updated 2/8/2011 6:16:53 PM ET 2011-02-08T23:16:53

BELLEVUE, Wash., Feb. 8, 2011 (GLOBE NEWSWIRE) -- drugstore.com, inc. (Nasdaq:DSCM), a leading online retailer of health, beauty, clinical skincare, and vision products, today announced its financial results for the fourth quarter and fiscal year ended January 2, 2011.

In the fourth quarter of 2010, drugstore.com's quarterly net sales increased to $123.6 million, up 23%1 on an adjusted growth rate from $108.6 million in the prior year period. The Company reported a net loss of $663,000 and a net loss per share of $0.01. This is an improvement from a net loss of $1.6 million and a net loss per share of $0.02 reported in the same period of the prior year.

The Company reported $5.0 million of adjusted EBITDA and $4.2 million of ongoing adjusted EBITDA in the fourth quarter of 2010, as compared to $3.5 million of adjusted EBITDA and $4.2 million of ongoing adjusted EBITDA for the same period of the prior year. Adjusted EBITDA is a non-GAAP financial measure defined as earnings before interest, taxes, depreciation, and amortization of intangible assets, adjusted to exclude the impact of stock-based compensation expense. Ongoing adjusted EBITDA, also a non-GAAP financial measure, is defined as adjusted EBITDA excluding the impact of expenses or income from discontinued operations, certain legal actions, settlements and related costs outside our normal course of business, restructuring and severance costs, impairment charges, and certain other one-time charges and credits each of which is specifically identified.

For the fiscal year 2010, the Company reported net sales of $456.5 million, up 24%1 on an adjusted basis over fiscal year 2009. The Company reported a net loss of $3.6 million in 2010, adjusted EBITDA of $20.0 million, and ongoing adjusted EBITDA of $16.3 million for 2010. Additionally, the Company reported free cash flow of $4.4 million for 2010 compared to $1.4 million for 2009.

"We are pleased with our revenue growth in the fourth quarter in a highly competitive environment, as our holiday sales outpaced eCommerce growth for the quarter," said Dawn Lepore, chief executive officer and chairman of the board of drugstore.com, inc. "While gross margins were impacted by product mix and holiday promotions, total orders excluding partnerships increased over 17%1 from the prior year period. For the quarter, we reported OTC sales up 24%1, as adjusted, including a strong performance from SkinStore.com, which contributed to total beauty growth of 56%1, as adjusted. Additionally, this quarter, we accelerated the growth of our vision business, up 14%1 on a comparable basis over the prior year period, and recently launched two branded sites, PearleVision Contacts and LensCraftersContacts, for Luxottica."

"During 2010, we made important strategic progress, achieving our targets for OTC and total beauty growth, and, even more importantly, laying the groundwork to deliver significant growth to both our top and bottom lines. Through the sale of our pharmacy assets to BioScrip Pharmacy Services and the acquisition of SkinStore.com, we have refocused the business on our faster growing OTC and vision segments and have a clear plan of how to succeed in these markets. I am confident that the improvements we have made to our site, the extensive testing we conducted on new product offerings, and the important investments we made this year position us for a strong 2011," concluded Ms. Lepore.

Outlook for First Quarter of 2011

For the first quarter of 2011, the Company is targeting net sales in the range of $123.0 million to $126.0 million, net loss in the range of $700,000 to $2.5 million, adjusted EBITDA in the range of $2.7 million to $4.3 million, and ongoing adjusted EBITDA in the range of $2.0 million to $3.5 million. 

Financial and Operational Highlights for the Fourth Quarter of 2010

(All comparisons are made to the fourth quarter of 2009 and reflect the reporting of the mail-order pharmacy businesses as discontinued operations. All net sales, order and customer growth rates are adjusted to take into account the extra week in fiscal year 2009 as described in footnote 1, unless otherwise noted.)

Key Financial Highlights:

  • Total contribution margin dollars increased by 4% to $25.4 million.
  • Total orders, excluding partnership orders, grew by 17%1 to 1.7 million (9% unadjusted) and contribution margin dollars per order were approximately $14.
  • Gross margins were 28.5%.
  • Cash provided by operations during the quarter was $4.3 million, a $2.1 million improvement from the prior year period.
  • Cash, cash equivalents, and marketable securities were $33.5 million at quarter end.

