<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K405
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 1, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-4844
ECKERD CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 51-0378122
(State of incorporation) (I.R.S. Employer Identification No.)
8333 Bryan Dairy Road
Largo, FL 33777
(Address and zip code of principal executive offices)
(813) 399-6000
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each
Title of each class exchange on which registered
------------------- ----------------------------
9 1/4% Senior Subordinated Notes Due 2004 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K405 or any amendment to
this Form 10-K405. [ X ]
The registrant has no voting stock held by non-affiliates.
As of March 31, 1997, the registrant had 100 shares of common stock
outstanding.
Documents Incorporated by Reference: None.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a)
AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K405 WITH THE REDUCED
DISCLOSURE FORMAT PROVIDED FOR IN GENERAL INSTRUCTION I TO FORM 10-K.
<PAGE>
ECKERD CORPORATION
FEBRUARY 1, 1997 FORM 10-K405 ANNUAL REPORT
TABLE OF CONTENTS
ITEM PAGE
- ---- ----
PART I
1. Business 3
2. Properties 9
3. Legal Proceedings 10
PART II
5. Market for the Registrant's Common Equity and Related
Stockholder Matters 10
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
8. Financial Statements and Supplementary Data 14
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 15
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 15
2
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PART I
ITEM 1. BUSINESS
GENERAL
Eckerd Corporation (the "Company" or "Eckerd") operates the Eckerd drugstore
chain, which is one of the largest drugstore chains in the United States. At
February 1, 1997, the Eckerd chain consisted of 1,756 stores in 13 states
located primarily in the Sunbelt. Over its 44-year history, the Eckerd drugstore
chain has built a strong market position in areas where demographic
characteristics are favorable to drugstore growth. Eckerd stores are
concentrated in 10 of the 12 metropolitan statistical areas with the largest
percentage growth in population from 1980 to 1990, and, according to industry
sources, ranks first or second in terms of drugstore sales in 20 of the major
metropolitan markets in which it operates.
The primary focus of Eckerd stores is the sale of prescription and over-the-
counter drugs, which, during fiscal 1996, generated approximately 63% of the
Company's sales. Eckerd stores sell a wide variety of nonpharmacy merchandise,
including health and beauty aids, convenience foods, greeting cards and numerous
other convenience products. Another significant focus of Eckerd stores is
photofinishing. All Eckerd stores offer overnight photofinishing services, and
at February 1, 1997 there were Eckerd Express Photo one-hour photofinishing
mini-labs in 587 stores.
The Company believes that customer service and convenience are critical in
positioning itself as the alternative to mass merchandisers, supermarkets and
other large format retailing channels. The Company emphasizes service and
convenience through pharmacy support services, store location and design,
merchandising programs and operating hours geared to the needs of the particular
market.
The Company was formed by J. C. Penney Company, Inc. ("JCPenney") in 1996
for the purpose of acquiring the former Eckerd Corporation ("Old Eckerd") in a
transaction effected through a cash tender offer of $35.00 per share for 50.1%
of Old Eckerd's outstanding common stock (which was completed in December 1996),
followed by a second step merger completed on February 27, 1997 in which Old
Eckerd stockholders received 0.6604 shares of JCPenney common stock for each
remaining share of Old Eckerd common stock not purchased in the tender offer
(the "Acquisition"). Unless the context requires otherwise, references to the
Company or Eckerd relating to time periods prior to February 27, 1997 are to Old
Eckerd.
THE DRUGSTORE INDUSTRY
Prescription and over-the-counter medications have traditionally been sold
by independent drugstores as well as drugstore chains, such as Eckerd. The
drugstore industry has recently undergone significant changes as a result of the
following important trends: (i) the increase in third-party payments for
prescription drugs, (ii) the consolidation within the drugstore industry, (iii)
the aging of the United States population and (iv) the increase in competition
from non-traditional retailers of prescription and over-the-counter drugs.
During the last several years, a growing percentage of prescription drug
volume throughout the industry has been accounted for by sales to customers who
are covered by third-party payment programs ("managed care sales"). In a typical
managed care sale, the drugstore has a contract with
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a managed care payor, such as an insurance company, health maintenance
organization ("HMO"), preferred provider organization ("PPO"), other managed
care provider, government agency or private employer, which agrees to pay for
part or all of the customer's eligible prescription purchases. Although these
managed care sales contracts often provide a high volume of prescription sales,
such sales typically generate lower gross margins than non-managed care sales
due principally to the highly competitive nature of this business and the high
level of competition between managed care firms and the resulting efforts to
reduce costs. Larger drugstore chains, such as Eckerd, are better able to
service the growing managed care segment than independent drugstores and smaller
chains as a result of the larger chains' more sophisticated technology systems,
larger number of stores and greater penetration within their markets.
