<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
===========
FORM 8-K/A
===========
AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
SEPTEMBER 11, 1998
----------------------------
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
DUANE READE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 001-13843 04-3164702
- ---------------------------- -------------------- --------------------
(State or other jurisdiction Commission File Number (I.R.S. Employer
of incorporation or Identification Number)
organization)
440 NINTH AVENUE, NEW YORK, NEW YORK 10001
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(Address of Principal Executive Offices) (Zip Code)
(212) 273-5700
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name or former address, if changed since last report.)
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<PAGE>
The undersigned Registrant hereby amends Item 7 of its Current Report on Form
8-K dated September 24, 1998 to read in its entirety as follows:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
The following financial statements required by Item 7 with respect to the
Rock Bottom acquisition are filed as part of this report:
Financial Statements of Businesses Acquired:
--------------------------------------------
- Independent Auditors' Report
- Consolidated Balance Sheets - January 31, 1998 and 1997
- Statements of Consolidated Income and Retained Earnings - Years Ended
January 31, 1998 and 1997
- Statements of Consolidated Cash Flows - Years Ended January 31, 1998
and 1997
Pro Forma Financial Information:
--------------------------------
Unaudited Pro Forma Condensed Consolidated Statements of Operations for the
39 Weeks Ended September 26, 1998 and for the 52 Weeks Ended December 27, 1997.
<PAGE>
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
-----------------------------------------
ROCK BOTTOM STORES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1998 AND 1997
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
FINANCIAL STATEMENTS:
Independent Auditor's Report 1
Consolidated Balance Sheets - January 31, 1998 and 1997 2
Statements of Consolidated Income and Retained Earnings -
Years Ended January 31, 1998 and 1997 3
Statements of Consolidated Cash Flows -
Years Ended January 31, 1998 and 1997 4
Notes to Consolidated Financial Statements 5-9
<PAGE>
EDWARD ISAACS & COMPANY LLP
CPAs and Financial Consultants
- -------------------------------------------------------------------------------
[EDWARD ISAACS & COMPANY LLP LOGO]
380 Madison Avenue, New York, NY 10017
Tel: (212) 297-4800, Fax: (212) 972-9088
Member GMN International
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Shareholders
Rock Bottom Stores, Inc.
Lake Success, New York
We have audited the accompanying consolidated balance sheets of Rock Bottom
Stores, Inc. and subsidiaries as of January 31, 1998 and 1997, and the related
statements of consolidated income and retained earnings, and consolidated cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the management of Rock Bottom Stores, Inc. and subsidiaries.
Our responsibility is to express an opinion on these consolidated 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 audits 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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Rock Bottom
Stores, Inc. and subsidiaries as of January 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounted principles.
/s/ EDWARD ISAACS & COMPANY LLP
April 9, 1998
-1-
<PAGE>
ROCK BOTTOM STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
------ ------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 465,568 $ 861,056
Accounts receivable 481,231 461,959
Receivable from vendors 1,817,042 1,939,400
Merchandise inventory 30,349,440 31,668,103
I.R.S. deposit 368,000 1,184,938
Other 741,332 824,541
------------- ------------
TOTAL CURRENT ASSETS 34,222,613 36,939,997
------------- ------------
STORE AND WAREHOUSE FACILITIES, FIXTURES AND EQUIPMENT,
at cost less accumulated depreciation and amortization 21,635,871 21,353,001
------------- ------------
OTHER ASSETS:
Leasehold costs 1,028,675 973,712
Deferred charges 613,359 677,183
I.R.S. deposit 1,006,270 1,374,270
Other 98,456 65,350
------------- ------------
TOTAL OTHER ASSETS 2,746,760 3,090,515
------------- ------------
$ 58,605,244 $ 61,383,513
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 18,413,100 $20,222,949
Accrued expenses 2,777,795 3,281,714
