-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TFCQj1UQPmTjZZNDtXaqnvWNJuVk1KNfnEKWb1fIJUi1awHY0wwUsdLEKscI2hVJ kkeyP2RVg6DnrOUV+pz1ww== 0000912057-96-006709.txt : 19960422 0000912057-96-006709.hdr.sgml : 19960422 ACCESSION NUMBER: 0000912057-96-006709 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960125 FILED AS OF DATE: 19960419 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LONGS DRUG STORES CORP CENTRAL INDEX KEY: 0000764762 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 680048627 STATE OF INCORPORATION: MD FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08978 FILM NUMBER: 96548712 BUSINESS ADDRESS: STREET 1: 141 N CIVIC DR CITY: WALNUT CREEK STATE: CA ZIP: 94596 BUSINESS PHONE: 4159371170 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K - -------------------------------------------------------------------------------- (MARK ONE) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended January 25, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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 (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 141 North Civic Drive Walnut Creek, California 94596 - ----------------------------------- -------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code: (510) 937-1170 -------------- Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ----------------------------------- -------------------- Common Stock New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None - -------------------------------------------------------------------------------- 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 ----- ------- The Exhibit Index is located on page 4 of this form. (Cover page 1 of 2 pages) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by non-affiliates of the registrant as computed by the price of the registrant's shares on the New York Stock Exchange at the close of business on April 9, 1996, was approximately $902,896,434. There were 19,898,544 shares of common stock outstanding as of April 9, 1996. DOCUMENTS INCORPORATED BY REFERENCE The Longs Drug Stores Corporation Annual Report to Shareholders for the year ended January 25, 1996 (hereinafter referred to as the Annual Report), has been incorporated by reference into: Part I - Items 1 and 3 Part II - Items 5, 6, 7, and 8 Part IV - Item 14(a)(1) The definitive proxy statement dated April 19, 1996, as filed with the Commission on April 18, 1996, involving the election of directors, has been incorporated by reference into Part III, Items 10, 11, 12, and 13. (Cover page 2 of 2 pages) PART I ITEM 1. BUSINESS Longs Drug Stores is one of the largest drug store chains in North America serving the American West. The Company's stores are located in California, Colorado, Hawaii, and Nevada. Pharmacy is the cornerstone of our business, accounting for over 30% of our sales. Complementing the pharmacy business are the principal categories of photo, cosmetics, greeting cards, over-the-counter health care products, and the newly-added convenience foods. The Company's decentralized philosophy allows store managers to enhance the product mix of their store based on customer preference in the communities they serve. Longs sells nationally advertised name-brand merchandise. Customers are provided extra value with items sold under Longs' private label. The Company's business is highly competitive. It competes in the retail drug industry with local and national chains as well as with independent merchants. Merchandise of the kind sold by the Company can be found in variety stores, discount stores, supermarkets, and other retail facilities. Price, quality of goods and services, product mix, and convenience to the customer are a few principal elements of competition. Our business is seasonal, peaking in the fourth quarter due to the Thanksgiving and Christmas holidays and cold and flu season. Seasonality is consistent with our competitors in the retail drug industry. The remainder of the information required by this item is contained in the Annual Report under the headings "Management's Discussion and Analysis" (pages 10-11), "Significant Accounting Policies" and "Employee Compensation and Benefits" (page 16), and "Acquisition of Hawaii Stores" (page 18). ITEM 2. PROPERTIES As of January 25, 1996, Longs operates 328 stores; 284 in California, 32 in Hawaii, and 6 each in Colorado and Nevada. Our stores vary in size, with the majority ranging from 15,000 to 25,000 square feet, approximately 68% of which is devoted to selling space. The average size of the stores opened this past fiscal year is 23,000 square feet. The general office and 118 of our stores are Company-owned buildings on Company-owned land; 41 stores are Company-owned buildings on leased land; and 169 are totally leased. The Company's properties are in satisfactory condition and suitable to meet its needs. ITEM 3. LEGAL PROCEEDINGS The Registrant is not a party to any material pending legal proceedings other than described in the Annual Report under the heading "Settlement of Lawsuit" (page 18). ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS There were no matters submitted to a vote of stockholders during the fourth quarter period covered by this report. -1- EXECUTIVE OFFICERS OF THE REGISTRANT The following persons are now executive officers of the Company and the Board of Directors intends to reelect them to their current offices. POSITION HELD NAME AGE PRIMARY EXECUTIVE POSITION WITH REGISTRANT SINCE(1)(2) R. M. Long 57 Chairman of the Board and 1991 Chief Executive Officer(3) 1977 S. D. Roath 55 President(3) 1991 B. M. Brandon 57 Senior Vice President 1988 G. A. Duey 63 Senior Vice President 1988 D. J. Fong 47 Senior Vice President, Pharmacy 1995 O. D. Jones 57 Senior Vice President, Properties, 1975 and Secretary R. A. Plomgren 62 Senior Vice President, Development(3) 1976 G. H. Saito 51 Senior Vice President, District Manager(3) 1995 D. R. Wilson 54 Senior Vice President, Marketing 1988 G. L. White 55 Vice President, Controller, 1988 and Secretary C. E. Selland 39 Treasurer, Assistant Secretary 1994 - -------------------------------------------------------------------------------- (1) Each officer is elected for a one-year term. (2) All of the executive officers of the Company have been employed by the Company for at least the past five years in executive capacities or in related areas of responsibility. (3) Also serves as a Director of the Company. -2- PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The principal market on which the Company's common stock is traded is the New York Stock Exchange under the symbol "LDG". The additional information required by this item is contained in the Annual Report under the headings "Statements of Consolidated Stockholders' Equity" (page 15), "Stockholders' Equity" (page 17), and "Quarterly Financial Data (Unaudited)" (page 18). Such information is hereby incorporated by reference and filed herewith. ITEM 6. SELECTED FINANCIAL DATA Information required by this item is contained in the Annual Report under the heading "Management's Discussion and Analysis" (pages 10-11), "Five Year Selected Financial Data" (page 18), and "Selected Financial Data" (page 11). Such information is hereby incorporated by reference and filed herewith. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information required by this item is contained in the Annual Report under the headings "Message to Shareholders" (pages 3-9) and "Management's Discussion and Analysis" (pages 10-11). Such information is hereby incorporated by reference and filed herewith. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information required by this item is contained in the Annual Report (pages 12- 18). Such information is hereby incorporated by reference and filed herewith. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required by this item with respect to directors is contained in a definitive proxy statement dated April 19, 1996, as filed with the Securities and Exchange Commission on April 18, 1996. Such information is hereby incorporated by reference. Certain information relating to executive officers of the Company is reported in Part I, Item 4 (page 2) of this report, entitled "Executive Officers of the Registrant." Information regarding compliance with Section 16 of the Securities and Exchange Act of 1934 is set forth in the definite proxy statement dated April 19, 1996, as filed with the commission on April 18, 1996, and is hereby incorporated by reference. Items 11, 12, and 13 are omitted since the Company filed on April 18, 1996, with the Securities and Exchange Commission a definitive proxy statement dated April 19, 1996, involving the election of directors, for the Annual Meeting on May 21, 1996. Such information is hereby incorporated by reference. -3- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The following financial statements and independent auditors' report appearing in the Annual Report on pages 12 through 18 are incorporated herein by reference: Independent Auditors' Report. Statements of Consolidated Income for the fiscal years ended January 25,1996, January 26, 1995, and January 27, 1994. Consolidated Balance Sheets as of January 25, 1996, and January 26, 1995. Statements of Consolidated Cash Flows for the fiscal years ended January 25, 1996, January 26, 1995, and January 27, 1994. Statements of Consolidated Stockholders' Equity for the fiscal years ended January 25, 1996, January 26, 1995, and January 27, 1994. Notes to Consolidated Financial Statements. (a)(2) Not applicable. (a)(3) EXHIBITS - -------------------------------------------------------------------------------- Exhibit No. 3. Articles of Incorporation and By-Laws a. A copy of the Articles of Incorporation and By-Laws of Longs Drug Stores Corporation is incorporated herein by reference as previously filed with the Commission on March 18, 1985, as Exhibit 3 to Form S-14, Registration No. 2-96486. 