Exhibit 99.1
Longs Drug Stores Corporation Reports Second Quarter Results
WALNUT CREEK, California (August 20, 2008) – Longs Drug Stores Corporation (NYSE: LDG) today reported preliminary income from continuing operations for the second quarter ended July 31, 2008 of $27.5 million, or $0.76 per diluted share, including $0.7 million of after-tax charges, or $0.02 per diluted share, related to provisions for store closures and asset impairments and legal reserves, a 6.8 percent increase compared with income from continuing operations for the second quarter ended July 26, 2007 of $25.7 million, or $0.67 per diluted share.
SECOND QUARTER
Income
Income from continuing operations for the second quarter ended July 31, 2008 was $27.5 million, or $0.76 per diluted share, a 6.8 percent increase compared with income from continuing operations for the second quarter ended July 26, 2007 of $25.7 million, or $0.67 per diluted share. Results for the quarter ended July 31, 2008 included $0.7 million of after-tax charges, or $0.02 per diluted share, related to provisions for store closures and asset impairments and legal reserves.
Revenues
Total revenues of $1.33 billion for the thirteen weeks ended July 31, 2008 were 4.6 percent higher than the $1.27 billion reported for the thirteen weeks ended July 26, 2007.
Retail drug store sales increased 0.5 percent to $1.20 billion for the thirteen weeks ended July 31, 2008. Same-store sales decreased 1.1 percent with pharmacy same-store sales decreasing 0.6 percent and front-end same-store sales decreasing 1.6 percent. Pharmacy sales were 51.6 percent of retail drug store sales during the period, compared with 51.3 percent a year ago.
Pharmacy benefit services revenues increased 66.3 percent to $131.3 million from $79.0 million in the comparable period last year. Prescription drug plan revenues were $110.9 million compared with $65.7 million last year and pharmacy benefit management revenues were $20.4 million compared with $13.3 million a year ago.
Retail Drug Store Gross Profit
Retail drug store gross profit for the second quarter ended July 31, 2008 was $320.2 million, or 26.7 percent of retail drug store sales, compared with $314.5 million, or 26.3 percent of retail drug store sales, last year. The increase in gross profit as a percent of sales was primarily due to higher generic utilization and improved inventory management, partially offset by changes in the sales mix reflecting increasing price sensitivity among consumers.
The LIFO charge for the second quarter ended July 31, 2008 was $4.0 million compared with $2.0 million in the second quarter last year.
Prescription Drug Plan Gross Profit
Prescription drug plan gross profit for the second quarter ended July 31, 2008 was $14.4 million, or 13.0 percent of prescription drug plan revenues, compared with $11.5 million, or 17.5 percent of prescription drug plan revenues, last year. As expected, the lower gross profit margin rate on increased revenues reflects the Company’s bids submitted for the 2008 plan year.
Operating and Administrative Expenses
Operating and administrative expenses for the second quarter ended July 31, 2008 were $307.4 million, or 23.1 percent of revenues, compared with $295.0 million, or 23.1 percent of revenues, last year. The flat rate compared with last year reflects increased leverage on higher pharmacy benefit services revenues, offset by increased new store activity and reduced leverage on retail drug store sales.
Operating Income
Consolidated operating income for the second quarter ended July 31, 2008 was $46.5 million, or 3.5 percent of revenues. Operating income for the second quarter last year was $44.3 million, or 3.5 percent of revenues.
Retail drug store operating income was $31.6 million, or 2.6 percent of retail drug store sales, compared with $33.4 million, or 2.8 percent of sales last year. Pharmacy benefit services operating income was $14.9 million, or 11.4 percent of pharmacy benefit services revenues, compared with $10.9 million, or 13.8 percent of pharmacy benefit services revenues last year.
FIRST SIX MONTHS
Income
Income from continuing operations for the 26 weeks ended July 31, 2008 was $50.6 million, or $1.40 per diluted share, compared with income from continuing operations for the 26 weeks ended July 26, 2007 of $41.8 million, or $1.09 per diluted share, including $5.8 million of after-tax charges related to the disposition of stores.
Revenues
Total revenues of $2.74 billion for the 26 weeks ended July 31, 2008 were 6.5 percent higher than the $2.57 billion reported for the 26 weeks ended July 26, 2007.
