46,093) (34,773)
----------------------------------------
FINANCING ACTIVITIES
Proceeds from sale of common stock to Profit Sharing Plan 2,000 2,017
Repurchase of common stock (21,888) (35,730) (11,077)
Dividend payments (22,054) (22,697) (23,213)
----------------------------------------
Net cash used in financing activities (41,942) (56,410) (34,290)
----------------------------------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (26,480) (8,204) 15,006
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 49,314 57,518 42,512
----------------------------------------
CASH AND EQUIVALENTS AT END OF YEAR $ 22,834 $ 49,314 $ 57,518
----------------------------------------
----------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 58,612 $ 46,228 $ 48,731
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 43,873 40,356 37,811
Deferred income taxes 3,113 (6,145) (2,968)
Restricted stock awards 1,669 1,478 1,889
Common stock contribution to benefit plans 9,460 4,550 5,515
Tax benefits credited to stockholders' equity 90 127 155
Changes in assets and liabilities:
Pharmacy and other receivables 4,477 (484) (3,265)
Merchandise inventories (40,436) (21,151) (14,822)
Other current assets 748 47 (197)
Current liabilities (1,027) 29,293 11,220
----------------------------------------
Net cash provided by operating activities $ 80,579 $ 94,299 $ 84,069
----------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
LONGS DRUG STORES 16
<PAGE>
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Profit Guarantee
Sharing of Profit Total
Common Stock Additional Plan Sharing Retained Stockholders'
Thousands Shares Amount Capital Contributions Plan Debt Earnings Equity
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 27, 1994 41,308 $20,654 $104,518 $ 5,530 $(15,662) $384,567 $499,607
-----------------------------------------------------------------------------------------------
Net income 48,731 48,731
Dividends ($.56 per share) (23,213) (23,213)
Profit Sharing Plan:
Issuance of stock for FY94
contribution 296 148 5,456 (5,530) (74) 0
Stock portion of FY95
contribution 5,515 5,515
Purchase of stock from plan (210) (105) (3,517) 53 (3,569)
Reduction of plan debt 2,481 2,481
Restricted stock awards 180 90 1,845 (46) 1,889
Tax benefits related to employee
stock plans 155 155
Repurchase of common stock (456) (228) (1,095) (6,185) (7,508)
Acquisition of Bill's Drugs, Inc.,
net of related costs 2 1 9 10
BALANCE AT JANUARY 26, 1995 41,120 $20,560 $107,216 $ 5,515 $(13,181) $403,988 $524,098
-----------------------------------------------------------------------------------------------
Net income 46,228 46,228
Dividends ($.56 per share) (22,697) (22,697)
Profit Sharing Plan:
Issuance of stock for FY95
contribution 352 176 5,427 (5,515) (88) 0
Stock portion of FY96
contribution 4,550 4,550
Sale of stock to plan 118 59 1,988 (30) 2,017
Purchase of stock from plan (228) (114) (4,037) 58 (4,093)
Reduction of plan debt 2,696 2,696
Restricted stock awards 60 30 1,463 (15) 1,478
Tax benefits related to employee
stock plans 127 127
Repurchase of common stock (1,790) (895) (4,449) (26,293) (31,637)
BALANCE AT JANUARY 25, 1996 39,632 $19,816 $107,608 $ 4,550 $(10,485) $401,278 $522,767
-----------------------------------------------------------------------------------------------
Net income 58,612 58,612
Dividends ($.56 per share) (22,054) (22,054)
Profit Sharing Plan:
Issuance of stock for FY96
contribution 181 91 4,010 (4,055) (46) 0
Contribution in cash (495) (495)
Stock portion of FY97
contribution 9,955 9,955
Sale of stock to plan 90 45 1,978 (23) 2,000
Purchase of stock from plan (179) (90) (3,925) 45 (3,970)
Reduction of plan debt 2,930 2,930
Restricted stock awards 72 36 1,651 (18) 1,669
Tax benefits related to employee
stock plans 90 90
Repurchase of common stock (828) (414) (1,995) (15,509) (17,918)
BALANCE AT JANUARY 30, 1997 38,968 $19,484 $109,327 $ 9,955 $ (7,555) $422,375 $553,586
-----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
LONGS DRUG STORES 17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES
THE CONSOLIDATED FINANCIAL STATEMENTS include Longs Drug Stores Corporation and
its wholly-owned subsidiary, Longs Drug Stores California, Inc. All inter-
company accounts and transactions have been eliminated.
