UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended April 29, 2004
| ¨ | 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 1-8978
LONGS DRUG STORES CORPORATION
(Exact name of registrant as specified in its charter)
| Maryland | 68-0048627 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 141 North Civic Drive Walnut Creek, California |
94596 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (925) 937-1170
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
There were 37,310,044 shares of common stock outstanding as of May 27, 2004.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements relate to, among other things, pharmacy and front-end sales and gross profits, cost reductions, changes in supply chain practices, workers’ compensation costs, income tax rates, liquidity and cash requirements, working capital reductions, the number of store openings, closures and remodels, the level of capital expenditures, contractual commitments, third-party sales as a percentage of total pharmacy sales, and our effective tax rate and are indicated by words or phrases such as “continuing,” “expects,” “estimates,” “believes,” “plans,” “anticipates,” “will” and other similar words or phrases.
These forward-looking statements are based on our current plans and expectations and involve risks and uncertainties that could cause actual events and results to vary materially from those included in or contemplated by forward-looking statements we make. These risks and uncertainties include, but are not limited to, those set forth below:
| • | Changes in economic conditions generally or in the markets we serve; |
| • | Economic softness and unemployment; |
| • | Consumer preferences and spending patterns; |
| • | Competition from other drugstore chains, supermarkets, mass merchandisers, discount retailers, on-line retailers, other retailers and mail order companies; |
| • | The frequency and rate of introduction of successful new prescription drugs; |
| • | The introduction of lower priced generic drugs; |
| • | The efforts of third-party payers to reduce prescription drug costs; |
| • | The impact of rising gasoline prices on consumer spending and the economy in general; |
| • | The effects of war and terrorism on economic conditions and consumer spending patterns; |
| • | Continued good relationships with our employees; |
| • | Labor unrest in the same or competitive industries; |
| • | The impact of rising workers’ compensation, health and welfare and energy costs on our operations; |
| • | The success of planned advertising and merchandising strategies; |
| • | Interest rate fluctuations and changes in capital market conditions or other events affecting our ability to obtain necessary financing on favorable terms; |
| • | Consumer reaction to our remodeled stores; |
| • | Our relationships with our suppliers; |
| • | Our ability to obtain adequate insurance coverage; |
| • | Our ability to hire and retain pharmacists and other store and management personnel; |
| • | The availability and cost of real estate for new stores; |
| • | The impact of pending or future litigation; |
| • | The impact of state and federal budget deficits on government healthcare spending and on economic conditions generally; |
| • | The impact of Medicare, Medi-Cal and similar government-sponsored health plans on our pharmacy sales and profitability; |
| • | The effectiveness of workers’ compensation reform efforts, especially in California; |
| • | Changes in state or federal legislation or regulations affecting our business; |
| • | Our ability to execute our previously announced initiatives; |
| • | Changes in internal business processes associated with supply chain and other initiatives; |
| • | Our ability to successfully implement new computer systems and technology, including a perpetual inventory system; |
| • | Disruption in our supply chain due to system conversions; |
| • | Our ability to improve our purchasing of front-end and pharmacy products; |
| • | Accounting policies and practices; and |
| • | Other factors discussed in this quarterly report under “Risk Factors” and elsewhere or in any of our other SEC filings. |
In addition, because we lack a perpetual inventory system, our ability to accurately forecast and track our gross profits and inventory levels during periods between our quarterly physical inventories is limited. Therefore, our actual gross profits and inventory levels may vary materially from the gross profits and inventory levels included in or contemplated by forward-looking statements we make.
We assume no obligation to update our forward-looking statements to reflect subsequent events or circumstances.
| Page | ||||
| PART I |
||||
| Item 1 |
1 | |||
| Item 2 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
10 | ||
| Item 3 |
17 | |||
| Item 4 |
17 | |||
| PART II |
||||
| Item 1 |
18 | |||
| Item 2 |
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
18 | ||
| Item 6 |
18 | |||
| 20 | ||||
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
LONGS DRUG STORES CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (unaudited)
| For the 13 weeks ended |
||||||||
| April 29, 2004 |
May 1, 2003 |
|||||||
| Thousands Except Per Share Amounts | ||||||||
| Sales |
$ | 1,159,696 | $ | 1,103,130 | ||||
| Cost of sales |
866,739 | 818,023 | ||||||
| Gross profit |
292,957 | 285,107 | ||||||
| Operating and administrative expenses |
253,023 | 250,520 | ||||||
| Depreciation and amortization |
21,517 | 21,796 | ||||||
| Operating income |
18,417 | 12,791 | ||||||
| Interest expense |
3,750 | 3,559 | ||||||
| Interest income |
(152 | ) | (115 | ) | ||||
| Income before income taxes |
14,819 | 9,347 | ||||||
| Income taxes |
5,572 | 3,514 | ||||||
| Net income |
$ | 9,247 | $ | 5,833 | ||||
| Earnings per common share: |
||||||||
| Basic |
$ | 0.25 | $ | 0.16 | ||||
| Diluted |
0.25 | 0.16 | ||||||
| Dividends per common share |
$ | 0.14 | $ | 0.14 | ||||
| Weighted average number of shares outstanding: |
||||||||
| Basic |
37,226 | 37,449 | ||||||
| Diluted |
37,450 | 37,601 | ||||||
See notes to condensed consolidated financial statements.