Retail drug store sales increased 1.7 percent to $2.42 billion from $2.38 billion in the comparable period last year. Same-store sales decreased 0.1 percent with pharmacy same-store sales flat with last year and front-end same-store sales decreasing 0.1 percent. Pharmacy sales were 52.0 percent of retail drug store sales during the period, compared with 51.8 percent a year ago.
Pharmacy benefit services revenues increased 66.8 percent to $318.6 million from $191.0 million in the comparable period last year. Prescription drug plan revenues were $278.0 million compared with $162.2 million last year and pharmacy benefit management revenues were $40.6 million compared with $28.7 million a year ago.
Retail Drug Store Gross Profit
Retail drug store gross profit for the 26 weeks ended July 31, 2008 was $645.4 million, or 26.7 percent of retail drug store sales, compared with $618.4 million, or 26.0 percent of retail drug store sales, last year. The increase in gross profit as a percent of sales was primarily due to higher generic utilization, increased self-distribution of front-end merchandise and improved inventory management, partially offset by changes in the sales mix reflecting increasing price sensitivity among consumers.
The LIFO charge for the 26 weeks ended July 31, 2008 was $7.5 million compared with $5.0 million a year ago.
Prescription Drug Plan Gross Profit
Prescription drug plan gross profit for the 26 weeks ended July 31, 2008 was $18.4 million, or 6.6 percent of prescription drug plan revenues, compared with $15.6 million, or 9.6 percent of prescription drug plan revenues, last year. As expected, the lower gross profit margin rate on increased revenues reflects the Company’s bids submitted for the 2008 plan year.
Operating and Administrative Expenses
Operating and administrative expenses for the 26 weeks ended July 31, 2008 were $617.0 million, or 22.5 percent of revenues, compared with $581.3 million, or 22.6 percent of revenues, last year. The decrease in the expense rate reflects increased leverage on higher pharmacy benefit services revenues, partially offset by increased new store activity and reduced leverage on retail drug store sales.
Operating Income
Consolidated operating income for the 26 weeks ended July 31, 2008 was $86.0 million, or 3.1 percent of revenues. Operating income for the 26 weeks ended July 26, 2007 was $72.3 million, or 2.8 percent of revenues, including a $9.6 million pre-tax charge related to the disposition of stores.
Retail drug store operating income was $66.6 million, or 2.8 percent of retail drug store sales, compared with $56.8 million, or 2.4 percent of sales last year, including the charge related to the disposition of stores. Pharmacy benefit services operating income was $19.4 million, or 6.1 percent of pharmacy benefit services revenues, compared with $15.4 million, or 8.1 percent of pharmacy benefit services revenues last year.
MANAGEMENT OUTLOOK
In light of the Company’s announced transaction with CVS Caremark Corporation, the Company will not be including management outlook during the pendency of such transaction.
FORWARD-LOOKING STATEMENTS
This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements relate to, among other things, expected financial results for fiscal year 2009, capital expenditures, progress on strategic initiatives, opening, relocating and remodeling of stores, profits from prescription drug plans, performance of RxAmerica, and are indicated by such words as “will,” “expects,” “estimates,” “goals,” “plans” or similar words. These statements are based on the Company’s current plans and expectations and involve risks and uncertainties that could cause actual events and results to vary materially from those contemplated by such statements. Risks and uncertainties relate to, among other things, CVS Caremark Corporation’s proposed acquisition of the Company, changing market conditions in the overall and regional economy and in the retail industry, the availability and cost of real estate, construction costs and delays, labor unrest, natural or manmade disasters, competition, maintaining satisfactory relationships with vendors, changes in applicable law or in the interpretation of applicable law by regulatory agencies or by legal, accounting or other professional advisors, or by the Company, and other factors described from time to time in the Company’s news releases and in its annual, quarterly and other reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended January 31, 2008. Please refer to such filings for a further discussion of these risks and uncertainties. Undue reliance should not be placed on forward-looking statements which speak only as of the date of this news release. The Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances that may arise after the date of this news release.