FISCAL YEARS end the last Thursday of January. Most fiscal years have four
quarters of thirteen weeks each, totaling 52 weeks. Every five to six years
the fourth quarter has an additional week which is the case with the current
fiscal year 1997. References made to the 1997, 1996, and 1995 fiscal years
refer to the 53-week period ended January 30, 1997, and the 52-week periods
ended January 25, 1996, and January 26, 1995. Reclassifications have been
made to certain prior years' financial information to make it comparable to
the current year presentation.
NATURE OF OPERATIONS - The Company operates retail drug stores in California,
Hawaii, Colorado and Nevada with a majority of our sales concentrated in
California. Prescription drugs, over-the-counter health care products, photo
and photo processing, cosmetics and greeting cards are our core merchandise
categories. Additional significant categories include food, toiletries and
seasonal merchandise. Items sold through promotional advertising represent a
significant portion of sales.
STOCK SPLIT - In November 1996, the Board of Directors declared a two-for-one
stock split. The stock split was effected in the form of a two-for-one stock
dividend to shareholders of record at the close of business on December 3, 1996
and was distributed on January 10, 1997. All share and per share amounts
presented in the accompanying consolidated financial statements have been
restated to reflect the stock split.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results may differ from those estimates.
CASH AND EQUIVALENTS include investments with original maturities of three
months or less that are easily convertible to cash.
MERCHANDISE INVENTORIES are valued using the last-in, first-out (LIFO)
method. The excess of specific cost over LIFO values was $133.2 and $129.8
million at the 1997 and 1996 fiscal year ends.
PROPERTY is depreciated using the straight-line method and estimated useful
lives of twenty to thirty-three years for buildings, the shorter of life of
the lease or estimated useful life for leasehold improvements, and three to
twenty years for equipment, fixtures and beverage licenses. Maintenance and
repairs are charged to expense as incurred and major improvements are
capitalized.
Effective at the end of the third quarter of fiscal year 1996, the
Company adopted Statement of Financial Accounting Standards No. 121 which
requires that long-lived assets such as buildings or other property used by
an entity be reviewed to ensure that their current value can be recovered by
the cash flows from future operations. This pronouncement had no material
effect on the Company's financial position or results of operations.
OTHER NON-CURRENT ASSETS consist of purchased pharmacy customer files and
goodwill 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, rent and store supplies, are charged to expense as incurred.
ADVERTISING - Advertising costs are expensed as incurred and were $22.5,
$21.9, and $23.3 million for fiscal years 1997, 1996, and 1995.
INCOME TAXES - The Company accounts for its taxes in accordance with SFAS No.
109 which requires the use of the asset and 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.
STOCK-BASED COMPENSATION - The Company adopted the disclosure requirements of
SFAS No. 123 (Accounting for Stock-Based Compensation) in fiscal year 1996.
The Company's only stock-based compensation is restricted stock which is
valued at its fair market value at the date of grant, and recorded as
compensation expense over the vesting period. As a result, there are no
additional required disclosures.
NET INCOME PER COMMON SHARE is 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 up to
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 fiscal years 1997, 1996, and 1995 were
$37.3, $34.5, and $30.9 million, of which $29.6, $27.5, and $23.4 million
represent minimum payments.
Total minimum rental commitments for non-cancelable leases in effect at
1997 year end were $31.1, $31.3, $30.2, $29.4, and $27.8 million for fiscal
years 1998 through 2002, and $286.8 million thereafter.
At fiscal year ends 1997 and 1996, the Company had an unsecured revolving
line of credit of $30.0 million at prevailing interest rates. There was $30.0
million and $29.8 million available for use at the 1997 and 1996 fiscal year
ends. The line of credit expires on June 30, 1998.