Net Sales Summary:

  • Total net sales increased 23%1 to $123.6 million (14% unadjusted).
  • OTC net sales grew 24%1 to $106.2 million (15% unadjusted), with total beauty growth, including Salu, Inc., of 56%1 and Beauty.com growth of approximately 10%1 (45% and 2% unadjusted).
  • Vision net sales were up 14%1 to $17.4 million (6% unadjusted).
  • Average net sales per order increased to $66. Average net sales per order for OTC increased approximately 7% year-over-year to $62, and for Vision average net sales per order were $121.
  • Net sales from repeat customers represented 69% of net sales.

Key Customer Milestones:

  • We served approximately 533,000 new customers, excluding our strategic partnerships, during the quarter, up 15%1 (7% unadjusted) over the same period in the prior year.
  • Marketing and sales expense per new customer was $22.50.

Conference Call

Investors, analysts, and other interested parties are invited to join the drugstore.com, inc. quarterly conference call on February 8, 2011 at 5:00 p.m. ET (2:00 p.m. PT). To participate, callers should dial 1-877-941-8418 (international callers should dial 1-480-629-9809) five minutes beforehand. Investors may also listen to the conference call live and view the financial slides at http://investor.drugstore.com/ , by clicking on the "audio" hyperlink. A replay of the call will be available through February 13, 2011 at 11:59 p.m. ET (8:59 p.m. PT) by dialing 800-406-7325and enter passcode 4379012# and international parties should call 1-303-590-3030 and enter passcode 4402511# beginning two hours after completion of the call.

Non-GAAP Measures

To supplement the consolidated financial statements presented in accordance with GAAP, drugstore.com, inc. uses the non-GAAP measure of adjusted EBITDA, defined as earnings before interest, taxes, depreciation, and amortization of intangible assets, adjusted to exclude the impact of stock-based compensation expense. The Company also uses the non-GAAP measure of ongoing adjusted EBITDA, defined as adjusted EBITDA excluding the impact of expenses or income from discontinued operations, certain legal actions, settlements and related costs outside our normal course of business, restructuring and severance costs, impairment charges, and certain other one-time charges and credits specifically identified in the non-GAAP reconciliation included with the financial schedules in this release. These non-GAAP measures are provided to enhance the user's overall understanding of the Company's current financial performance. Management believes that adjusted EBITDA and ongoing adjusted EBITDA, as defined, provides useful information to the Company and to investors by excluding certain items that may not be indicative of the Company's core operating results. In addition, because drugstore.com, inc. has historically provided adjusted EBITDA and ongoing adjusted EBITDA measures to investors, management believes that including adjusted EBITDA and ongoing adjusted EBITDA measures provides consistency in the Company's financial reporting. However, adjusted EBITDA and ongoing adjusted EBITDA should not be considered in isolation, or as a substitute for, or as superior to, net income/loss, cash flows, or other consolidated income/loss or cash flow data prepared in accordance with GAAP, or as a measure of the Company's profitability or liquidity. Although adjusted EBITDA and ongoing adjusted EBITDA is frequently used as a measure of operating performance, it is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. Net income/loss is the closest financial measure prepared by the Company in accordance with GAAP in terms of comparability to adjusted EBITDA and ongoing adjusted EBITDA. A reconciliation of adjusted EBITDA and ongoing adjusted EBITDA to net income/loss is included with the financial statements attached to this release.

In addition, the Company uses the non-GAAP measure of free cash flow, defined as net cash provided by (used in) operating activities plus proceeds from the sale of discontinued operations less purchases of fixed assets as disclosed on our consolidated statements of cash flows. Management believes that free cash flow is an important liquidity metric because it measures, during a given period, the amount of cash generated that is available to service debt obligations, make investments, fund acquisitions and for certain other activities. Free cash flow is not a measure determined in accordance with GAAP and may not be defined or calculated by other companies in the same manner. Additionally, this financial measure is subject to variability quarter over quarter as a result of the timing of payments related to accounts payable, including inventory purchases, and accounts receivable. Since free cash flow includes investments in operating assets, management believes this non-GAAP liquidity metric is useful in addition to the most directly comparable GAAP measure of net cash provided by (used in) operating activities, and should not be used as a substitute for it or any other measure determined in accordance with GAAP. A reconciliation of free cash flow to net cash provided by operating activities is included with the supplemental financial schedules attached to this release.