Taxes other than on income 101,244 112,435
------------- ------------
TOTAL CURRENT LIABILITIES 21,292,139 23,617,098
------------- ------------
LONG-TERM DEBT 14,500,000 14,500,000
------------- ------------
DEFERRED RENT 3,729,161 3,595,464
------------- ------------
SHAREHOLDERS' EQUITY:
Common stock - $.10 par value:
Authorized - 1,200,000 shares
Issued - 976,865 shares 97,686 97,686
Additional paid-in capital 3,374,111 3,374,111
Retained earnings 18,501,426 19,088,433
Treasury stock - 147,659 shares, at cost (2,889,279) (2,889,279)
------------- ------------
TOTAL SHAREHOLDERS' EQUITY 19,083,944 19,670,951
------------- ------------
$ 58,605,244 $ 61,383,513
============ =============
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE>
ROCK BOTTOM STORES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME AND RETAINED EARNINGS
YEARS ENDED JANUARY 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- --------------
<S> <C> <C>
NET SALES $ 227,930,998 $ 234,280,081
------------- --------------
COST AND EXPENSES:
Cost of sales 164,703,128 172,159,627
Selling, occupancy, general and administrative expenses 59,211,899 57,704,951
Interest expense 1,360,046 1,780,643
------------- --------------
225,275,073 231,645,221
------------- --------------
INCOME BEFORE OTHER ITEMS 2,655,925 2,634,860
------------- --------------
OTHER ITEMS:
Restructuring charges 1,550,506 --
Preopening expenses 130,670 --
Loss on abandonment of stores 516,889 506,292
Condemnation loss -- 231,862
------------- --------------
2,198,065 738,154
------------- --------------
INCOME BEFORE INCOME TAXES 457,860 1,896,706
------------- --------------
PROVISION FOR STATE AND LOCAL INCOME TAXES:
Current 88,867 108,819
Deferred (28,000) (13,000)
------------- --------------
60,867 95,819
------------- --------------
NET INCOME 396,993 1,800,887
RETAINED EARNINGS at beginning 19,088,433 19,517,546
DIVIDENDS (984,000) (2,230,000)
------------- --------------
RETAINED EARNINGS at end $ 18,501,426 $ 19,088,433
============= =============
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
ROCK BOTTOM STORES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
YEARS ENDED JANUARY 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 396,993 $ 1,800,887
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,094,900 2,895,632
Deferred taxes (28,000) (13,000)
Deferred rent 133,697 127,242
Loss on store abandonment 516,889 506,292
Loss on condemnation -- 231,862
Increase (decrease) in cash attributable to
changes in assets and liabilities:
Accounts receivable (19,272) (105,525)
Receivable from vendors 122,358 1,391,350
Merchandise inventory 1,318,663 8,692,403
Other current assets 86,209 273,959
Accounts payable (1,809,849) (86,560)
Accrued expenses (435,145) 395,179
Taxes other than on income (11,191) (55,006)
Other liabilities (68,774) (284,699)
----------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,297,478 15,770,016
----------- ------------
INVESTING ACTIVITIES:
Additions to store and warehouse facilities (3,564,366) (3,498,177)
Additions to deferred charges and leasehold costs (321,432) (140,638)
I.R.S. deposit 1,184,938 (1,351,116)
Other (8,106) --
----------- ------------
NET CASH USED IN INVESTING ACTIVITIES (2,708,966) (4,989,931)
----------- ------------
FINANCING ACTIVITIES:
Notes payable -- (7,000,000)
Long-term debt -- (1,000,000)
Payments in connection with termination agreements -- (86,362)
Dividends (984,000) (2,230,000)
----------- ------------
NET CASH USED IN FINANCING ACTIVITIES (984,000) (10,316,362)
----------- ------------
NET (DECREASE) INCREASE IN CASH (395,488) 463,723
CASH at beginning 861,056 397,333
----------- ------------
CASH at end $ 465,568 $ 861,056
=========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 1,306,546 $ 1,875,306
=========== ============
Income taxes paid $ 50,523 $ 58,296
=========== ============
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
ROCK BOTTOM STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31,1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Company's Business:
The Company operates a chain of drug and health and beauty aid stores in the
New York metropolitan area.
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany accounts and transactions
have been eliminated.
Cash:
The Company deposits its cash in operating accounts with financial
institutions and at times balances exceed Federal insurance limits.