Employee Compensation and Benefits
The Company has approximately 16,500 full-time and part-time employees as of
January 30, 1997. Virtually all full-time employees are covered by medical,
dental and life insurance programs paid primarily by the Company. The Company
also has a 401(k) plan under which employees may make voluntary contributions.
LONGS DRUG STORES 18
<PAGE>
Full-time employees with over 1,000 hours of service are entitled to
Profit Sharing Plan benefits that are funded entirely by the Company. Annual
contributions to the plan were $11.0 million for fiscal years 1997, 1996 and
1995. Contributions are made in cash and common stock.
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. Deferred compensation was $2.0 million and $0.6 million at the 1997
and 1996 fiscal year ends.
TAXES ON INCOME
Significant components of the Company's deferred tax assets and liabilities
as of January 30, 1997 and January 25, 1996 are as follows:
(Thousands) FY 1997 FY 1996
- --------------------------------------------------------------------------------
Deferred Tax Assets:
Reserve for vacation pay $ 8,327 $ 7,398
Reserve for workers' compensation 6,626 7,493
State income tax 2,425 2,111
Reserve for health benefits 1,679 1,683
Lawsuit settlement 5,600
Other 11,156 9,456
- --------------------------------------------------------------------------------
30,213 33,741
- --------------------------------------------------------------------------------
Deferred Tax Liabilities:
Depreciation 31,742 32,836
Basis of property 3,657 3,664
Inventories 1,347 1,425
Other 8,072 7,308
- --------------------------------------------------------------------------------
44,818 45,233
- --------------------------------------------------------------------------------
Net deferred tax liability $14,605 $11,492
- --------------------------------------------------------------------------------
Income tax expense is summarized as follows:
(Thousands) FY 1997 FY 1996 FY 1995
- --------------------------------------------------------------------------------
CURRENT
Federal $27,849 $28,367 $26,992
State 7,938 8,378 8,076
- --------------------------------------------------------------------------------
35,787 36,745 35,068
DEFERRED 3,113 (6,145) (2,968)
- --------------------------------------------------------------------------------
Total $38,900 $30,600 $32,100
- --------------------------------------------------------------------------------
The reconciliation between the federal statutory tax rate and the Company's
effective tax rates are as follows:
(THOUSANDS) FY 1997 Percent
- --------------------------------------------------------------------------------
Federal income taxes at statutory rate $34,129 35.00%
State income tax net of federal benefits 5,330 5.47%
Benefits of ESOP dividends (1,288) (1.32%)
Other 729 0.74%
- --------------------------------------------------------------------------------
$38,900 39.89%
- --------------------------------------------------------------------------------
The effective tax rate in fiscal years 1996 and 1995 differ from the federal
statutory rate of 35%, primarily due to state income taxes offset by the
benefit of ESOP dividends.
GUARANTEE OF PROFIT SHARING PLAN DEBT
In March 1989, the Company sold 1,393,728 shares of Longs' common stock to
the Profit Sharing Plan for $25.0 million. The Plan financed this purchase
with a ten-year loan guaranteed by Longs Drug Stores California, Inc. The
Company has no obligation to repurchase outstanding shares held by the Plan.
Consequently, a Guarantee of Profit Sharing Plan debt is shown on the
accompanying balance sheets with a corresponding reduction of Stockholders'
Equity.
Loan repayments are made with dividends on allocated and unallocated
shares held by the Plan and with Company contributions. It is expected that
all shares will be allocated within the term of the loan. Members are
allocated shares of Longs' common stock equal in value to the cash dividends
on their allocated shares used to repay the loan. Periodically, the Company
has been willing to repurchase shares to provide the Plan with needed
liquidity. Plan shares of the leveraged Employee Stock Ownership Plan (ESOP)
were as follows:
FY 1997 FY 1996
- --------------------------------------------------------------------------------
Allocated shares 1,075,552 955,434
Unallocated shares 318,176 438,294
- --------------------------------------------------------------------------------
Total 1,393,728 1,393,728
- --------------------------------------------------------------------------------
Loan payments are made in equal quarterly installments of $930,000,
which includes interest at 8.4% per year.