The Company also uses the non-GAAP measure of core OTC, defined as sales generated through our OTC segment less sales generated through our partnerships with Medco Health Solutions, Inc. and Rite Aid Corporation. This non-GAAP measure is provided to enhance the user's overall understanding of the Company's financial performance in the OTC segment, excluding the partnerships. Management believes that this reporting metric provides useful information to the Company and to investors by providing the Company's core operating results in the OTC segment without the impact of the partnerships. By excluding partnership sales from OTC sales data, the Company can more effectively assess the buying behavior of, and the Company's financial performance with respect to, its own core OTC customers. However, this non-GAAP measure should not be considered in isolation, or as a substitute for, or as superior to, OTC segment sales data prepared in accordance with GAAP, or as a measure of the Company's overall performance in the OTC segment. OTC segment sales measures are the closest financial measures prepared by the Company in accordance with GAAP in terms of comparability to OTC segment sales measures that exclude partnership sales.

About drugstore.com, inc.

drugstore.com, inc. (Nasdaq:DSCM) is a leading online retailer of health, beauty, clinical skincare, and vision products. Our portfolio of brands includes: drugstore.com™, Beauty.com™, SkinStore.com™, and VisionDirect.com™. All provide a convenient, private, and informative shopping experience, while offering a wide assortment of more than 55,000 non-prescription products at competitive prices.

The drugstore.com pharmacy service, in association with BioScrip Pharmacy Services, Inc., is certified by the National Association of Boards of Pharmacy (NABP) as a Verified Internet Pharmacy Practice Site (VIPPS) and complies with federal and state laws and regulations in the United States.

The drugstore.com, inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=6419  

The financial results contained in this press release are preliminary and unaudited. In addition, this press release contains forward-looking statements regarding future events or the future financial and operational performance of drugstore.com, inc. Words such as "will," "target," "believe," "may," "plan," "expectations," and similar expressions, are intended to identify forward-looking statements. Forward-looking statements are based on current expectations, are not guarantees of future performance and involve assumptions, risks, and uncertainties. Actual performance may differ materially from those contained or implied in such forward-looking statements. Risks and uncertainties that could lead to such differences could include, among other things: the risk that anticipated synergies and opportunities as a result of the Salu transaction or the benefits of our BioScrip arrangement will not be realized; difficulty or unanticipated expenses in connection with integrating Salu into drugstore.com or integrating our systems with BioScrip's; the risk that any new or acquired business(es) does not perform as planned; effects of changes in the economy; changes in consumer spending and consumer trends; fluctuations in the stock market; changes affecting the Internet, online retailing, and advertising; difficulties establishing our brand and building a critical mass of customers; the unpredictability of future revenues, expenses, and potential fluctuations in revenues and operating results; risks related to business combinations and strategic alliances; possible tax liabilities relating to the collection of sales tax; the level of competition; seasonality; the timing and success of expansion efforts; changes in senior management; risks related to systems interruptions; possible changes in governmental regulation; possible increases in the price of fuel used in the transportation of packages, or other energy products; and the Company's ability to manage multiple growing businesses. Additional information regarding factors that potentially could affect the business, financial condition, and operating results of drugstore.com, inc. is included in the Company's periodic filings with the SEC on Forms 10-K, 10-Q, and 8-K. drugstore.com, inc. expressly disclaims any intent or obligation to update any forward-looking statement, except as otherwise specifically stated by it.

1 drugstore.com, inc. operates on a 52/53-week retail calendar year, with each quarter in a 52-week fiscal year representing a 13-week period. Fiscal year 2009 was a 53-week fiscal year, with the fourth quarter representing a 14-week period, while fiscal year 2010 was a 52-week fiscal year, with the fourth quarter representing a 13-week period. The extra week in the fourth quarter of 2009 affects year-over-year comparisons for both the fourth quarter and full year. To make results comparable on a 52-week basis for the purpose of presenting growth rates, each fourth quarter 2009 result presented here for which the Company presents a growth rate comparison has been multiplied by a fraction of 13/14, and each full year growth rate has been computed by multiplying the full year 2009 result by a fraction of 52/53.

drugstore.com, inc.
Consolidated Statements of Operations
(in thousands, except share and per share data)
(unaudited)
         