10. Material Contracts a. Agreement for terminal benefits in the event of uninvited change in corporate control of Longs Drug Stores California, Inc., is incorporated herein by reference as previously filed with the Commission on April 28, 1986, as Exhibit 10f to Form 10-K. b. A copy of the Rights Agreement of Longs Drug Stores Corporation dated August 19, 1986, is incorporated herein by reference as previously filed with the Commission on August 21, 1986, as Exhibits 1 and 2 to Form 8-A. -4- Exhibit Page No.: Number c. A copy of the Long Term Incentive Plan of 1987 of Longs Drug Stores Corporation is incorporated herein by reference as previously filed with the Commission on March 13, 1987, on Form S-8, Registration No. 33-12653. d. A copy of the undertakings of Longs Drug Stores Corporation is incorporated herein by reference as previously filed with the Commission on April 10, 1987, into Form S-8, Registration No. 2-97578. e. A copy of the First Amendment to Rights Agreement of Longs Drug Stores Corporation dated November 15, 1988, is incorporated herein by reference as previously filed with the Commission on December 1, 1988, as Exhibit 1 to Form 8-K. f. A copy of the Note Purchase Agreement of Longs Drug Stores California, Inc., dated April 28, 1989, is incorporated herein by reference as previously filed with the Commission on April 18, 1990, as Exhibit 10n to Form 10-K. g. A copy of the Proposal to acquire Bill's Drugs, Inc. is incorporated herein by reference as previously filed with the Commission on August 6, 1993, on Form S-4, Registration No. 033-49935. h. A copy of the 1995 Long-Term Incentive Plan of Longs Drug Stores Corporation is incorporated herein by reference as previously filed with the Commission on August 5, 1994, on Form S-8, Registration No. 033-54959. i. A copy of the Longs Drug Stores Corporation Deferred Compensation Plan of 1995 is incorporated herein by reference as previously filed with the Commission on June 6, 1995, on Form S-8, Registration No. 033-60005. 13. Annual Report..........................................(Enclosed) 21. Subsidiary of the Registrant - Longs Drug Stores California, Inc., a California Corporation. 23. Consent of Auditors a. Independent Auditors' Consent.......................... 9 27. Financial Data Schedule (b) REPORTS ON FORM 8-K There have been no reports on Form 8-K filed during the quarter ended January 25, 1996. -5- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. LONGS DRUG STORES CORPORATION ------------------------------------------ (REGISTRANT) Date April 19, 1996 /s/ G. L. White ------------------------- ------------------------------------------ (G. L. White) Vice President - Controller (PRINCIPAL ACCOUNTING OFFICER) Date April 19, 1996 /s/ C. E. Selland ------------------------- ------------------------------------------ (C. E. Selland) Treasurer (PRINCIPAL FINANCIAL OFFICER) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been duly signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date Signature ---- --------- April 19, 1996 By /s/ R. M. Long ------------------------- ------------------------------------------ (R. M. Long) Chairman of the Board Chief Executive Officer and Director April 19, 1996 By /s/ S. D. Roath ------------------------- ------------------------------------------ (S. D. Roath) President and Director -6- Date Signature ---- --------- April 19, 1996 By /s/ R. M. Brooks ------------------------- ------------------------------------------ (R. M. Brooks) Director April 19, 1996 By /s/ W. G. Combs ------------------------- ------------------------------------------ (W. G. Combs) Retired Vice President and Director April 19, 1996 By /s/ D. G. DeSchane ------------------------- ------------------------------------------ (D. G. DeSchane) Director April 19, 1996 By /s/ E. E. Johnston ------------------------- ------------------------------------------ (E. E. Johnston) Director April 19, 1996 By /s/ Mary S. Metz ------------------------- ------------------------------------------ (Mary S. Metz) Director April 19, 1996 By /s/ R. A. Plomgren ------------------------- ------------------------------------------ (R. A. Plomgren) Senior Vice President - Development and Director April 19, 1996 By /s/ H. R. Somerset ------------------------- ------------------------------------------ (H. R. Somerset) Director April 19, 1996 By /s/ T. R. Sweeney ------------------------- ------------------------------------------ (T. R. Sweeney) Director April 19, 1996 By /s/ F. E. Trotter ------------------------- ------------------------------------------ (F. E. Trotter) Director -7- Date Signature ---- --------- April 19, 1996 By /s/ D. L. Sorby, ------------------------- ------------------------------------------ (D. L. Sorby, Ph.D.) Director April 19, 1996 By /s/ G. H. Saito ------------------------- ------------------------------------------ (G. H. Saito) Director -8- EX-13 2 EXHIBIT 13 LONGS DRUGS 1996 ANNUAL REPORT [PHOTO] Picture of a group of store managers at a volleyball match THE YEAR OF TEAM ACCOMPLISHMENTS LONGS DRUGS COMPANY PROFILE FINANCIAL HIGHLIGHTS (MILLIONS EXCEPT PER SHARE)
1996 1995 - -------------------------------------------------------------------------------- SALES $2,644 $2,558 - -------------------------------------------------------------------------------- NET INCOME(*) 46 49 - -------------------------------------------------------------------------------- EARNINGS PER SHARE(*) 2.29 2.35 - -------------------------------------------------------------------------------- TOTAL ASSETS 854 828 - -------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY 523 524 - -------------------------------------------------------------------------------- RETURN ON AVERAGE STOCKHOLDERS' EQUITY 8.8% 9.5% - -------------------------------------------------------------------------------- NUMBER OF STORES AT YEAR END 328 317 - -------------------------------------------------------------------------------- SALES SQUARE FOOTAGE AT YEAR END 5.2 5.1 - --------------------------------------------------------------------------------
(*) FISCAL 1996 INCLUDES A ONE-TIME $14 MILLION CHANRGE FOR THE SETTLEMENT OF A LAWSUIT, REDUCING AFTER-TAX NET INCOME BY $8.4 MILLION, OR $.42 PER SHARE. A COMMITMENT TO THE TEAM TEAM, INNOVATION, AND HEIGHTENED PERFORMANCE ACCURATELY DESCRIBE LONGS STORES AND THE SPIRIT OF LONGS PEOPLE. LONGS POWERFUL GROUP OF EMPLOYEES DELIVERED A TURNAROUND YEAR FOR THE COMPANY AND SOLIDIFIED LONGS PRESENCE IN VIRTUALLY EVERY MAJOR MARKET WE SERVE IN CALIFORNIA, HAWAII, NEVADA AND COLORADO. AS ONE OF THE LARGEST DRUGSTORE CHAINS IN NORTH AMERICA, LONGS IS AMONG THE BEST IN RETAILING. SERVICE, VALUE, CREATIVE THOUGHT AND A COMPETITIVE SPIRIT ARE HALLMARKS OF OUR OPERATION. SALES (Billions)
1992 1993 1994 1995 1996 ------------------------------------- $2.37 $2.48 $2.50 $2.56 $2.64
[GRAPH] Financial graph depicting sales growth for five years (-- Cover- This group of store managers celebrating victory after a competitive match is representative of the spirit and success enjoyed this past year by our entire team of Longs employees. It was a year of significant team accomplishments. 2 MESSAGE TO SHAREHOLDERS "WE EXPRESS PRIDE IN THE TEAM WE HAVE ASSEMBLED, AND WE ARE PROUD OF OUR YEAR OF ACCOMPLISHMENTS" TEAM [PHOTO] Picture of Bob Long and Steve Roath (left) Bob Long - Chairman of the Board and Chief Executive Officer (right) Steve Roath, President Highlighted by healthy sales gains, improved margins and strong earnings, fiscal 1996 was a successful turnaround year for Longs. These achievements reflect the teamwork of our 16,000 employees who have successfully implemented the strategic initiatives we've pursued over the past two years -- from strengthening our core pharmacy business and redefining the role of our marketing department to reducing our merchandise acquisition cost and increasing our use of technology to improve service and productivity. As a result of these initiatives, Longs is a much stronger company today with a solid foundation of outstanding employees, well-located stores and a popular, well-differentiated merchandising strategy on which to build. STRONG FINANCIAL RESULTS This letter briefly reviews our financial results for the fiscal year ended January 25, 1996. We began the year by setting an ambitious objective of reaching $96 million in pre-tax, pre-LIFO earnings. We ended the year having attained this goal. While reported net income for the year was down slightly to $46.2 million, or $2.29 per share, our results include a one-time pre-tax $14.0 million charge for settlement of a lawsuit, as described in the Notes to Consolidated Financial Statements. Without this charge, our net earnings would have increased to $54.6 million in fiscal 1996, a 12.1% gain. Our improved profitability reflects greater productivity throughout Longs, a lower cost of merchandise and continued cost containment. 