-----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, Mf8FP6EXJDREiHSZs2D1Pe6n8zGB4qFzrisi/t8knPIDDZknkfgxmn+1Dho+/yt+ o9Eszs4w9CmShNj0Cq3m3A== 0000031364-97-000006.txt : 19970912 0000031364-97-000006.hdr.sgml : 19970912 ACCESSION NUMBER: 0000031364-97-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970726 FILED AS OF DATE: 19970909 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ECKERD CORP CENTRAL INDEX KEY: 0000031364 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 133302437 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04844 FILM NUMBER: 97677234 BUSINESS ADDRESS: STREET 1: 8333 BRYAN DAIRY ROAD CITY: LARGOO STATE: FL ZIP: 34647 BUSINESS PHONE: 8133996000 MAIL ADDRESS: STREET 1: JACK ECKERD CORPORATION STREET 2: P O BOX 4689 CITY: CLEARWATER STATE: FL ZIP: 34618 FORMER COMPANY: FORMER CONFORMED NAME: ECKERD DRUGS OF FLORIDA INC DATE OF NAME CHANGE: 19700112 10-Q 1 SECOND QUARTER FORM 10-Q ECKERD CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Thirteen and Twenty-Five Weeks Ended July 26, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 1-4844 ECKERD CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 51-0378122 (State of incorporation) (I.R.S. Employer Identification No.) 8333 Bryan Dairy Road Largo, Florida 33777 (Address and zip code of principal executive offices) (813) 399-6000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of August 30, 1997 the registrant had 100 shares of common stock outstanding. THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT PROVIDED FOR IN GENERAL INSTRUCTION H TO FORM 10-Q. PART I. FINANCIAL INFORMATION Item 1. Financial Statements
ECKERD CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA) ASSETS Unaudited Audited Current assets: 7/26/97 2/1/97 --------- --------- Cash (including short-term investments of $62,000 and $57,000) $ 98,332 71,874 Receivables 116,684 102,393 Merchandise inventories 1,016,939 973,265 Prepaid expenses and other current assets 10,302 3,909 --------- --------- Total current assets 1,242,257 1,151,441 --------- --------- Property and equipment, at cost 841,834 775,690 Less accumulated depreciation 357,876 329,490 --------- --------- Net property and equipment 483,958 446,200 --------- --------- Excess of cost over net assets acquired, less accumulated amortization 122,586 85,656 Favorable lease interests, less accumulated amortization 96,326 108,125 Deferred income taxes 64,343 64,343 Due from affiliates 135,457 - Other assets 33,637 36,187 --------- --------- $2,178,564 1,891,952 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Bank debit balances $ 67,286 54,252 Current installments of long-term debt 782 768 Accounts payable 384,225 404,945 Accrued expenses 391,936 323,717 --------- --------- Total current liabilities 844,229 783,682 --------- --------- Other noncurrent liabilities 165,578 168,240 Long-term debt, excluding current installments 925,776 779,951 Stockholders' equity: Voting common stock of $.01 par value. Authorized 1,000 shares; issued 100 - - Capital in excess of par value 321,254 321,254 Retained deficit (78,273) (161,175) --------- --------- Total stockholder's equity 242,981 160,079 --------- --------- $2,178,564 1,891,952 ========= =========
See accompanying notes to condensed consolidated financial statements. 2
ECKERD CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (IN THOUSANDS) Twenty-Five Twenty-Six Thirteen Weeks Ended Weeks Ended Weeks Ended ------------------------- ----------- ----------- 7/26/97 8/3/96 7/26/97 8/3/96 --------- --------- ----------- ----------- Sales and other operating revenue $1,427,782 1,252,428 2,809,420 2,607,047 --------- --------- --------- --------- Costs and expenses: Cost of sales, including store occupancy, warehousing and delivery expense 1,111,794 979,784 2,181,902 2,031,207 Operating and administrative expenses 250,100 236,208 480,199 473,741 --------- --------- --------- --------- Earnings before interest expense 65,888 36,436 147,319 102,099 Interest expense: Interest expense, net 16,258 15,121 28,034 30,007 Amortization of original issue discount and deferred debt expenses 134 251 269 504 --------- --------- --------- --------- Total interest expense 16,392 15,372 28,303 30,511 --------- --------- --------- --------- Earnings before income taxes 49,496 21,064 119,016 71,588 Income tax expense 14,849 4,608 36,116 15,722 --------- --------- --------- --------- Net earnings $ 34,647 16,456 82,900 55,866 ========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements. 3