1
LONGS DRUG STORES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
| April 29, 2004 |
May 1, 2003 |
January 29, 2004 |
||||||||||
| Thousands Except Share Information | ||||||||||||
| ASSETS |
||||||||||||
| Current Assets: |
||||||||||||
| Cash and cash equivalents |
$ | 54,757 | $ | 48,823 | $ | 40,222 | ||||||
| Pharmacy and other receivables, net |
156,444 | 133,143 | 163,950 | |||||||||
| Merchandise inventories, net |
466,627 | 428,882 | 477,122 | |||||||||
| Deferred income taxes |
41,660 | 30,821 | 41,848 | |||||||||
| Prepaid expenses and other current assets |
11,300 | 9,165 | 13,373 | |||||||||
| Total current assets |
730,788 | 650,834 | 736,515 | |||||||||
| Property: |
||||||||||||
| Land |
107,175 | 106,741 | 106,326 | |||||||||
| Buildings and leasehold improvements |
552,798 | 533,196 | 547,128 | |||||||||
| Equipment and fixtures |
544,418 | 500,307 | 531,855 | |||||||||
| Total |
1,204,391 | 1,140,244 | 1,185,309 | |||||||||
| Less accumulated depreciation |
590,128 | 536,338 | 571,889 | |||||||||
| Property, net |
614,263 | 603,906 | 613,420 | |||||||||
| Goodwill |
82,085 | 82,085 | 82,085 | |||||||||
| Intangible assets, net |
6,821 | 5,379 | 6,428 | |||||||||
| Other non-current assets |
3,551 | 5,607 | 3,664 | |||||||||
| Total |
$ | 1,437,508 | $ | 1,347,811 | $ | 1,442,112 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||
| Current Liabilities: |
||||||||||||
| Accounts payable and accrued expenses |
$ | 305,694 | $ | 283,592 | $ | 296,741 | ||||||
| Employee compensation and benefits |
112,845 | 92,149 | 109,386 | |||||||||
| Taxes payable |
47,353 | 21,383 | 64,941 | |||||||||
| Current maturities of debt |
101,870 | 5,025 | 91,870 | |||||||||
| Total current liabilities |
567,762 | 402,149 | 562,938 | |||||||||
| Long-term debt |
109,688 | 211,558 | 114,558 | |||||||||
| Deferred income taxes and other long-term liabilities |
47,491 | 34,368 | 50,695 | |||||||||
| Commitments and Contingencies |
||||||||||||
| Stockholders’ Equity: |
||||||||||||
| Common stock: par value $0.50 per share, 120,000,000 shares authorized, 37,258,000, 37,308,000 and 37,544,000 shares outstanding |
18,629 | 18,654 | 18,772 | |||||||||
| Additional capital |
170,016 | 166,012 | 170,321 | |||||||||
| Unearned compensation |
(2,106 | ) | (4,071 | ) | (2,525 | ) | ||||||
| Retained earnings |
526,028 | 519,141 | 527,353 | |||||||||
| Total stockholders’ equity |
712,567 | 699,736 | 713,921 | |||||||||
| Total |
$ | 1,437,508 | $ | 1,347,811 | $ | 1,442,112 | ||||||
See notes to condensed consolidated financial statements.
2
LONGS DRUG STORES CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (unaudited)
| For the 13 weeks ended |
||||||||
| April 29, 2004 |
May 1, 2003 |
|||||||
| Thousands | ||||||||
| Operating Activities: |
||||||||
| Net income |
$ | 9,247 | $ | 5,833 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
21,517 | 21,796 | ||||||
| Deferred income taxes and other |
(3,369 | ) | 1,536 | |||||
| Stock awards and options, net |
(106 | ) | 65 | |||||
| Common stock contribution to benefit plan |
2,004 | 2,679 | ||||||
| Changes in assets and liabilities: |
||||||||
| Pharmacy and other receivables |
7,506 | 2,467 | ||||||
| Merchandise inventories |
10,495 | 14,553 | ||||||
| Other assets |
2,186 | 2,395 | ||||||
| Current liabilities and other |
(5,322 | ) | (20,626 | ) | ||||
| Net cash provided by operating activities |
44,158 | 30,698 | ||||||
| Investing Activities: |
||||||||
| Capital expenditures and acquisitions |
(23,588 | ) | (31,833 | ) | ||||
| Proceeds from property dispositions |
1,334 | 2,268 | ||||||
| Net cash used in investing activities |
(22,254 | ) | (29,565 | ) | ||||
| Financing Activities: |
||||||||
| Proceeds from long-term borrowings |
10,000 | 35,000 | ||||||
| Repayments of long-term borrowings |
(4,870 | ) | (2,194 | ) | ||||
| Repurchase of common stock |
(7,236 | ) | (20,023 | ) | ||||
| Dividend payments |
(5,263 | ) | (5,288 | ) | ||||
| Net cash provided by (used in) financing activities |
||||||||