3 MESSAGE TO SHAREHOLDERS WORKING TOGETHER [PHOTO] A Pharmacist talking with a patient in a consultation area Pharmacy consultation- --) We configure our new pharmacies to bring the parmacist closer to the patient. Our consultation areas provide an appropriate space for Longs pharmacists to review dispensed medication with their patients. Sales also showed solid gains in fiscal 1996, with total sales up 3.4%, reflecting the fifteen new stores we acquired or opened, the closing of four stores, and a modest 0.7% increase in same store sales. We are especially encouraged by the nearly 10.7% growth in pharmacy sales. ENHANCED MARKETING SUPPORT At the heart of our marketing and merchandising philosophy is our commitment to exceeding customers' expectations for service, selection, convenience and value every time they visit a Longs Drug Store. This commitment has guided Longs since our founding 58 years ago and remains a cornerstone of our business today. We are refining our marketing strategy as part of our redefinition of the marketing function and our managers are doing an excellent job of adapting and implementing our new tactics at the store level. In the past twelve months, we have established chainwide pricing strategies, enhanced our advertising presence and begun implementing category management -- an important change whereby our corporate marketing experts assist the stores in managing the purchase and merchandising of core categories of the products we sell. The result is smarter, more cost-effective buying, better merchandising and increased store-level productivity. Based on the success of category management thus far, we have accelerated its implementation and by the end of the year it will encompass more than half of the general merchandise in our stores. Currently 22 plan-o-grams are in place in our stores with close to 60 anticipated within the year. Plan-o-grams are fact based merchandise models. Convenience foods has recently joined pharmacy, photo, and cosmetics as a core category. A consistently organized presentation of food, beyond our normal promotional mix, will strengthen customers' views of Longs as a convenient destination for staple foods including dairy, bakery and frozen foods. A SUPERIOR PHARMACY Pharmacy continues to be our core business, representing 32% of fiscal 1996 sales. With the objective of enhancing this critical part of our operation -- particularly in light of the external 4 MOVING FORWARD pressures on profit margins and increasing customer demand for service -- we are creating a new, better Longs pharmacy for the 1990s and beyond. In the rapidly changing world of health care, we will continue to strike a balance between optimum efficiency and higher levels of patient service, a balance necessary for the growth of our pharmacy business. While our service levels are among the highest in drug retailing, we are taking steps to raise them even higher. By making our pharmacists more accessible to patients, shortening wait times and reducing the average cost of filling prescriptions, we are developing a superior pharmacy for our customers. We are also evaluating ideas to improve the work flow and physical design of our pharmacies as well as new and expanded use of technology. One way that we are positioning the Longs pharmacy as a valuable link in the health care delivery system is with Integrated Health Concepts (IHC), a wholly- owned subsidiary. IHC will market pharmacy services to employer groups such as school districts and hospitals, and it will develop and market services to HMOs and other healthcare large providers. For Longs, this pharmacy benefit management company should provide opportunities to offset shrinking third party margins. IHC allows us to be the manager rather than the managed. Technology is playing an important role in strengthening our pharmacy operations. For example, 90% of our pharmaceuticals are now re-ordered based upon sales activity using our new Pharmacy Replenishment Order system. TRIP ASSURANCE "TRIP ASSURANCE LIES AT THE HEART OF OUR MARKETING AND MERCHANDISING PHILOSOPHY." Convenience drives and motivates today's customer. Customers view shopping as a chore not a recreational activity as in years past. Customers in the '90s seek out those stores that consistently exceed their expectations. Today's customer selects a drug retailer that they trust to carry the kind of merchandise they would expect to find in a drug store. They want the merchandise to be fresh, in stock, and easy to find. Customers expect items sold in a service department like pharmacy or cosmetics to be dispensed by knowledgeable and helpful people. Today's customer wants to get in and out of the store quickly and to make solid, intelligent buying decisions. Exceeding all of these expectations identifies a retailer that is trusted, consistent and one which rarely disappoints. That is why Trip Assurance lies at the heart of our marketing and merchandising philosophy. [PHOTO] A customer at a check-out stand buying merchandise (-- Customer Service Audits Upgrading our customer service is a critical aspect of our PASSPORT TO THE FUTURE program. "Mystery Shoppers" audit the overall service offering in all of our stores as part of an ongoing measurement of how well we deliver on our service standards. 5 We are also evaluating a new pharmacy computer system that will further improve our efficiency and responsiveness. By enabling our well trained professionals to spend more time with their customers patients, this new system will also help shift the emphasis in our pharmacies from one of order fulfillment to health maintenance. TECHNOLOGY -- A STRATEGIC ASSET We are applying the productivity and service-enhancing power of technology not only in our pharmacies, but throughout our Company as well. Our goal in the use of information systems -- which have already contributed to our improving margins -- is to enhance profitability while maintaining the high levels of service for which Longs is known. [PHOTO] Customers selecting merchandise from our newly expanded staple food section (-- Convenience Food Section This year, many of our stores are expanding their food sections to provide greater convenience for our customers. This past year we realized some of the benefits of our new point-of-sale system, which has enabled us to measure more accurately what is happening in our stores. Our store managers now have ready access to a great deal of highly useful information about their stores -- from sales tracking to excess inventory reports -- and a greater ability to evaluate the impact of their decisions. Our new and evolving information systems, combined with the traditional strengths of our store managers, are creating a powerful synergy. On the corporate level, we are equipping our [PHOTO] Customers selecting merchandise found in our "Bargain Alley" (-- Bargain Alley Customers know that we merchandise many of our ad items in this central location called "Bargain Alley" and that many non-advertised values can be found here. In short, they think Bargain Alley is fun. 6 [PHOTO] Picture of Terry Burnside and Cynthia Henry. Vice President of Merchandising, Terry Burnside and Cosmetics Category Manager, Cynthia Henry discuss upcoming changes to a section of merchandise she manages. management team with computerized information systems to assist them in the planning process. Going forward, managers will have the ability to generate detailed plans and ask "what if" questions that will help in evaluating growth plans and changes. We're also using technology to train our store employees. Most of our people benefit from expanded use of L.I.T.E. (Longs Interactive Training Environment), our in-house computer-based training. Employees can study at their own pace using interactive techniques that teach a wide variety of skills needed to be successful merchants. After a very successful test, we will roll out a debit card system during the coming year. We are also investigating ways to reach new customers with emerging technologies. Our goal is to be better than the best among our industry peers in the use of technology. [PHOTO] Customer paying for merchandise using the newly installed debit card system. (-- Debit Card - Late last year we tested our debit card systems that permit our customers to use their ATM cards instead of checks. Chain-wide rollout of this system is underway. SUSTAINED, LONG-TERM GROWTH Building on our recent momentum, we expect fiscal 1997 to be another successful year