<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 November 28, 1998
OR
[ ] 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 1-5742
RITE AID CORPORATION
--------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 23-1614034
-------- ----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
30 HUNTER LANE, CAMP HILL, PENNSYLVANIA 17011
------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(717) 761-2633
--------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
--------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE
LAST REPORT)
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, and (2) has been subject to such
filing requirements for the past 90 days.
[x] YES [ ] NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
The registrant had 258,745,913 shares of its $1.00 par value Common
Stock outstanding as of December 26, 1998.
<PAGE> 2
RITE AID CORPORATION
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets November 28, 1998 and February 28, 1998 2
Condensed Consolidated Statements of Income
Thirteen Weeks Ended November 28, 1998 and November 29, 1997 3
Condensed Consolidated Statements of Income
Thirty-Nine Weeks Ended November 28, 1998 and November 29, 1997 4
Condensed Consolidated Statements of Cash Flows
Thirty-Nine Weeks Ended November 28, 1998 and November 29, 1997 5
Notes to Condensed Consolidated Financial Statements 6
Independent Auditors' Review Report 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 10
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 13
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
</TABLE>
1
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RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 28, 1998
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
RITE AID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nov. 28, 1998 Feb. 28, 1998
------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $97,815 $90,968
Accounts and notes receivable 204,110 165,429
Inventories 3,074,972 3,061,211
Prepaid expenses and other current assets 84,743 60,700
------ ------
TOTAL CURRENT ASSETS 3,461,640 3,378,308
--------- ---------
Property, plant and equipment, at cost 3,551,100 3,061,160
Accumulated depreciation 885,809 890,011
------- -------
PROPERTY, PLANT AND EQUIPMENT, NET 2,665,291 2,171,149
--------- ---------
Intangible assets 1,931,821 1,967,306
--------- ---------
Other assets 200,453 138,583
------- -------
TOTAL ASSETS $8,259,205 $7,655,346
========== ==========
CURRENT LIABILITIES
Short-term debt and current maturities of long-term debt $188,430 $47,516
Accounts payable 874,843 1,183,892
Other current liabilities 448,756 539,523
------- -------
TOTAL CURRENT LIABILITIES 1,512,029 1,770,931
--------- ---------
Long-term debt and capital lease obligations, less current maturities 3,228,860 2,551,418
Other noncurrent liabilities 593,114 416,533
STOCKHOLDERS' EQUITY
Preferred stock, par value $1 per share - -
Common stock, par value $1 per share 258,731 258,215
Additional paid-in capital 1,352,091 1,345,131
Retained earnings 1,315,167 1,313,905
Accumulated other comprehensive income (787) (787)
----- -----
TOTAL STOCKHOLDERS' EQUITY 2,925,202 2,916,464
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,259,205 $7,655,346
========== ==========
</TABLE>
See accompanying independent auditors' review report and notes to condensed
consolidated financial statements.
2
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RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 28, 1998
-----------------------------------------------
ITEM 1. FINANCIAL STATEMENTS: (CONTINUED)
RITE AID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Thirteen
Weeks Ended Weeks Ended
Nov. 28, 1998 Nov. 29, 1997
------------- -------------
<S> <C> <C>
Sales $3,122,930 $2,885,666
Costs and expenses:
Costs of goods sold including occupancy costs 2,292,725 2,115,739
Selling, general and administrative expenses 640,517 613,424
Interest expense 44,927 42,779
------ ------
2,978,169 2,771,942
--------- ---------
Income before income taxes 144,761 113,724
Income taxes 57,904 45,830
------ ------
Net income $86,857 $67,894
======= =======
Basic earnings per share $.34 $.27
==== ====
Diluted earnings per share $.33 $.26
==== ====
Cash dividends paid per common share $.1075 $.10
====== ====
Basic weighted average shares 258,532,000 253,042,000
=========== ===========
Diluted weighted average shares 283,711,000 263,888,000
=========== ===========
</TABLE>
See accompanying independent auditors' review report and notes to condensed
consolidated financial statements.
3
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RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 28, 1998
-----------------------------------------------
ITEM 1. FINANCIAL STATEMENTS: (CONTINUED)
RITE AID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended
Nov. 28, 1998 Nov. 29, 1997
------------- ------------
<S> <C> <C>
Sales $9,166,640 $8,184,466
Costs and expenses:
Costs of goods sold including occupancy costs 6,721,164 5,964,079
Selling, general and administrative expenses 1,911,382 1,769,497
Interest expense 128,155 121,329
Store closing and other costs 264,204 -
------- ---------
9,024,905 7,854,905
--------- ---------
Income before income taxes 141,735 329,561
Income taxes 56,694 132,813
------ -------
Net income $85,041 $196,748
======= ========
Basic earnings per share $.33 $.79
==== ====
Diluted earnings per share $.32 $.77
==== ====
Cash dividends paid per common share $.3225 $.30
====== ====
Basic weighted average shares 258,404,000 248,202,000
=========== ===========
Diluted weighted average shares 265,465,000 262,984,000
=========== ===========
</TABLE>
See accompanying independent auditors' review report and notes to condensed
consolidated financial statements.