ABOUTTHE COMPANY
Headquartered in Walnut Creek, California, Longs Drug Stores Corporation (NYSE: LDG) is one of the most recognized retail drug store chains on the West Coast and in Hawaii. The Company operates 521 retail pharmacies and offers a wide assortment of merchandise focusing on health, wellness, beauty and convenience. Longs also provides pharmacy benefit management services and Medicare beneficiary prescription drug plans through its wholly-owned subsidiary, RxAmerica, LLC. Additional information about Longs and its services is available atwww.longs.com and more information about RxAmerica is available atwww.rxamerica.com.
Condensed Consolidated Income Statements (unaudited)
For the 13 weeks ended | For the 26 weeks ended | |||||||||||||||
July 31, 2008 | July 26, 2007 | July 31, 2008 | July 26, 2007 | |||||||||||||
Thousands Except Per Share Amounts | ||||||||||||||||
Revenues: | ||||||||||||||||
Retail drug store sales | $ | 1,201,468 | $ | 1,195,591 | $ | 2,421,113 | $ | 2,380,602 | ||||||||
Pharmacy benefit services revenues | 131,269 | 78,958 | 318,605 | 190,957 | ||||||||||||
Total revenues | 1,332,737 | 1,274,549 | 2,739,718 | 2,571,559 | ||||||||||||
Costs and expenses: | ||||||||||||||||
Cost of retail drug store sales | 881,268 | 881,118 | 1,775,745 | 1,762,177 | ||||||||||||
Prescription drug plan benefit costs | 96,500 | 54,174 | 259,589 | 146,670 | ||||||||||||
Operating and administrative expenses | 307,388 | 295,030 | 617,049 | 581,300 | ||||||||||||
Legal settlements and other disputes, net | 500 | (431 | ) | 500 | (431 | ) | ||||||||||
Provision for store closures and asset impairments, net | 599 | 371 | 816 | 9,586 | ||||||||||||
Operating income | 46,482 | 44,287 | 86,019 | 72,257 | ||||||||||||
Interest expense | 2,786 | 1,772 | 5,572 | 3,448 | ||||||||||||
Interest income | (178 | ) | (282 | ) | (433 | ) | (478 | ) | ||||||||
Income from continuing operations before income taxes | 43,874 | 42,797 | 80,880 | 69,287 | ||||||||||||
Income taxes | 16,377 | 17,059 | 30,300 | 27,523 | ||||||||||||
Income from continuing operations | 27,497 | 25,738 | 50,580 | 41,764 | ||||||||||||
Income (loss) from discontinued operations, net of tax | — | 869 | 456 | (2,119 | ) | |||||||||||
Net income | $ | 27,497 | $ | 26,607 | $ | 51,036 | $ | 39,645 | ||||||||
Earnings per common share: | ||||||||||||||||
Basic: | ||||||||||||||||
Income from continuing operations | $ | 0.78 | $ | 0.69 | $ | 1.42 | $ | 1.11 | ||||||||
Income (loss) from discontinued operations | — | 0.02 | 0.02 | (0.05 | ) | |||||||||||
Net income | 0.78 | 0.71 | 1.44 | 1.06 | ||||||||||||
Diluted: | ||||||||||||||||
Income from continuing operations | $ | 0.76 | $ | 0.67 | $ | 1.40 | $ | 1.09 | ||||||||
Income (loss) from discontinued operations | — | 0.02 | 0.01 | (0.06 | ) | |||||||||||
Net income | 0.76 | 0.69 | 1.41 | 1.03 | ||||||||||||
Dividends per common share | $ | 0.14 | $ | 0.14 | $ | 0.28 | $ | 0.28 | ||||||||
Weighted average number of shares outstanding: | ||||||||||||||||
Basic | 35,350 | 37,417 | 35,553 | 37,469 | ||||||||||||
Diluted | 36,062 | 38,326 | 36,252 | 38,412 | ||||||||||||
Number of stores in continuing operations, beginning of period | 516 | 487 | 510 | 486 | ||||||||||||
Stores opened | 4 | 2 | 6 | 3 | ||||||||||||
Stores acquired | 2 | 6 | 7 | 12 | ||||||||||||
Stores closed | (1 | ) | (3 | ) | (2 | ) | (9 | ) | ||||||||
Number of stores in continuing operations, end of period | 521 | 492 | 521 | 492 | ||||||||||||