for Longs. We will continue to work in the coming year toward our goal of sustained, profitable growth. We believe that our recent initiatives and investments in marketing, infrastructure and systems will help us realize our long-range objectives. Our systems enhancements throughout the Company are well under way and our overall marketing strategy is now in place. We are improving our already strong pharmacy operations and have strengthened cost controls in all departments Company wide. We are intensifying our already strong commitment to Longs' most important priority, our customers. Providing high levels of customer [LOGO] Picture of the Longs logo -- mortar and pestle REINVENTING THE PHARMACY Last summer Longs began to investigate new and unique ways to deliver our pharmacy services. Our objective is to gain operational benefits that address improved customer service, revenue enhancement and reduced operating costs. We looked at the pharmacy within the context of today's high prescription volumes. This re-design activity views the pharmacy as a neighborhood health center that concentrates on wellness and an ongoing interaction between Longs customers and our pharmacy professionals. Our "New Concept Pharmacy" is taking shape. We are testing a number of ideas that look at new physical designs, improved work flow, technological enhancements, and additional training of our pharmacy staff. Several stores are participating in our evaluation, and the solutions provided by our employees and our customers will allow us to continue to succeed in this critical core department. Our goal: "TO BE BETTER THAN THE BEST." 7 ACCENT ON EXCELLENCE service has always been a hallmark of Longs, and through PASSPORT TO THE FUTURE - -- which measures employee performance by gauging accuracy, store cleanliness, courtesy and other key elements of direct interaction with our customers -- we are building on that tradition. PASSPORT is designed to ensure that we deliver on the values expressed in the Longs Mission Statement in each of our stores every day. We believe this focus will continue to be an important contributor to our Company's success. Our plans for fiscal 1997 are to open 12 to 15 new stores and we currently have over 25 locations in various stages of planning. Some of these new stores will be Longs Pharmacies that are smaller than our traditional stores. We anticipate these smaller stores will generally become profitable sooner than a full size Longs, although the net dollars they contribute will also be less. More importantly, Longs pharmacies demonstrate our flexibilty to meet the needs of each individual market. We are also working to improve same store sales by sharpening our store-level execution, creating a more exciting shopping environment and actively communicating our customer offering -- Longs will have the right product, in the right place, at the right price with the right level of knowledge and service. OUR PEOPLE ARE THE KEY Clearly, the most important ingredient in our sustained, long-term growth is the people of Longs. It is their team spirit and ability to execute effectively that is the chief means of differentiating Longs from our competition. We constantly receive comments from those outside our Company about the strength [PHOTO] Longs employee learning how to use a photo finishing lab at our own training center (-- In Store Lab Training We train operators of Longs in store photo finishing labs at our own training center in 20% less time than outside sources require. Longs trainers provide quality training that incorporates our service values into the job skills being taught. 8 THE TEAM FOCUS of our people and their unique sense of Company ownership. While our employees own more than 22% of the Longs stock, their pride and sense of ownership goes much further. Our large number of veteran employees and the sense of family that they bring to our Company speaks of a palpable strength that is hard to quantify. We'd like to recognize one such veteran. This past year our Vice President of Administration Bill Combs retired after more than 50 years of service to Longs. We wish him well. In closing, we thank all of our employees for their hard work and loyalty and look forward to reporting on our Company's continuing progress. /s/Steve Roath /s/Bob Long S.D. Roath R.M. Long PRESIDENT CHIEF EXECUTIVE OFFICER WALNUT CREEK, CALIFORNIA APRIL 3, 1996 [LOGO] Picture of the "Passport to the Future" logo -- a globe with a plane flying by PASSPORT TO THE FUTURE PASSPORT TO THE FUTURE is a continuous improvement program for all Longs people. PASSPORT measures performance, and the program recognizes and rewards people as they grow and improve. PASSPORT began as we outlined our corporate financial goals. PASSPORT TO THE FUTURE'S primary objective mobilizes and focuses all Longs people on our company goal and it identifies each employee's contribution toward that goal. We chose the PASSPORT metaphor because continuous growth represents an ongoing journey. We identified critical "destinations" along the way that are essential in the achievement of our goal. PASSPORT "destinations" measure: (-- The accuracy of our work (-- The warmth and completeness of our service to the customer (-- The quality of our shopping environment (-- The partnership between Longs and our vendors and communities (-- Traditional quantifiable measurements such as sales and net income. This annual program creates a win-win situation. Our employees earn recognition and tangible rewards while learning to do their jobs better. The Company wins through higher levels of employee performance and most importantly, our customers win with a shopping experience that exceeds their expectations. [PHOTO] An employee helps a customer at the cosmetics counter (-- Cosmetics Service Cosmetics, pharmacy and photo form our service triad where we provide personalized attention to our customers. Knowledgeable, well-trained people are pivotal to the success of these departments, and our cosmetics personnel eclipse most in our industry. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Sales for fiscal 1996 increased 3.4% over 1995, which increased 2.4% over 1994. Our continued sales growth can be attributed to both existing and new stores, including the six stores in Hawaii acquired in the beginning of the year. Same store sales increased 0.7% in 1996, and decreased 1.5% in 1995. The fiscal year 1996 improvement reflects the success of marketing initiatives we have implemented over the last two years. Pharmacy sales represents 32.0% of total sales for the fiscal year compared to 30.1% in 1995 and 28.7% in 1994. Sales to third party health care plans represents 76.5% of pharmacy sales as compared to 71.3% and 64.6% for 1995 and 1994. It is expected that third party sales will continue to increase as the former cash customers move to managed care services. Longs' historically high percentage of promotional sales is a key part of our sales growth, and control over promotional gross margins has contributed to an increase in gross margin dollars. Gross margins for fiscal 1996 increased to 26.4% from 26.0% in 1995 and 25.5% in 1994. The improvement in gross margins is primarily due to category management, market group pricing, and other marketing initiatives. Category management has been introduced in a number of core categories with several more categories planned for the coming year. Category managers make decisions using internal information and syndicated market data in conjunction with information from vendors to assist in marketing our products. This has allowed the Company to offer improved merchandise selection and consistent product presentation. Category management complements the unique offerings that individual stores tailor to their local markets. Market group pricing has provided the tools to improve our competitive pricing position and has benefited both sales and gross margins. Pricing decisions are based on timely market research and are supported centrally and provided to stores on a regular basis. Other marketing initiatives include partnering relationships with several vendors that provide attractive marketing opportunities and reduced acquisition costs. Systems linked directly to our vendors and warehouses automate a growing share of pharmacy and non-pharmacy merchandise replenishment in our stores. Operating and administrative expenses (excluding the legal settlement) as a percent of sales were 17.8% in fiscal 1996 as compared to 17.9% in 1995 and 17.6% in 1994. This improvement was primarily the result of closely monitoring labor and benefit costs in relation to changes in sales. Improved control over expenses has been achieved through close attention to individual stores' sales, margins, and labor costs on a weekly basis. This allows stores to be aware of, and quickly adapt to changing conditions in their local markets. Store performance is linked to goals set forth in advance in cooperation with store, district, and senior management. Occupancy costs for fiscal 1996 were 5.2% of sales compared with 4.9% in 1995 and 4.6% in 1994. This increase reflects costs associated with new store openings, including the six new stores in Hawaii. Net income was $46.2 million or $2.29 per share for the fiscal year ended January 25, 1996. Without a one-time pre-tax charge of $14.0 million for the settlement of the lawsuit, fiscal 1996 earnings would have been $54.6 million, up 12.1% from a year ago. This compares with earnings of $48.7 million or $2.35 per share in fiscal 1995 and $52.8 million or $2.56 per share in fiscal 1994. The after tax impact of settling the lawsuit was $8.4 million which reduced reported earnings for the fiscal year by $0.42 per share. The legal settlement is described in the Notes to the Consolidated Financial Statements. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS SELECTED FINANCIAL DATA (THOUSANDS EXCEPT PER SHARE)