Dividends paid to the Plan, and used in part to repay principal and
interest on the loan totaled $3.2 million for fiscal years 1997, 1996 and
1995.
STOCKHOLDERS' EQUITY
Authorized capital stock consists of 120 million shares of
common stock, $.50 par value, and 30 million shares of preferred stock.
Each outstanding share of common stock has a Preferred Stock Purchase
Right (expiring in September 2006) which is exercisable only upon the
occurrence of certain changes in control events. These new rights replaced
previous rights which expired in September 1996. There have been no events
that would allow these rights to be exercised.
The Company has a Restricted Stock Award program in which certain
individuals may be granted stock in the Company, with some restrictions.
Recipients have voting rights to the shares and dividends are credited to the
shares during the restriction period. However, transfer of ownership of the
shares is dependent on continued employment for periods of one to five years.
The compensatory portion not yet expensed for these programs ($2.6 million)
at January 30, 1997, has been netted against Additional Capital. During
fiscal years 1997, 1996, and 1995; 73,600 69,200 and 186,800 shares were
awarded under these programs.
In November 1994, the Board of Directors authorized a plan to repurchase
up to four million shares of the Company's outstanding
LONGS DRUG STORES 19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
common stock. As of fiscal year 1997, the Company has repurchased 1,739,000
shares at a cost of $32.6 million in connection with the repurchase plan.
During fiscal year 1997, the Company also repurchased 179,000 common
shares from the Profit Sharing Plan at market values totaling $4.0 million
and 438,000 common shares from the T.J. and J.M. Long charitable foundations
at market values totaling $9.4 million.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's current financial assets and liabilities,
and Guarantee of Profit Sharing Plan debt approximates the estimated fair
value.
SETTLEMENT OF LAWSUIT
The Company's subsidiary, Longs Drug Stores California, Inc. ("Subsidiary"),
was named as one of a large number of defendants in two lawsuits filed in
United States District Court for the Southern District of Florida, Harvey S.
Tropin, as Receiver of Lone Star Trading Company and its subsidiaries and
affiliates, as Trustee of Premium Sales Corporation, Plaza Trading
Corporation and as the designated corporate representative of Windsor
Wholesale Corporation v. Kenneth Thenen, et al. ("Tropin"), and Walco
Investments, Inc., et al. v. Kenneth Thenen, et al. ("Walco"). In addition,
Subsidiary was named in three cross-complaints by certain co-defendants in
Walco. The cases alleged that investors invested in partnerships involved in
the business of "diverting" grocery products. It was alleged that many of the
diverting transactions were fictitious. The complaints further alleged that a
former employee of Subsidiary received bribe payments in return for his
willingness to confirm fraudulent transactions, and they claimed that the
Subsidiary was secondarily liable for damages based on the acts of its former
employee. Several other retailers involved in the grocery business, as well
as law firms and banks, were co-defendants in the actions. Plaintiffs in both
actions sought damages for the investors' losses, which were alleged to have
been several hundred million dollars.
In February 1996, the Company concluded settlement negotiations with
representatives of the plaintiffs in these actions whereby claims against the
Company and its affiliates will be released in exchange for the Company's
cash payment of $14 million, in addition to certain contingent insurance
proceeds. The Company elected to settle these lawsuits to avoid the expense
and the uncertainty of a trial. The after-tax impact of this settlement was
$8.4 million, or $.21 per share, and was accrued for in the fourth quarter of
fiscal year 1996. The final settlement amount was $13 million and has been
paid into an escrow account. This settlement has received final court
approval and is the subject of a definitive settlement agreement, but will
not become finally effective until required releases are delivered and other
contingencies have been resolved, which could occur as early as July 1997.
