SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 28, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-7941
PERRY DRUG STORES, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN 38-0947300
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5400 Perry Drive, P.O. Box 436021, Pontiac, MI 48343-6021
(Address of principal executive offices)
Registrant's telephone number, including area code:
(810) 334-1300
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days, Yes X No .
There were 12,027,382 shares of the Registrant's Common Stock
outstanding as of January 28, 1995.
<PAGE>
Index
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
January 28, 1995 and October 31, 1994 3
Condensed Consolidated Statements of Operations -
Periods Ended January 28, 1995 and
January 31, 1994 4
Condensed Consolidated Statements of Cash Flows -
Periods Ended January 28, 1995 and
January 31, 1994 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 7
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS:
PERRY DRUG STORES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
January 28, October 31,
1995 1994
ASSETS
Current assets:
Cash $ 6,857 $ 7,798
Accounts receivable, net 27,011 27,780
Inventories 121,470 114,819
Prepayments and other 12,287 11,180
Total current assets 167,625 161,577
Property & equipment, net 57,091 56,543
Intangibles and other assets, net 29,277 27,638
Total assets $ 253,993 $ 245,758
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
liabilities $ 180 $ 180
Accounts payable 66,119 71,079
Accrued liabilities 26,360 24,800
Total current liabilities 92,659 96,059
Long-term debt 102,496 90,746
Obligations under capital leases 2,674 2,764
Shareholders' equity:
Common stock 601 601
Paid-in capital 58,593 58,532
Retained deficit (3,030) (2,944)
Total shareholders' equity 56,164 56,189
Total liabilities and
shareholders' equity $ 253,993 $ 245,758
Common Stock - 30,000,000 shares, $0.05 par value, authorized;
12,027,382 shares issued and outstanding at January 28, 1995, and
October 31, 1994.
Serial Preferred Stock - 5,000,000 shares, without par value,
authorized; none issued. Series A $5.00 Preferred Stock as a
series of Preferred Stock - 200,000 shares, without par value,
authorized; none issued.
The accompanying notes are an integral part of these condensed
statements.
<PAGE>
PERRY DRUG STORES, INC., AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands except per share amounts)
(unaudited)
Periods Ended
January 28, January 31,
1995 1994
Net sales $ 197,292 $ 190,584
Cost and expenses:
Cost of goods sold 145,809 141,273
Warehouse, store operating and
administrative expenses 49,371 42,486
Interest expense 2,237 1,976
Total cost and expenses 197,417 185,735
Earnings (loss) before income taxes (125) 4,849
Provision (credit) for income taxes (39) 1,455
Net earnings (loss) $ (86) $ 3,394
Earnings (loss) per share $ (.01) $ 0.28
Weighted average shares outstanding 12,076 12,027
The accompanying notes are an integral part of these condensed
statements.
<PAGE>
PERRY DRUG STORES, INC., AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Periods Ended
January 28, January 31,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (86) $ 3,394
ADJUSTMENTS TO RECONCILE NET EARNINGS
TO NET CASH FROM OPERATING ACTIVITIES
Depreciation and amortization 2,020 1,957
Other 86 114
Changes in certain assets
and liabilities (8,043) (2,299)
Net cash provided by (used for)
operating activities (6,023) (3,166)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital acquisitions, net (2,264) (1,585)
Purchase of business (4,314) --
Net cash used for investing activities (6,578) (1,585)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in borrowings under notes payable -- 4,500
Principal payments under long-term debt
and obligations under capital leases (90) (20,090)
Proceeds from issuance of long-term debt 11,750 18,000
Net cash provided by financing
activities 11,660 2,410
Net increase (decrease) in cash (941) 3,991
Cash at beginning of period 7,798 5,092
Cash at end of period $ 6,857 $ 9,083
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 526 $ 1,371
Income taxes paid (refunded) $ 435 $ (1,350)
The accompanying notes are an integral part of these condensed
statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. These interim condensed consolidated financial statements have
been prepared, without audit, in accordance with the rules and
regulations of the Securities and Exchange Commission, and in
the opinion of management, reflect all adjustments (which
include normal recurring adjustments) necessary for a fair
statement of the results for the interim periods. These
condensed consolidated financial statements should be read in
conjunction with the financial statements and the notes
thereto included in the Company's Form 10-K filed for the
fiscal year ended October 31, 1994.
2. On January 30, 1995, Lake Acquisition Corporation, a wholly
owned subsidiary of Rite Aid Corporation, completed a cash
tender offer for all outstanding shares of common stock of the
Company at a price of $11.00 per share. The shares tendered
constitute approximately 94.5% of the outstanding shares of
the Company. All common shares not tendered and purchased
pursuant to the offer will be acquired in a subsequent
second-step merger transaction at $11.00 per share. The
merger is expected to occur on or about March 16, 1995.