1996 1995 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------------- Sales $2,644,376 $2,558,269 $2,499,224 $2,475,475 $2,365,916 - ---------------------------------------------------------------------------------------------------------------------------------- Sales Growth Percentage 3.4% 2.4% 1.0% 4.6% 1.4% - ---------------------------------------------------------------------------------------------------------------------------------- Net Income* 46,228 48,731 52,782 52,993 55,379 - ---------------------------------------------------------------------------------------------------------------------------------- Earnings per Share* 2.29 2.35 2.56 2.58 2.71 - ---------------------------------------------------------------------------------------------------------------------------------- Capital Expenditures 49,174 39,195 62,402 55,384 59,693 - ---------------------------------------------------------------------------------------------------------------------------------- Stockholders' Equity 522,767 524,098 499,607 458,211 423,214 - ---------------------------------------------------------------------------------------------------------------------------------- Stock Price at Year End 45 3/8 33 7/8 33 1/2 36 1/2 37 3/4 - ---------------------------------------------------------------------------------------------------------------------------------- Market Capitalization 899,151 696,470 691,909 745,075 771,648 - ---------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------
*FISCAL 1996 INCLUDES A ONE-TIME $14 MILLION CHARGE FOR THE SETTLEMENT OF A LAWSUIT, REDUCING AFTER-TAX NET INCOME BY $8.4 MILLION, OR $.42 PER SHARE. During the fiscal year, Longs Drug Stores California, Inc. formed a wholly-owned subsidiary, Integrated Health Concepts (IHC). IHC is a pharmacy benefit management company that will enable Longs to develop and market pharmacy insurance programs directly to employers and managed care organizations that need prescription services for their employees and members. IHC provides the opportunity to preserve pharmacy profitability by managing outcomes to the benefit of the customer at reduced costs. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents decreased to $49.3 million at the end of fiscal 1996 from $57.5 million last year. The reduction in cash balances primarily reflects increases in cash provided by operating activities offset by increases in property additions and stock repurchases. Cash from operating activities increased to $94.3 million from $84.0 million last year, reflecting strong improvement in operating results. Expenditures for property additions totaled $49.2 million for fiscal 1996. This includes the addition of 15 new stores, other new stores in various stages of construction, and technology investments. Four stores were closed this year, including two stores in Alaska, marking our exit from that state. Capital expenditures for fiscal 1997 are expected to remain consistent with fiscal 1996, and are expected to continue to be funded from operations and cash reserves. Planned store openings are expected to continue at the present growth rate of 12 to 15 stores per year, excluding any potential acquisitions. In an effort to increase shareholder value the Company continues to repurchase stock under an authorization granted by the Board of Directors in November 1994. During fiscal 1996 the Company repurchased 1,009,000 shares of common stock for a total of $35.7 million. Fiscal year 1997 will include 53 weeks (14 weeks in the fourth quarter) as the fiscal year will end the last Thursday in January 1997. 11 STATEMENTS OF CONSOLIDATED INCOME - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
FOR THE FISCAL YEARS ENDED January 25 January 26 January 27 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ ---------------THOUSANDS EXCEPT PER SHARE--------------- SALES $2,644,376 $2,558,269 $2,499,224 COST AND EXPENSES: Cost of merchandise sold 1,946,391 1,892,851 1,863,092 Operating and administrative 470,673 458,533 439,004 Occupancy 136,484 126,054 114,877 Lawsuit settlement 14,000 -- -- - ------------------------------------------------------------------------------------------------------------------------------------ INCOME BEFORE TAXES ON INCOME 76,828 80,831 82,251 TAXES ON INCOME 30,600 32,100 32,500 - ------------------------------------------------------------------------------------------------------------------------------------ INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 46,228 48,731 49,751 CUMULATIVE EFFECT OF ACCOUNTING CHANGE -- -- 3,031 - ------------------------------------------------------------------------------------------------------------------------------------ NET INCOME $ 46,228 $ 48,731 $ 52,782 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ PER COMMON SHARE: Income Before Cumulative Effect of Accounting Change $ 2.29 $ 2.35 $ 2.41 Cumulative Effect of Accounting Change -- -- .15 ---------------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 2.29 $ 2.35 $ 2.56 DIVIDENDS $ 1.12 $ 1.12 $ 1.12 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 20,182 20,701 20,592 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. INDEPENDENT AUDITORS' REPORT LONGS DRUG STORES CORPORATION: WE HAVE AUDITED THE ACCOMPANYING CONSOLIDATED BALANCE SHEETS OF LONGS DRUG STORES CORPORATION AND ITS SUBSIDIARY AS OF JANUARY 25, 1996 AND JANUARY 26, 1995, AND THE RELATED STATEMENTS OF CONSOLIDATED INCOME, CONSOLIDATED STOCKHOLDERS' EQUITY AND CONSOLIDATED CASH FLOWS FOR EACH OF THE THREE FISCAL YEARS IN THE PERIOD ENDED JANUARY 25, 1996. THESE FINANCIAL STATEMENTS ARE THE RESPONSIBILITY OF THE COMPANY'S MANAGEMENT. OUR RESPONSIBILITY IS TO EXPRESS AN OPINION ON THESE 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 AUDIT 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, SUCH CONSOLIDATED FINANCIAL STATEMENTS PRESENT FAIRLY, IN ALL MATERIAL RESPECTS, THE FINANCIAL POSITION OF THE COMPANIES AT JANUARY 25, 1996 AND JANUARY 26, 1995, AND THE RESULTS OF THEIR OPERATIONS AND THEIR CASH FLOWS FOR EACH OF THE THREE FISCAL YEARS IN THE PERIOD ENDED JANUARY 25, 1996 IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. AS DISCUSSED IN THE NOTE TO THE FINANCIAL STATEMENTS ENTITLED "TAXES ON INCOME," THE COMPANY CHANGED ITS METHOD OF ACCOUNTING FOR INCOME TAXES EFFECTIVE JANUARY 29, 1993 TO CONFORM WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 109. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP SAN FRANCISCO, CALIFORNIA FEBRUARY 23, 1996 12 CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
January 25 January 26 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------------- ------------THOUSANDS----------- ASSETS CURRENT ASSETS: Cash and equivalents $ 49,314 $ 57,518 Pharmacy and other receivables 54,388 53,904 Merchandise inventories 316,497 295,346 Deferred income taxes 23,640 17,165 Other 2,687 2,734 - ---------------------------------------------------------------------------------------------------------------------------------- Total current assets 446,526 426,667 - ---------------------------------------------------------------------------------------------------------------------------------- PROPERTY: Land 79,998 76,952 Buildings and leasehold improvements 313,766 300,602 Equipment and fixtures 247,831 240,239 Beverage licenses 7,163 7,135 - ---------------------------------------------------------------------------------------------------------------------------------- Total property - at cost 648,758 624,928 Less accumulated depreciation 253,461 227,166 - ---------------------------------------------------------------------------------------------------------------------------------- Property - net 395,297 397,762 - ---------------------------------------------------------------------------------------------------------------------------------- OTHER NON-CURRENT ASSETS 11,734 3,532 - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL $853,557 $827,961 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $148,428 $149,239 Employee compensation and benefits 59,843 56,274 Taxes payable 37,808 28,459 Current portion of guarantee 2,174 2,001 Other 39,094 21,908 - ------------------------------------------------------------------------------------------------------------------------------------ Total current liabilities 287,347 257,881 - ------------------------------------------------------------------------------------------------------------------------------------ GUARANTEE OF PROFIT SHARING PLAN DEBT 8,311 11,180 - ------------------------------------------------------------------------------------------------------------------------------------ DEFERRED INCOME TAXES 35,132 34,802 - ------------------------------------------------------------------------------------------------------------------------------------ STOCKHOLDERS' EQUITY: Common stock (19,816,000 and 20,560,000 shares outstanding) 9,908 10,280 Additional capital 107,608 107,216 Common stock contribution to Profit Sharing Plan 4,550 5,515 Guarantee of Profit Sharing Plan debt (10,485) (13,181) Retained earnings 411,186 414,268 - ------------------------------------------------------------------------------------------------------------------------------------ Total stockholders' equity 522,767 524,098 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL $853,557 $827,961 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 13 STATEMENTS OF CONSOLIDATED CASH FLOWS - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