4
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RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 28, 1998
-----------------------------------------------
ITEM 1. FINANCIAL STATEMENTS: (CONTINUED)
RITE AID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
39 Weeks Ended 39 Weeks Ended
Nov. 28, 1998 Nov. 29, 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Income before income taxes $141,735 $329,561
Depreciation and amortization 211,747 203,316
Store closing and other costs 289,678 -
Changes in operating assets and liabilities (616,335) (43,624)
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 26,825 489,253
------ -------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (675,391) (338,459)
Purchases of businesses, net of cash acquired - (330,425)
Other investing activities (80,481) 18,653
-------- ------
NET CASH USED IN INVESTING ACTIVITIES (755,872) (650,231)
--------- ---------
FINANCING ACTIVITIES
Proceeds from bond issuance 202,844 641,293
Net proceeds (repayment) of commercial paper borrowings 646,961 (286,500)
Dividends paid (83,779) (74,849)
Other financing activities (30,132) (42,794)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 735,894 237,150
------- -------
INCREASE IN CASH 6,847 76,172
CASH AT BEGINNING OF PERIOD 90,968 7,042
------ -----
CASH AT END OF PERIOD $97,815 $83,214
======= =======
</TABLE>
See accompanying independent auditors' review report and notes to condensed
consolidated financial statements.
5
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RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 28, 1998
-----------------------------------------------
ITEM 1. FINANCIAL STATEMENTS: (CONTINUED)
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The financial information included herein is unaudited. In addition,
the financial information does not include all disclosures required under
generally accepted accounting principles because certain note information
included in the registrant's annual report has not been included in this report;
however, such information reflects all adjustments (consisting primarily of
normal recurring adjustments) which are, in the opinion of management, necessary
to a fair statement of the results for the interim periods. The report of KPMG
LLP, independent auditors, commenting upon their review accompanies the
condensed consolidated financial statements included in Item 1 of Part I.
The results of operations for the thirteen and thirty-nine week
periods ended November 28, 1998 and November 29, 1997, are not necessarily
indicative of the results to be expected for the full year.
NOTE 2 -- EARNINGS PER SHARE
The registrant determines earnings per share in accordance with the
provisions of Statements of Financial Accounting Standards (SFAS) No. 128
"Earnings per Share". SFAS No. 128 requires dual presentation of basic and
diluted earnings per share on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic earnings per share computation to the numerator and
denominator of the diluted earnings per share computation. Basic earnings per
share excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. SFAS No. 128 requires restatement of
all prior-period earnings per share data presented.
Following is a reconciliation of the numerator and denominator of
the basic earnings per share computation to the numerator and denominator of the
diluted earnings per share computation:
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended 39 Weeks Ended 39 Weeks Ended
Amounts in thousands Nov. 28, 1998 Nov. 29, 1997 Nov. 28, 1998 Nov. 29, 1997
- -------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $86,857 $67,894 $85,041 $196,748
Interest expense assuming dilution (a) 5,392 800 - 5,281
----- --- ----- -----
Net income assuming dilution $92,249 $68,694 $85,041 $202,029
======= ======= ======= ========
Basic weighted average shares 258,532 253,042 258,404 248,202
Employee stock options assuming dilution 7,192 6,192 7,061 5,402
Convertible debt assuming dilution (a) 17,987 4,654 - 9,380
------ ----- ----- -----
Diluted weighted average shares 283,711 263,888 265,465 262,984
======= ======= ======= =======
</TABLE>
(a) For the thirteen weeks ended November 29, 1997 and the thirty-nine
weeks ended November 28, 1998 and November 29, 1997, the registrant
did not assume conversion of its 5.25% convertible securities
because their effect on earnings per share was anti-dilutive.
All share and per share data for the thirteen and thirty-nine weeks
ended November 29, 1997, have been restated to reflect a two-for-one stock split
distributed to shareholders on February 2, 1998.
6
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RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 28, 1998
-----------------------------------------------
ITEM 1. FINANCIAL STATEMENTS: (CONTINUED)
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 -- RECENT ACCOUNTING PRONOUNCEMENTS
The registrant adopted SFAS No. 130 "Reporting Comprehensive Income"
during the quarter ended May 30, 1998. SFAS No. 130 establishes standards for
reporting and display of comprehensive income. Comprehensive income was $85.0
million and $196.7 million for the thirty-nine weeks ended November 28, 1998 and
November 29, 1997, respectively.
The Financial Accounting Standards Board ("FASB") issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information" in
June of 1997. The objective of SFAS No. 131 is to provide information about the
different types of business activities in which an enterprise engages and the
different economic environments in which it operates. In February 1998, the FASB
issued SFAS No. 132, "Employers' Disclosure about Pensions and Other
Postretirement Benefits." SFAS No. 132 revises the disclosure requirements for
pensions and other postretirement benefit plans. This statement, however, does
not change any of the measurement or recognition provisions required under
previous guidance. Both statements are effective for fiscal years beginning
after December 15, 1997. The registrant is in the process of determining what
impact, if any, these pronouncements will have on its financial statements.