  Three Months Ended Twelve Months Ended
  January 2,

2011 
January 3,

2010
January 2,

2011 
January 3,

2010
         
Net sales  $ 123,636  $ 108,590  $ 456,507  $ 375,574
         
Costs and expenses: (1) (2)        
Cost of sales  88,393  75,847  322,011  263,350
Fulfillment and order processing   13,142  11,751  49,604  41,891
Marketing and sales   12,117  10,760  46,550  37,727
Technology and content  7,061  6,639  27,303  24,864
General and administrative   3,995  5,854  20,221  17,642
Total costs and expenses  124,708  110,851  465,689  385,474
         
Operating loss  (1,072)  (2,261)  (9,182)  (9,900)
         
Interest income (expense), net (143) 8 (432) 46
         
Loss from continuing operations  (1,215)  (2,253)  (9,614)  (9,854)
Gain from discontinued operations:        
Local pick-up pharmacy segment  --   --   --   5,946
Mail order pharmacy segment 552 630 6,064 2,531
  552 630 6,064 8,477
         
Net loss  $ (663)  $ (1,623)  $ (3,550)  $ (1,377)
         
Basic and diluted net loss per share  $ (0.01)  $ (0.02)  $ (0.03)  $ (0.01)
         
Weighted average shares used in computation of:        
Basic net loss per share 103,406,014 97,390,984 102,217,033 96,950,189
Diluted net loss per share 103,406,014 97,390,984 102,217,033 96,950,189
         
(1) Set forth below are the amounts of stock-based compensation by operating function recorded in the Statements of Operations:
         
Fulfillment and order processing   $ 195  $ 164  $ 949  $ 512
Marketing and sales  448 537 2,158 1,576
Technology and content  281 346 1,588 1,102
General and administrative  678 852 4,254 2,210
   $ 1,602  $ 1,899  $ 8,949  $ 5,400
         
(2) Set forth below are the amounts of depreciation by operating function recorded in the Statements of Operations:
         
Fulfillment and order processing   $ 618  $ 667  $ 2,504  $ 2,908
Marketing and sales   --  1  2  4
Technology and content  2,764 2,398 10,365 9,254
General and administrative  119 111 489 444
Gain from discontinued mail order pharmacy segment 267 18 373 72
   $ 3,768  $ 3,195  $ 13,733  $ 12,682
 
SUPPLEMENTAL INFORMATION: Gross Profit and Gross Margin Information:
         
  Three Months Ended Twelve Months Ended
(In thousands, unless otherwise indicated) January 2,

2011 
January 3,

2010 
January 2,

2011 
January 3,

2010 
         
Net sales  $ 123,636  $ 108,590  $ 456,507  $ 375,574
         
Cost of sales  88,393  75,847  322,011  263,350
         
Gross profit  $ 35,243  $ 32,743  $ 134,496  $ 112,224
         
Gross margin 28.5% 30.2% 29.5% 29.9%
         
         
SUPPLEMENTAL INFORMATION: Segment Information (see Note 3 below):
         
  Three Months Ended Twelve Months Ended
  January 2,

2011 
January 3,

2010 
January 2,

2011 
January 3,

2010 
Net sales:        
Over-the-Counter (OTC)  $ 106,205  $ 92,119  $ 385,234  $ 306,854
Vision  17,431  16,471  71,273  68,720
   $ 123,636  $ 108,590  $ 456,507  $ 375,574
Cost of sales:        
OTC  $ 75,454  $ 63,140  $ 267,681  $ 210,456
Vision  12,939  12,707  54,330  52,894
   $ 88,393  $ 75,847  $ 322,011  $ 263,350
Gross profit:        
OTC  $ 30,751  $ 28,979 $ 117,553 $ 96,398
Vision  4,492  3,764  16,943  15,826
   $ 35,243  $ 32,743  $ 134,496  $ 112,224
Gross margin:        
OTC 29.0% 31.5% 30.5% 31.4%
Vision 25.8% 22.9% 23.8% 23.0%
  28.5% 30.2% 29.5% 29.9%
Variable order costs (3):        
OTC  $ 8,947  $ 7,545  $ 32,851  $ 26,528
Vision  854  824  3,343  3,172
   $ 9,801  $ 8,369 $ 36,194 $ 29,700
Contribution margin:        
OTC  $ 21,804  $ 21,434  $ 84,702  $ 69,870
Vision  3,638  2,940  13,600  12,654
   $ 25,442  $ 24,374  $ 98,302  $ 82,524
         