As a result of the economies of scale from which larger drugstore chains
benefit as well as the managed care payment trend, the number of independent
drugstores and smaller drugstore chains has decreased as many of such retailers
have been acquired by larger drugstore chains. This trend is expected to
continue because larger chains are better positioned to handle the increased
managed care sales, purchase inventory on more advantageous terms and achieve
other economies of scale with respect to their marketing, advertising,
distribution and other expenditures.
Strong demographic trends have also contributed to changes in the drugstore
industry, as the group of persons over age 50 is the fastest growing segment of
the United States population. This trend has had, and is expected to continue
to have, a marked effect on the pharmacy business in the United States because
consumer prescription and over-the-counter drug usage generally increases with
age. The Company's markets have large concentrations of, and are continuing to
experience significant growth in, the number of persons over age 65.
ECKERD DRUGSTORES
As of February 1, 1997, the Company operated the number of Eckerd stores and
Eckerd Express Photo centers indicated below in each of the following states:
<TABLE>
<CAPTION>
Drugstores
Eckerd With Eckerd
Drug Express Photo
Stores Centers
------ -------
<S> <C> <C>
Florida 583 267
Texas 475 159
North Carolina 178 52
Georgia 177 63
Louisiana 95 21
South Carolina 78 15
New Jersey 45 2
Tennessee 36 1
Oklahoma 34 2
Mississippi 25 -
Alabama 16 3
Delaware 12 2
Maryland 2 -
----- ---
Total 1,756 587
===== ===
</TABLE>
Over the past five years the Company has implemented several initiatives
designed to improve the quality and operating performance of the Company's store
base. Among such
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initiatives are the opening, relocation and acquisition of additional stores,
the closure or divestiture of underperforming stores and an extensive remodeling
program. Since the beginning of fiscal 1992, 300 Eckerd drugstores have been
opened or acquired within the Company's existing markets, more than 230
underperforming stores have been closed or divested, and a substantial number of
the Company's remaining stores have been remodeled. In addition, the Company
opened more than 200 Express Photo centers. The Company has also increased the
degree to which merchandise is tailored to specific markets, instituted a
chainwide shrinkage reduction program and made a significant investment in its
management information systems.
The following table summarizes the number of Eckerd drugstores operated by
the Company and the sales on an aggregate and per store basis for the last five
years.
<TABLE>
<CAPTION>
Fiscal Years
--------------------
1996 1995 1994 1993 1992
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Number of Eckerd drugstores at
beginning of period 1,715 1,735 1,718 1,696 1,675
Stores opened or acquired (1) 73 88 (2) 39 52 50
Stores sold or closed (32) (108) (3) (22) (30) (29)
---------- --------- --------- --------- ---------
Number of Eckerd drugstores
at end of period 1,756 1,715 1,735 1,718 1,696
========== ========= ========= ========= =========
Number with Express Photo centers 587 515 481 413 378
Sales of Eckerd drugstores (in $5,359,611 4,986,804 4,436,926 4,052,302 3,759,246
thousands)
Average annual sales per Eckerd drug
store (in thousands) $ 3,103 2,925 2,584 2,388 2,244
</TABLE>
______________________________
(1) Excludes relocations.
(2) Includes 40 Florida stores acquired from Rite Aid of Florida, Inc.
(3) Consists of (i) 84 stores that were closed as a result of the Company's
decision in the fourth quarter of fiscal 1994 to accelerate the closing of
approximately 90 geographically dispersed, underperforming stores, and (ii)
24 stores closed in the normal course of business.
The Company intends to continue to expand its business through both internal
expansion and acquisitions of drugstore chains and independent drugstores.
Although the Company currently plans to expand within the Company's existing
markets, the Company also considers strategic acquisitions in other markets. The
Company opened or acquired 151 drugstores (including 78 relocations) in fiscal
1996 and has a goal of opening 150 drugstores (including relocations) in fiscal
1997 and expects the rate of new store development to accelerate each year
thereafter, through fiscal 2000. The majority of the new and relocated stores
are expected to be freestanding locations. In addition to such openings and
acquisitions, the Company expects to sell or close a small number of drugstores
per year in fiscal 1997 and thereafter through fiscal 2000. The cash costs
associated with opening a new drugstore are estimated to be approximately
$760,000, which includes initial inventory costs of approximately $385,000. The
Company intends to use cash flow from operations and borrowings to finance the
cash costs of this growth. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital Resources."
In determining the areas in which to open or acquire drugstores, the Company
evaluates a number of demographic considerations, including the size, growth
pattern and per capita income of the population, as well as the competitive
environment and the accessibility of a proposed site to the customer and to the
Company's warehouse and distribution facilities. The Company also continually
reviews these factors and the performance of individual stores in determining
whether to close or relocate certain stores.
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PRODUCTS AND SERVICES
Pharmacy
The primary focus of Eckerd drugstores is the sale of prescription and over-
the-counter drugs. The Company seeks to position pharmacists as health-care
professionals who build relationships with their customers. Over the years,
marketing and advertising campaigns have been focused on reinforcing the
professionalism of the Company's pharmacists and positioning them as a key
factor in high quality pharmacy service. The Company has also instituted several
health-related programs such as health screenings, education and outreach
programs.
