Item 1. Business --------
General - -------
Genovese Drug Stores, Inc. (the "Registrant"), organized in 1924, operates a chain of retail drug and general merchandise stores primarily under the "Genovese" name, which as of January 30, 1998 totalled 135 stores in number. Its primary trading area covers Long Island and New York City. Stores are also located in southeastern New York and in the states of New Jersey and Connecticut. During fiscal 1998, the Registrant opened ten stores: four in Suffolk County, two in Nassau County, two in Queens, one in the Bronx and one in Connecticut. The Registrant continued a program of acquiring independent drug stores within its marketing area, purchasing the pharmacy files and inventory of independent drug stores, in some cases employing the pharmacist owner/managers.
In addition, as of January 30, 1998, the Registrant operated a mail order prescription division, a professional photo retail store, an arts and craft store and a discount clearance store.
Operations - ----------
The Registrant's stores, many of which are located in suburban areas, operate primarily on a self-service, cash and carry basis, and, as distinguished from the typical neighborhood pharmacy, service a relatively large trading area and offer a much broader selection of merchandise. The Registrant's headquarters is located in Melville, New York.
The Registrant operates a distribution center in Bohemia, New York, which is shipping approximately seventy-five percent of its store requirements. Merchandise is also purchased directly from manufacturers and other suppliers and is drop-shipped directly to each store. The Registrant's business is seasonal and sales are normally greater during the fourth fiscal quarter of the year than during any of the first three fiscal quarters.
Merchandising - -------------
The Registrant's stores contain a prescription drug department staffed by registered pharmacists and have a full line of prescription medicine. Besides prescription medicines, the merchandise carried includes health and beauty care, cosmetics, general sundries, small appliances, greeting cards, candy, photo and tobacco products. As of January 30, 1998, seventy-two stores offered on-site photofinishing services through the use of an In-Store Photo Lab.
The merchandising policy of the registrant is to maximize sales volume by offering a broad line of nationally advertised products at relatively low retail prices, in many cases below the manufacturer's suggested retail price.
The Registrant also sells private label products in the vitamin, health and beauty aid and general sundry areas. It is the policy of the Registrant to replace or return the purchase price of any item, exclusive of prescription drugs, which proves unsatisfactory to a customer. The Registrant advertises throughout the year to stimulate customer interest, with particular emphasis on seasonal merchandise. Advertising is conducted principally through newspapers, mail, advertising circulars, radio and television.
Trademarks and Service Marks - ----------------------------
The Genovese trademark is considered to be of material importance to the business of the Registrant. The Registrant holds the rights to certain other trademarks and service marks which the Registrant also believes in the aggregate to be essential to the conduct of its business in the areas in which its stores are located.
Information as to Industry Segments and Product Lines - -----------------------------------------------------
Operation of retail drug stores is the registrant's only significant industry segment. During its last five fiscal years, the only class of similar products sold by the Registrant which contributed 10 percent or more to total sales and revenues was prescription drugs, which accounted for approximately the following percentages of total sales:
1998 40.3% 1997 38.2% 1996 36.1% 1995 35.4% 1994 34.4%
Competition - -----------
The business of the Registrant is highly competitive. The Registrant competes
with a wide variety of retailers including drug stores, supermarkets, department stores and variety stores. Its competitors range from small independent stores to large regional and national chains, some of which have far greater resources than those of the Registrant. The Registrant believes that its ability to maintain its competitive position depends upon identifying and obtaining desirable locations for its stores, merchandising its products successfully, pricing its merchandise competitively and providing quality services.
Environmental Control - ---------------------
Compliance with federal, state and local provisions which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, have had no material effect upon the capital expenditures, earnings and competitive position of the Registrant.
Employees - ---------
As of January 30, 1998, the Registrant employed approximately 4,600 full time and part time associates, of whom approximately 4,100 are involved directly in store operations.
Item 2.
Item 2. Properties ----------
The Registrant's corporate headquarters is located in Melville, New York, where it owns a modern one-story brick building containing approximately 78,000 square feet of floor space. A portion of the building is dedicated to the registrant's mail order prescription division and an additional area is utilized for the processing of damaged merchandise returned from the Registrant's stores. The outstanding balance of the mortgage on the Melville building as of January 30, 1998 was $508,000. The Registrant owns a distribution center located in Bohemia, New York, which consists of approximately 265,000 square feet. The outstanding balance of the mortgage on the Bohemia building as of January 30, 1998 was $1,824,000. The Registrant owns a building with approximately 7,300 square feet of total floor space in Brooklyn, New York and a building with approximately 25,000 square feet of total floor space in Huntington, New York from which it operates drug stores. The Registrant also owns a building in Sayville, New York with approximately 10,000 square feet of space which it is converting into a drug store. The Registrant also utilizes approximately 100,000 square feet of public warehouse space for storing seasonal goods and other merchandise.
The 135 drug stores, the one arts & crafts store, the one discount clearance store and the one professional photo retail store operated by the Registrant are located in the following areas: Suffolk County (37), Nassau County (32), New York City (53), southeastern New York State (4), New Jersey (4) and Connecticut (8). These stores range in selling area from approximately 4,000 square feet to 22,000 square feet, generally averaging about 11,000 square feet of floor space per store. Nearly all are maintained under leases providing for terms which, in
general, range from 15 to 20 years, presently expiring at various dates from 1998 through 2021.
The fixtures and equipment contained in these operating facilities are generally owned by the Registrant. The Registrant considers its facilities to be adequate for its present operations and are in good condition and well maintained.
Item 3.
Item 3. Legal Proceedings -----------------
There are various routine lawsuits and claims pending against the Registrant. In the opinion of Registrant's management, after discussion with counsel, none of these actions will have a material adverse effect on the financial position or results of operations of the Registrant.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders ---------------------------------------------------
There were no submissions of matters to a vote of stockholders to report during the fourth quarter of the Registrant's fiscal year ended January 30, 1998.
Item 4A. Executive Officers of the Registrant ------------------------------------
The information under this Item is furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K. The following table sets forth the name, age, current position and principal occupation and employment during the past five years of the Registrant's executive officers.