Merchandise Inventory:
Inventories are stated at the lower of cost or market. Cost is determined on
the last-in, first-out (LIFO) basis. If the first-in, first-out (FIFO)
method of inventory valuation had been used by the Company, inventories
would have been $18,318,000 and $18,396,000 higher than reported at January
31, 1998 and 1997, respectively.
Depreciation and Amortization:
Depreciation and amortization are provided principally by the straight-line
method over estimated useful lives substantially ranging from 5 to 15 years.
Leasehold improvements are amortized over the shorter of the remaining life
of the lease or 15 years; leasehold costs are amortized over the life of the
related lease.
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 amounts reported in the financial statements and
accompanying notes. Although these estimates are based on management's
knowledge of current events and actions it may undertake in the future, they
may ultimately differ from actual results.
-5-
<PAGE>
ROCK BOTTOM STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
------------------------------------------
Income Taxes:
The Company is an S corporation and is not subject to Federal income taxes.
At January 31, 1998 and 1997, the Company had deposits with the Internal
Revenue Service in order to retain its fiscal year aggregating $1,374,270
and $2,559,208, respectively. The Company is entitled to a refund of $368,000
and $1,184,938 as of January 31, 1998 and 1997.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying value of assets and liabilities for financial reporting
purposes and the amounts reported for income tax purposes. Components of the
Company's deferred income tax assets and liabilities are as follows:
1998 1997
--------- ---------
Deferred Tax Assets:
LIFO provisions $ 168,000 $ 165,000
Deferred rent 160,000 180,000
Capitalized inventory costs 39,000 55,000
Other 75,000 60,000
--------- ---------
442,000 460,000
Deferred Tax Liabilities:
Depreciation and amortization 85,000 131,000
--------- ---------
Net Deferred Income Tax Benefits $ 357,000 $ 329,000
========= =========
Net deferred income tax benefits at January 31, 1998 and 1997 are included
in other current assets except for $75,000 (1998) and $50,000 (1997)
included in other assets.
Vendor agreements:
In fiscal 1998 the Company concluded agreements with two vendors which
provide for, among other things, nonrefundable payments aggregating
$1,750,000 (included in cost of sales) as reimbursement of merchandise and
other costs incurred by the Company.
Reclassifications:
Certain reclassifications have been made to prior year amounts to conform
with current year presentation.
-6-
<PAGE>
ROCK BOTTOM STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31,1998 AND 1997
2. STORE AND WAREHOUSE FACILITIES, FIXTURES AND EQUIPMENT
-------------------------------------------------------
An analysis by class of asset follows:
1998 1997
------------ ------------
Store and warehouse facilities $ 25,019,629 $ 23,960,532
Fixtures and equipment 17,923,362 16,806,991
------------ ------------
42,942,991 40,767,523
Less: Accumulated depreciation 21,307,120 19,087,660
Condemnation -- 326,862
------------ ------------
$ 21,635,871 $ 21,353,001
============ ============
In fiscal 1997 the Company incurred a loss of $231,862 resulting from
condemnation by the local government of a parcel of land it had owned.
3. ACCRUED EXPENSES
----------------
Accrued expenses are comprised of the following:
1998 1997
----------- -----------
Compensation $ 1,526,222 $ 1,629,128
Interest 123,900 70,400
Insurance 693,200 681,800
Other 434,473 900,386
----------- -----------
$ 2,777,795 $ 3,281,714
=========== ===========
4. NOTES PAYABLE
-------------
The Company has a line of credit with two banks aggregating $15,000,000.
5. LONG-TERM DEBT
--------------
The Company has a revolving credit and term loan agreement with a bank. The
agreement provides for revolving credit borrowings up to $20,000,000 through
January 1999, convertible at that time into a term loan, payable in equal
quarterly installments over the subsequent four years. Interest payments, at
the option of the Company, are to be (1) at the prime rate, (2) if
available, at a fixed rate, and also, (3) if available, at a LIBOR rate.