In March 1998, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1
provides guidance concerning recognition and measurement of costs associated
with developing or acquiring computer software for internal use. In April 1998,
the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up Activities." SOP
98-5 provides guidance concerning the costs of start-up activities. Initial
application of this SOP should be reported as the cumulative effect of a change
in accounting principle as described in Accounting Principles Board Opinion No.
20, "Accounting Changes." Both statements are effective for financial statements
for fiscal years beginning after December 15, 1998. The registrant does not
believe that adoption of SOP 98-1 and SOP 98-5 will have a material impact on
its consolidated financial statements.
NOTE 4 -- STORE CLOSING AND OTHER COSTS
During the quarter ended August 29, 1998, the registrant recorded
pre-tax charges of $289.7 million for the closing of 379 stores to be completed
by February 27, 1999, and other charges. These charges principally relate to a
strategic exit plan that includes vacating certain markets, closing bantam East
Coast stores and consolidating certain other store locations. Costs associated
with the disposal of inventory, including the use of liquidators, were $25.5
million and are included as a component of cost of goods sold. The remaining
charge to income of $264.2 million consisted of the following: (i) $144.8
million for the present value of noncancellable lease payments and related
contractual obligations; (ii) $94.2 million for impairment losses associated
with land, buildings, fixtures and leasehold improvements, prescription files,
lease acquisition costs and goodwill; and (iii) $25.2 million for other costs
including expenses associated with previously closed stores. The remaining
accrued liability for noncancellable lease payments and related contractual
obligations was $133.9 million as of November 28, 1998. Revenues generated by
the 379 stores were $306.5 million for the thirty-nine weeks ended November 28,
1998 compared to $511.2 million in the same period last year. For the
thirty-nine weeks ended November 28, 1998 these stores had operating losses of
$12.6 million compared to operating losses of $15.6 million last year. During
the thirty-nine weeks ended November 28, 1998 the registrant closed 293 stores.
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
The registrant had outstanding letters of credit as of November 28,
1998 and November 29, 1997. In addition, the registrant is the defendant in
claims and lawsuits arising in the ordinary course of business. In the opinion
of management, these matters are covered adequately by insurance, or if not so
covered, are without merit or are of such nature or involve such amounts as
would not have a material effect on the financial statements of the registrant
if decided adversely. The registrant, regardless of insurance coverage, does not
believe it has a material, estimable, and probable liability in regard to these
claims and lawsuits.
7
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RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 28, 1998
-----------------------------------------------
ITEM 1. FINANCIAL STATEMENTS: (CONTINUED)
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 -- REMARKETABLE SECURITIES
On September 22, 1998, the registrant issued $200 million of
remarketable securities due October 1, 2013. The remarketable securities bear
interest at a rate of 6% from September 22, 1998 until October 1, 2003 (the
remarketing date). Interest is payable semi-annually on April 1 and October 1 of
each year commencing April 1, 1999. Finance costs are being amortized over the
period until the remarketing date. The remarketable securities are subject to
mandatory tender on the remarketing date.
NOTE 7 - PCS ACQUISITION
On November 17, 1998, the registrant announced that a definitive
agreement had been reached to acquire the equity of Eli Lilly and Company's PCS
Health Systems pharmacy benefits management subsidiary. Rite Aid will pay Lilly
approximately $1.5 billion. The PCS acquisition will be accounted for using the
purchase method of accounting for business combinations. On December 24, 1998,
the registrant announced that the waiting period under the Hart Scott Rodino
Anti-Trust Improvement Act had expired. The acquisition of PCS is expected to
close on January 22, 1999.
NOTE 8 -- SUBSEQUENT EVENTS
On December 15, 1998, the registrant issued securities aggregating
$700 million. The securities included $200 million, 5.50% fixed-rate senior
notes due December 15, 2000, $200 million, 6.00% fixed-rate senior notes due
December 15, 2005, $150 million, 6.125% fixed-rate senior notes due December 15,
2008 and $150 million, 6.875% fixed-rate senior notes due December 15, 2028.
Interest is payable semi-annually December 15 and June 15 of each year,
beginning June 15, 1999. Finance costs for each issue are being amortized over
the period until the maturity date. The net proceeds from the securities were
used to repay commercial paper previously issued by the registrant.
In December 1998, the registrant completed sale and leaseback
transactions of certain store properties that resulted in proceeds of
approximately $140.0 million that were used to repay commercial paper previously
issued by the registrant.