Positions and offices held With the Registrant during Name of Executive Officer Age Officer Since the past five years - ------------------------- --- ------------- --------------------------
Leonard Genovese 63 1961 Chairman of the Board of Directors and President
Allan Patrick 51 1980 Executive Vice President and Director
John Harlow 40 1996 Senior vice President (Prior to April 1996 held the position of National Service Director of Retail Operations at Arthur Andersen Consulting)
Jerome Stengel* 61 1973 Vice President, Treasurer and Chief Financial Officer
Susan Crickmore 43 1993 Vice President - Human Resources
Dominick Lettieri 55 1982 Vice President
Irwin Livon* 61 1991 Vice President
Gene L. Wexler 42 1994 Vice President, General Counsel and Assistant Secretary (Prior to January 1994 was General Counsel at COS Computer Systems Inc., a computer leasing concern)
*Mr. Stengel and Mr. Livon are retiring as of May 1, 1998
PART II
Item 5.
Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters ------------------------------------------------------------------------
The Class A common stock of Genovese Drug Stores, Inc. is traded on the American Stock Exchange (ticket symbol GDXA). The Registrant's Class B common stock is not traded on any market and is restricted with respect to transfer (see Note 7 of the Notes to Financial Statements).
Quarterly cash dividends aggregating $.25 per share and $.20 per share per fiscal year (after restatement for the 10 percent stock dividends distributed in fiscal 1998 and 1997) were paid for both Class A and Class B shares during
the years ended January 30, 1998 and January 31, 1997. The Registrant has certain loan agreements which contain covenants effectively limiting the payment of cash dividends (see Note 2 of the Notes to Consolidated Financial Statements).
High and low stock prices for the last two fiscal years were:
Fiscal 1998 Fiscal 1997 ----------- ----------- Fiscal Quarter High Low High Low - ------- ---- --- ---- --- First $13 7/8 $10 3/4 $8 5/8 $7 1/2 Second $21 $14 1/8 $9 5/8 $6 7/8 Third $17 1/4 $14 1/2 $12 3/4 $9 3/8 Fourth $18 1/8 $14 1/8 $15 1/8 $12 1/8
The common stock prices, where appropriate, have been adjusted to reflect the 10 percent stock dividends distributed in fiscal 1998 and 1997.
Appropriate Number of Record Stockholders
Title of Class (as of January 30, 1998) ------------------ ------------------------
Common Stock: Class A, Par Value $1.00 per share, one vote per share 6,000* Class B, Par Value $1.00 per share, ten votes per share 162
* Since a portion of the Class A Common Stock is held in "street" name or nominee name, the Registrant is unable to determine the exact number of beneficial holders.
Item 6.
Item 6. Selected Financial Data -----------------------
The following is a summary of operations of the Registrant for the five years ended January 30, 1998
FISCAL YEAR ENDED (a) ---------------------
(a) Fiscal 1995 was a 53 week year. All other fiscal years presented are 52 week (b) Adjusted to reflect the effect of the 10 percent stock dividends
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -----------------------------------------------------------------------
Results of Operations - ---------------------
Fiscal 1998 versus Fiscal 1997 - ------------------------------
The Registrant achieved record sales for the thirty-fifth consecutive year as sales increased 10.7 percent to $769,460,000. The sales increase was led by a comparable store (those open all of fiscal 1998 and 1997) sales increase of 6.3 percent.
The Registrant recorded a net loss of $676,000 for fiscal 1998. On a per common share basis, the net loss was $.05.
Prescription drug sales accounted for 40.3 percent of total fiscal 1998 sales versus 38.2 percent in fiscal 1997. Pharmacy sales increased 16.7 percent due to an increase in the number of prescriptions filled and an increase in the average prescription selling price.
During fiscal 1998, third party sales accounted for 80.0 percent of the total prescription sales, compared to 75.8 percent in fiscal 1997.
The Registrant expects this trend to continue as the total number of people covered by third party plans increases.
The Registrant's non pharmacy sales increased by 6.9 percent.
During fiscal 1998, pharmacy margins decreased approximately 2.0 percentage points leading to a decrease in overall gross profit margins to 28.0 percent from 29.7 percent in fiscal 1997.
Selling, general and administrative expenses, which include occupancy costs, remained constant at 26.5 percent of sales.
On January 30, 1998, the Registrant announced a comprehensive strategic restructuring plan which included the elimination of approximately 600 positions and the sale or closing of five stores.
The Registrant recorded a pre-tax charge of $9.5 million ($.39 per common share) related to the restructuring. The charge was comprised of (i) separation costs ($3,070,000); (ii) provision for asset write-offs ($3,045,000); (iii) lease rejection costs ($2,425,000); and (iv) other ($960,000).
Interest expense was $3.8 million in fiscal 1998 versus $4.0 million in fiscal 1997.
The Registrant's effective income tax rate was 43.8 percent in both fiscal 1998 and 1997.
During fiscal 1998, the Registrant sold the assets of its Living Color photo processing plant for net proceeds of $3,952,000, which approximated their carrying value. Simultaneously with the sale of the processing plant, the Registrant entered into an agreement whereby the Registrant will outsource all of its out-of-store photo finishing.
Fiscal 1997 versus Fiscal 1996 - ------------------------------
Sales increased 13.6% to $695,298,000. The sales increase was led by a comparable store (those open all of fiscal 1997 and 1996) sales increase of 8.2%.
Net income for fiscal 1997 was $10,401,000, an increase of 36.1% over the $7,607,000 recorded in fiscal 1996. On a fully diluted per common share basis, net income increased to $.76 from $.56.
Prescription drug sales accounted for 38.2% of total fiscal 1997 sales versus 36.1% in fiscal 1996. Pharmacy sales increased 20.0% due to an increase in the number of prescriptions filled and an increase in the average prescription selling price.
During fiscal 1997, third party sales accounted for 75.8% of the total prescription sales, compared to 69.6% in fiscal 1996.
The Registrant's non-pharmacy sales increased by 10.0%.
During fiscal 1997, increases in non-pharmacy gross margins offset decreases in pharmacy gross margins resulting in the Registrant's gross profit margin remaining constant at 29.7%.
Selling, general and administrative expenses, including occupancy costs, decreased to 26.5% of sales versus 27.0% in fiscal 1996. The decrease was attributable to cost control measures put in place by management, particularly with respect to payroll expenses, and certain fixed expenses being absorbed by a larger sales base.