Eckerd pharmacy departments are modern, clean and clearly identified by
attractive signs. The pharmacy areas in the Company's newer and remodeled stores
provide a consultation area and a waiting area with comfortable seating,
informational brochures and free blood pressure testing. The pharmacy areas are
designed to be conducive to customer service and counseling by the pharmacists.
The Company has devoted substantial resources to marketing to managed care
payors, such as insurance companies, HMO's, PPO's and other managed care
providers and government agencies. This effort has produced managed care sales
of approximately 76% of prescription sales in fiscal 1996 compared to
approximately 50% in fiscal 1992. The Company's computer systems provide on-line
adjudication which permits the Company and the managed care payor to determine
electronically, at the time of sale, eligibility of the customer, coverage of
the prescription and pricing and co-payment requirement, if any, and
automatically bills the respective plan. On-line adjudication reduces losses
from rejected claims and eliminates a portion of the Company's paperwork for
billing and collection of receivables and costs associated therewith.
Nonpharmacy Merchandise
In addition to prescription and over-the-counter drugs, Eckerd stores sell a
wide variety of nonpharmacy merchandise, including health and beauty aids,
convenience foods, greeting cards and numerous other convenience products.
Eckerd-brand products, which are attractively priced and generally provide
higher margins than similar national brand products, represent a growing segment
of products offered. Items such as Eckerd Award soft drinks, bottled water and
cookies are examples of Eckerd brand products offered by Eckerd stores.
Health merchandise offerings include a broad assortment of popular national
brands as well as private label over-the-counter drugs and other products
related to dental care, foot care, vitamins and nutritional supplements,
feminine hygiene, family planning and baby care. Eckerd stores offer an
assortment of popular brand name cosmetics, fragrances and other beauty
products. Skin care products are an increasingly important component of the
beauty category due to the aging population and growing concern about the
effects of the environment on the skin. The greeting card department in Eckerd
stores offers a wide selection of contemporary and traditional cards, gift wrap,
bows and novelties. This wide selection and the locations of its stores should
enable customers to satisfy their card and gift needs more conveniently than at
traditional card stores. The convenience products merchandise category consists
of an assortment of items, including candy, soft drinks, cookies, bottled water,
tobacco products, books and magazines, household products, seasonal merchandise
and toys. During the last several years a food mart section offering convenience
food items such as staple grocery shelf items, staple and chilled beverages,
snack foods and specialty items has been introduced and is currently in over
1,350 stores. The Company also seeks to serve
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its customers' needs by specifically tailoring items in this category to meet
the needs of its customers in specific store locations.
Photofinishing
The Company believes that it is the leading source of photofinishing in all
of the major markets in which it operates. The Company believes that its branded
processing programs, which emphasize quality and service, have helped position
the Company as a leader in photofinishing. The Company's photo departments also
offer camera and photo accessories, small electronics, batteries and audio and
video tapes.
STORE OPERATIONS
The Company will continue to remodel and reset its stores to provide modern,
well-identified stores, which are easily accessible to customers and will seek
to open new stores in easily accessible high traffic locations. The Company also
tailors its merchandising to provide the product mix and selection to best serve
the customers of each particular store. The Company typically provides several
conveniently located, modern stores in a community. The Company's stores range
in size from 8,200 to 11,200 square feet and are located primarily in
neighborhood strip centers or freestanding locations. Such stores are typically
open every day of the year except Christmas, with some open until midnight or 24
hours a day.
PURCHASING AND DISTRIBUTION
Merchandising, buying and supplier payments are generally centralized at
Company headquarters to assure consistency and efficiency. The Company uses an
electronic buying system to aid in inventory and gross profit management which
enables the Company to take better advantage of quantity discounts and forward
buying opportunities, which the Company believes will lower the average cost of
inventory.
Approximately 85% of store merchandise is purchased centrally and
distributed, principally by Company-operated trucks, through the Company's five
centrally located distribution facilities located in or near Orlando, Florida;
Atlanta, Georgia; Charlotte, North Carolina; and Dallas and Houston, Texas. The
remainder of store merchandise is shipped directly to the stores, some of which
is purchased at the store level.
ADVERTISING AND MARKETING
A combination of newspaper advertising and TV and radio commercials is used
throughout the year to promote sales. The Company's concentration of stores
within its markets enables it to achieve economies of scale in its advertising
and marketing expenditures and also enables the Company to negotiate favorable
rates for advertising time and print production. The Company believes that its
current level of advertising expenditures is appropriate to support its existing
marketing strategies.