8
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RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 28, 1998
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ITEM 1. FINANCIAL STATEMENTS: (CONTINUED)
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors and Shareholders
Rite Aid Corporation
We have reviewed the condensed consolidated balance sheet of Rite Aid
Corporation and subsidiaries as of November 28, 1998, and the related condensed
consolidated statements of income for the thirty-nine and thirteen week periods
ended November 28, 1998 and November 29, 1997, and the condensed consolidated
statements of cash flows for the thirty-nine week periods ended November 28,
1998 and November 29, 1997. These condensed consolidated financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Rite Aid Corporation and
subsidiaries as of February 28, 1998, and the related consolidated statements of
income, stockholders' equity and cash flows for the year then ended (not
presented herein); and in our report dated April 14, 1998, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of February 28, 1998, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
KPMG LLP
Harrisburg, Pennsylvania
January 12, 1999
9
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RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 28, 1998
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
Sales for the thirteen-week and thirty-nine week periods ended
November 28, 1998 were $3,122.9 million and $9,166.6 million, respectively,
representing increases of 8.2% and 12.0% over the same periods from the previous
year. Same-store sales for the quarter ended November 28, 1998, increased 8.3%
over the prior-year quarter reflecting a 15.3% increase in pharmacy comparable
sales and a 0.8% increase in front end same-unit sales, which are all
non-pharmacy sales. Same-store sales for the 39 weeks ended November 28, 1998,
rose 7.4%, consisting of a 14.5% pharmacy same-store sales increase, and a 0.1%
increase in front end same-unit sales. Sales and operating results for the
acquired Harco, Inc., and K&B Incorporated drugstores are included since their
August 27, 1997 acquisition date. Accordingly, the registrant operated these
stores for thirteen of the thirty-nine weeks ended November 29, 1997.
Prescription sales accounted for 56.3% of drugstore sales for the quarter,
compared to 51.4% last year. Third party prescription sales, which represent
prescription sales that are paid by a person or entity other than the recipient
of the prescribed pharmaceutical and are generally subject to negotiated
reimbursement rates in conjunction with a pharmacy benefit plan, were 86.0% of
pharmacy sales for the quarter compared to 83.4% last year. Prescription sales
for the first thirty-nine weeks of fiscal 1999 were 54.5% of drugstore sales
compared to 50.6% for the same period last year. During the quarter the
registrant opened 52 drugstores, closed 123 outlets and enlarged or relocated
144 units. Stores in operation at the end of the quarter totaled 3,827.
As a percentage of sales, cost of goods sold including occupancy
costs were 73.4% for the thirteen-week period ended November 28, 1998, compared
to 73.3% for the same period in the previous year. For the year-to-date period,
cost of goods sold were 73.3% of sales compared to 72.9%. The current
year-to-date period includes $25.5 million in costs associated with writing down
inventory during the quarter ended August 29, 1998. The registrant continues to
experience a mix shift between prescription and front-end sales and
consequently, a decline in overall gross margins resulted for the thirteen and
thirty-nine week periods ended November 28, 1998, because prescription gross
margins are lower than front-end gross margins. Front-end sales to total sales
declined to 45.5% of sales for the thirty-nine weeks ended November 28, 1998
compared to 49.4% in the prior year. In addition, pharmacy gross profit margins
declined as a result of the increase in third party sales to total prescription
sales and prescription inflation. Year-to-date, third party sales as a percent
of pharmacy sales were 85.2% versus 83.3% last year. The company uses the LIFO
inventory method that requires interim estimates of annual inflation rates.
Accordingly, costs of goods sold included a LIFO provision of $4.1 million for
the quarter and $18.2 million for the thirty-nine weeks ended November 28, 1998,
compared to $2.7 million and $15.0 million, respectively for the same periods
last year. The LIFO method of valuing inventory had the effect of reducing net
income $ .01 per diluted share for the thirteen-week periods ended November 28,
1998 and November 29, 1997. Year-to-date, LIFO charges reduced net income $ .04
per diluted share this year compared to $ .03 per diluted share last year.
Selling, general and administrative expenses were $640.5 million or
20.5% of sales for the quarter, compared to $613.4 million or 21.3% of sales for
the comparable period last year. Excluding store closing and other costs
recorded during the second quarter and shown separately on the income statement,
selling, general and administrative expenses were $1,911.4 million or 20.9% of
sales for the thirty-nine weeks ended November 28, 1998, compared to $1,769.5
million or 21.6% for the same period last year. The favorable decline in the
current year operating expense ratio resulted from strong East Coast same-store
sales that creates expense leverage and operating efficiencies achieved in West
Coast stores. In addition, the prior year's operating expenses included costs
from integration activities and duplicative back-office functions associated
with acquisitions that contributed to an unfavorable increase in the operating
expense to sales ratio a year ago.
During the quarter ended August 29, 1998, the registrant recorded
pre-tax charges of $289.7 million for the closing of 379 stores to be completed
by February 27, 1999, and other charges. These charges principally relate to a
strategic exit plan that includes vacating certain markets, closing bantam East
Coast stores and consolidating certain other store locations. The strategic
exit plan will allow the registrant to accelerate the pace of opening its
successful larger prototype store design. As discussed above, costs associated
with the disposal of inventory, including the use of liquidators, were $25.5
million and are included as a component of cost of goods sold. The remaining
charge to income of $264.2 million, consisted of the following: (i) $144.8
million for the present value of noncancellable lease payments and related
contractual obligations; (ii) $94.2 million for impairment losses associated
with land, buildings, fixtures, leasehold improvements, prescription files,
lease acquisition costs and goodwill; and (iii) $25.2 million for other costs
including expenses associated with previously closed stores. The remaining
accrued liability for noncancellable lease payments and related contractual
obligations was $133.9 million as of November 28, 1998. Revenues generated by
the 379 stores were $306.5 million for the thirty-nine weeks ended November 28,
1998 compared to $511.2 million in the same period last year. For the
thirty-nine weeks ended November 28, 1998 these stores had operating losses of
$12.6 million compared to operating losses of $15.6 million last year. During
the thirty-nine weeks ended November 28, 1998 the registrant closed 293 stores.