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(Thousands except Earnings Dividends Stock Price
share data) Sales Gross Profit Net Income Per Share(3) Per Share (3) Range (3)
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Quarter 1 $ 665,408 $ 180,831 $ 14,048 $ .35 $ .14 $ 22-24
Quarter 2 681,503 181,719 13,512 .34 .14 19-23
Quarter 3 666,909 176,458 9,374 .24 .14 19-23
Quarter 4 814,518 215,246 21,678 .56 .14 22-25
- -----------------------------------------------------------------------------------------------------------------------------------
FY 1997 $2,828,338 $ 754,254 $ 58,612 $1.49 $ .56 $ 19-25
- -----------------------------------------------------------------------------------------------------------------------------------
Quarter 1 639,801 169,232 13,304 .33 .14 16-17
Quarter 2 646,359 171,012 12,486 .31 .14 17-19
Quarter 3 628,900 166,643 8,815 .22 .14 18-21
Quarter 4 729,316 191,098 11,623(1) .29(1) .14 19-24
- -----------------------------------------------------------------------------------------------------------------------------------
FY 1996 $2,644,376 $ 697,985 $ 46,228(1) $1.15(1) $ .56 $ 16-24
- -----------------------------------------------------------------------------------------------------------------------------------
FIVE YEAR SELECTED FINANCIAL DATA
(THOUSANDS EXCEPT SHARE DATA) FY 1997 FY 1996 FY 1995 FY 1994 FY 1993
- -----------------------------------------------------------------------------------------------------------------------------------
Sales $ 2,828,338 $ 2,644,376 $ 2,558,269 $ 2,499,224 $ 2,475,475
Net Income $ 58,612 $ 46,228(1) $ 48,731 $ 52,782(2) $ 52,993
Net Income per Share (3) $ 1.49 $ 1.15(1) $ 1.18 $ 1.28 $ 1.29
Dividends per Share (3) $ .56 $ .56 $ .56 $ .56 $ .56
Total Assets $ 879,649 $ 853,557 $ 827,961 $ 794,804 $ 726,190
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes $14 million lawsuit settlement in fourth quarter and fiscal year
1996, reducing after-tax net income by $8.4 million, or $ .21 per share.
(2) Includes cumulative effect of accounting change, increasing net income by
$3 million, or $ .08 per share.
(3) Per share data restated for two-for-one stock split as of January
10, 1997.
LONGS DRUG STORES 20
<PAGE>
BOARD OF DIRECTORS AND OFFICERS OF LONGS DRUG STORES
BOARD OF DIRECTORS
Robert M. Long
Chairman of the Board and Chief Executive Officer
Richard M. Brooks*
Financial Consultant
William G. Combs
Vice President, Administration (retired)
David G. DeSchane
Vice President/District Manager (retired)
Edward E. Johnston*
Insurance Consultant
Mary S. Metz, Ph.D.*
Dean
U.C. Berkeley Extension
Ronald A. Plomgren
Senior Vice President, Development
and Chief Financial Officer
Stephen D. Roath
President
Gerald H. Saito
Senior Vice President/District Manager
Harold R. Somerset*
Business Consultant
Donald L. Sorby, Ph.D.*
Pharmaceutical Consultant
Thomas R. Sweeney
Vice President/District Manager (retired)
Frederick E. Trotter*
President,
F.E. Trotter Inc.
SENIOR OFFICERS OF LONGS DRUG STORES CALIFORNIA, INC.
Robert M. Long**
Chairman of the Board and Chief Executive Officer
Stephen D. Roath**
President
Bill M. Brandon
Senior Vice President/Regional Manager
George A. Duey
Senior Vice President/Regional Manager
David J. Fong
Senior Vice President, Pharmacy
Orlo D. Jones**
Senior Vice President, Properties and Secretary
Ronald A. Plomgren**
Senior Vice President, Development
and Chief Financial Officer
Gerald H. Saito
Senior Vice President/District Manager
Dan R. Wilson
Senior Vice President, Marketing
OFFICERS OF LONGS DRUG STORES CALIFORNIA, INC.
Leslie C. Anderson
Vice President, Personnel
Al A. Arrigoni
Vice President, Construction and Assistant Secretary
Martin A. Bennett
Vice President/District Manager
Terry D. Burnside
Vice President, Merchandise
John G. Daleth, Jr.