INFORMATION AND TECHNOLOGY
The Company intends to continue to invest in information systems to improve
customer service, reduce operating costs, provide information needed to support
management decisions and enhance the Company's competitive position with managed
care payors. In fiscal 1994 and 1995 the Company completed the installation of a
satellite communications network, enhanced the point
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of sale ("POS") reporting system and enhanced the merchandise and store
information management systems. In fiscal 1996 the Company completed the rollout
of POS scanning equipment to all stores and also completed the installation of a
state of the art pharmacy system in the stores.
In 1993, the Company and IBM Global Services ("IGS"), a wholly-owned
subsidiary of International Business Machines, entered into a Systems Operations
Service Agreement. Under the Company's supervision, IGS manages the entire
information systems operation and is responsible for providing technology
services to the Company. The Systems Operations Services Agreement has a 10-year
term, and the total payments to be made by the Company thereunder are expected
to be $605.0 million over such term, based on currently anticipated services.
The Company believes that this arrangement has and will continue to enable the
Company to further improve customer service, replace the Company's existing
systems, reduce operating costs and capital expenditures for hardware, obtain
information needed to support management decisions on an improved basis and
increase the Company's focus on its core business.
COMPETITION
The Company's retail drugstores operate in a highly competitive industry.
The Company's drugstores compete primarily on the basis of customer service,
convenience of location and store design, price and product mix and selection.
In addition to traditional competition from independent drugstores and other
drugstore chains, the Company faces competition from discount stores,
supermarkets, combination food and drugstores, mail order distributors,
hospitals and HMOs. These other formats have experienced significant growth in
their market share of the prescription and over-the-counter drug business.
The Company's Express Photo centers compete with a variety of photo
processors including other mini-labs, retail stores and photo specialty stores.
The Company's Express Photo business competes primarily on the basis of quality
of processing, quality and speed of service and value.
SEASONALITY
The Company's sales and earnings are higher during peak holiday periods and
from Christmas through Easter in selected geographic areas. Sales of health-
related products peak during seasonal outbreaks of cough and cold/flu virus,
typically during the winter and spring. Accordingly, sales and earnings are
typically highest in the fourth quarter followed by the first quarter.
REGULATION
All of the Company's pharmacists and stores are required to be licensed by
the appropriate state boards of pharmacy. The Company's drugstores and
distribution centers are also registered with the Federal Drug Enforcement
Administration. Most of the stores sell beer and wine and are subject to various
state and local liquor licensing requirements. By virtue of these license and
registration requirements, the Company is obligated to observe certain rules and
regulations, and a violation of such rules and regulations could result in fines
and/or a suspension or revocation of a license or registration.
The Company has a number of managed care payor contracts pursuant to which
the Company is a provider of prescription drugs. "Freedom of choice" state
statutes, pursuant to which all pharmacies would be entitled to be a provider
under such a contract, have been enacted in
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certain states, including Alabama, Delaware, Georgia, Louisiana, Maryland,
Mississippi, New Jersey, North Carolina, South Carolina, Tennessee and Texas,
and may be enacted in others. Although such statutes may adversely affect
certain of the Company's managed care contracts, they may also provide the
Company with opportunities regarding additional managed care contracts.
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that would
effect major changes in the health care system, either nationally or at the
state level. The Company cannot predict whether any federal or state health care
reform legislation will eventually be passed, and if so, the impact thereof on
the Company's financial position or results of operations. Health care reform,
if implemented, could adversely affect the pricing of prescription drugs or the
amount of reimbursement from governmental agencies and managed care payors, and
consequently could be adverse to the Company. However, to the extent health care
reform expands the number of persons receiving health care benefits covering the
purchase of prescription drugs, it may also result in increased purchases of
such drugs and could thereby have a favorable impact on both the Company and the
retail drug industry in general. Nevertheless, there can be no assurance that
any future federal or state health care reform legislation will not adversely
affect the Company or the retail drugstore industry generally.
EMPLOYEES
As of February 1, 1997, the Company had approximately 46,700 employees, of
which 24,300 were full-time employees. The Company believes that overall
employee relations are good. None of the Company's employees are represented by
unions.
PATENTS, TRADEMARKS AND TRADENAMES
No patent, trademark, license, franchise or concession is considered to be
of material importance to the business of the Company other than the trade names
under which the Company operates its retail businesses, including the Eckerd
name. The Company also holds servicemarks for its photofinishing products,
private label products and information systems.
ITEM 2. PROPERTIES
The Company conducts substantially all of its retail businesses from stores
located in leased premises. Substantially all of these leases will expire within
the next twenty years. In the normal course of business, however, it is expected
that leases will be renewed through the exercise of existing options or
amendments, or replaced by leases on other properties. Most of the Company's
store leases provide for a fixed minimum rental together with a percentage
rental based on sales.
The material office and distribution center properties owned or leased by
the Company at February 1, 1997 are as follows:
<TABLE>
<CAPTION>
Owned or
Location Square Feet Leased
-------- ----------- -------------
<S> <C> <C>
Largo, Florida 488,000 Owned (1)
Charlotte, North Carolina 587,000 Owned
Garland, Texas 270,000 Owned
Conroe, Texas 345,000 Owned
Orlando, Florida 587,000 Leased (2)
Newnan, Georgia 244,000 Owned (3)
Hammond, Louisiana 185,000 Owned (3)(4)
</TABLE>
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______________________________
(1) Includes the Company headquarters.