The registrant believes that closing these stores will enhance future results
of operations, liquidity and capital resources.
10
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RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 28, 1998
-----------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS: (CONTINUED)
Interest expenses were $44.9 million for the thirteen-week period
and $128.2 million for the thirty-nine week period this year compared to $42.8
million and $121.3 million for the respective periods last year. The increase in
interest expense resulted from additional borrowings for the registrant's store
development and acquisition programs coupled with greater inventory levels. The
weighted average interest rates on the company's commercial paper were
approximately 5.7% for the quarter and year-to-date periods ended November 28,
1998 and November 29, 1997, respectively.
Income taxes were $57.9 million for the thirteen-week period and
$56.7 million for the thirty-nine week period ended November 28, 1998 compared
to $45.8 million for the quarter and $132.8 million for the thirty-nine week
period ended November 29, 1997. The effective income tax rate was 40.0% for the
quarter and thirty-nine week periods ended November 28, 1998 compared to an
effective rate of 40.3% for the same periods a year earlier. Depreciation and
amortization expenses were $67.1 million for the quarter and $211.7 million for
the thirty-nine week periods ended November 28, 1998 compared to $75.2 million
and $203.3 million for the comparable periods last year.
Net income for the quarter was $86.9 million compared to $67.9
million for the third quarter a year earlier. Year-to-date, net income was $85.0
million versus net income of $196.7 million last year. The current year-to-date
amount reflects pre-tax charges totaling $289.7 million including $25.5 million
for inventory related write-downs and $264.2 million for store closing and other
costs and losses from asset impairments related to the registrant's strategic
exit plan.
Working capital was $1.9 billion at November 28, 1998, compared to
$1.6 billion at February 28, 1998, and the current ratios were 2.3:1 and 1.9:1,
respectively. Operating activities provided cash of $26.8 million for the
thirty-nine weeks ended November 28, 1998 compared to $489.3 million for the
same period last year. Capital expenditures for property, plant and equipment
were $675.4 million in connection with the registrant's store construction,
renovation and relocation programs. Included in capital expenditures was
approximately $140.0 million related to sale and leaseback transactions of
certain store properties that were completed in December 1998. Proceeds from
these transactions were used to repay commercial paper borrowings. Cash was also
used for dividend payments of $83.8 million. Total debt to total capitalization
was 53.9% as of November 28, 1998, compared to 47.1% at February 28, 1998. The
registrant has a $1 billion revolving credit commitment to provide additional
borrowing capacity and support its commercial paper program as of November 28,
1998.
On November 17, 1998, the registrant announced that a definitive
agreement had been reached to acquire the equity of Eli Lilly and Company's PCS
Health Systems pharmacy benefits management subsidiary for approximately $1.5
billion. The PCS acquisition will be accounted for using the purchase method of
accounting for business combinations. On December 24, 1998, the registrant
announced that the waiting period under the Hart Scott Rodino Anti-Trust
Improvement Act had expired. The acquisition of PCS is expected to close on
January 22, 1999. The registrant has in place commitments for a $1.3 billion
credit facility through a syndicate of banks to support interim bridge financing
to close the transaction. The registrant expects to initially fund the
transactions with proceeds received from the issuance of commercial paper.
Thereafter, the registrant intends to refinance the commercial paper borrowings
with proceeds from offerings of the registrant's common stock and equity-linked
securities.
On December 15, 1998, the registrant issued securities aggregating
$700 million. The securities included $200 million, 5.50% fixed-rate senior
notes due December 15, 2000, $200 million, 6.00% fixed-rate senior notes due
December 15, 2005, $150 million, 6.125% fixed-rate senior notes due December 15,
2008 and $150 million, 6.875% fixed-rate senior notes due December 15, 2028.
Interest is payable semi-annually December 15 and June 15 of each year,
beginning June 15, 1999. Finance costs for each issue are being amortized over
the period until the maturity date. The net proceeds from the securities were
used to repay commercial paper previously issued by the registrant.
On September 22, 1998, the registrant issued $200 million of
remarketable securities due October 1, 2013. The remarketable securities bear
interest at a rate of 6% from September 22, 1998 until October 1, 2003 (the
remarketing date). Interest is payable semi-annually on April 1 and October 1 of
each year commencing April 1, 1999. Finance costs are being amortized over the
period until the remarketing date. The remarketable securities are subject to
mandatory tender on the remarketing date.