3. As of January 28, 1995 and October 31, 1994, the last-in,
first-out (LIFO) method of inventory valuation was used.
Since LIFO costs can only be determined at the end of each
fiscal year when inflation rates and inventory levels are
finalized, estimates are used for LIFO in the interim
condensed consolidated financial statements.
4. Fully-diluted earnings per share for the periods ended January
28, 1995 and January 31, 1994 have not been presented in the
accompanying condensed consolidated statements of operations
as the effect is anti-dilutive.
5. Effective November 1, 1994, the Company prospectively changed
its fiscal reporting year from the twelve months ending on
October 31st to a fiscal year consisting of 52 or 53 weeks
ending on the Saturday closest to October 31. As a result,
the first quarter reporting period of fiscal 1995 ended on
January 28, 1995, instead of January 31, 1995.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
In December 1994, the Company entered into an agreement with Rite
Aid Corporation pursuant to which Rite Aid Corporation would
purchase all the outstanding shares of common stock of the Company
for $11.00 per share, or approximately $132 million in cash. See
Note 2 to Condensed Consolidated Financial Statements.
Net sales for the fiscal 1995 first quarter were $197.3 million, a
3.6% increase over fiscal 1994 first quarter net sales of $190.6
million. The Company's deep discount health and beauty aids
stores, reacquired in June 1993 and discontinued in December 1994,
contributed $.5 million and $5.3 million of net sales in the
fiscal 1995 and 1994 first quarters, respectively. The net sales
increase resulted from added sales from new and acquired stores
and sales gains in existing stores.
Comparable drugstore sales (those with at least one year of volume
comparisons) increased 4.7%. This net sales increase was due to
an increase in prescription sales, partially offset by a slight
decline in general merchandise sales.
Prescription sales for fiscal 1995 first quarter increased 6.3% to
$106.4 million, and were 53.9% of net sales compared to 52.5% in
the first quarter of 1994. The prescription sales increase was
due to an increase in the number of prescriptions filled by the
Company combined with an increase in product costs. The Company
continues to expect prescription sales to grow given the aging of
the nation's population, continued emphasis on preventative care,
the development of new drugs and drug therapies and the continued
pursuit of new customer segments including third party provider
arrangements.
Comparable drugstore nonprescription sales were slightly lower in
comparison to the fiscal 1994 first quarter as a result of
continued heavy competition for this part of the business from
drugstore and nondrugstore retailers alike. Competitive factors
continue to be addressed through more frequent and aggressive
marketing programs and continued emphasis on customer care.
Cost of goods sold decreased 0.2% as a percentage of net sales to
73.9% compared to 74.1% in the first quarter of fiscal 1994 due
primarily to the discontinued operation of the lower margin deep
discount health and beauty aids stores. Excluding the deep
discount stores, profit margins were down slightly, impacted by
variables including a continued shift in sales mix toward lower
margin third party prescription sales, more aggressive promotional
activity and prescription product cost inflation.
<PAGE>
Warehouse, store operating and administrative expenses as a
percentage of net sales were 25.0% for the fiscal 1995 first
quarter as compared to 22.3% for the comparable period of the
prior year. This increase was attributable to higher store
salaries and costs of closing retail locations coupled with
various merger related expenses. Higher store salaries were a
result of general economic pressures on starting wage rates as
well as an increase in new and acquired stores which temporarily
experience higher salary expense ratios. Higher store closing and
related costs were attributable to discontinuing the deep discount
stores, integrating and merging certain acquired stores and
disposing of leases of certain other excess retail space.
Interest expense during the fiscal 1995 first quarter increased to
$2.2 million from $2.0 million in the 1994 first quarter. The
increase was due to a combination of higher overall average
interest rates and higher borrowing levels. The increased
interest rate was attributable to the general rise in the prime
interest rate while increased borrowings were a result of merger
related costs, new store construction and acquisitions, payment of
the Company's share of its previously disclosed class action
settlement and generally higher inventory levels.
The effective income tax rates during the fiscal 1995 and 1994
first quarters were (31.0%) and 30.0%, respectively.
Primarily as a result of increased sales being offset by slightly
lower profit margins, merger related costs, increased interest and
slightly higher operating costs attributable to new, acquired and
closed stores, the Company incurred a net loss of $86,000 or $0.01
per share as compared to earnings of $3.4 million or $0.28 per
share in 1994.
Liquidity and Financial Condition
The Company's primary sources of working capital are cash flow
from operations and borrowings under its revolving credit
agreement. The Company had working capital of $75.0, $65.5 and
$50.6 million at January 28, 1995, October 31, 1994 and October
31, 1993, respectively. The Company's working capital will
fluctuate in relation to (i) inventory levels during the course of
the year, (ii) the number of new store openings, (iii) payment
terms from its vendors and (iv) the dates on which periods end in
relation to accounts payable payment dates.