(2) In January 1993 the Company assumed a lease for an office and distribution
facility of approximately 587,000 square feet (lease expires 2005). The
Company's existing Orlando facilities and the Largo distribution center
facility were consolidated into the new facility during 1993.
(3) Construction was financed pursuant to revenue bond issues. Because these
properties are currently leased subject to nominal purchase options with
development authorities which the Company anticipates it will exercise,
they are listed as owned by the Company.
(4) The Company closed the Hammond distribution center and has subleased the
former Hammond, Louisiana office and distribution center. The property has
been listed for sale.
The Company considers that all property owned or leased is well maintained
and in good condition.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of its business, the Company and its subsidiaries
are parties to various legal actions which the Company believes are routine in
nature and incidental to the operation of the business of the Company and its
subsidiaries. The Company believes that the outcome of the proceedings to which
the Company and its subsidiaries currently are parties will not have a material
adverse effect upon its operations or financial condition.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Old Eckerd's common stock was listed on the New York Stock Exchange until
February 27, 1997 when the Acquisition was completed (Symbol: ECK). As of March
31, 1997, there was one holder of the Company's common stock. All market price
per share information below for Old Eckerd has been restated to reflect a two-
for-one stock split effected in the form of a stock dividend declared April 1,
1996 (paid on May 13, 1996).
<TABLE>
<CAPTION>
Fiscal 1996
Quarter Ended
Market Price -------------
Per Share Information 5/4/96 8/3/96 11/2/96 2/1/97
- ----------------------- -------- -------- --------- -------
<S> <C> <C> <C> <C>
High $25.62 $25.87 $28.87 $34.87
Low 21.31 19.75 22.25 30.02
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1995
Quarter Ended
Market Price -------------
Per Share Information 4/29/95 7/29/95 10/28/95 2/3/96
- ----------------------- -------- -------- --------- -------
<S> <C> <C> <C> <C>
High $15.12 $17.31 $21.00 $22.37
Low 12.25 14.19 16.31 19.06
</TABLE>
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The Company is subject to restrictive covenants under its 9.25% Senior
Subordinated Notes which restrict the payment of dividends. Similar
restrictions were in place under the Company's bank credit facility until it was
repaid in December 1996. The Company has not paid or declared any dividends on
its common stock.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Condensed Consolidated Statements of Earnings
(In Thousands)
<TABLE>
<CAPTION>
1996 Fiscal Year 1995 Fiscal Year 1994 Fiscal Year
Ended February 1, Ended February 3, Ended January 28,
1997 1996 1995
---- ---- ----
As Reported As Adjusted/(1)/
----------- ----------------
<S> <C> <C> <C> <C>
Sales and other operating revenue $5,376,221 4,997,073 4,589,517 4,446,728
Cost of sales 4,192,848 3,874,723 3,484,627 3,425,860
Operating and administrative
expenses 969,423 922,131 924,071 849,253
Acquisition and other one-time
expenses 16,000 -- -- --
---------- --------- --------- ---------
Earnings before interest expense 197,950 200,219 180,819 171,615
Interest expense 60,691 76,836 93,735 93,735
Income tax expense 33,322 20,600 8,753 3,895
---------- --------- --------- ---------
Earnings before extraordinary items 103,937 102,783 78,331 73,985
Extraordinary items (1,499) (9,306) (30,523) (30,523)
---------- --------- --------- ---------
Net earnings for the year $ 102,438 93,477 47,808 43,462
========== ========= ========= =========
</TABLE>
(1) Sales and other operating revenue excludes $54.1 million from the gain on
the sale of Insta-Care Holdings, Inc. ("Insta-Care"), as well as $88.7
million of Insta-Care sales prior to the disposition. Cost of sales,
operating and administrative expenses and income tax expense exclude $58.8
million, $25.8 million and $4.9 million of expenses related to Insta-Care's
operations and sale. Operating and administrative expenses also exclude a
charge of $49.0 million for future store closings.
RESULTS OF OPERATIONS
The preceding as adjusted condensed consolidated statement of earnings for
the year ended January 28, 1995 and the following management's discussion and
analysis exclude the items noted above in footnote (1) to the condensed
consolidated statements of earnings to eliminate the operations and gain on the
sale of Insta-Care (sold effective November 15, 1994) and exclude the charge for
accelerated future store closings. The year ended February 3, 1996 includes 53
weeks of operations, however any percentage increase comparisons with respect to
1995 in the following management's discussion and analysis are presented on a 52
week comparable basis with 1996 and 1994.