The registrant began in 1996, a comprehensive project to convert its
information technology ("IT") and non-information technology ("non-IT") systems
to be Year 2000 (Y2K) date compliant. The Y2K issue creates risk for the
registrant from unforeseen problems in its own computer systems and from that of
the systems of other companies and governmental agencies on which the company's
operations rely. The registrant has developed a Y2K remediation plan to assess
the compliance of its IT and non-IT systems, as well as consideration of the
remediation efforts of its key customers, vendors,
11
<PAGE> 13
-----------------------------------------------
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 28, 1998
-----------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS: (CONTINUED)
suppliers, financial institutions and governmental agencies (collectively
referred to as "business partners") to identify the nature and potential impact
of issues presented by the Y2K problem on operating activities. The remediation
process includes creating an inventory of systems subject to the Y2K problem and
assessing the scope of the problem as it relates to those systems; remediating
Y2K problems; testing the systems following remediation; and using the systems
for a period of time following remediation. To date, the registrant has
completed the initial assessment phase of all its IT systems, giving highest
priority to those systems that are considered critical to the company's
operations. Of these systems, approximately 35% have been remediated, tested and
determined compliant or have been replaced or retired. An additional 36% have
been remediated and are in the testing phase. The remaining 29% are in various
stages of remediation activity. Currently, the registrant anticipates that all
critical IT systems will be compliant by June of 1999 and all other systems by
November of 1999.
To date, the registrant has compiled a comprehensive inventory of
its non-IT systems, which includes those systems containing embedded chip
technology commonly found in buildings and equipment connected with a building's
infrastructure. The registrant is currently in the assessment and research phase
and 59% of the systems have been determined compliant. The remaining 41% have
either been determined non-compliant or have not been assessed. As the
assessment and research phase is completed, non-compliant systems will either be
replaced or repaired as applicable. Currently, the registrant anticipates that
all non-IT systems will be compliant by June of 1999.
The registrant is also assessing the potential risks associated with
key business partners and their own Y2K compliance programs through continuing
communications, Y2K questionnaires and on-site visits. Although there can be no
assurance that the registrant will not be adversely affected, the registrant
will continue to monitor the progress of its business partners throughout 1999.
The registrant is also in the process of developing contingency plans in order
to minimize the risks associated with those partners who will not be Y2K
compliant, including assessing the need to locate alternative vendors or service
providers.
The impact on business operations from the failure to comply with
Y2K requirements by the registrant or by any of its business partners could be
material to the registrant's future results of operations, liquidity and capital
resources. The most reasonably likely worst case scenario includes, but is not
limited to, disruption of store operations, the inability to communicate with
key vendors, service providers, customers and financial institutions, as well
as pharmacy system or point-of-sale failure. Although there can be no assurance
that the registrant will correctly identify and resolve all Y2K related issues,
remediation efforts are progressing in accordance with established timetables.
Additionally, contingency plans in the event of non-compliant systems are in
various stages of development, and include, but are not limited to, off-line
prescription fill, off-line point-of-sale mode or paper processing at the
stores and other manual processing where computer systems have failed or are
not reliable. The various contingency plans under development would be utilized
in the event that operations are adversely affected by the Y2K problem, despite
the registrant's best efforts or due to events outside of the registrant's
control. Total estimated Y2K remediation costs of $12 million will be funded
through operating cash flows and expensed in the period incurred, of which,
approximately $4.2 million has been incurred through November 28, 1998. Total
Y2K remediation costs are based upon management's best estimate and are subject
to change as additional information becomes available.
Certain statements contained herein and elsewhere in this Form 10-Q
are forward-looking statements made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements address activities or events that the registrant expects will or may
occur in the future. The registrant cautions that a number of important factors
could cause actual results to differ materially from those expressed in any
forward-looking statements, whether written or oral, made by or on behalf of the
registrant. Such factors include, but are not limited to, competitive pricing
pressures, third party prescription reimbursement levels, continued
consolidation of the drugstore industry, consumer preferences, regulatory
changes governing pharmacy practices, general economic conditions, inflation,
merchandise supply constraints, interest rate movements, access to capital,
availability of real estate, construction and start-up of drugstore and
distribution center facilities, and the effects of technological difficulties
including remediation of Year 2000 compliance issues. Consequently, all of the
forward-looking statements made are qualified by these and other factors, risks
and uncertainties. Investors are also directed to consider other risks and
uncertainties discussed in documents filed by the registrant with the Securities
and Exchange Commission.
12
<PAGE> 14
-----------------------------------------------
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 28, 1998
-----------------------------------------------
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The registrants major market risk exposure is changing interest
rates. Exposure to market risk for changes in interest rates relates primarily
to long-term debt obligations. The registrant primarily enters into debt
obligations to support general corporate purposes including capital expenditures
and working capital needs. The registrant's policy is to manage interest rates
through the use of a combination of commercial paper and fixed rate long-term
debt obligations. The registrant has no negative cash flow exposure due to rate
changes for fixed rate long-term debt obligations. All long-term obligations are
nontrading. There have been no material changes to market risk disclosures as
reported in the registrant's Form 10-K for the fiscal year ended February 28,
1998.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits
The following are filed as exhibits to Part I of this Form 10-Q:
Exhibit 11. Statements re computations of per share earnings
Exhibit 12. Statements re computations of ratios of earnings to
fixed charges
Exhibit 15. Copy of letter from independent accountants' regarding
unaudited interim financial information
Exhibit 27. Financial Data Schedule for the quarter ended November
28, 1998 (EDGAR Filing Only)
Exhibit 27.1 Restated Financial Data Schedule for the quarter
ended November 29, 1997 (EDGAR Filing Only)
The following is filed as an exhibit to Part II of this Form 10-Q:
None
(b) Reports on Form 8-K
On November 18, 1998 the registrant filed Form 8-K with the
Securities and Exchange Commission. The Form 8-K contained Item
5 -- Other Information as follows:
On November 17, 1998, Rite Aid Corporation (the
"registrant") and Eli Lilly and Company ("Lilly") announced that
they had entered into a Stock Purchase Agreement (the "Stock
Purchase Agreement"), pursuant to which the registrant has agreed to
acquire (the "PCS Acquisition") all of the outstanding capital stock
of PCS Holding Corporation ("PCS"), a wholly owned subsidiary of
Lilly.