Interest expense was $4.0 million in fiscal 1997 versus $3.9 million in fiscal 1996.
The Registrant's effective tax rate decreased to 43.8% from 44.5% last year.
During fiscal 1996, the Registrant sold the assets of its nursing home division for net proceeds of approximately $3.0 million, and recorded a gain of $1.3 million on the sale.
Liquidity and Capital Resources - -------------------------------
As of January 30, 1998, the Registrant had $2,487,000 in cash compared to $2,368,000 at January 31, 1997. Working capital levels increased to $54.0 million at January 30, 1998 versus $52.4 million at January 31, 1997.
The Registrant's cash requirements arise primarily from the costs associated with the opening of new stores, remodeling of existing stores, purchasing of inventory, debt service and payment of dividends.
During fiscal 1998, operating activities provided $11.3 million compared with $25.9 million in the prior year. The decrease is primarily due to the recording of a loss in fiscal 1998 versus income in 1997, the recording of a deferred income tax benefit, increases in merchandise inventory, prepaid expenses and other and decreases in accounts payable and accrued expenses, partially offset by the recording of a reserve for restructuring costs and receipt of supplier advances.
Investing activities used $17.2 million during fiscal 1998 through the purchase of property and equipment partially offset by proceeds from the sale of the Living Color Lab. During fiscal 1997 investing activities used $18.5 million primarily for the purchase of property and equipment.
During fiscal 1998, financing activities provided $6.0 million primarily as a result of additional net borrowings under a revolving term loan agreement partially offset by the payment of cash dividends. During fiscal 1997, financing activities used $7.2 million primarily due to the repayment of debt and the payment of cash dividends.
As of January 30, 1998 the Registrant maintained a revolving term loan agreement with three banks which allowed for aggregate borrowings of $90 million. The registrant has $36 million in available credit under this facility at January 30, 1998.
The Registrant made capital expenditures of $21.1 million during fiscal 1998 compared to $18.5 million during fiscal 1997. These capital expenditures relate primarily to the opening of new stores, the remodeling of existing stores and improvements in the Registrant's distribution center and headquarters facilities. The Registrant anticipates capital expenditures of approximately $20 million for fiscal 1999 primarily related to the opening of approximately 10 new stores, remodeling of certain existing stores, improvements in the distribution center and in the corporate office and investments in technology.
Management of the Registrant believes that its operations and capital resources will provide sufficient cash availability to meet its liquidity needs and finance planned growth.
Recent Accounting Pronouncements - --------------------------------
During fiscal 1998 the Registrant adopted Statement of Financial Accounting Standards No. 128 "Earnings per share." Net income (loss) per common share was restated for all periods presented.
Year 2000 Computer Issues - -------------------------
What is commonly known as the "Year 2000 Issue" arises because many computer hardware and software systems use only two digits to represent the year. As a result, these systems and programs may not calculate dates beyond 1999, which may cause errors in information or system failures.
With respect to its internal systems, the Registrant is taking appropriate steps to remediate the year 2000 issues and does not expect the costs of these efforts to be material. However, the year 2000 readiness of the Registrant's suppliers may vary. While the Registrant does not believe the year 2000 matters discussed above will have a material impact on its business, financial condition or result of operations, it is uncertain whether or to what extent the Registrant may be affected by such matters.
Impact of Inflation - -------------------
Although inflation has slowed in recent years, it is still a factor in our economy and the Registrant continues to seek ways to mitigate its impact. To the extent permitted by competition, the Registrant passes increased
costs on to its customers by increasing sales prices over time. Sales reported in the Registrant's financial statements have increased, in an indeterminable amount, due to inflationary increases in selling prices.
Forward Looking Statements - --------------------------
This annual report on From 10-K contains forward looking statements that are based on current expectations, estimates and plans, which involve risks and uncertainties. Actual results or achievements may be materially different. The Registrant's plans and expectations are based upon assumptions involving judgments with respect to future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Registrant. Forward-looking statements include the information concerning future results of operations, sales growth, cost savings and the ability of the Registrant and its key vendors and suppliers to successfully manage issues presented by the Year 2000; as well as those preceded by, followed by or that otherwise include the words: "believes," "expects," "anticipates," "intends," "estimates" or other similar expressions. For those statements, we claim the protection of the safe
harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The following important factors could affect the future results of the Registrant and could cause those results to differ materially from those expressed in our forward-looking statements: materially adverse changes in economic conditions generally or in the markets served by the Registrant; future regulatory and legislative actions affecting the Registrant and/or the chain-drug industry; competition from other drugstore chains, from alternative distribution channels such as supermarkets, membership clubs, other retailers and mail order companies; and from third party plans; and the continued efforts of health maintenance organizations, managed care organizations, pharmacy benefit management companies and other third party payors to reduce prescription drug costs. The forward-looking statements referred to above are also subject to the Registrant's ability to continue to secure suitable new store locations on favorable lease terms as it seeks to open new stores; the Registrant's ability to continue to purchase inventory on favorable terms; the Registrant's ability to attract, hire and retain suitable pharmacists and management personnel; relationships with suppliers; and the impact of inflation.
Item 8.
Item 8. Financial Statements and Supplementary Data -------------------------------------------
The response to this Item is submitted in a separate section of this report.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ---------------------------------------------------------------
There was no change of accountants for the Registrant within the twenty-four months prior to the date of the most recent financial statements, nor any disagreement on any matter of accounting principles or practices of financial disclosure.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant --------------------------------------------------
Information with respect to members of the Board of Directors of the Registrant is contained in the Proxy Statement for the Annual Meeting of Shareholders (the "1998 Proxy Statement") to be held on June 15, 1998, under the heading "Election of Directors," and is incorporated herein by reference.
Information regarding the executive officers of the Registrant is included as Item 4A of Part I as permitted by Instruction 3 to Item 401(b) of Regulation S-K. The information required by Item 405 of Regulation S-K is incorporated by reference form the 1998 Proxy Statement.
Item 11.
Item 11. Executive Compensation ----------------------
The information required by this Item is incorporated by reference from the 1998 Proxy Statement.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management --------------------------------------------------------------
The information required by this Item is incorporated by reference from the 1998 Proxy Statement.