LIBOR rate loans would be subject to certain adjustments inclusive of an
addition to the LIBOR rate of 1.2% during the revolver period of the loan
and an addition of 1.7% during the term loan period. The Company is
currently using LIBOR rates for its interest obligation. In March 1994, the
Company purchased a $10,000,000, 5.75% LIBOR interest rate cap (the cap
covers up to the basic LIBOR rate exclusive of the 1.2% add on).
-7-
<PAGE>
ROCK BOTTOM STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31,1998 AND 1997
5. LONG-TERM DEBT (Continued)
--------------------------
The agreement contains various covenants which include, among others,
maintaining minimum tangible net worth of $18,000,000, working capital of at
least $12,000,000, ratio of total liabilities to tangible net worth not to
exceed 3 to 1, and the ratio of current assets to current liabilities must
be no less than 1.35 to 1. The covenants also provide for cumulative
interest to earnings coverage (as defined) of the ratio of cumulative
earnings before interest and taxes to cumulative interest of 1 to 1 and
prohibits two consecutive years of net losses. In addition, there are
limitations on distributions to shareholders, restrictions on investments,
and loans to affiliates.
Borrowings pursuant to this agreement at January 31, 1998 and 1997 were
$14,500,000.
Maturities of this debt for each of the years ending January 31, 2000
through 2003 are $3,625,000 annually.
6. DEFERRED RENT
-------------
The Company's warehouse facilities and several of its stores have annual
rentals that increase over the period of the lease. For financial statement
purposes, the leases for these units are being accounted for on a
straight-line basis. Accordingly, the consolidated balance sheets reflect as
deferred rent, the excess of the expense charged over the amounts payable
pursuant to the lease terms.
7. LEASES
------
The Company leases stores, a warehouse, a corporate office facility and
equipment under long-term leases expiring through 2013. The leases provide
for minimum rentals, a percentage of sales, real estate tax and other
escalation provisions.
Total rent expense for the years ended January 31, 1998 and 1997 was
approximately $13,407,000 and $13,667,000, net of sublease income of
$695,000 and $466,000, respectively.
Minimum rental commitments under noncancelable leases as of January 31, 1998
are tabulated below (000's omitted).
Minimum Sublease Net
Rentals Rentals Rentals
-------- -------- --------
1999 $ 11,844 $ 655 $ 11,189
2000 10,806 678 10,128
2001 9,828 692 9,136
2002 9,434 382 9,052
2003 8,854 411 8,443
Later Years 45,859 414 45,445
-------- -------- --------
$ 96,625 $ 3,232 $ 93,393
======== ======== ========
The Company leases its warehouse facility and certain stores from entities
controlled by its principal shareholders. Rent expense for these units for
the years ended January 31, 1998 and 1997 was approximately $6,033,000 and
$6,274,000, respectively.
-8-
<PAGE>
ROCK BOTTOM STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1998 AND 1997
8. RETIREMENT PLANS
-----------------
Union Pension Plan:
Pursuant to a collective bargaining agreement, the Company made
contributions to the employees' Union Pension Fund of $329,000 and $311,000
for the years ended January 31, 1998 and 1997, respectively.
401(k) Retirement Savings Plan:
The Company has a retirement savings plan covering all employees who meet
eligibility requirements.
9. SHAREHOLDERS' EQUITY
--------------------
Dividends Paid:
Subsequent to January 31, 1998, dividends of $750,000 were paid to
shareholders to reimburse them for income taxes arising from the Company's S
corporation status.
Stock Appreciation Rights:
In fiscal 1998, the Company entered into agreements with three of its
executives which provide for stock appreciation rights. Upon the occurrence
of specified events payments are required in amounts equal to the increase
in the Company's book value, as defined.
In connection with these agreements, there was no provision required for
fiscal 1998.
10. RESTRUCTURING CHARGE
--------------------
In fiscal 1998 the Company reorganized certain facets of its operations.
Accordingly, related costs including personnel, promotion and product-line
refinement have been reflected as a restructuring charge in the accompanying
statement of consolidated income.