Earnings before extraordinary items for 1996 (excluding $15.3 million, net
of income taxes, for Acquisition related and other one-time expenses) was $119.2
million (a 19.1% increase over 1995) compared to $102.8 million in 1995 and on
an adjusted basis, to $74.0 million in 1994. Net income (excluding $15.3
million for Acquisition related and other one-time expenses) increased to $117.7
million in 1996 compared to $93.5 million in 1995 and $43.5 million on an
adjusted basis in 1994.
Sales and other operating revenue for 1996 were $5.4 billion (a 9.7%
increase over 1995) compared to $5.0 billion for 1995 and $4.4 billion in 1994.
Sales benefited from significant increases in both
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prescription and front end sales. Also contributing to the increased sales were
revenues from Florida drugstores acquired from Rite Aid of Florida, Inc. in 1995
(the "Florida Rite Aid Acquisition"). Prescription sales were $3.0 billion for
1996 (a 14.4% increase over 1995) compared to $2.7 billion in 1995 and $2.2
billion in 1994.
Comparable drugstore sales (stores open for one year or more) for
identical periods increased 7.8% in 1996, 8.8% in 1995 and 8.1% in 1994. The
increase in comparable drugstore sales was primarily attributable to the
increase in sales of prescription drugs. Comparable drugstore sales growth was
also positively affected by increased sales of non-prescription items in the
health and convenience food categories.
Prescription sales as a percentage of drugstore sales was 55.9% for 1996
compared with 53.7% for 1995 and 50.5% for 1994. The growth in prescription
sales was primarily the result of increased managed care prescription sales, the
Company's competitive cash pricing strategy and the Florida Rite Aid
Acquisition. Managed care prescription sales represented 75.6%, 70.6% and 64.5%
of the Company's prescription sales in 1996, 1995 and 1994, respectively. The
Company expects prescription sales to managed care payors, in terms of both
dollar volume and as a percentage of total prescription sales, to continue to
increase in 1997 and for the foreseeable future. Managed care payors typically
negotiate lower prescription prices than those of non-managed care
prescriptions, resulting in decreasing gross profit margins on the Company's
prescription sales. However, contracts with managed care payors generally
increase the volume of prescription sales and gross profit dollars.
Cost of sales and related expenses in 1996 were $4.2 billion (a 9.4%
increase over 1995) compared to $3.9 billion in 1995 and $3.4 billion in 1994.
As a percentage of sales, cost of sales and related expenses were 78.0%, 77.5%
and 77.0% for 1996, 1995 and 1994, respectively. The increase in cost of sales
and related expenses as a percentage of sales resulted primarily from the
continued increase in managed care prescription sales, which generally have
lower gross profit margins than non-managed care prescription sales. The LIFO
charge was $18.0 million in 1996 compared to $15.0 million in 1995 and $10.8
million in 1994. Operating and administrative expenses in 1996 excluding
Acquisition transaction expenses of $12.5 million and other one-time expenses of
$3.5 million were $969.4 million (an 11.3% increase over 1995) compared to
$922.1 million in 1995 and $849.3 million in 1994. As a percentage of sales,
operating and administrative expenses were reduced to 18.0% for 1996 compared to
18.5% for 1995 and 19.1% for 1994. The decrease in operating and administrative
expenses as a percentage of sales resulted primarily from operating efficiencies
related to the higher sales (including benefits derived from closing certain
underperforming stores) and cost controls which helped produce lower costs as a
percentage of sales in such expense categories as payroll, advertising and
insurance.
Earnings before Acquisition related expenses and other one-time expenses,
interest expense, income taxes and extraordinary items in 1996 were $214.0
million (an 8.9% increase over 1995) compared to $200.2 million in 1995 and
$171.6 million in 1994. The increase was due primarily to the increase in
gross profit dollars as a result of higher sales and other operating revenue and
the decrease in operating and administrative expenses as a percentage of sales
due to improved productivity and expense control.
Total interest expense was $60.7 million in 1996 compared to $76.8 million
in 1995 and $93.7 million in 1994. The decrease in interest expense was due to
lower average borrowings due to the Company's cash flow from operations as well
as paydowns of borrowings from net proceeds from the sale of non-retail
drugstore operations late in 1994, lower bank loan interest spreads and the
early retirement of high interest cost subordinated debentures in 1995 and 1994.
Income tax expense was $33.3 million (a 24% effective rate), $20.6 million
(a 17% effective rate) and $3.9 million (a 5% effective rate) in 1996, 1995 and
1994, respectively. Income tax expense represents
12
<PAGE>
alternative minimum tax and state income taxes for the Company, and reflects the
utilization of net operating loss carryforwards.
The Company had extraordinary items of $1.5 million (net of tax benefit of
$0.9 million), $9.3 million (net of tax benefit of $1.9 million) and $30.5
million (net of tax benefit of $1.6 million) in 1996, 1995 and 1994,
respectively. Extraordinary items in 1996 are the writeoff of deferred costs
related to the bank credit agreement which was repaid in December 1996.