Item 13.
Item 13. Certain Relationships and Related Transactions ----------------------------------------------
The information required by this Item is incorporated by reference from the 1998 Proxy Statement.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Report on Form 8-K --------------------------------------------------------------
(a) (1) and (2) - The response to this portion of Item 14 is submitted as a separate section of this report.
(3) Listing of Exhibits -------------------
3.1 Restated Certificate of Incorporation, as filed with the Secretary of State of the State of Delaware on June 27, 1995 (Exhibit 3.1 of Annual Report on Form 10-K for the year ended February 2, 1996) 3.2 By-Laws, as amended (Exhibit 3.2 of Annual Report on Form 10-K for the year ended January 31, 1992) 3.3 By-Law Section 1.01, as amended through December 4, 1995 (Exhibit 3.3 of Annual Report on Form 10-K for the year ended February 2, 1996) 10.1 1984 Employee Stock Option and Stock Appreciation Rights Plan ("1984 Plan") (filed June 20, 1996 on Form S-8 Registration Statement No. 33-6461) (Exhibit 10.1 of Annual Report on Form 10-K for the year ended January 31, 1997)
10.2 Amendment No. 4 to the 1984 Plan, as adopted on June 17, 1996, and Amendment No. 5 to the 1984 Plan, as adopted on March 12, 1997 (Exhibit 10.2 of Annual Report on Form 10-K for the year ended January 31, 1997) 10.3 Amendment No 6. to the 1984 Plan, as adopted on June 16, 1997
10.4 1987 Executive Bonus and Stock Plan, as amended through June 13, 1994 ("1987 Plan") (Exhibit 10.2 of Annual Report on Form 10-K for the year ended February 3, 1995) 10.5 Amendment No.2 to the 1987 Plan, as adopted on June 12, 1995, and Amendment No. 3 to the 1987 Plan, as adopted on March 12, 1997 (Exhibit 10.4 of Annual Report on Form 10-K for the year ended January 31, 1997) 10.6 Registrant's Retirement Income Plan, as amended and restated effective as of January 1, 1989 (Exhibit 10.3 of Annual Report on Form 10-K for the year ended February 3, 1995) 10.7 First Amendment to the Genovese Drug Stores Inc. Retirement Income Plan (As amended January 1, 1989) (Exhibit 10.8 of Annual Report on Form 10-K for the year ended February 2, 1996) 10.8 Registrant's Employee Stock Ownership Plan and Trust, as amended and restated effective January 1, 1989 (Exhibit 10.4 of Annual Report on Form 10-K for the year ended February 3, 1995) 10.9 Amendment to Employee Stock Ownership Plan and Trust, as adopted on March 10, 1998 10.10 Registrant's Retirement and Savings Plan, effective January 1, 1994 (Exhibit 10.5 of Annual Report on Form 10-K for the year ended February 3, 1995) 10.11 Split Dollar Insurance Plan between Registrant and Leonard Genovese, dated October 13, 1994 (Exhibit 10.6 of Annual Report on Form 10-K for the year ended February 3, 1995) 10.12 Split Dollar Insurance Plan between Registrant and Leonard Genovese, dated June 29, 1995 (Exhibit 10.9 of Annual Report on Form 10-K for the year ended February 2, 1996) 10.13 Form of Severance Agreement (Exhibit 10.7 of Annual Report on Form 10-K for the year and restated effective ended February 2, 1996) 10.14 Amendment No. 1 to Form of Severance Agreement, as adopted on June 16, 1997 and Amendment No. 2 to Form of Severance Agreement, as adopted on December 9, 1997 10.15 Revolving Credit Agreement dated January 17, 1997, among Registrant and Fleet Bank, National Association, The Bank of New York and State Street Bank and Trust Company (Exhibit 10.12 of Annual Report on Form 10-K for the year ended January 31, 1997) 10.16 First Amendment and Waiver to Revolving Credit Agreement, dated as of April 28, 1998, among Registrant and Fleet Bank, National Association, The Bank of New York and State Street Bank and Trust company 10.17 Form of Employee's Nonqualified Stock Option Agreement, as adopted on June 16, 1997 10.18 Form of Amendment to June 16, 1997 Nonqualified Stock Option Agreement, as adopted for non-employee directors on March 10, 10.19 Retirement Agreement dated March 6, 1998 between Registrant and Herbert J. Kett 10.20 Retirement Agreement dated March 6, 1998 between Registrant and Jerome Stengel
10.21 Retirement Agreement dated March 6, 1998 between Registrant and Irwin Livon 10.22 Stockholders Agreement dated June 30, 1998 between Leonard Genovese and Frances Genovese Wangberg (Exhibit 1 to Amendment No.3 to joint Schedule 13D filed on July 2, 1997) 11 Computation of Net Income Per Common Share 21 Subsidiaries of the Registrant
23 Consent of Independent Auditors (b) A Report on Form 8-K was filed on January 30, 1998 for the purpose of providing the information set forth in a press release issued by the Registrant on January 30, 1998, a copy of which was filed as Exhibit 99.1 to the Form 8-K. The press release announced the Registrant's strategic restructuring, which is described in Item 7 of this Report on Form 10-K. (c) Exhibits - The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedules - All financial statement schedules are omitted because they are not applicable or the required information is disclosed in the financial statements or the notes thereto.
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.
GENOVESE DRUG STORES, INC. (Registrant)
Dated: April 22, 1998 By: /s/ Jerome Stengel ------------------ Jerome Stengel Vice President & Treasurer Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
GENOVESE DRUG STORES, INC.