Number of stores in discontinued operations, beginning of period | — | 13 | — | 23 | ||||||||||||
Stores opened | — | — | — | — | ||||||||||||
Stores acquired | — | — | — | — | ||||||||||||
Stores closed | — | (13 | ) | — | (23 | ) | ||||||||||
Number of stores in discontinued operations, end of period | — | — | — | — | ||||||||||||
Store relocations | — | — | — | 1 |
Condensed Consolidated Balance Sheets (unaudited)
July 31, 2008 | January 31, 2008 | July 26, 2007 | |||||||
Thousands Except Share Information | |||||||||
Assets | |||||||||
Current Assets: | |||||||||
Cash and cash equivalents | $ | 26,867 | $ | 27,019 | $ | 24,463 | |||
Accounts receivable, net | 433,828 | 334,972 | 301,157 | ||||||
Merchandise inventories, net | 465,981 | 510,482 | 494,473 | ||||||
Deferred income taxes | 62,611 | 64,500 | 59,985 | ||||||
Prepaid expenses and other current assets | 23,823 | 22,043 | 23,280 | ||||||
Assets held for sale | 4,173 | 4,173 | 4,177 | ||||||
Total current assets | 1,017,283 | 963,189 | 907,535 | ||||||
Property: | |||||||||
Land | 119,312 | 116,564 | 113,279 | ||||||
Buildings and leasehold improvements | 755,504 | 725,930 | 692,893 | ||||||
Equipment and fixtures | 645,383 | 628,556 | 612,429 | ||||||
Total | 1,520,199 | 1,471,050 | 1,418,601 | ||||||
Less accumulated depreciation | 752,940 | 715,682 | 704,086 | ||||||
Property, net | 767,259 | 755,368 | 714,515 | ||||||
Goodwill | 84,394 | 84,394 | 84,450 | ||||||
Intangible assets, net | 32,350 | 32,240 | 25,775 | ||||||
Other non-current assets | 11,419 | 11,525 | 5,340 | ||||||
Total | $ | 1,912,705 | $ | 1,846,716 | $ | 1,737,615 | |||
Liabilities and Stockholders’ Equity | |||||||||
Current Liabilities: | |||||||||
Trade accounts payable | $ | 261,973 | $ | 273,953 | $ | 270,740 | |||
Pharmacy benefits payable | 254,273 | 176,829 | 123,475 | ||||||
Accrued employee compensation and benefits | 104,350 | 120,458 | 120,118 | ||||||
Taxes payable | 31,604 | 58,998 | 54,383 | ||||||
Other accrued expenses | 64,426 | 63,110 | 66,769 | ||||||
Current maturities of debt | 36,727 | 36,727 | 6,727 | ||||||
Total current liabilities | 753,353 | 730,075 | 642,212 | ||||||
Long-term debt | 205,636 | 183,364 | 123,364 | ||||||
Deferred income taxes and other long-term liabilities | 100,228 | 105,352 | 120,229 | ||||||
Total liabilities | 1,059,217 | 1,018,791 | 885,805 | ||||||
Commitments and Contingencies | |||||||||
Stockholders’ Equity: | |||||||||
Common stock: par value $0.50 per share, 120,000,000 shares authorized, 35,908,000, 36,204,000 and 37,760,000 shares outstanding | 17,954 | 18,102 | 18,880 | ||||||
Additional capital | 303,982 | 288,385 | 283,448 | ||||||
Retained earnings | 531,552 | 521,438 | 549,482 | ||||||
Total stockholders’ equity | 853,488 | 827,925 | 851,810 | ||||||
Total | $ | 1,912,705 | $ | 1,846,716 | $ | 1,737,615 | |||
Condensed Statements of Consolidated Cash Flows (unaudited)
For the 26 weeks ended | ||||||||
July 31, 2008 | July 26, 2007 | |||||||
Thousands | ||||||||
Operating Activities: | ||||||||
Net income | $ | 51,036 | $ | 39,645 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 51,436 | 46,543 | ||||||
Provision for store closures and asset impairments, net | (21 | ) | 5,772 | |||||
Deferred income taxes and other | (2,543 | ) | (3,968 | ) | ||||
Stock awards and options, net | 8,793 | 14,162 | ||||||
Excess tax benefits related to stock awards and options | (1,030 | ) | (6,570 | ) | ||||
Common stock contribution to benefit plan | 13,784 | 10,224 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (68,484 | ) | (12,492 | ) | ||||
