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

 

 

 

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

 

 

(212) 273-5700

(Registrant’s telephone number, including area code)

 

 

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 August 4, 2004:  24,538,799

 

 

INDEX

 

PART I – FINANCIAL INFORMATION
	ITEM 1. – FINANCIAL STATEMENTS
	Consolidated Statements of Income (Unaudited) - For the 13 and 26 Weeks Ended June 26, 2004 and June 28, 2003
	Consolidated Balance Sheets As of June 26, 2004 (Unaudited) and December 27, 2003
	Consolidated Statements of Cash Flows (Unaudited) - For the 26 Weeks Ended June 26, 2004 and June 28, 2003
	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

 

This and other of our public filings or public statements contain forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995, that involve a number of risks and uncertainties. These statements relate to future events or our future financial performance with respect to our financial condition, results of operations, business plans and strategies, operating efficiencies or synergies, competitive positions, growth opportunities for existing products such as private label merchandise, plans and objectives of management, capital expenditures, growth and maturation of our stores and other matters. These statements involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “pro forma,” “seek,” or “continue” or the negative of those terms or other comparable terminology. These statements are only predictions and such expectations may prove to be incorrect. Some of the things that could cause our actual results to differ substantially from our expectations are:

 

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

 

•                                          the ability to open and operate new stores on a profitable basis and to increase sales in existing stores;

 

•                                          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;

 

•                                          our significant indebtedness;

 

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

 

•                                          changes in the cost of goods and services;

 

•                                          trends in the healthcare industry, including continued conversion of various prescription drugs to over-the-counter medications and the increasing market share on the part of internet-based and mail-order-based providers;

 

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

 

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

 

•                                          liability and other claims asserted against us including the items discussed under Part II, Item 1-Legal Proceedings;

 

•                                          changes in our operating strategy or development plans;

 

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

 

•                                          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;

 

•                                          the outcome of the legal proceedings that have been instituted against us and others following announcement of our merger agreement with Duane Reade Acquisition Corp. and Duane Reade Shareholders, LLC;

 

•                                          the continued impact of, or new occurrences of, terrorist attacks in the New York greater metropolitan area and any actions that may be taken by federal, state or municipal authorities in response to or in anticipation of such occurrences;

 

•                                          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;

 

•                                          our ability to limit fraud and shrink;

 

•                                          demographic changes; and

 

•                                          other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission (the “SEC”).

 

We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this filing. We do not, nor does any other person, assume responsibility for the accuracy and completeness of those statements.

 

We caution you that the areas of risk described above may not be exhaustive. We operate in a continually changing business environment, and new risks emerge from time to time. Management cannot predict such new risks, nor can it assess the impact, if any, of such risks on our businesses or the extent to which any risk or combination of risks may cause actual results to differ materially from those projected in any forward-looking statements. In light of these risks, uncertainties and assumptions, you should keep in mind that any forward-looking statement made in this filing might not occur.

 

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PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

 

Duane Reade Inc.

Consolidated Statements of Income (Unaudited)

(In thousands, except per share amounts)

 

		For the 13 Weeks Ended						For the 26 Weeks Ended
		June 26, 2004			June 28, 2003			June 26, 2004			June 28, 2003
Net sales		$	365,206		$	355,146		$	714,756		$	688,768
Cost of sales		285,018			278,171			558,802			541,604
Gross profit		80,188			76,975			155,954			147,164
Selling, general & administrative expenses		59,924			57,260			118,567			110,834
Labor contingency expense		1,100			—			2,200			—
Transaction expenses		1,516			—			2,619			—
Depreciation and amortization		9,239			8,154			18,305			15,712
Store pre-opening expenses		209			229			365			644
		71,988			65,643			142,056			127,190
Operating income		8,200			11,332			13,898			19,974
Interest expense, net		3,257			3,549			6,694			7,066
Debt extinguishment		—			—			—			105
Income before income taxes		4,943			7,783			7,204			12,803
Income taxes		1,976			3,725			2,880			5,633
Net income		$	2,967		$	4,058		$	4,324		$	7,170
Per Common Share – Basic
Net income		$	0.12		$	0.17		$	0.18		$	0.30
Weighted Average Common Shares Outstanding		24,482