FOR THE FISCAL YEARS ENDED January 25 January 26 January 27 1996 1995 1994 -----------------------THOUSANDS--------------------- - ---------------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Receipts from customers $ 2,645,211 $ 2,554,596 $ 2,490,558 Payments for merchandise (1,968,353) (1,901,012) (1,840,876) Payments for operating, administrative, and occupancy expenses (551,179) (541,421) (503,891) Income tax payments (31,380) (28,094) (31,628) - ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 94,299 84,069 114,163 - ---------------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Payments for property additions and other assets (49,174) (39,195) (62,402) Receipts from property dispositions 3,081 4,422 2,349 - ---------------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (46,093) (34,773) (60,053) - ---------------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Repayment of short-term borrowings -- -- (10,000) Repayment of debt assumed from Bill's Drugs, Inc. -- -- (4,613) Proceeds from sale of common stock to Profit Sharing Plan 2,017 -- -- Repurchase of common stock (35,730) (11,077) (7,065) Dividend payments (22,697) (23,213) (22,990) - ---------------------------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (56,410) (34,290) (44,668) - ---------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS (8,204) 15,006 9,442 CASH AND EQUIVALENTS AT BEGINNING OF YEAR 57,518 42,512 33,070 - ---------------------------------------------------------------------------------------------------------------------------------- CASH AND EQUIVALENTS AT END OF YEAR $ 49,314 $ 57,518 $ 42,512 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net income $ 46,228 $ 48,731 $ 52,782 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 40,356 37,811 33,241 Deferred income taxes (6,145) (2,968) 2,857 Restricted stock awards 1,478 1,889 1,350 Common stock contribution to benefit plans 4,550 5,515 5,530 Tax benefits credited to stockholders' equity 127 155 (324) Cumulative effect of accounting change -- -- (3,031) Changes in assets and liabilities net of effects from acquisition of Bill's Drugs, Inc.: Pharmacy and other receivables (484) (3,265) (8,868) Merchandise inventories (21,151) (14,822) 4,586 Other current assets 47 (197) (433) Current liabilities 29,293 11,220 26,473 - ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities $ 94,299 $ 84,069 $ 114,163 - ---------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 14 STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Profit Sharing Guarantee of Total Common Stock Additional Plan Profit Sharing Retained Stockholders' (THOUSANDS) Shares Amount Capital Contributions Plan Debt Earnings Equity - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT JANUARY 28, 1993 20,413 $10,207 $ 93,697 $4,775 ($17,945) $367,477 $458,211 - ----------------------------------------------------------------------------------------------------------------------------------- Net income 52,782 52,782 Dividends ($1.12 per share) (22,990) (22,990) Profit Sharing Plan: Issuance of stock for FY93 contribution 132 66 4,709 (4,775) 0 Stock portion of FY94 contribution 5,530 5,530 Purchase of stock from plan (121) (60) (3,965) (4,025) Reduction of plan debt 2,283 2,283 Restricted stock awards 5 1 1,349 1,350 Tax benefits related to employee stock plans (512) 188 (324) Repurchase of common stock (92) (46) (431) (2,563) (3,040) Acquisition of Bill's Drugs, Inc.: Stock issued 317 159 10,184 10,343 Related costs (513) (513) - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT JANUARY 27, 1994 20,654 10,327 104,518 5,530 (15,662) 394,894 499,607 - ----------------------------------------------------------------------------------------------------------------------------------- Net income 48,731 48,731 Dividends ($1.12 per share) (23,213) (23,213) Profit Sharing Plan: Issuance of stock for FY94 contribution 148 74 5,456 (5,530) 0 Stock portion of FY95 contribution 5,515 5,515 Purchase of stock from plan (105) (52) (3,517) (3,569) Reduction of plan debt 2,481 2,481 Restricted stock awards 90 44 1,845 1,889 Tax benefits related to employee stock plans 155 155 Repurchase of common stock (228) (114) (1,095) (6,299) (7,508) Acquisition of Bill's Drugs, Inc., Net of related costs 1 1 9 10 - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT JANUARY 26, 1995 20,560 10,280 107,216 5,515 (13,181) 414,268 524,098 - ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME 46,228 46,228 DIVIDENDS ($1.12 PER SHARE) (22,697) (22,697) PROFIT SHARING PLAN: ISSUANCE OF STOCK FOR FY95 CONTRIBUTION 176 88 5,427 (5,515) 0 STOCK PORTION OF FY96 CONTRIBUTION 4,550 4,550 SALE OF STOCK TO PLAN 59 29 1,988 2,017 PURCHASE OF STOCK FROM PLAN (114) (57) (2,644) (2,700) REDUCTION OF PLAN DEBT 2,696 2,696 RESTRICTED STOCK AWARDS 30 15 1,463 1,478 TAX BENEFITS RELATED TO EMPLOYEE STOCK PLANS 127 127 REPURCHASE OF COMMON STOCK (895) (447) (5,842) (26,740) (33,030) - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT JANUARY 25, 1996 19,816 $ 9,908 $107,608 $4,550 ($10,485) $411,186 $522,767 - -----------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SIGNIFICANT ACCOUNTING POLICIES THE CONSOLIDATED FINANCIAL STATEMENTS include Longs Drug Stores Corporation and Longs Drug Stores California, Inc., its wholly-owned subsidiary. All inter-company accounts and transactions have been eliminated. FISCAL YEARS end the last Thursday of January. Certain reclassifications have been made to the fiscal 1995 and 1994 financial statements in order to conform to fiscal 1996 presentation. NATURE OF OPERATIONS - The Company operates in the retail drug store industry in California, Colorado, Hawaii, and Nevada. A majority of our sales are concentrated in California. Our principal lines of business are prescription drugs, over-the-counter healthcare products, photo, cosmetics and greeting cards. 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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND EQUIVALENTS include all highly liquid investments with original maturities of three months or less. MERCHANDISE INVENTORIES are valued using the last-in, first-out (LIFO) method. The excess of specific cost over LIFO values was $129.8 and $127.7 million at the 1996 and 1995 year ends. PROPERTY is depreciated using the straight-line method and estimated useful lives of twenty to thirty-three years for buildings, the shorter of life of the lease or estimated useful life for leasehold improvements, and three to twenty years for equipment and fixtures. Maintenance and repairs are charged to expense as incurred and major improvements are capitalized. Effective October 27, 1995, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" which requires that long-lived assets, including intangible assets, used by an entity be reviewed for impairment whenever events or changes indicate that the carrying amount of that asset may not be recoverable. There was no impact of adopting this pronouncement. OTHER NON-CURRENT ASSETS consist of pharmacy files and goodwill and are amortized under a straight line method over estimated useful lives of five to ten years. NEW STORE OPENING COSTS, primarily labor to stock shelves, pre-opening advertising and store supplies, are charged to expense as incurred. ADVERTISING - The Company expenses costs of advertising the first time advertising takes place. Advertising expense was $21.9, $23.3, and $20.6 million for fiscal years 1996, 1995, and 1994, respectively. INCOME TAXES - In fiscal 1994, the Company adopted Statement of Financial Accounting Standards No. 109 - "Accounting for Income Taxes" (SFAS No. 109) which requires the use of the liability method of accounting for deferred income taxes. Deferred income taxes are recorded based upon the differences between the financial statement and tax basis of assets and liabilities. STOCK BASED COMPENSATION - The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation" as of January 27, 1995. SFAS No. 123 establishes accounting and disclosure requirements using a fair value based method of accounting for stock based employee compensation plans. Under SFAS No. 123 the Company may either adopt the new fair value based accounting method or continue the intrinsic value based method and provide pro forma disclosure of net income and earnings per share as if the accounting provisions of SFAS No. 123 had been adopted. The Company adopted only the disclosure requirements of SFAS No. 123; therefore such adoption had no effect on the Company's consolidated net earnings or cash flows. EARNINGS PER COMMON SHARE are calculated by dividing net income by the weighted average number of shares outstanding. LEASES AND OTHER OBLIGATIONS A significant portion of store properties are leased, having original terms ranging from ten to twenty-five years with renewal options covering up to twenty additional years in five-year to ten-year increments. Leases provide for minimum annual rent with provisions for additional rent based on a percentage of sales. Lease rentals for fiscal 1996, 1995, and 1994 were $34.5, $30.9, and $26.5 million, of which $27.5, $23.4, and $19.5 million represent minimum payments. Total minimum rental commitments for noncancelable leases in effect at 1996 year end were $29.3, $29.3, $29.0, $27.9, and $27.1 million for fiscal years 1997 through 2001, and $282.4 million thereafter. As of January 25, 1996 and January 26, 1995, the Company had an unsecured revolving line of credit of $30.0 million with prevailing interest rates. There was $29.8 million and $30.0 million available for use at January 25, 1996 and January 26, 1995, respectively. The line of credit expires on June 30, 1997. EMPLOYEE COMPENSATION AND BENEFITS The Company has approximately 16,000 full-time and part-time employees as of January 25, 1996. Virtually all full-time employees are covered by medical, dental, hospitalization and life insurance programs paid primarily by the Company. The Company also has a 401(k) plan under which employees may make voluntary contributions. Full-time employees with over 1,000 hours of service are entitled to Profit Sharing Plan benefits that are funded entirely by the Company. Annual contributions to the plan were $11.0 million for the past three fiscal years. Contributions are made in cash and common stock. In April 1995, the Board of Directors approved the Longs Drug Stores Corporation Deferred Compensation Plan of 1995. The plan provides eligible employees with the opportunity to defer a specified percentage of their cash compensation. Resulting obligations will be payable on a date selected by the employee participant in accordance with the terms of the plan. The total deferred 16 compensation obligations under the plan may not exceed $10.0 million. As of January 25, 1996 there was $585,000 in compensation that had been deferred under this plan. TAXES ON INCOME The cumulative effect of adopting SFAS No. 109 on the Company's consolidated financial statements was to increase net income by $3.0 million ($.15 per share) for the year ended January 27, 1994. Significant components of the Company's deferred tax assets and liabilities as of January 25, 1996 and January 26, 1995 are as follows:
- -------------------------------------------------------------------------------- (THOUSANDS) 1996 1995 - -------------------------------------------------------------------------------- Deferred Tax Assets: Reserve for vacation pay $ 7,398 $ 6,826 Reserve for worker's compensation 7,493 6,272 State Income Tax 2,111 3,401 Lawsuit settlement 5,600 -- Other 11,139 6,119 - -------------------------------------------------------------------------------- 33,741 22,618 - -------------------------------------------------------------------------------- Deferred Tax Liabilities: Depreciation 32,836 30,685 Basis of property 3,664 4,146 Inventories 1,605 663 Other 7,128 4,761 - -------------------------------------------------------------------------------- 45,233 40,255 - -------------------------------------------------------------------------------- Net deferred tax liability $11,492 $17,637 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
No valuation allowances were considered necessary in the calculation of deferred tax assets as of January 25, 1996 and January 26, 1995. Income tax expense is summarized as follows:
- -------------------------------------------------------------------------------- For the Fiscal Years Ended 1996 1995 1994 - -------------------------------------------------------------------------------- THOUSANDS CURRENT Federal $28,367 $26,992 $22,986 State 8,378 8,076 6,657 - -------------------------------------------------------------------------------- 36,745 35,068 29,643 DEFERRED (6,145) (2,968) 2,857 - -------------------------------------------------------------------------------- Total $30,600 $32,100 $32,500 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
The reconciliation between the federal statutory tax rate and the Company's effective tax rates are as follows:
- -------------------------------------------------------------------------------- (THOUSANDS) FOR THE FISCAL YEAR ENDED 1996 PERCENT - -------------------------------------------------------------------------------- Federal income taxes at statutory rate $26,882 35.0% State income tax net of federal benefits 4,388 5.7% Benefits of ESOP dividends (1,273) (1.7%) Other 603 0.8% - -------------------------------------------------------------------------------- $30,600 39.8% - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
The effective tax rate in fiscal 1995 and 1994 differ from the federal statutory rate of 35%, primarily due to state income taxes, and the benefit of ESOP dividends. GUARANTEE OF PROFIT SHARING PLAN DEBT In March 1989, the Company sold 696,864 shares of Longs' common stock to the Profit Sharing Plan for $25.0 million. The Plan financed this purchase with a ten-year loan guaranteed by Longs Drug Stores California, Inc. Consequently, a Guarantee of Profit Sharing Plan debt is shown on the accompanying balance sheets with a corresponding reduction of Stockholders' Equity. Loan repayments are made with dividends on allocated and unallocated shares held by the Plan and with Company contributions. Members are allocated shares of Longs' common stock equal in value to the cash dividends on their allocated shares used to repay the loan. The Company has no obligation to repurchase outstanding shares held by the Plan. Periodically, the Company has been willing to repurchase shares to provide the Plan with needed liquidity. Plan shares of the leveraged Employee Stock Ownership Plan were as follows:
- -------------------------------------------------------------------------------- 1996 1995 Allocated shares 477,717 419,119 Unallocated shares 219,147 277,745 - -------------------------------------------------------------------------------- Total 696,864 696,864 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Loan payments are made in equal quarterly installments of $930,000, which includes interest at 8.4% per year. Dividends paid to the Plan, and used in part to repay principal and interest on the loan totaled $3.2 million for each of the past three fiscal years. STOCKHOLDERS' EQUITY Authorized capital stock consists of 120 million shares of common stock, $.50 par value, and 30 million shares of preferred stock. There were approximately 16,000 (UNAUDITED) shareholders at the end of fiscal 1996. Each outstanding share of common stock has a Preferred Stock Purchase Right (expiring in September 1996) which is exercisable only upon the occurrence of certain changes in control events. There have been no events that would allow these rights to be exercised. During 1988, a Restricted Stock Award program was adopted whereby certain individuals may be granted stock in the Company. The restrictions provide that while recipients have voting rights to the shares, transfer of ownership of the shares is dependent on continued employment for a period of five years. In 1994, a new Restricted Stock Award program was adopted which is similar to the 1988 program except as it relates to the transfer of ownership of shares. The transfer of shares is dependent upon continued employment for a period of not less than one year. The portion not yet expensed for these programs ($2.8 million) at January 25, 1996 has been netted against Additional Capital. During fiscal 1996, 1995, and 1994; 34,600, 93,400 and 11,700 shares were awarded under these programs. In November, 1994, the Board of Directors authorized a plan to repurchase up to two million shares of the Company's outstanding common stock. During fiscal 1996, the Company repurchased 1,009,000 shares at a cost of $35.7 million. Included are 114,000 shares of its common stock from the Profit Sharing Plan at market values totalling $2.7 million and 221,000 shares of common stock from related parties at market values totaling $7.6 million. 