MELVILLE, NEW YORK
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) and (2), (c) and (d)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENTS AND CERTAIN EXHIBITS
YEAR ENDED JANUARY 30, 1998
GENOVESE DRUG STORES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Page ----
INDEPENDENT AUDITORS' REPORT
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of January 30, 1998 and January 31, 1997
Consolidated Statements of Operations for the Years Ended January 30, 1998, January 31, 1997 and February 2, 1996
Consolidated Statements of Stockholders' Equity for the Years Ended January 30, 1998, January 31, 1997 and February 2, 1996 to
Consolidated Statements of Cash Flows for the Years Ended January 30, 1998, January 31, 1997 and February 2, 1996
Notes to the Consolidated Financial Statements to
INDEPENDENT AUDITORS' REPORT
Genovese Drug Stores, Inc.:
We have audited the accompanying consolidated balance sheets of Genovese Drug Stores, Inc. and subsidiaries (the "Company") as of January 30, 1998 and January 31, 1997 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three fiscal years in the period ended January 30, 1998. 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 Company at January 30, 1998 and January 31, 1997, and the results of their operations and their cash flows for each of the three fiscal years in the period ended January 30, 1998 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
New York, New York March 4, 1998
GENOVESE DRUG STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS JANUARY 30, 1998 AND JANUARY 31, 1997 (Dollars in Thousands) - --------------------------------------------------------------------------------
ASSETS 1998 1997 ---- ----
CURRENT ASSETS: Cash $ 2,487 $ 2,368 Receivables 20,340 21,179 Merchandise inventories 116,046 113,182 Prepaid expenses and other 6,361 4,527 -------- --------
Total current assets 145,234 141,256 -------- --------
PROPERTY AND EQUIPMENT - At cost: Land 2,657 2,657 Buildings 18,425 17,110 Leasehold improvements, furniture, fixtures and equipment 142,850 130,080 -------- --------
Total property and equipment 163,932 149,847
Less - accumulated depreciation and amortization 78,457 70,412 -------- --------
PROPERTY AND EQUIPMENT - Net 85,475 79,435 -------- --------
OTHER ASSETS 11,280 9,372 -------- --------
TOTAL $241,989 $230,063 ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES: Accounts payable - trade $ 63,506 $ 67,558 Accrued expenses 13,934 16,875 Current portion of long-term debt 1,022 871 Reserve for restructuring costs 9,500 -- Deferred income taxes 3,268 3,058 -------- --------
Total current liabilities 91,230 88,362
-------- --------
LONG-TERM DEBT 58,441 49,088 -------- --------
DEFERRED INCOME TAXES 4,198 8,481 -------- --------
OTHER LONG TERM LIABILITIES 14,272 6,452 -------- --------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY 73,848 77,680 -------- --------
TOTAL $241,989 $230,063 ======== ========
See notes to consolidated financial statements.
GENOVESE DRUG STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JANUARY 30, 1998, JANUARY 31, 1997 AND FEBRUARY 2, 1996 (Dollars in Thousands, Except per Common Share Amounts) - --------------------------------------------------------------------------------
1998 1997 1996 ---- ---- ----
SALES $ 769,460 $ 695,298 $ 612,279 --------- --------- ---------
COST AND EXPENSES: Cost of merchandise sold 553,737 488,507 430,505 Selling, general and administrative 203,652 184,283 165,491 Restructuring charges 9,500 -- -- --------- --------- ---------
766,889 672,790 595,996 --------- --------- ---------
OPERATING PROFIT 2,571 22,508 16,283
INTEREST EXPENSE, net (3,774) (4,001) (3,876)
GAIN ON SALE OF DIVISION -- -- 1,300 --------- --------- ---------
(LOSS) INCOME BEFORE INCOME TAXES (1,203) 18,507 13,707
BENEFIT (PROVISION) FOR INCOME TAXES 527 (8,106) (6,100) --------- --------- ---------
NET (LOSS) INCOME $ (676) $ 10,401 $ 7,607 ========= ========= =========
NET (LOSS) INCOME PER COMMON SHARE:
Basic $ (0.05) $ 0.77 $ 0.57 ========= ========= =========
Diluted $ (0.05) $ 0.76 $ 0.56 ========= ========= =========
See notes to consolidated financial statements.
GENOVESE DRUG STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED JANUARY 30, 1998, JANUARY 31, 1997 AND FEBRUARY 2, 1996 (Dollars in Thousands) - --------------------------------------------------------------------------------
See notes to consolidated financial statements. (Continued)
GENOVESE DRUG STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED JANUARY 30, 1998, JANUARY 31, 1997 AND FEBRUARY 2, 1996 (Dollars in Thousands) - --------------------------------------------------------------------------------
See notes to consolidated financial statements. (Concluded)
GENOVESE DRUG STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JANUARY 30, 1998, JANUARY 31, 1997 AND FEBRUARY 2, 1996 (Dollars in Thousands) - --------------------------------------------------------------------------------
See notes to consolidated financial statements.
GENOVESE DRUG STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JANUARY 30, 1998, JANUARY 31, 1997 AND FEBRUARY 2, 1996 (Dollars in Thousands) - --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying consolidated financial statements include the accounts of Genovese Drug Stores, Inc. and its wholly owned subsidiaries (the "Company'). All significant intercompany accounts and transactions have been eliminated. The Company is primarily engaged in the operation of a chain of super drug stores located in New York, New Jersey and Connecticut. The accounting policies relative to the Company are as follows:
Receivables - A majority of the Company's receivables are due from third-party providers (various insurance companies, benefit management companies and governmental agencies). As is industry practice, these receivables are uncollateralized. As of January 30, 1998 approximately 13.2 percent of receivables were due from a state welfare organization. At January 30, 1998 and January 31, 1997, the Company's allowance for doubtful accounts was $1,130 and $780, respectively.
Merchandise Inventories - Merchandise inventories are valued at the lower of cost, determined on the last-in, first-out method, or market. If the inventories at January 30, 1998 and January 31, 1997 had been valued at year-end replacement costs, its value would have increased $18,400 and $18,700, respectively.
Property and Equipment - Property and equipment are stated at cost. Depreciation of furniture, fixtures and equipment is on the straight line method over their estimated useful lives ranging from three to ten years. Depreciation of buildings is on the straight-line method over their estimated useful lives of 35 years. Leasehold improvements are amortized over the lesser of their useful lives or the term of the lease.
Intangible Assets - Intangible assets are amortized on a straight-line basis over their estimated useful lives ranging from five to twenty years. The carrying value of intangible assets is periodically reviewed by the Company based on the expected future undiscounted operating cash flows of the related business unit. Based upon its most recent analysis, management of the Company believes that no material impairment of intangible assets exists at January 30, 1998.
Supplier Advances - The Company receives advances from certain vendors in connection with long term supply agreements. Such advances are recognized into earnings over the term of the related agreement.