-9-
<PAGE>
(B) PRO FORMA FINANCIAL INFORMATION
-------------------------------
On September 11, 1998, Duane Reade Inc. ("Company") purchased substantially
all of the operating assets of Rock Bottom Stores, Inc. ("Rock Bottom"), a
health and beauty aid retailer operating 38 stores primarily in the outer
boroughs of New York City. The purchase price paid was $64.9 million,
subject to certain post-closing adjustments. The acquisition, accounted for
under the purchase method, was financed with additional term loans under
the Existing Credit Agreement. The purchase price, based on preliminary
estimates of fair values, is allocable to inventory ($32.7 million),
property ($18.0 million), identifiable intangibles ($9.9 million) and
goodwill ($13.5 million) net of reserves for expenses, and store closings
($9.2 million). The Company does not believe that the final purchase price
allocation will differ significantly from this preliminary purchase price
allocation.
The following Unaudited Pro Forma Consolidated Statements of Operations
("Pro Forma Statements of Operations") for the 39 weeks ended September 26,
1998 and the 52 weeks ended December 27, 1997, give effect to the
acquisition of Rock Bottom as if it had occurred on December 29, 1996. The
Pro Forma Statements of Operations are based on historical results of
operations of the Company for the 39 weeks ended September 26, 1998 and the
52 weeks ended December 27, 1997 and the historical results of Rock Bottom
for the six months ended July 31, 1998 and the year ended January 31, 1998.
The Pro Forma Statements of Operations and the accompanying notes ("Pro
Forma Financial Information") should be read in conjunction with and are
qualified by the historical financial statements and notes thereto of the
Company and Rock Bottom.
The Pro Forma Financial Information is intended for informational purposes
only and is not necessarily indicative of the combined results that would
have occurred had the acquisition been consummated at the beginning of
fiscal 1997 or of future results of the combined operations under the
ownership and management of the Company.
<PAGE>
Duane Reade Inc.
Unaudited Pro Forma Consolidated Statement of Operations
Thirty-Nine Weeks Ended September 26, 1998
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Duane Reade Inc. Rock Bottom
-------------------- ---------------------
39 Weeks Ended Six Months Ended
September 26, July 31,
1998 1998 Adjustments Pro Forma
-------------------- --------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net sales $ 398,651 $ 114,938 $ 47,868 (b) $ 561,457
Cost of sales 296,172 84,920 34,718 (b) 419,207
4,037 (c)
(640)(d)
-------------------- --------------------- ---------------- ----------------
Gross profit 102,479 30,018 9,753 142,250
-------------------- --------------------- ---------------- ----------------
Selling, general & administrative expenses 63,687 27,669 (4,037)(c) 95,248
10,419 (e)
(2,490)(f)
Amortization 4,413 141 674 (g) 5,228
Depreciation 4,148 1,417 - 5,565
Store pre-opening expenses 3,008 - - 3,008
Restructuring costs - 382 (382)(h) -
-------------------- --------------------- ---------------- ----------------
75,256 29,609 4,184 109,049
-------------------- --------------------- ---------------- ----------------
Operating income 27,223 409 5,569 33,201
Interest expense, net 18,674 698 (698)(i) 23,764
5,090 (j)
-------------------- --------------------- ---------------- ----------------
Income (loss) before income taxes 8,549 (289) 1,177 9,437
Income taxes - (25) 25 (k) -
-------------------- --------------------- ---------------- ----------------
Income (loss) before extraordinary charge $ 8,549 $ (264) $ 1,152 $ 9,437
==================== ===================== ================ ================
Per Common Share - Basic
Income (loss) before extraordinary charge $ 0.54 $ 0.59
==================== ================
Weighted average common shares outstanding 15,936 15,936
==================== ================
Per Common Share - Diluted
Income (loss) before extraordinary charge $ 0.50 $ 0.55
==================== ================
Weighted average common shares outstanding 17,211 17,211
==================== ================
</TABLE>
11
<PAGE>
Duane Reade Inc.