17 FAIR VALUE OF FINANCIAL INSTRUMENTS In accordance with SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," the carrying value of the Company's current assets and liabilities, and Guarantee of Profit Sharing Plan debt approximates the estimated fair value. SETTLEMENT OF LAWSUIT The Company's subsidiary, Longs Drug Stores California, Inc. ("Subsidiary"), has been named as one of a large number of defendants in two lawsuits filed in United States District Court for the Southern District of Florida, Harvey S. Tropin, as receiver of Lone Star Trading Company and its subsidiaries and affiliates, as Trustee of Premium Sales Corporation, Plaza Trading Corporation and as the designated corporate representative of Windsor Wholesale Corporation v. Kenneth Thenen, et al. ("Tropin"), and Walco Investments, Inc., et al. v. Kenneth Thenen, et al. ("Walco"). In addition, Subsidiary was named in three cross-claims by certain co-defendants in Walco. The cases alleged that investors invested in partnerships that sold securities offering a high rate of return from the partnership's investments in the purported "diverting" business of Premium Sales Corporation and its affiliates ("Premium"), which was in fact a pyramid scheme based on falsified transactions. They further alleged that a former employee of Subsidiary confirmed to the funding partnerships, on behalf of subsidiary, nonexistent transactions; and they claimed that the subsidiary was secondarily liable for the acts of the former employee. Several other retailers were co-defendants in the actions. Both cases were attempts to recover damages on behalf of essentially the same group of investors, but Walco was a class action by investors in the funding partnerships and Tropin was an action brought by Premium's receiver and trustee in bankruptcy. Plaintiffs in both actions sought unspecified damages, alleging investor and other losses of hundreds of millions of dollars. The lawsuits were first filed in January 1994. Subsidiary was dropped from Walco without prejudice in May, 1994 and was added back into the case in November 1995. On February 14, 1996, the Company concluded settlement negotiations with representatives of the plaintiffs in these actions whereby all claims against the Company and its affiliates will be released in exchange for the Company's cash payment of $14 million. The settlement remains subject to the completion of a definitive settlement agreement and to court approval, in respect of which plaintiffs have agreed to give their unconditional support. The after-tax impact of this settlement was $8.4 million, or $.42 per share, and was accrued in fourth quarter 1996. ACQUISITION OF HAWAII STORES During the first quarter of fiscal 1996 Longs Drug Stores California, Inc., purchased the inventory and fixed assets of six stores and the merchandise inventory of other additional stores in Hawaii from PayLess Drug Stores Northwest, Inc. QUARTERLY FINANCIAL DATA (UNAUDITED)
EARNINGS DIVIDENDS STOCK SALES GROSS PROFIT NET INCOME(1) PER SHARE(1) PER SHARE PRICE RANGE - -------------------------------------------------------------------------------------------------------------- Quarter 1 $ 639,801 $169,232 $13,304 $ .65 $.28 $31-34 Quarter 2 646,359 171,012 12,486 .62 .28 33-38 Quarter 3 628,900 166,643 8,815 .44 .28 36-42 Quarter 4 729,316 191,098 11,623 .58 .28 38-48 - -------------------------------------------------------------------------------------------------------------- FYE 1996 2,644,376 697,985 46,228 2.29 1.12 31-48 - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- Quarter 1 622,259 164,990 13,021 .63 .28 31-32 Quarter 2 626,310 163,124 12,034 .58 .28 33-34 Quarter 3 614,461 156,302 6,422 .31 .28 33-34 Quarter 4 695,239 181,002 17,254 .83 .28 33-34 - -------------------------------------------------------------------------------------------------------------- FYE 1995 2,558,269 665,418 48,731 2.35 1.12 31-34 - -------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------
FIVE YEAR SELECTED FINANCIAL DATA
1996(1) 1995 1994(2) 1993 1992 - -------------------------------------------------------------------------------------------------------------- Sales $2,644,376 $2,558,269 $2,499,224 $2,475,475 $2,365,916 Net Income 46,228 48,731 52,782 52,993 55,379 Earnings per Share 2.29 2.35 2.56 2.58 2.71 Dividends per Share 1.12 1.12 1.12 1.11 1.07 Total Assets 853,557 827,961 794,804 726,190 689,251 - -------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------
(1) INCLUDES $14 MILLION LAWSUIT SETTLEMENT IN FOURTH QUARTER AND FISCAL YEAR 1996, REDUCING AFTER-TAX NET INCOME BY $8.4 MILLION, OR $ .42 PER SHARE. (2) INCLUDES CUMULATIVE EFFECT OF ACCOUNTING CHANGE, INCREASING NET INCOME BY $3 MILLION, OR $ .15 PER SHARE. 18 BOARD OF DIRECTORS [PHOTO] [PHOTO] [PHOTO] [PHOTO] ROBERT M. LONG STEPHEN D. ROATH RICHARD M. BROOKS* WILLIAM G. COMBS CHAIRMAN OF THE PRESIDENT FINANCIAL CONSULTANT RETIRED BOARD AND CHIEF VICE PRESIDENT, EXECUTIVE OFFICER ADMINISTRATION [PHOTO] [PHOTO] [PHOTO] DAVID G. DESCHANE EDWARD E. JOHNSTON* MARY S. METZ, PH.D.* RETIRED INSURANCE CONSULTANT DEAN, U.C. BERKELEY VICE PRESIDENT EXTENSION DISTRICT MANAGER [PHOTO] [PHOTO] [PHOTO] RONALD A. PLOMGREN GERALD H. SAITO HAROLD R. SOMERSET* SENIOR VICE PRESIDENT, SENIOR VICE PRESIDENT BUSINESS CONSULTANT DEVELOPMENT DISTRICT MANAGER [PHOTO] [PHOTO] [PHOTO] DONALD L. SORBY, PH.D. THOMAS R. SWEENEY FREDERICK E. TROTTER* DEAN EMERITUS OF RETIRED PRESIDENT, SCHOOL OF PHARMACY VICE PRESIDENT F.E. TROTTER INC. UNIVERSITY OF THE PACIFIC DISTRICT MANAGER SENIOR OFFICERS OF LONGS DRUG STORES CALIFORNIA, INC. BILL M. BRANDON RONALD A. PLOMGREN** SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT, DEVELOPMENT GEORGE A. DUEY STEPHEN D. ROATH** SENIOR VICE PRESIDENT PRESIDENT DAVE J. FONG GERALD H. SAITO SENIOR VICE PRESIDENT, PHARMACY SENIOR VICE PRESIDENT/DISTRICT MANAGER ORLO D. JONES** DAN R. WILSON SENIOR VICE PRESIDENT, PROPERTIES SENIOR VICE PRESIDENT, MARKETING AND SECRETARY ROBERT M. LONG** CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER OFFICERS OF LONGS DRUG STORES CALIFORNIA, INC. LES C. ANDERSON RON E. LOVELADY VICE PRESIDENT, PERSONNEL VICE PRESIDENT/DISTRICT MANAGER AL A. ARRIGONI SAL PETRUCELLI VICE PRESIDENT, CONSTRUCTION VICE PRESIDENT/DISTRICT MANAGER TERRY D. BURNSIDE MIKE K. RAPHEL VICE PRESIDENT, MERCHANDISE VICE PRESIDENT, REAL ESTATE JACK G. DALETH CLAY E. SELLAND** VICE PRESIDENT/DISTRICT MANAGER TREASURER, ASSISTANT SECRETARY DON D. ENGLAND KYLE J. WESTOVER VICE PRESIDENT/DISTRICT MANAGER VICE PRESIDENT, TRAINING AND COMMUNICATIONS JIM L. FAMINI VICE PRESIDENT/DISTRICT MANAGER GROVER L. WHITE** VICE PRESIDENT, CONTROLLER BRIAN E. KILCOURSE ASSISTANT SECRETARY VICE PRESIDENT CHIEF INFORMATION OFFICER BOB W. WILSON VICE PRESIDENT/DISTRICT MANAGER * MEMBER OF THE AUDIT COMMITTEE ** ALSO AN OFFICER OF LONGS DRUG STORES CORPORATION GENERAL OFFICE 141 North Civic Drive P.O. Box 5222 Walnut Creek, California 94596 (510) 937-1170 TRANSFER AGENT & REGISTRAR Chemical Mellon Shareholder Services 50 California Street 10th Floor San Francisco, California 94111 (800) 356-2017 For assistance on address change, consolidation of multiple holdings, dividend payments or related matters, please contact the Transfer Agent. ANNUAL MEETING The Annual Meeting of Stockholders will be held at the Regional Center for the Arts, 1601 Civic Drive, Walnut Creek, California on May 21, 1996, at 11:00 am. All stockholders are cordially invited to attend. AUDITORS Deloite & Touche LLP 50 Fremont Street San Francisco, California 94105 [PHOTO] GENERAL COUNSEL - - OUR EIGHTH STORE IN FRESNO, CALIFORNIA Bell, Rosenberg & Hughes OPENED IN SEPTEMBER 1300 Clay Street OF LAST YEAR. Suite 1000 Oakland, California 94612-0220 STOCK LISTING New York Stock Exchange, Inc. Ticker Symbol-LDG Newspaper quotations; "Longs Drg" W.S.J. FORM 10-K A copy of the Company's Form 10-K Annual Report and Form 10-Q Quarterly Reports filed with the Securities and Exchange Commission may be obtained without charge by writing to the Corporate Treasurer, Longs Drug Stores, P.O. Box 5222, Walnut Creek, California 94596 [RECYCLE LOGO] PRINTED ON RECYCLED PAPER [LOGO] EX-23 3 EXHIBIT 23 DELOITTE & TOUCHE LLP - ------------- --------------------------------------------------------------- 50 Fremont Street Telephone: (415) 247-4000 San Francisco, California 94105-2230 Facsimile: (415) 247-4329 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 2- 97578, 33-12653, 33-54959, and 33-60005 of Longs Drug Stores Corporation on Form S-8 of our report dated February 23, 1996, incorporated by reference in this Annual Report on Form 10-K of Longs Drug Stores Corporation for the year ended January 25, 1996. /s/ Deloitte & Touche LLP April 19, 1996 - --------------- DELOITTE TOUCHE TOHMATSU INTERNATIONAL - --------------- 9 EX-27 4 EXHIBIT 27
5 1,000 12-MOS JAN-25-1996 JAN-27-1995 JAN-25-1996 49,314 0 54,388 0 316,497 446,526 648,758 253,461 853,557 287,347 0 9,908 0 0 512,859 853,557 2,644,376 0 1,946,391 2,567,548 0 0 0 76,828 30,600 46,228 0 0 0 46,228 2.29 0 INCLUDES $14 MILLION LAWSUIT SETTLEMENT REDUCING AFTER-TAX NET INCOME BY $8.4 MILLION, OR $.42 PER SHARE.
-----END PRIVACY-ENHANCED MESSAGE-----