Filed as exhibits to Form 8-K dated November 18, 1998
were the following items:
Stock Purchase Agreement, dated as of November 17, 1998,
between the registrant and Lilly
Press Release, dated November 17, 1998
Statements issued by the registrant about the PCS
acquisition.
13
<PAGE> 15
-----------------------------------------------
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 28, 1998
-----------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RITE AID CORPORATION
--------------------
(Registrant)
Date: January 12, 1999 /s/ Frank Bergonzi
- -------------------------------- ------------------------------
Frank Bergonzi
Executive Vice President,
Chief Financial Officer
14
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
EXHIBIT NO. DESCRIPTION
ITEM 11 STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS.
ITEM 12 STATEMENTS RE COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES.
ITEM 15 COPY OF LETTER FROM INDEPENDENT ACCOUNTANTS' REGARDING UNAUDITED INTERIM FINANCIAL INFORMATION.
ITEM 27 FINANCIAL DATA SCHEDULE FOR THE QUARTER ENDED NOVEMBER 28, 1998 (EDGAR FILING ONLY).
ITEM 27.1 RESTATED FINANCIAL DATA SCHEDULE FOR THE QUARTER ENDED NOVEMBER 29, 1997 (EDGAR FILING ONLY).
</TABLE>
15
<PAGE> 1
EXHIBIT 11
RITE AID CORPORATION AND SUBSIDIARIES
STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS
THIRTEEN WEEKS ENDED NOVEMBER 28, 1998 AND NOVEMBER 29, 1997
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
November 28, 1998 November 29, 1997
----------------- -----------------
<S> <C> <C>
Net income $86,857 $67,894
======= =======
Basic weighted average shares 258,532,000 253,042,000
=========== ===========
Basic earnings per share $.34 $.27
==== ====
Numerator for diluted earnings per share:
Net income $86,857 $67,894
Effect of dilutive securities:
6.75% zero coupon convertible subordinated notes (a) - 800
5.25% convertible subordinated notes (a) (b) 5,392 -
----- -----
Net income assuming dilution $92,249 $68,694
======= =======
Denominator for diluted earnings per share:
Basic weighted average shares 258,532,000 253,042,000
Effect of dilutive securities:
Employee stock options 7,192,000 6,192,000
6.75% zero coupon convertible subordinated notes - 4,654,000
5.25% convertible subordinated notes (b) 17,987,000 -
---------- ------
Dilutive potential common shares 25,179,000 10,846,000
---------- ----------
Diluted weighted average shares 283,711,000 263,888,000
=========== ===========
Diluted earnings per share: $.33 $.26
==== ====
</TABLE>
(a) Shown net of income taxes that were calculated at the registrant's
effective tax rate.
(b) For the thirteen weeks ended November 29, 1997, the registrant did not
assume conversion of its 5.25% convertible securities because their
effect on earnings per share was anti-dilutive.
<PAGE> 2
EXHIBIT 11
RITE AID CORPORATION AND SUBSIDIARIES
STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS
THIRTY-NINE WEEKS ENDED NOVEMBER 28, 1998 AND NOVEMBER 29, 1997
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
November 28, 1998 November 29, 1997
----------------- -----------------
<S> <C> <C>
Net income $85,041 $196,748
======= ========
Basic weighted average shares 258,404,000 248,202,000
=========== ===========
Basic earnings per share $.33 $.79
==== ====
Numerator for diluted earnings per share:
Net income $85,041 $196,748
Effect of dilutive securities:
6.75% zero coupon convertible subordinated notes (a) - 5,281
5.25% convertible subordinated notes (a) (b) - -
----- ------
Net income assuming dilution $85,041 $202,029
======= ========
Denominator for diluted earnings per share:
Basic weighted average shares 258,404,000 248,202,000
Effect of dilutive securities:
Employee stock options 7,061,000 5,402,000
6.75% zero coupon convertible subordinated notes - 9,380,000
5.25% convertible subordinated notes (b) - -
------- -------
Dilutive potential common shares 7,061,000 14,782,000
--------- ----------
Diluted weighted average shares 265,465,000 262,984,000
=========== ===========
Diluted earnings per share: $.32 $.77
==== ====
</TABLE>
(a) Shown net of income taxes that were calculated at the registrant's
effective tax rate.