Income Taxes - The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, SFAS 109 generally considers all expected future events other than enactments of changes in the tax law or rates.
Net Income (Loss) Per Common Share - In January 1998, the Company adopted Statement of Financial Accounting Standards No. 128 "Earnings Per Share" and restated net income (loss) per common share for all periods presented. Net income (loss) per common share-basic was calculated based upon the weighted average number of common shares outstanding during the respective periods. Net income (loss) per common share-diluted was calculated based upon the weighted average number of common shares outstanding and included the equivalent shares for dilutive options and executive stock bonus shares outstanding during the respective periods. The weighted average common shares outstanding for the computation of basic earnings per share was 13,631,000 in 1998, 13,469,000 in 1997 and 13,413,000 in 1996. Additionally, 153,000 and 115,000 of equivalent common shares were included in 1997 and 1996, respectively, for the diluted calculation. No additional shares were included in the 1998 diluted calculation.
Fiscal Year - The Company's fiscal year ends on the Friday closest to January 31.
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 at the date of the financial statements and statements of income during the periods presented. Actual results could differ from those estimates.
Disclosure of Fair Value of Financial Instruments - Management of the Company believes that the fair value of the Company's financial instruments approximates their recorded value due to the short maturities of these instruments as of January 30, 1998 and January 31, 1997.
Reclassification - Certain amounts in the 1997 and 1996 financial statements have been reclassified to conform with the 1998 presentation.
2. LONG-TERM DEBT
Long-term debt consists of the following:
January 30, January 31, 1998 1997 ---- ----
Revolving term loan agreement $ 54,000 $ 44,000
Industrial Development Revenue Bonds 2,332 3,049
Other 3,131 2,910 ----------- -----------
Aggregate debt 59,463 49,959 Less current maturities (1,022) (871) ----------- -----------
Long-term debt $ 58,441 $ 49,088 =========== ===========
Revolving Term Loan Agreement - During fiscal 1997, the Company entered into a five year revolving term loan agreement with three banks under which the banks are committed to lend up to $90 million to the Company. Subsequent to January 30, 1998, the loan agreement was amended. Under the amended agreement, borrowings will bear interest at between fifty-five and one hundred and ten basis points over the London Interbank Offered Rate ("LIBOR") or fifty basis points below the banks' prime lending rate. As of January 30, 1998, the Company's borrowings bore interest at sixty basis points over LIBOR (6.73 to 6.83 percent) or fifty basis points below the banks' prime lending rate (8 percent).
The loan agreement, as amended, contains certain covenants which include (i) maintenance of certain financial ratios, (ii) maintenance of certain amounts of working capital and tangible net worth, (iii) limitations on capital expenditures, the payment of dividends and the purchase of treasury stock, (iv) limitations on other indebtedness, (v) limitations on the disposal of assets, (vi) limitations on investments, (vii) limitations on corporate reorganizations, and (viii) the Company must maintain borrowing levels at or below $70 million for a thirty consecutive day period during the year.
Information on short-term borrowings and interest rates follows:
1998 1997 1996 ---- ---- ----
Maximum amount outstanding -- $ 21,000 $ 29,750 Average daily short-term borrowings -- 13,551 17,797 Weighted average daily interest rate -- 6.2% 6.7%
Industrial Development Revenue Bonds - As of January 30, 1998, the 1985 Industrial Development Revenue Bond had an outstanding balance of $1,824, which bore interest at 72% of the prime lending rate (6.12% at January 30, 1998), payable in equal monthly installments through January 2001 and was secured by land and building, with an aggregate carrying value of $8,169.
As of January 30, 1998, the 1982 Industrial Development Revenue Bond had a outstanding balance of $508, which bore interest at 65% of the prime lending rate (5.3% at January 30, 1998), payable in equal monthly installments through August 2002 and was secured by land, building and equipment, with an aggregate carrying value of $2,979.
Interest expense aggregated approximately $3,774, $4,001 and $3,902 in 1998, 1997 and 1996, respectively.
The aggregate debt maturities subsequent to January 30, 1998 are as follows:
Fiscal Year
1999 $ 1,022 2000 952 2001 808 2002 109 2003 56,572 --------
Total $ 59,463 ========
3. RESTRUCTURING COSTS
On January 30, 1998, the Company announced a comprehensive strategic restructuring plan which included the elimination of approximately 600 positions and the sale or closing of five retail store locations. In conjunction with the announcement, the Company recorded a pre-tax provision for restructuring costs of $9.5 million ($.39 per share), including the following:
Separation costs $ 3,070 Provision for asset write-offs 3,045 Lease rejection costs 2,425 Other 960 -------
$ 9,500 =======
At January 30, 1998, $9.5 million is included in the consolidated balance sheet as reserve for restructuring costs.
4. OTHER LONG TERM LIABILITIES
Other long term liabilities consist of the following:
1998 1997 ---- ----
Supplier advances $ 6,373 $ 467 Deferred rent expense 4,024 2,762 Insurance reserves 3,364 2,272 Other 511 951 ------- -------
$14,272 $ 6,452 ======= =======
5. INCOME TAXES
The (benefit)provision for income taxes consist of the following:
1998 1997 1996 ---- ---- ----
Current: Federal $ 2,534 $ 4,591 $ 2,683 State and local 1,012 1,967 1,300 Deferred (4,073) 1,548 2,117 ------- ------- -------
Total $ (527) $ 8,106 $ 6,100 ======= ======= =======
The components of the deferred tax liability at January 30, 1998 and January 31, 1997 are as follows:
1998 1997 ---- ----
Excess of tax over book depreciation $ 7,673 $ 7,078 Inventory 6,800 5,532 Liabilities not currently deductible (8,020) (2,241) Other, net 1,013 1,170 -------- --------
Net deferred tax liability $ 7,466 $ 11,539 ======== ========
The Company's effective income tax rate differs from the Federal statutory rate. The reasons for this difference are as follows:
1998 1997 1996 Amount % Amount % Amount %
Federal statutory rate $ (421) 35.0 $6,477 35.0 $4,797 35.0 Increases due to: State and local taxes, net of Federal income tax benefits (105) 8.7 1,610 8.7 1,224 8.9 Other, net (1) 0.1 19 0.1 79 0.6 ------ ---- ------ ---- ------ ----
Effective rate $ (527) 43.8 $8,106 43.8 $6,100 44.5 ====== ==== ====== ==== ====== ====
6. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is required to make rental payments under noncancelable operating leases covering retail stores and certain equipment. Substantially all real estate leases include renewal options of five to twenty years and many require additional rentals based on a percentage of sales and increases in real estate taxes. Rent expense for retail stores and equipment was $30,123 in 1998, $27,465 in 1997 and $24,221 in 1996. The contingent portion of rent expense amounted to $1,175, $1,037 and $877 in 1998, 1997 and 1996, respectively.