ECKERD CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) Twenty-Five Weeks Twenty-Six Weeks Ended 7/26/97 Ended 8/3/96 ------------- ------------ Cash flows from operating activities: Net earnings $ 82,900 55,866 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 48,905 45,389 Amortization of original issue discount and deferred debt expenses 269 504 Increase in receivables, merchandise inventories and prepaid expenses (36,930) (26,001) Increase (decrease) in accounts payable and accrued expenses 41,572 (9,610) Increase in due from affiliates (135,457) - --------- --------- Net cash provided by operating activities 1,259 66,148 --------- --------- Cash flows from investing activities: Additions to property, plant and equipment (66,503) (59,334) Sale of property, plant and equipment 2,712 1,690 Acquisition of certain drugstore assets (78,050) (13,334) Other 8,165 (1,983) --------- --------- Net cash used in investing activities (133,676) (72,961) --------- --------- Cash flows from financing activities: Increase (decrease) in bank debit balances 13,034 (43,395) Additions to long-term debt 22 - Reductions of long-term debt (32,854) (519) Net additions under intercompany note to J. C. Penney Company, Inc. 180,000 - Net additions under credit agreements - 50,000 Redemption of 9.25% Senior Subordinated Notes (1,327) - Other - 925 --------- --------- Net cash provided by financing activities 158,875 7,011 --------- --------- Net increase in cash and short-term investments 26,458 198 Cash and short-term investments at beginning of period 71,874 7,922 --------- --------- Cash and short-term investments at end of period $ 98,332 8,120 ========= =========
See accompanying notes to condensed consolidated financial statements. 4 ECKERD CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE AMOUNTS) Note 1. - ------- On November 2, 1996, Eckerd Corporation ("Old Eckerd") entered into a definitive agreement to be acquired by Omega Acquisition Corporation ("Omega"), a wholly-owned subsidiary of J. C. Penney Company, Inc. ("JCPenney"). The aggregate transaction value, including the assumption of Old Eckerd debt and the cash out of certain outstanding Old Eckerd employee stock options, was approximately $3.3 billion. The transaction was effected through a two-step process consisting of (i) a cash tender offer at $35.00 per share for 50.1% of the outstanding common stock of Old Eckerd, which was completed in December 1996, and (ii) the February 27, 1997 exchange in which Old Eckerd stockholders received 0.6604 of a share of JCPenney common stock for each share of Old Eckerd common stock. After completing the acquisition of Old Eckerd on February 27, 1997, Omega changed its name to Eckerd Corporation (the "Company"). Note 2. - ------- The condensed consolidated financial statements include the accounts of the Company and its subsidiaries, and were prepared from the books and records of the Company without audit or verification and in the opinion of management include all adjustments (none of which were other than normal recurring accruals) necessary to present a fair statement of results for such periods. A management fee and certain business integration expenses totaling $38,459 has been charged to affiliates. The condensed consolidated financial statements should be read in conjunction with the financial statements and notes filed as part of the Company's Annual Report on Form 10-K405 for the fiscal year ended February 1, 1997. The results of operations of the periods indicated should not be considered as necessarily indicative of operations for the full year. Prior to the acquisition, Old Eckerd's fiscal year ended the Saturday closest to January 31st each year. In order to make its fiscal year end conform to that of JCPenney, the Company changed its fiscal year end to the last Saturday in January of each year. Accordingly, to conform to the JCPenney fiscal calendar, the first quarter of fiscal year 1997 consisted of twelve weeks ended April 26, 1997 and the second quarter consisted of thirteen weeks ended July 26, 1997, with a year-to-date total of twenty-five weeks ended July 26, 1997. Certain amounts in the February 1, 1997 condensed consolidated balance sheet have been reclassified to conform to the July 26, 1997 presentation. Note 3. - ------- Substantially all inventories are determined on a last-in, first-out (LIFO) cost basis. At July 26, 1997 and February 1, 1997, inventories would have been greater by approximately $119,400 and $109,900, respectively, if inventories were valued on a first-in, first-out (FIFO) cost basis. Since LIFO inventory costs can only be