NOTE 3: We define variable order costs as the incremental (variable) costs of fulfilling, processing, and delivering the order

(labor, packaging supplies, and credit card fees that are variable based on sales volume). In the second quarter of 2010,

our chief operating decision makers modified our definition of variable order costs to exclude partnership-related royalty costs,

which are considered marketing costs, in order to better assess the performance of our OTC segment contribution margin

excluding these costs. Partnership-related royalty costs of $660,000, as previously reported in the first quarter of 2010, were

excluded from the twelve-month period ended January 2, 2011, and partnership-related royalty costs of $823,000 and $1.2

million were excluded from the three- and twelve month periods ended January 3, 2010, respectively.
         
NOTE 4: Fiscal year 2010 is a 52-week year with Q4 2010 representing a 13-week quarter compared to fiscal year 2009

which was a 53-week year with Q4 2009 representing a 14-week quarter.
 
SUPPLEMENTAL INFORMATION: Reconciliation of OTC net sales, cost of sales, gross profit, gross margin, variable order costs,

and contribution margin to Core OTC net sales, cost of sales, gross profit, gross margin, variable order costs and contribution

margin (See Note 5 below):
         
  Three Months Ended Twelve Months Ended
  January 2,

2011 
January 3,

2010
January 2,

2011 
January 3,

2010 
  (In thousands)
Over-the-Counter (OTC):        
Net sales  $ 106,205  $ 92,119  $ 385,234  $ 306,854
Less: Partnerships  5,342  5,409  18,950  8,853
Core OTC net sales  $ 100,863  $ 86,710  $ 366,284  $ 298,001
         
Cost of sales  $ 75,454  $ 63,140  $ 267,681  $ 210,456
Less: Partnerships  4,406  3,961  14,768  6,403
Core OTC cost of sales  $ 71,048  $ 59,179  $ 252,913  $ 204,053
         
Gross profit  $ 30,751  $ 28,979 $ 117,553 $ 96,398
Less: Partnerships  936  1,448  4,182  2,450
Core OTC gross profit  $ 29,815  $ 27,531  $ 113,371  $ 93,948
         
Gross margin 29.0% 31.5% 30.5% 31.4%
Partnerships 17.5% 26.8% 22.1% 27.7%
Core OTC gross margin 29.6% 31.8% 31.0% 31.5%
         
Variable order costs  $ 8,947  $ 7,545 $ 32,851 $ 26,528
Less: Partnerships  476  471  1,798  815
Core OTC variable order costs  $ 8,471  $ 7,074  $ 31,053  $ 25,713
         
Contribution margin  $ 21,804  $ 21,434 $ 84,702 $ 69,870
Less: Partnerships  460  977  2,384  1,635
Core OTC contribution margin  $ 21,344  $ 20,457  $ 82,318  $ 68,235
         
NOTE 5: Supplemental information related to the Company's Core OTC net sales, cost of sales, gross profit, and gross margin

for the three-and-twelve months ended January 2, 2011 and January 3, 2010 is presented for informational purposes only and is not

prepared in accordance with generally accepted accounting principles. As disclosed in Note 3, we changed our definition of

variable order costs to exclude royalty costs. Accordingly, all previously reported royalties have been excluded from variable costs

in the three- and twelve month periods ended January 2, 2011 and January 3, 2010. In August 2010, we entered into an amended

web store hosting and fulfillment agreement with Medco, extending the agreement through 2018. Under the amended agreement,

we will earn a fixed fee on orders generated through the Medco-branded online store, and Medco will reimburse us for the cost of

products sold and the variable costs to fulfill each order. 
 
SUPPLEMENTAL INFORMATION: Reconciliation of Net Loss to Adjusted EBITDA (See Note 6 below):
         
  Three Months Ended  Twelve Months Ended 
(In thousands, unless otherwise indicated) January 2,

2011 
January 3,

2010 
January 2,

2011 
January 3,

2010 
         
Net loss  $ (663)  $ (1,623)  $ (3,550)  $ (1,377)
Amortization of intangible assets  129  28  434  477
Stock-based compensation  1,602  1,899  8,949  5,400
Depreciation  3,768  3,195  13,733  12,682
Interest (income) expense, net  143  (8)  432  (46)
Adjusted EBITDA   $ 4,979  $ 3,491  $ 19,998  $ 17,136
         
NOTE 6: Supplemental information related to the Company's adjusted EBITDA for the three-and-twelve months ended

January 2, 2011 and January 3, 2010 is presented for informational purposes only and is not prepared in accordance with

generally accepted accounting principles. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, and

amortization of intangible asssets, adjusted to exclude the impact of stock-based compensation expense. 
         