Unaudited Pro Forma Consolidated Statement of Operations
Fifty-Two Weeks Ended December 27, 1997
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Duane Reade Inc. Rock Bottom
------------------ -----------------
52 Weeks Ended Year Ended
December 27, January 31,
1997 1998 Adjustments Pro Forma
------------------ ----------------- --------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 429,816 $ 227,931 $ -- $ 657,747
Cost of sales 322,340 164,703 5,650 (c) 491,793
(900) (d)
------------------ ----------------- --------------- -------------
Gross profit 107,476 63,228 (4,750) 165,954
------------------ ----------------- --------------- -------------
Selling, general & administrative expenses 65,414 56,117 (5,650) (c) 112,081
(3,800) (f)
Amortization 5,303 330 950 (g) 6,583
Depreciation 3,507 2,765 - 6,272
Store pre-opening expenses 767 131 - 898
Nonrecurring charges 12,726 - - 12,726
Restructuring charges - 1,550 (1,550) (h) -
Loss on abandonment of stores - 517 (517) (h) -
------------------ ----------------- --------------- -------------
87,717 61,410 (10,567) 138,560
------------------ ----------------- --------------- -------------
Operating income 19,759 1,818 5,817 27,394
Interest expense, net 34,473 1,360 (1,360) (i) 41,623
7,150 (j)
------------------ ----------------- --------------- -------------
Income (loss) before income taxes (14,714) 458 27 (14,229)
Income taxes - 61 (61) (k) -
------------------ ----------------- --------------- -------------
Net income (loss) $ (14,714) $ 397 $ 88 $ (14,229)
================== ================= =============== =============
Per Common Share - Basic and Diluted
Net income (loss) $ (0.92) $ (0.89)
================== =============
Weighted average common shares outstanding 15,936 15,936
================== =============
12
</TABLE>
<PAGE>
DUANE READE INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) In order to conform the reporting periods, sales, cost of sales, and
selling, general and administrative expenses for the 35 day period January
31,1998 of $21,300, $15,550 and $4,630, respectively, have been included
in the Pro forma Statements of Operations for both the 39 weeks ended
September 26, 1998 and the 52 weeks ended December 27, 1997.
(b) The pro forma adjustments represent Rock Bottom sales and cost of sales
for 35 day period January 31, 1998 and the six weeks ended September 11,
1998, assuming the transaction had occurred on December 29, 1996.
(c) The pro forma adjustments represent a reclassification of Rock Bottom
occupancy costs to cost of sales in order to conform Rock Bottom's
reported gross profit to the Company's historical presentation.
(d) The pro forma adjustments represent an elimination of redundant warehouse
rent and real estate taxes related to the Rock Bottom warehouse. Such
lease was not assumed as a part of this transaction.
(e) The pro forma adjustment represents Rock Bottom selling, general and
administrative expenses for the 35 day period ended January 31, 1998 and
the six weeks ended September 11, 1998, assuming the transaction had
occurred on December 29, 1996.
(f) The pro forma adjustments represent an elimination of the portion of Rock
Bottom administrative overhead that relates to headquarters rent and
salaries for employees not associated with the transaction for the 37
weeks ended September 11, 1998 and the 52 weeks ended December 27, 1997,
assuming the transaction had occurred on December 29, 1996.
(g) The pro forma adjustments represent amortization of goodwill and other
identifiable intangible assets for the 37 weeks ended September 11, 1998
and the 52 weeks ended December 27, 1997, assuming the transaction had
occurred on December 29, 1996.
(h) The pro forma adjustments represent an elimination of Rock Bottom
restructuring costs and loss on abandonment of stores for stores which
were not purchased by the Company for the six months ended July 31, 1998
and the year ended January 31, 1998.
(i) The pro forma adjustments represent an elimination of Rock Bottom interest
expense for the six months ended July 31, 1998 and the year ended January
31, 1998.
(j) The pro forma adjustments represent interest related to the $66 million in
additional term loans (representing the $64.9 million purchase price plus
fees and expenses directly attributable to the transaction), bearing
interest at 8.5% and amortization of deferred financing costs for the 37
weeks ended September 11, 1998 and the 52 weeks ended December 27, 1997. A
25 basis point (0.25%)
<PAGE>
increase or decrease in the assumed interest rate would result in a change
in interest expense of $124 for the 39 weeks ended September 26, 1998 and
$165 for the 52 weeks ended December 27, 1997.