Minimum rental commitments at January 30, 1998 under all noncancelable operating leases are as follows:
Fiscal Year Total ----------- -----
1999 $ 24,570 2000 24,260 2001 22,714 2002 21,470 2003 20,217 2004-2008 82,462 2009-2013 54,125 2014-2018 20,660 2019-2022 2,826 ---------
Total $ 273,304 =========
The minimum rental commitments do not include contingent amounts due of approximately $921, if the purchasers of stores sold by the Company were to default on the lease obligations assumed.
The Company maintains general liability and workers' compensation insurance policies with insurance carriers. Certain of these policies contain either deductible or self-retention limits. As of January 30, 1998, the maximum exposure to the aggregate deductible and self-retention limits for all open policies was approximately $6.9 million. As of January 30, 1998, a liability of approximately $4.8 million has been recorded as management's best estimate of the present value (assuming a discount rate of 5.0%) of all future payments relating to these policies.
The Company has been named as a defendant in certain claims and lawsuits incidental to the Company's business. Management of the Company, based upon discussions with legal counsel, believes that the ultimate resolution of such claims and lawsuits will not result in any material adverse effect on the Company's financial position or results of operations.
7. COMMON STOCK
The Company has 20,000,000 Class A shares and 12,000,000 Class B shares authorized. The par value of both classes of common stock is $1.00 per share. The Class A common stock entitles the holders to one vote per share. The Class B common stock entitles the holders to ten votes per share. The Class B common stock is restrictive with respect to transfer. Upon the sale or change in beneficial ownership of a share of Class B common stock, the purchaser or new beneficial owner shall only be entitled to receive Class A common stock, except in certain instances. Neither class will have preference over the other with regard to dividends or upon
liquidation.
During fiscal 1998, 1997 and 1996, the Company's Board of Directors declared and effected ten percent stock dividends. Common share amounts and per common share amounts have been retroactively adjusted to reflect the effect of the above-mentioned ten percent stock dividends where appropriate.
Stock Option Plan - As of January 30, 1998, under the 1984 Employee Stock Option and Appreciation Rights Plan (the "Option Plan"), approximately 1,607,000 shares of Class A common stock were reserved for future issuance under options granted but not exercised or to be granted for future periods of up to ten years at an exercise price not less than the fair market value of the shares at the date of grant. The options may be granted to officers, directors, other key employees and consultants, and become vested upon grant or as otherwise determined by the Board of Directors of the Company.
Option activity under the plan was as follows:
As of January 30, 1998, the outstanding options had remaining lives of between two and nine years with a weighted average life of 8.4 years.
The Company continues to account for the Option Plan using the intrinsic value method in accordance with Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees" and its related interpretations. Accordingly, the Company makes no charge to income in connection with the Option Plan. Effective with fiscal 1997, the Company is subject to the provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 established a fair value method of calculating compensation expense related to stock-based compensation plans, and requires the
disclosure of the pro forma effects of recording such expense. Had compensation costs of the Plan been determined under the fair value alternative method as stated in SFAS 123, the Company would have prepared a fair value model for such options and recorded such amount in the consolidated statement of operations as compensation expense. On a pro forma basis, the results from operations and earning per common share-basic for fiscal 1998 and 1997 would have been $(1,972), or $(.14) and $10,276, or $.76, respectively. The Company arrived at the fair value of stock grants at the date of grant by using the Black-Scholes option pricing model with the following assumptions used for grants; risk free interest rate of 5.5 percent; expected dividend rate of 2.0 percent; expected term of options 9.5 years; and expected volatility of 34.4 percent.
8. RETIREMENT AND PENSION PLANS
Retirement Income Plan - Net pension expense for the Company's Retirement Income Plan (the "Plan") for 1998, 1997 and 1996 was $30, $74, and $108, respectively.
The components of net pension expense for 1998, 1997 and 1996 are summarized as follows:
1998 1997 1996 ---- ---- ----
Interest cost on projected benefit obligations $ 211 $ 207 $ 207 Expected return on plan assets (578) (342) (160) Other - net 397 209 61 ----- ----- -----
Net pension expense $ 30 $ 74 $ 108 ===== ===== =====
The funded status of the Plan and the amounts included in the accompanying balance sheets as of January 30, 1998 and January 31, 1997 are as follows:
Plan assets are invested primarily in bank pooled equity funds, bank fixed income funds and the Company's Class A common stock. At January 30, 1998, the Plan held approximately 38,000 shares of the Company's Class A common stock.
Significant assumptions used in determining net periodic pension expense and related prepaid pension expense were as follows:
1998 1997 1996 ---- ---- ----
Discount rate 7.0% 7.0% 7.5% Expected long-term rate of return on assets 7.0% 7.0% 7.5%
Benefits under the Plan are frozen at the maximum benefit available to covered employees as of December 31, 1988.
Unrecognized net obligations at transition date are being amortized over 33.57 years and unrecognized gains and losses subsequent to transition date are being amortized over 17 years.
Employee Stock Ownership Plan - The Company has an Employee Stock
Ownership Plan (the "ESOP"), a defined contribution plan, for the benefit of all employees meeting certain minimum service requirements. Contributions to the ESOP are determined annually and are made at the discretion of the Company's Board of Directors. The ESOP's investments consists primarily of Class A common stock of the Company. The Company provided for a contribution of $0 in 1998, $95 in 1997 and $103 in 1996. At January 30, 1998, the ESOP held approximately 417,000 shares of the Company's Class A common stock.