Cash used for operating activities was $6.0 million during the
fiscal 1995 first quarter as compared to cash provided by
operations of $3.2 million during the comparable period in 1994.
The decrease was primarily attributable to decreased earnings,
generally higher inventory levels and payment of the Company's
share of its previously disclosed class action settlement. Cash
provided by operating activities was $20.4 million and $23.4
million in fiscal 1994 and 1993, respectively.
<PAGE>
Capital expenditures were approximately $6.6 million and $1.6
million in the fiscal 1995 and 1994 first quarters, respectively.
These expenditures were primarily for new store construction,
acquisitions and remodeling. Through March 13, 1995, the Company
has opened three new drugstores and acquired seven drugstores
since October 31, 1994.
Net cash provided by financing activities amounted to $11.7
million and $2.4 million in the first quarters of fiscal 1995 and
1994, respectively. These amounts consisted of borrowings under
the Company's credit facilities used to finance long term debt
payments, capital expenditures and operations.
As a result of the net loss during the fiscal 1995 first quarter
coupled with an increase in borrowings, the Company's long-term
debt to total capitalization increased to 65.2% at January 28,
1995 from 62.5% at October 31, 1994. This percentage was 66.4% at
October 31, 1993. The Company's current ratio was 1.8 to 1.0 at
January 28, 1995, 1.7 to 1.0 at October 31, 1994 and 1.5 to 1.0 at
October 31, 1993.
Subsequent to quarter end, in February 1995, Rite Aid Corporation
advanced the Company funds to pay-off and terminate the Company's
revolving credit facility. Rite Aid Corporation now advances the
Company funds for working capital and capital expenditure
purposes. Also, in accordance with the terms of the merger
agreement, the Company has called for redemption of its 8 1/2%
Convertible Subordinated Debentures, effective as of March 15,
1995. Rite Aid will advance the necessary funds to redeem these
debentures. The Company believes its future working capital needs
and planned capital expenditures will be sufficiently funded from
operations or by Rite Aid Corporation as needed.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit Description
11 Statement Re Computation of Per Share Earnings
(filed herewith)
27 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K: The Registrant filed one Current Report
on Form 8-K, dated January 6, 1995, during the quarter for
which this report is filed. The Item reported in such 8-K was
Item 5, Other Events, and dealt with the acquisition of all of
the outstanding voting stock of the Company by a wholly-owned
subsidiary of Rite Aid Corporation pursuant to an Agreement
and Plan of Merger, dated December 23, 1994. No financial
statements were filed with such report. Subsequent to the end
of the quarter for which this report is filed, the Registrant
filed another Current Report on Form 8-K, dated February 6,
1995. The Item reported in such 8-K was Item 2, Changes in
Control of Registrant, and dealt with the acquisition of
approximately 94.5% of the outstanding stock of Registrant by
a wholly-owned subsidiary of Rite Aid Corporation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this amendment to be signed
on its behalf by the undersigned thereunto duly authorized.
PERRY DRUG STORES, INC.
(Registrant)
Dated: March 14, 1995 /S/ JERRY E. STONE
Jerry E. Stone
Senior Vice President, Chief
Financial Officer and Treasurer
(Principal Financial and Duly
Authorized Officer)
Dated: March 14, 1995 /S/ STEVEN N. SZYMANSKI
Steven M. Szymanski
Vice President Finance and
Controller
(Principal Accounting Officer)
Authorized Officer)
Exhibit 11
PERRY DRUG STORES, INC., AND SUBSIDIARIES
Statement Re Computation of Per Share Earnings
(in thousands except per share data)
(unaudited)
Periods Ended
January 28, January 31,
1995 1994
Primary Earnings (Loss) Per Share
Weighted average shares outstanding 12,027 12,027
Incremental shares issuable assuming
exercise of stock options (1) 49 --
Weighted average number of shares of
Common Stock and equivalents 12,076 12,027
Net earnings (loss) $ (86) $ 3,394
Primary earnings (loss) per share $ (0.01) $ 0.28
Fully Diluted Earnings Per Share
Weighted average shares outstanding 12,027 12,027
Dilutive effect of outstanding stock
options (1) 106 --
Dilutive effect of 1985
Convertible Subordinated
Debentures (2) 2,758 2,758
Weighted average number of shares
of Common Stock 14,891 14,785
Net earnings (loss) $ (86) $ 3,394
Interest expense on Convertible
Subordinated Debentures,
after-tax effect 701 701
Adjusted net earnings $ 615 $ 4,095
Fully diluted earnings per share (3) $ 0.04 $ 0.28
(1) The conversion of stock options was calculated using the
treasury stock method.
(2) These share amounts assume conversion into common stock at
date of issuance.
(3) Fully-diluted earnings per share for the periods ended January
28, 1995 and January 31, 1994 have not been presented in the
accompanying condensed consolidated statements of operations
as the effect is anti-dilutive.
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