determined at the end of each fiscal year when inflation rates and inventory levels are finalized, estimates of LIFO inventory costs are used for interim financial statements. The cost of merchandise sold is calculated on an estimated basis and adjusted based on inventories taken during the fiscal year. 5 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (In Thousands) Thirteen Weeks Ended Twenty-Six Weeks Ended --------------------------- ----------------------------- 7/26/97 8/3/96 7/26/97 8/3/96 ---------- ---------- ---------- ---------- Sales and other operating revenue $ 1,427,782 1,252,428 2,917,086 2,607,047 Costs of sales 1,111,794 979,784 2,266,143 2,031,207 Operating and administrative expenses 250,100 236,208 498,546 473,741 ---------- ---------- ---------- ---------- Operating earnings 65,888 36,436 152,397 102,099 Total interest expense 16,392 15,372 29,311 30,511 ---------- ---------- ---------- ---------- Earnings before income taxes 49,496 21,064 123,086 71,588 Income tax expense 14,849 4,608 36,922 15,722 ---------- ---------- ---------- ---------- Net earnings $ 34,647 16,456 86,164 55,866 ========== ========== ========== ==========
For comparative purposes only, the above Condensed Consolidated Statements of Earnings and the following analysis of results of operations compares the thirteen and twenty-six weeks ended July 26, 1997 to the thirteen and twenty-six weeks ended August 3, 1996. As noted previously, as a result of the change by the Company of its fiscal year, Item 1 Financial Information is presented for the thirteen and twenty-five weeks ended July 26, 1997. Sales and other operating revenue for the second quarter and twenty-six weeks ended July 26, 1997 increased 14.0% and 11.9%, respectively, over the 1996 comparable periods to $1.4 billion and $2.9 billion, respectively. Sales benefited from significant increases in drugstore prescription sales as well as from increases in non-prescription (front end) sales and from acquired and new stores as well as increased sales in relocated freestanding stores. Comparable drugstore sales (stores open one year or more) increased 9.3% and 8.6% for the thirteen and twenty-six week periods compared to a 7.8% and 8.8% increase in 1996. The increases in comparable drugstore sales were primarily attributable to the increase in sales of prescription drugs as well as increased sales of non-prescription items in the health and convenience categories. Prescription sales as a percentage of drugstore sales were 57.8% and 57.6% compared to 56.6% and 56.0% for the comparable second quarter and twenty-six week 1996 periods. The growth in prescription sales was primarily the result of increased managed care prescription sales. Managed care prescription sales increased to 78.7% and 78.5% of prescription sales compared to 75.0% and 74.4% in 1996. Prescription sales to managed care payors, in terms of both dollar volume and as a percentage of total prescription sales, are expected to continue to increase in the current year and for the foreseeable future. Managed care payors typically negotiate lower prescription prices than those on non-managed care prescriptions, resulting in decreasing gross profit margins on prescription sales. However, contracts with managed care payors generally increase the volume of prescription sales and gross profit dollars. 6 As a percentage of sales, cost of sales and related expenses were 77.9% and 77.7% for the second quarter and twenty-six weeks ended July 26, 1997 compared to 78.2% and 77.9% for the 1996 comparable periods. The decreases in cost of sales and related expenses is attributable to a slowing in the decline in prescription gross profit margins as well as improvement in front end gross profit margins and reduced inventory shrinkage as a percentage of sales. The LIFO charge for the 1997 second quarter and twenty-six week periods was $4.9 million and $10.1 million, respectively, compared to $4.4 million and $8.6 million for the 1996 second quarter and twenty-six weeks. Operating and administrative expenses, net of $20.5 million and $40.0 million of management fees and business integration costs charged to affiliates, for the second quarter and twenty-six weeks increased 5.9% and 5.2%, respectively, over 1996 to $250.1 million and $498.5 million, and decreased as a percentage of sales to 17.5% and 17.1%, respectively, from 18.9% and 18.2% in 1996. The decreases as a percentage of sales resulted primarily from increased operating efficiencies, higher sales, and cost controls which helped produce lower costs as a percentage