(b) For the thirty-nine weeks ended November 28, 1998 and November 29, 1997,
the registrant did not assume conversion of its 5.25% convertible
securities because their effect on earnings per share was anti-dilutive.
<PAGE> 1
EXHIBIT 12
RITE AID CORPORATION AND SUBSIDIARIES
STATEMENTS RE COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
THIRTY-NINE WEEKS ENDED NOVEMBER 28, 1998 AND
YEARS ENDED FEBRUARY 28, 1998, MARCH 1, 1997, MARCH 2, 1996, MARCH 4, 1995, AND
FEBRUARY 26, 1994
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
39 Weeks Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
Nov. 28, Feb. 28, March 1, March 2, March 4, Feb. 26,
1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges
Interest expense $128,155 $159,752 $96,473 $68,341 $42,300 $28,683
Interest portion (1)
of net rental
expense 102,300 111,943 66,067 52,080 40,424 40,427
------- ------- ------ ------ ------ ------
Fixed charges before
capitalized interest 230,455 271,695 162,540 120,421 82,724 69,110
Capitalized interest 6,020 3,834 1,897 1,948 373 217
----- ----- ----- ----- --- ---
Total fixed charges $236,475 $275,529 $164,437 $122,369 $83,097 $69,327
======== ======== ======== ======== ======= =======
Earnings
Income before
extraordinary loss
and income taxes $141,735 $530,041 $258,927 $256,202 $231,464 $45,670
Fixed charges before
capitalized interest 230,455 271,695 162,540 120,421 82,724 69,110
------- ------- ------- ------- ------ ------
Total adjusted
earnings $372,190 $801,736 $421,467 $376,623 $314,188 $114,780
======== ======== ======== ======== ======== ========
Ratio of earnings to
fixed charges 1.57 2.91 2.56 3.08 3.78 1.66
==== ==== ==== ==== ==== ====
</TABLE>
(1) The interest portion of the net rental expense is estimated to be equal
to one-third of the minimum rental expense for the period.
<PAGE> 1
EXHIBIT 15
COPY OF LETTER FROM INDEPENDENT ACCOUNTANTS' REGARDING UNAUDITED
INTERIM FINANCIAL INFORMATION
Rite Aid Corporation
Camp Hill, Pennsylvania
Ladies and Gentlemen:
Re: Registration Statements No. 333-08071; No. 333-21207;
No. 333-39699; No. 333-66901
With respect to the subject registration statements, we acknowledge
our awareness of the use therein of our report dated January 12, 1999 related to
our review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such
report is not considered part of a registration statement prepared or certified
by an accountant or a report prepared or certified by an accountant within the
meaning of sections 7 and 11 of the Act.
Very truly yours,
KPMG LLP
Harrisburg, Pennsylvania
January 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FORM 10-Q
QUARTERLY REPORT FOR THE QUARTER ENDED NOVEMBER 28, 1998, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-27-1999
<PERIOD-END> NOV-28-1998
<CASH> 97,815
<SECURITIES> 0
<RECEIVABLES> 215,557
<ALLOWANCES> 11,447
<INVENTORY> 3,074,972
<CURRENT-ASSETS> 3,461,640
<PP&E> 3,551,100
<DEPRECIATION> 885,809
<TOTAL-ASSETS> 8,259,205
<CURRENT-LIABILITIES> 1,512,029
<BONDS> 3,228,860
0
0
<COMMON> 258,731
<OTHER-SE> 2,666,471
<TOTAL-LIABILITY-AND-EQUITY> 8,259,205
<SALES> 9,166,640
<TOTAL-REVENUES> 9,166,640
<CGS> 6,721,164
<TOTAL-COSTS> 6,721,164
<OTHER-EXPENSES> 264,204
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 128,155
<INCOME-PRETAX> 141,735
<INCOME-TAX> 56,694
<INCOME-CONTINUING> 85,041
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,041
<EPS-PRIMARY> .33
<EPS-DILUTED> .32
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FORM 10-Q
QUARTERLY REPORT FOR THE QUARTER ENDED NOVEMBER 29, 1997, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> NOV-29-1997
<CASH> 83,214
<SECURITIES> 0
<RECEIVABLES> 138,004
<ALLOWANCES> 10,622
<INVENTORY> 2,844,040
<CURRENT-ASSETS> 3,121,555
<PP&E> 2,959,411
<DEPRECIATION> 872,157
<TOTAL-ASSETS> 7,278,755
<CURRENT-LIABILITIES> 1,524,619
<BONDS> 2,482,250
0
0
<COMMON> 135,394
<OTHER-SE> 2,681,698
<TOTAL-LIABILITY-AND-EQUITY> 7,278,755
<SALES> 8,184,466
<TOTAL-REVENUES> 8,184,466
<CGS> 5,964,079
<TOTAL-COSTS> 5,964,079
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 121,329
<INCOME-PRETAX> 329,561
<INCOME-TAX> 132,813
<INCOME-CONTINUING> 196,748
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 196,748
<EPS-PRIMARY> .79
<EPS-DILUTED> .77
</TABLE>