Merchandise inventories | 45,777 | (5,403 | ) | |||||
Other assets | (1,674 | ) | (2,082 | ) | ||||
Current liabilities and other | 23,298 | (8,044 | ) | |||||
Net cash provided by operating activities | 120,372 | 77,787 | ||||||
Investing Activities: | ||||||||
Capital expenditures | (61,332 | ) | (67,059 | ) | ||||
Acquisitions | (4,931 | ) | (12,021 | ) | ||||
Proceeds from dispositions of property and intangible assets | 941 | 19,848 | ||||||
Net cash used in investing activities | (65,322 | ) | (59,232 | ) | ||||
Financing Activities: | ||||||||
Proceeds from revolving line of credit borrowings, net | 25,000 | 8,000 | ||||||
Repayments of private placement notes | (2,728 | ) | (2,727 | ) | ||||
Repurchase of common stock | (39,260 | ) | (29,994 | ) | ||||
Proceeds from exercise of stock options | 3,580 | 13,356 | ||||||
Dividend payments | (10,127 | ) | (10,614 | ) | ||||
Medicare Part D subsidy receipts (disbursements), net | (30,372 | ) | (5,937 | ) | ||||
Excess tax benefits related to stock awards and options | 1,030 | 6,570 | ||||||
Other | (2,325 | ) | (342 | ) | ||||
Net cash used in financing activities | (55,202 | ) | (21,688 | ) | ||||
Decrease in cash and cash equivalents | (152 | ) | (3,133 | ) | ||||
Cash and cash equivalents at beginning of period | 27,019 | 27,596 | ||||||
Cash and cash equivalents at end of period | $ | 26,867 | $ | 24,463 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest, net of amounts capitalized | $ | 5,348 | $ | 3,476 | ||||
Cash paid for income taxes | 44,663 | 16,402 |
Condensed Statements of Consolidated Stockholders’ Equity
Thousands except per share amounts
Common Stock | Additional Capital | Retained Earnings | Total Stockholders’ Equity | ||||||||||||||||
Shares | Amount | ||||||||||||||||||
Balance at January 25, 2007 | 37,406 | 18,703 | 250,113 | 546,741 | 815,557 | ||||||||||||||
Cumulative effect of accounting change (Note 2) | (526 | ) | (526 | ) | |||||||||||||||
Net income | 96,201 | 96,201 | |||||||||||||||||
Dividends ($.56 per share) | (21,183 | ) | (21,183 | ) | |||||||||||||||
Stock contributions to employee retirement plan | 278 | 139 | 13,296 | 13,435 | |||||||||||||||
Stock awards, net of forfeitures | 144 | 72 | (5,556 | ) | (5,484 | ) | |||||||||||||
Stock-based compensation expense | 19,926 | 19,926 | |||||||||||||||||
Stock options exercised | 850 | 425 | 19,268 | 19,693 | |||||||||||||||
Tax benefit related to stock awards and stock options, net | 10,094 | 10,094 | |||||||||||||||||
Repurchase of common stock | (2,474 | ) | (1,237 | ) | (18,756 | ) | (99,795 | ) | (119,788 | ) | |||||||||
Balance at January 31, 2008 | 36,204 | $ | 18,102 | $ | 288,385 | $ | 521,438 | $ | 827,925 | ||||||||||
Net income | 51,036 | 51,036 | |||||||||||||||||
Dividends ($.28 per share) | (10,127 | ) | (10,127 | ) | |||||||||||||||
Stock contributions to employee retirement plan | 305 | 153 | 13,631 | 13,784 | |||||||||||||||
Stock awards, net of forfeitures | 263 | 131 | (2,374 | ) | (2,243 | ) | |||||||||||||
Stock-based compensation expense | 7,137 | 7,137 | |||||||||||||||||
Stock options exercised | 137 | 68 | 3,512 | 3,580 | |||||||||||||||
Tax benefit related to stock awards and stock options, net | 1,656 | 1,656 | |||||||||||||||||
Repurchase of common stock | (1,000 | ) | (500 | ) | (7,965 | ) | (30,795 | ) | (39,260 | ) | |||||||||
Balance at July 31, 2008 | 35,909 | $ | 17,954 | $ | 303,982 | $ | 531,552 | $ | 853,488 | ||||||||||