(k) The pro forma adjustments represent the elimination of the Rock Bottom
income tax provisions due to the presumed utilization of the Company's NOL
carry forwards for the six months ended July 31, 1998 and the year ended
January 31, 1998, assuming the transaction had occurred on December 29,
1996.
<PAGE>
(c) EXHIBITS:
---------
**10.14 Amended and Restated Credit Agreement, dated as of September 11,
1998, among Duane Reade, Duane Reade Inc., DRI I Inc., various
financial institutions, as Lenders, DLJ Capital Funding, Inc., as
Syndication Agent, Fleet National Bank, as Administrative Agent,
and Credit Lyonnais New York Branch, as Documentation Agent.
**10.15 Amended and Restated Partnership Agreement, dated as of September
11, 1998, among Duane Reade Inc., DRI I Inc. and Fleet National
Bank, as Administrative Agent.
**10.16 Amended and Restated Borrower Security Agreement, dated as of
September 11, 1998, between Duane Reade and Fleet National Bank, as
Administrative Agent.
**10.17 Amended and Restated Holdings Pledge Agreement, dated as of
September 11, 1998 between Duane Reade Inc. and Fleet National
Bank, as Administrative Agent.
**10.18 Amendment Agreement to Credit Agreement, dated as of September 11,
1998, among Duane Reade, Duane Reade Inc., DRI I Inc., various
financial institutions as Lenders, DLJ Capital Funding, Inc., as
Syndication Agent, Fleet National Bank, as Administrative Agent,
and Credit Lyonnais New York Branch, as Documentation Agent.
23.1 Consent of Edward Isaacs & Company LLP.
*99.1 Press Release of the Company dated August 4, 1998.
**99.2 Press Release of the Company dated September 15, 1998.
- -----------------------
* Incorporated by reference from the Company's Current Report on Form 8-K,
dated August 7, 1998.
** Incorporated by reference from the Company's Current Report on Form 8-K,
dated September 24, 1998.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DUANE READE INC.
Date: November 23, 1998
By: /s/ William J. Tennant
---------------------------------
Name: William J. Tennant
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
DOC. NO. DOCUMENT DESCRIPTION
**10.14 Amended and Restated Credit Agreement, dated as of September 11,
1998, among Duane Reade, Duane Reade Inc., DRI I Inc., various
financial institutions, as Lenders, DLJ Capital Funding, Inc., as
Syndication Agent, Fleet National Bank, as Administrative Agent,
and Credit Lyonnais New York Branch, as Documentation Agent.
**10.15 Amended and Restated Partnership Agreement, dated as of September
11, 1998, among Duane Reade Inc., DRI I Inc. and Fleet National
Bank, as Administrative Agent.
**10.16 Amended and Restated Borrower Security Agreement, dated as of
September 11, 1998, between Duane Reade and Fleet National Bank,
as Administrative Agent.
**10.17 Amended and Restated Holdings Pledge Agreement, dated as of
September 11, 1998 between Duane Reade Inc. and Fleet National
Bank, as Administrative Agent.
**10.18 Amendment Agreement to Credit Agreement, dated as of September 11,
1998, among Duane Reade, Duane Reade Inc., DRI I Inc., various
financial institutions as Lenders, DLJ Capital Funding, Inc., as
Syndication Agent, Fleet National Bank, as Administrative Agent,
and Credit Lyonnais New York Branch, as Documentation Agent.
23.1 Consent of Edward Isaacs & Company LLP.
*99.1 Press Release of the Company dated August 4, 1998.
**99.2 Press Release of the Company dated September 15, 1998.
- -----------------------
* Incorporated by reference from the Company's Current Report on Form 8-K,
dated August 7, 1998.
** Incorporated by reference from the Company's Current Report on Form 8-K,
dated September 24, 1998.
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We hereby consent to the use in this current report on Form 8-K/A of our report
dated April 9, 1998 relating to the consolidated financial statements of Rock
Bottom Stores, Inc. as of January 31, 1998 and 1997 and for the years then
ended.
/s/ EDWARD ISAACS AND COMPANY LLP
New York, New York
November 20, 1998