SUPPLEMENTAL INFORMATION: Reconciliation of Adjusted EBITDA to Ongoing Adjusted EBITDA (See Note 7 below):
         
  Three Months Ended   Twelve Months Ended
(In thousands, unless otherwise indicated) January 2,

2011 
January 3,

2010
January 2,

2011 
January 3,

2010
         
Adjusted EBITDA   $ 4,979  $ 3,491  $ 19,998  $ 17,136
Less: Proceeds from sale of LPU  --  --  --  (5,946)
Less: Discontinued Rx mail operations  (819)  (648)  (6,437)  (2,603)
Less: Litigation related settlements  --  --  --  (725)
Add: Vision migration one-time charges  --  --  650  --
Add: Salu and Luxottica transaction and integration related costs  --  1,400  2,130  1,400
Ongoing Adjusted EBITDA   $ 4,160  $ 4,243  $ 16,341  $ 9,262
         
NOTE 7: Supplemental information related to the Company's ongoing adjusted EBITDA for the three-and-twelve months ended

January 2, 2011 and January 3, 2010 is presented for informational purposes only and is not prepared in accordance with

generally accepted accounting principles. Ongoing adjusted EBITDA is defined as adjusted EBITDA excluding the impact of

expenses or income from discontinued operations, certain legal actions, settlements and related costs outside our normal

course of business, restructuring and severance costs, impairment charges, and certain other specifically identified one-time

charges and credits. 
         
SUPPLEMENTAL INFORMATION: Reconciliation of Forecasted Q1 2011 Net Loss to Adjusted EBITDA and Ongoing Adjusted 

EBITDA Range (See Note 8 below):
         
Range Calculated As: Three Months Ended

April 3, 2011
   
(In thousands, unless otherwise indicated) Range High Range Low    
         
Net loss  $ (700)  $ (2,500)    
Amortization of intangible assets  135  135    
Stock-based compensation  1,500  1,600    
Depreciation   3,200  3,300    
Interest expense, net  165  165    
Adjusted EBITDA   $ 4,300  $ 2,700    
Less: Discontinued Rx mail operations  (800)  (700)    
Ongoing Adjusted EBITDA   $ 3,500  $ 2,000    
         
NOTE 8: Supplemental information related to the Company's forecasted net loss and adjusted EBITDA for the three months ended

April 3, 2011 includes the gain on sale of our mail-order pharmacy segment to BioScrip, Inc. which closed in July 2010.
         
SUPPLEMENTAL INFORMATION: Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow:
         
         
  Three Months Ended Trailing Twelve Months Ended
(In thousands, unless otherwise indicated) January 2,

2011 
January 3,

2010 
January 2,

2011 
January 3,

2010 
         
Net cash provided by operating activities  $ 4,330  $ 2,197  $ 13,566  $ 3,800
Add: Proceeds from sale of discontinued operations  --  --  4,969  5,946
Less: Purchases of fixed assets  $ (4,133) $ (2,511) $ (14,092) $ (8,323)
Free Cash Flow  $ 197  $ (314)  $ 4,443  $ 1,423
 
drugstore.com, inc.
Consolidated Balance Sheets
(in thousands, except share data)
     
  January 2,

2011 
January 3,

2010
   (unaudited)   (audited) 
ASSETS    
Current assets:    
Cash and cash equivalents  $ 20,437  $ 22,175
Marketable securities  13,094  14,678
Accounts receivable, net of allowances  13,916  13,275
Inventories  48,977  39,300
Other current assets  3,701  2,406
Assets of discontinued operations  2,440  2,832
Total current assets  102,565  94,666
     
