SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities and Exchange Act of 1934

 

For the quarterly period ended September 27, 2003.

Commission file number 333-41239

 

 

DUANE READE INC.

(Exact name of registrant as specified in its charter)

 

 

 

*  Guarantors with respect to the Company’s 2.1478% Senior Convertible Notes due 2022

 

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Name of each exchange on which registered
Common Stock, $.01 par value per share		New York Stock Exchange. Inc.

 

 

 

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  ý  No  o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in the Exchange Act Rule 12b-2): Yes  ý No  o

 

The number of shares of the Common Stock outstanding as of November 6, 2003: 24,037,742

 

 

INDEX

 

PART I – FINANCIAL INFORMATION
		ITEM 1. – FINANCIAL STATEMENTS
		Consolidated Statements of Operations (Unaudited) - For the 13 and 39 Weeks Ended September 27, 2003 and September 28, 2002
		Consolidated Balance Sheets As of September 27, 2003 (Unaudited) and December 28, 2002
		Consolidated Statements of Cash Flows (Unaudited) - For the 39 Weeks Ended September 27, 2003 and September 28, 2002
		Notes to Consolidated Financial Statements (Unaudited)
		ITEM 2. – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
		ITEM 3. – MARKET RISK
		ITEM 4. – CONTROLS AND PROCEDURES
PART II – OTHER INFORMATION
SIGNATURES

 

Forward-looking statements in our public filings or other public statements are subject to known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements include the information concerning our future financial performance, business strategy, projected plans and objectives. Statements preceded by, followed by or that otherwise include the words “believes”, “expects”, “anticipates”, “intends”, “projects”, “estimates”, “plans”, “may increase”, “may fluctuate” and similar expressions or future or conditional verbs such as “will”, “should”, “would”, “may”, “might” and “could” are generally forward-looking in nature and not historical facts. You should understand that the following important factors and assumptions could affect our future results and could cause actual results to differ materially from those expressed in such forward-looking statements:

 

•                  the competitive environment in the drugstore industry in general and in the metropolitan New York area;

 

•                  the continued efforts of health maintenance organizations, managed care organizations, pharmacy benefit management companies and other third party payers to reduce prescription reimbursement rates;

 

•                  the continued efforts of Federal, State and municipal government agencies to reduce Medicaid reimbursement rates, modify Medicare benefits and/or reduce prescription drug costs;

 

2

 

•                  the strength of the economy in general and the economic conditions in the metropolitan New York area, in particular, including changes in consumer purchasing power and/or spending patterns;

 

•                  changes in cost of goods and services;

 

•                  trends in the healthcare industry, including continued conversion of various prescription drugs to over-the-counter medications;

 

•                  changes in federal and state laws and regulations, including the potential impact of changes in regulations surrounding the importation of pharmaceuticals from foreign countries;

 

•                  liability and other claims asserted against us;

 

•                  changes in our operating strategy or development plans;

 

•                  our ability to attract, hire and retain qualified personnel, including our ability to attract qualified pharmacists;

 

•                  our significant indebtedness;

 

•                  interest rate fluctuations and changes in capital market conditions or other events affecting our ability to obtain necessary financing on favorable terms to fund the anticipated growth of our business;

 

•                  labor disturbances, including any resulting from the suspension or termination of our collective bargaining agreements;

 

•                  the continued impact of, or new occurrences of, terrorist attacks in the New York City metropolitan area;

 

•                  changes in our acquisition and capital expenditure plans;

 

•                  our ability to continue to secure suitable new store locations under acceptable lease terms;

 

•                  our ability to successfully implement and manage new computer systems and technologies;

 

•                  demographic changes; and

 

•                  other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission.

 

Other factors and assumptions not identified above were also involved in the derivation of these forward-looking statements, and the failure of such other assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. Most of these factors are difficult to predict accurately and are generally beyond our control.

 

You should consider the areas of risk described above in connection with any forward-looking statements that may be made by us generally. Except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless required by law. For any forward-looking statements contained in any document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

 

 

3

 

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

 

Duane Reade Inc.

Consolidated Statements of Operations (Unaudited)

(In thousands, except per share amounts)

 

		For the 13 Weeks Ended						For the 39 Weeks Ended
		September 27, 2003			September 28, 2002			September 27, 2003			September 28, 2002
Net sales		$	338,630		$	312,818		$	1,027,398		$	943,376
Cost of sales		266,520			240,047			808,124			732,669
Gross profit		72,110			72,771			219,274			210,707
Selling, general & administrative expenses		56,296			48,921			167,130			145,078
Insurance recovery		—			—			—			(9,378		)
Depreciation and amortization		8,162			6,874			23,874			20,377
Store pre-opening expenses		154			265			798			1,610
		64,612			56,060			191,802			157,687
Operating income		7,498			16,711			27,472			53,020
Interest expense, net		3,386			3,706			10,452			14,375
Debt extinguishment		707			325			812			13,432
Income before income taxes and cumulative effect of  accounting change		3,405			12,680			16,208			25,213
Income taxes		1,499			4,896			7,132			9,837
Income before cumulative effect of accounting change		1,906			7,784			9,076			15,376
Cumulative effect of accounting change,  net of income taxes		—			—			—			(9,262		)
Net income		$	1,906		$	7,784		$	9,076		$	6,114
Per Common Share – Basic
Income before cumulative effect of accounting change		$	0.08		$	0.32		$	0.38		$	0.65
Cumulative effect of accounting change,  net of income taxes		—			—			—			(0.39		)
Net income