Extraordinary items in 1995 and 1994 are primarily from the write-off of
deferred costs related to debt refinancings.
Liquidity and Capital Resources
In December 1996, the Company repaid all borrowings under its bank credit
facility, which consisted of $200.0 million in term loans and $324.0 million in
revolving loans. The bank credit facility was repaid with the proceeds of a
loan that the Company received from JCPenney under an intercompany loan facility
(the "Intercompany Loan"). The Intercompany Loan, which is unsecured and
matures on December 17, 2001, bears interest at a spread of 1/8% over JCPenney's
applicable cost of funds. As of February 1, 1997, the principal amount of the
Intercompany Loan was $505.0 million.
On February 1, 1997, the Company had working capital of $367.8 million and
a current ratio of 1.5 to 1 compared to $311.0 million and 1.5 to 1 at February
3, 1996. Cash flow provided by operating activities increased $19.8 million to
$193.7 million for 1996 compared with $173.9 million for 1995. The increase was
principally attributable to $9.0 million higher net earnings in 1996, offset by
a reduction of $8.8 million in non-cash extraordinary charges related to the
early retirement of debt, an increase of $8.6 million in depreciation and
amortization including original issue discount amortization and an increase of
$11.0 million in working capital items.
Net cash from investing activities for 1996 and 1995 used $205.1 million
and $181.1 million, respectively. Uses of cash were principally for capital
expenditures of $167.8 million and $109.8 million for 1996 and 1995,
respectively, primarily for additions to the Company's drugstores and Express
Photo units and improvements to existing stores and for the installation of
point-of-sale product scanning equipment. Fiscal 1996 and 1995 also included
the acquisition of $41.2 million and $76.9 million of assets, respectively,
primarily as a result of drugstore acquisitions and in 1995 the Florida Rite
Aid Acquisition. Capital improvements planned for fiscal 1997, including those
to be acquired under a deferred payment arrangement and through operating
leases, are expected to total approximately $140 million. Funds for the planned
cash capital expenditures are expected to come from cash flow from operating
activities and available borrowings, if necessary.
Financing activities for 1996 provided $75.3 million. Cash was provided
by net borrowings of $45.0 million plus $33.8 million of additions to long-term
debt, offset by a $5.4 million decrease in bank debit balances. Financing
activities for 1995 provided $6.2 million. Proceeds from the sale of common
stock of $82.4 million combined with increased bank debit balances of $15.2
million at year end, together offset the redemption of the remaining $95.5
million of 11.125% subordinated debentures.
Based upon the Company's ability to generate cash flow from operating
activities and its ability to borrow from JCPenney and other existing sources,
the Company believes that it will have the funds necessary to meet the principal
and interest payments on its debt as they become due and to operate and expand
its business.
13
<PAGE>
The payment of dividends and other distributions by the Company is subject
to restrictions under the 9.25% Senior Subordinated Notes. The Company
currently does not plan to pay dividends on its common stock.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements and auditors' report as of
February 1, 1997 and February 3, 1996 and for each of the years in the three
year period ended February 1, 1997 as set forth under item 14 of this Form 10-
K405 are incorporated herein by reference:
Consolidated Statements of Earnings
Consolidated Balance Sheets
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Information on selected unaudited quarterly financial data also required by
this item for the years ended February 1, 1997 and February 3, 1996 is presented
below (in thousands, except per share data).
<TABLE>
<CAPTION>
YEAR ENDED 2/1/97 (52 WEEKS) QUARTERS ENDED
--------------
5/4/96 8/3/96 11/2/96 2/1/97
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales and other operating revenue $1,354,619 1,252,428 1,280,375 1,488,799
Cost of sales, including store
occupancy, warehousing and delivery
expense 1,051,423 979,784 1,012,451 1,149,190
Operating and administrative expenses 237,533 236,208 238,295 257,387
Acquisition and other one time
expenses -- -- -- 16,000
Interest expense 15,139 15,372 15,581 14,599
---------- --------- --------- ---------
Earnings before income taxes and
extraordinary item 50,524 21,064 14,048 51,623
Income taxes 11,114 4,608 3,118 14,482
---------- --------- --------- ---------
Earnings before extraordinary item 39,410 16,456 10,930 37,141
Extraordinary item-early retirement of
debt, net of tax benefit -- -- -- (1,499)
---------- --------- --------- ---------
Net earnings $ 39,410 16,456 10,930 35,642
========== ========= ========= =========
Earnings before extraordinary item per
common share $.55 .23 .15 .51
Net earnings per common share $.55 .23 .15 .49
Weighted average common shares
outstanding 71,887 71,825 72,154 72,589
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED 2/3/96 (53 WEEKS) QUARTERS ENDED
--------------
4/29/95 7/29/95 10/28/95 2/3/96
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales and other operating revenue $1,219,594 1,138,724 1,164,907 1,473,848
Cost of sales, including store
occupancy, warehousing and delivery
expense 939,488 885,108 915,137 1,134,990
Operating and administrative expenses 220,591 221,832 224,301 255,407
Interest expense 20,356 19,593 18,720 18,167
---------- --------- --------- ---------
Earnings before income taxes and
extraordinary item 39,159 12,191 6,749 65,284
Income taxes 8,615 115 1,147 10,723
---------- --------- --------- ---------
Earnings before extraordinary item 30,544 12,076 5,602 54,561
Extraordinary item-early retirement of
debt, net of tax benefit -- (1,021) (5,012) (3,273)
---------- --------- --------- ---------
Net earnings $ 30,544 11,055 590 51,288
========== ========= ========= =========
Earnings before extraordinary item per
common share $.47 .18 .08 .76
Net earnings per common share $.47 .17 .01 .71
Weighted average common shares
outstanding 65,626 65,794 71,242 71,764
</TABLE>
Earnings per common share are computed independently for each of the quarters.