Fixed assets, net  25,181  24,104
Other intangible assets, net  14,503  3,398
Goodwill  57,593  32,202
Other long-term assets  530  159
Total assets  $ 200,372  $ 154,529
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities:    
Accounts payable   $ 49,540  $ 34,408
Accrued compensation  3,433  5,707
Accrued marketing expenses  4,108  5,247
Other current liabilities  2,397  1,542
Current portion of long-term debt  13,567  195
Liabilities of discontinued operations  --  4,581
Total current liabilities   73,045  51,680
     
Long-term debt, less current portion  999  3,011
Deferred income taxes  4,079  959
Other long-term liabilities  920  1,213
     
Stockholders' equity:    
Common stock, $.0001 par value, stated at amounts paid in:    
Authorized shares - 250,000,000    
Issued shares - 106,108,096 and 100,362,285    
Outstanding shares - 105,897,847 and 100,256,729

as of January 2, 2011 and January 3, 2010, respectively
 896,534  869,146
Treasury stock - 210,249 and 105,556 shares as of January 2, 2011

and January 3, 2010, respectively
 (344)  (151)
Accumulated other comprehensive loss  (80)  (98)
Accumulated deficit  (774,781)  (771,231)
Total stockholders' equity  121,329  97,666
Total liabilities and stockholders' equity  $ 200,372  $ 154,529
 
drugstore.com, inc.
Consolidated Statements of Cash Flows
(in thousands)
         
  Three Months Ended Twelve Months Ended
  January 2,

2011
January 3,

2010
January 2,

2011
January 3,

2010
  (unaudited)
Operating activities:         
Net loss   $ (663)  $ (1,623)  $ (3,550)  $ (1,377)
Less gain from discontinued operations   552  630  6,064  8,477
Loss from continuing operations   $ (1,215)  $ (2,253)  $ (9,614)  $ (9,854)
Adjustments to reconcile net income (loss) to net cash provided by

operating activities: 
   
Depreciation   3,768  3,195  13,733  12,682
Amortization of intangible assets   129  28  434  477
Stock-based compensation   1,602  1,899  8,949  5,400
Other, net   (9)  (18)  57  (33)
Changes in, net of acquisitions:         
Accounts receivable   (1,476)  (4,138)  445  (5,448)
Inventories   (6,671)  (7,688)  (5,157)  (7,733)
Other assets   539  333  (784)  (348)
Accounts payable, accrued expenses and other liabilities   8,584  10,361  7,897  7,237
Net cash provided by continuing operations   5,251  1,719  15,960  2,380
Net cash provided by (used in) discontinued operations   (921)  478  (2,394)  1,420
Net cash provided by operating activities   4,330  2,197  13,566  3,800
         
Investing activities:         
Purchases of marketable securities   (6,897)  (2,772)  (22,358)  (15,910)
Sales and maturities of marketable securities   7,625  4,081  23,911  14,130
Proceeds from the sale of discontinued operations   --   --   4,969  5,946
Purchases of fixed assets   (4,122)  (2,511)  (13,019)  (8,323)
Purchase of Salu, less cash acquired   --   --   (17,977)  -- 
Purchases of intangible assets   (35)  --   (64)  (145)
Net cash used in continuing investing activities  (3,429) (1,202) (24,538) (4,302)
Net cash used in discontinued investing activities   (11)  --   (1,073)  -- 
Net cash used in investing activities   (3,440)  (1,202)  (25,611)  (4,302)
         
         
Financing activities:         
Proceeds from exercise of stock options and employee

stock purchase plan 
 (134)  119  820  216
Borrowings on line of credit   --   --   10,000  2,986
Principal payments on debt obligations   (155)  (285)  (320)  (5,571)
Purchases of treasury stock   (193)  --   (193)  (151)
Net cash provided by (used in) financing activities  (482) (166) 10,307 (2,520)
         
         
Net increase (decrease) in cash and cash equivalents  408 829  (1,738)  (3,022)
Cash and cash equivalents, beginning of period  20,029 21,346 22,175 25,197
Cash and cash equivalents, end of period   $ 20,437  $ 22,175  $ 20,437  $ 22,175
         
Non-cash activities:         
Common stock issued for purchase of Salu   $ --   $ --   $ 17,271  $ -- 
Equipment and maintenance acquired under capital leases   $ --   $ 39  $ 1,680  $ 226
CONTACT: Investor Relations:
         Brinlea Johnson
         212-551-1453
         brinlea@blueshirtgroup.com

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