Vice President/District Manager
Donald D. England
Vice President/District Manager
James L. Famini
Vice President/District Manager
Stephen W. Fryslie
Vice President/District Manager
J. Richard Johnston
Vice President/District Manager
Brian E. Kilcourse
Vice President and Chief Information Officer
Ronald E. Lovelady
Vice President/District Manager
Sal Petrucelli
Vice President/District Manager
Michael K. Raphel
Vice President, Real Estate
and Assistant Secretary
Clay E. Selland**
Treasurer and Assistant Secretary
Kyle J. Westover
Vice President, Training
Grover L. White**
Vice President, Controller and Assistant Secretary
Robert W. Wilson
Vice President/District Manager
TRANSFER AGENT & REGISTRAR
ChaseMellon Shareholder Services
San Francisco, CA
INDEPENDENT AUDITORS
Deloitte & Touche LLP
San Francisco, CA
GENERAL COUNSEL
Bell, Rosenberg & Hughes LLP
Oakland, CA
INQUIRIES
Communications concerning stock transfer requirements, lost certificates and
changes of address should be directed to the Transfer Agent. Other
stockholder or investor inquiries should be directed to:
Investor Relations
Longs Drug Stores Corporation
P.O. Box 5222
Walnut Creek, CA 94596
(510) 937-1170
FORM 10-K
The Company's Form 10-K as filed with the Securities and Exchange Commission
is available without charge by writing to the Corporate Treasurer. Company
financial information is also available on the World Wide Web at
HTTP://WWW.SHAREHOLDER.COM/LONGS and through our toll-free telephone service,
1-888-LDG-NEWS.
ANNUAL MEETING
The Company's annual meeting of stockholders will be held at 11:00 a.m., on
May 20, 1997, at the Regional Center for the Arts, 1601 Civic Drive, Walnut
Creek, CA. All stockholders are cordially invited to attend.
FORWARD-LOOKING INFORMATION
This report contains certain forward-looking statements regarding the
Company's expected performance for future periods including same store sales
and new store openings. Actual results for such periods may materially
differ. Such forward-looking statements involve risks and uncertainties,
including risks of changing market conditions in the overall economy and the
retail industry, consumer demand, the opening of new stores, actual
advertising expenditures by the Company, the success of the Company's
advertising and merchandising strategy and other factors detailed from time
to time in the Company's annual and other reports filed with the Securities
and Exchange Commission.
Credits:
Design-Vargas Marketing Group
* Member of Audit Committee
** Also an officer of Longs Drug Stores Corporation
<PAGE>
LONGS DRUGS
141 North Civic Drive
P.O. Box 5222
Walnut Creek, CA 94596
(510) 937-1170
<PAGE>
[LOGO-LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No. 2-
97578, 33-12653, 33-54959, and 33-60005 of Longs Drug Stores Corporation on Form
S-8 of our report dated March 7, 1997 incorporated by reference in this Annual
Report on Form 10-K of Longs Drug Stores Corporation for the fiscal year ended
January 30, 1997.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
San Francisco, California
April 14, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-30-1997
<PERIOD-START> JAN-26-1996
<PERIOD-END> JAN-30-1997
<CASH> 22,834
<SECURITIES> 0
<RECEIVABLES> 49,911
<ALLOWANCES> 0
<INVENTORY> 356,933
<CURRENT-ASSETS> 451,374
<PP&E> 703,332
<DEPRECIATION> 285,943
<TOTAL-ASSETS> 879,649
<CURRENT-LIABILITIES> 286,509
<BONDS> 0
0
0
<COMMON> 19,484
<OTHER-SE> 553,586
<TOTAL-LIABILITY-AND-EQUITY> 879,649
<SALES> 2,828,338
<TOTAL-REVENUES> 0
<CGS> 2,074,084
<TOTAL-COSTS> 2,730,826
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 97,512
<INCOME-TAX> 38,900
<INCOME-CONTINUING> 58,612
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,612
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 0
</TABLE>