Retirement and Savings Plan - The Company maintains the Genovese Retirement and Savings Plan (the "Savings Plan"), a contributory savings plan under Section 401(k) of the Internal Revenue Code, for the benefit of all employees meeting certain minimum service requirements. The Company's contribution under the Savings Plan, which amounts to 40 percent of the first four percent of the employees' contribution up to a maximum of 1.6 percent of the employees' compensation, was $578 in 1998, $371 in 1997 and $373 in 1996.
9. INCENTIVE COMPENSATION PLAN
The 1987 Executive Bonus and Stock Plan (the "Executive Plan") allows the Compensation Committee of the Board of Directors of the Company to grant to certain executives of the Company awards based upon the achievement of certain targeted performance levels. Fifty percent of such awards shall be paid in cash and the balance shall be paid in Class A common stock of the Company over a four year period in five equal installments of twenty percent, assuming the continued employment of such executives. The Company has reserved approximately 300,000 shares of Class A common stock to be awarded under the Executive Plan. The Company recorded an expense of $336, $650, and $331, during fiscal 1998, 1997 and 1996, respectively, related to the Executive Plan.
10. SALE OF ASSETS
During fiscal 1998, the Company sold the assets of its Living Color photo processing plant for net proceeds of $3,952 which approximated their carrying value. Simultaneously with the sale of the processing plant, the Company entered in to an agreement whereby it will outsource all of its out of store photo processing. During fiscal 1996, the Company sold the assets of its nursing home pharmacy division to a third party for net proceeds of approximately $3,014. The Company recorded a gain of $1,300 on the sale.
11. UNAUDITED QUARTERLY FINANCIAL DATA
Summarized quarterly financial data for the years ended January 30, 1998 and January 31, 1997 follows, adjusted to reflect ten percent stock dividends:
(a) - During the fourth quarter of fiscal 1998, the Company recorded a pre tax restructuring charge of $9.5 million or $.39 per common share (See Note 3).
******
Index of Exhibits - -----------------
3.1 Restated Certificate of Incorporation, as filed with the Secretary of State of the State of Delaware on June 27, 1995 (Exhibit 3.1 of Annual Report on Form 10-K for the year ended February 2, 1996) 3.2 By-Laws, as amended (Exhibit 3.2 of Annual Report on Form 10-K for the year ended January 31, 1992) 3.3 By-Law Section 1.01, as amended through December 4, 1995 (Exhibit 3.3 of Annual Report on Form 10-K for the year ended February 2, 1996) 10.1 1984 Employee Stock Option and Stock Appreciation Rights Plan ("1984 Plan") (filed June 20, 1996 on Form S-8 Registration Statement No. 33-6461) (Exhibit 10.1 of Annual Report on Form 10-K for the year ended January 31, 1997) 10.2 Amendment No. 4 to the 1984 Plan, as adopted on June 17, 1996, and Amendment No. 5 to the 1984 Plan, as adopted on March 12, 1997 (Exhibit 10.2 of Annual Report on Form 10-K for the year ended January 31, 1997) 10.3 Amendment No 6. to the 1984 Plan, as adopted on June 16, 1997 10.4 1987 Executive Bonus and Stock Plan, as amended through June 13, 1994 ("1987 Plan") (Exhibit 10.2 of Annual Report on Form 10-K for the year ended February 3, 1995) 10.5 Amendment No.2 to the 1987 Plan, as adopted on June 12, 1995, and Amendment No. 3 to the 1987 Plan, as adopted on March 12, 1997 (Exhibit 10.4 of Annual Report on Form 10-K for the year ended January 31, 1997) 10.6 Registrant's Retirement Income Plan, as amended and restated effective as of January 1, 1989 (Exhibit 10.3 of Annual Report on Form 10-K for the year ended February 3, 1995) 10.7 First Amendment to the Genovese Drug Stores Inc. Retirement Income Plan (As amended January 1, 1989) (Exhibit 10.8 of Annual Report on Form 10-K for the year ended February 2, 1996) 10.8 Registrant's Employee Stock Ownership Plan and Trust, as amended and restated effective January 1, 1989 (Exhibit 10.4 of Annual Report on Form 10-K for the year ended February 3, 1995) 10.9 Amendment to Employee Stock Ownership Plan and Trust, as adopted on March 10, 1998 10.10 Registrant's Retirement and Savings Plan, effective January 1, 1994 (Exhibit 10.5 of Annual Report on Form 10-K for the year ended February 3, 1995) 10.11 Split Dollar Insurance Plan between Registrant and Leonard Genovese, dated October 13, 1994 (Exhibit 10.6 of Annual Report on Form 10-K for the year ended February 3, 1995) 10.12 Split Dollar Insurance Plan between Registrant and Leonard Genovese, dated June 29, 1995 (Exhibit 10.9 of Annual Report on Form 10-K for the year ended February 2, 1996) 10.13 Form of Severance Agreement (Exhibit 10.7 of Annual Report on Form 10-K for the year and restated effective ended February 2, 1996) 10.14 Amendment No. 1 to Form of Severance Agreement, as adopted on June 16, 1997 and Amendment No. 2 to Form of Severance Agreement, as adopted on December 9, 1997
10.15 Revolving Credit Agreement dated January 17, 1997, among Registrant and Fleet Bank, National Association, The Bank of New York and State Street Bank and Trust Company (Exhibit 10.12 of Annual Report on Form 10-K for the year ended January 31, 1997)
10.16 First Amendment and Waiver to Revolving Credit Agreement, dated as of April 28, 1998, among Registrant and Fleet Bank, National Association, The Bank of New York and State Street Bank and Trust company 10.17 Form of Employee's Nonqualified Stock Option Agreement, as adopted on June 16, 1997 10.18 Form of Amendment to June 16, 1997 Nonqualified Stock Option Agreement, as adopted for non-employee directors on March 10, 1998 10.19 Retirement Agreement dated March 6, 1998 between Registrant and Herbert J. Kett 10.20 Retirement Agreement dated March 6, 1998 between Registrant and Jerome Stengel 10.21 Retirement Agreement dated March 6, 1998 between Registrant and Irwin Livon 10.22 Stockholders Agreement dated June 30, 1998 between Leonard Genovese and Frances Genovese Wangberg (Exhibit 1 to Amendment No.3 to joint Schedule 13D filed on July 2, 1997) 11 Computation of Net Income Per Common Share 21 Subsidiaries of the Registrant 23 Consent of Independent Auditors