of sales in such expense categories as payroll and insurance. Total interest expense for the 1997 second quarter increased 6.6% over 1996 to $16.4 million. The increase was due to higher average borrowings and higher interest rates in the second quarter compared to 1996. For the twenty-six week period, total interest expense decreased 3.9% to $29.3 million, primarily due to lower average borrowings and lower interest rates in the first quarter on borrowings compared to 1996. Earnings before income taxes for the second quarter and twenty-six weeks increased 135.0% and 71.9%, respectively, to $49.5 million and $123.1 million, respectively. The increases were due primarily to the increase in gross profit dollars as a result of higher sales and other operating revenue, and the decrease in operating and administrative expenses as a percentage of sales due to operating efficiencies and expense control. Income tax expense for the 1997 second quarter and twenty-six weeks was $14.8 million (30%) and $36.9 million (30%), respectively, compared to $4.6 million (22%) and $15.7 million (22%) in 1996. Income tax expense in both periods represent federal and state income taxes. The income tax rate was lower in 1996 when compared to 1997 due to the use of net operating loss carryforwards in 1996. In connection with the proposed settlement of the Company's Internal Revenue Service income tax return examinations for the January 31, 1987 and January 30, 1988 tax years, the Company's net operating loss carryforwards were adjusted to zero and deferred tax assets in the form of alternative minimum tax credit carryforwards and deductions relating to changes in amortization methods are effective for 1997. REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Company's independent public accountants have made a limited review of the financial information furnished herein in accordance with standards established by the American Institute of Certified Public Accountants. The Independent Auditors' Review Report is presented on page 8 of this report. 7 Independent Auditors' Review Report The Board of Directors Eckerd Corporation: We have reviewed the condensed consolidated balance sheet of Eckerd Corporation and subsidiaries as of July 26, 1997, and the related condensed consolidated statements of earnings and cash flows for the thirteen and twenty-five weeks ended July 26, 1997 and the thirteen and twenty-six weeks ended August 3, 1996. These condensed consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Eckerd Corporation as of February 1, 1997, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated April 15, 1997, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of February 1, 1997 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ KPMG PEAT MARWICK LLP September 8, 1997 8 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 15.1 Letter re unaudited interim financial information. 27 Financial Data Schedule. (b) Reports on Form 8-K On June 10, 1997, the Company filed a Current Report on Form 8-K. The Report covered Item 8 - Change in Fiscal Year. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ECKERD CORPORATION (Registrant) September 8, 1997 /s/ Samuel G. Wright ---------------------- Samuel G. Wright Executive Vice President/ Chief Financial Officer (Principal Accounting Officer) 9 Exhibit Index ------------- Eckerd Corporation Form 10-Q Exhibit No. Description of Exhibit - ----------- ---------------------- 15.1 Letter re unaudited interim financial information 27 Financial Data Schedule 10 EX-15 2 EXHIBIT 15.1 EXHIBIT 15.1 Eckerd Corporation Largo, Florida Ladies and Gentleman: RE: Registration Statement on Form S-3 (No. 33-50223) With respect to the subject registration statement, we acknowledge our awareness of the use therein of our report dated September 8, 1997 related to our review of interim financial information, which report was included in the Form 10-Q of Eckerd Corporation for the thirteen and twenty-five weeks ended July 26, 1997 . Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not considered a part of a registration statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Act. /s/ KPMG PEAT MARWICK LLP Tampa, Florida September 8, 1997 EX-27 3 FDS EXHIBIT 27
5 0000031364 Eckerd Corporation 1,000 6-Mos Jan-31-1998 Feb-02-1997 Jul-26-1997 98,332 0 119,684 3,000 1,016,939 1,242,257 841,834 357,876 2,178,564 844,229 925,776 0 0 0 242,981 2,178,564 2,809,420 2,809,420 2,181,902 2,181,902 478,462 1,737 28,303 119,016 36,116 82,900 0 0 0 82,900 0 0
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