Therefore, the sum of the quarterly earnings per share may not equal the annual
earnings per common share. All quarters have been restated to reflect a two-for-
one stock split effected in the form of a stock dividend declared April 1, 1996
(paid on May 13, 1996).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Listed below are all financial statements, notes, schedules, and exhibits
filed as part of this Form 10-K405 annual report:
(a) Financial Statements and Schedules
1. The following financial statements and schedules of the Company
together with the Report of Independent Certified Public Accountants dated
April 15, 1997 in this Form 10-K405 are filed herewith:
15
<PAGE>
Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets as of February 1, 1997 and February 3, 1996
Consolidated Statements of Earnings for the Years Ended February 1,
1997, February 3, 1996 and January 28, 1995
Consolidated Statements of Stockholders' Equity for the Years Ended
February 1, 1997, February 3, 1996 and January 28, 1995
Consolidated Statements of Cash Flows for the Years Ended February 1,
1997, February 3, 1996 and January 28, 1995
Notes to Consolidated Financial Statements
Schedules:
Independent Auditors' Report
II - Reserves
All other schedules for the Company are omitted as the required
information is inapplicable or the information is presented in the
respective consolidated financial statements or related notes.
Also filed in this Form 10-K405 is the consent of KPMG Peat Marwick LLP
to the incorporation by reference of their auditors' report dated April 15,
1997, relating to the consolidated financial statements appearing in the
Form 10-K405, into Registration Statement Number 33-50223 on Form S-3.
2. Exhibits:
Exhibits previously filed or filed by incorporation by reference:
4.1 Form of 9.25% Senior Subordinated Notes Due 2004 of the Company
(incorporated by reference to Exhibit 4.01 to the Current Report on Form
8-K dated October 26, 1993 of the Company (File No. 1-4844)).
4.2 Indenture dated as of November 1, 1993 between the Company and State
Street Bank and Trust Company of Connecticut, National Association, as
Trustee relating to the Company's 9-1/4% Senior Subordinated Notes Due
2004 (incorporated by reference to Exhibit 4.02 to the Current Report on
Form 8-K dated October 26, 1993 of the Company (File No. 1-4844)).
10.1 Commercial Paper Placement Agency Agreement dated July 17, 1989 between
the Company and Merrill Lynch Money Markets, Inc. (incorporated by
reference to Exhibit 10.15 of Form 10-K of the Company for the period
ended February 3, 1990).
10.2 Master Lease Agreement I dated as of May 18, 1993 between the Company and
Imaging Financial Services d/b/a EKCC ("IFS") (incorporated by reference
to Exhibit 10.28 to Amendment No. 1 to the Registration Statement on Form
S-2 of the Company (No. 33-64906)).
10.3 Master Lease Agreement II dated as of June 15, 1993 between the Company
and IFS (incorporated by reference to Exhibit 10.29 to Amendment No. 1 to
the Registration Statement on Form S-2 of the Company (No. 33-64906)).
16
<PAGE>
10.4 Systems Operations Service Agreement dated as of July 14, 1993 between the
Company and Integrated Systems Solutions Corporation (incorporated by
reference to Exhibit 10.30 to Amendment No. 1 to the Registration
Statement on Form S-2 of the Company (No. 33-64906)).
10.5 Letter dated March 16, 1993 between IFS and the Company relating to IFS
Sale and Leaseback (incorporated by reference to Exhibit 10.31 to
Amendment No. 2 of the Registration Statement on Form S-2 of the Company
(No. 33-64906)).
10.6 Receivables Purchase Agreement dated as of January 26, 1995 between the
Company and Three Rivers Funding Corporation (incorporated by reference to
Exhibit 10.18 to Form 10-K405 for the year ended January 28, 1995 of the
Company (File No. 1-4844)).
10.7 First Amendment to Receivables Purchase Agreement dated as of March 31,
1995 between the Company and Three Rivers Funding Corporation
(incorporated by reference to Exhibit 10.19 to Form 10-K405 for the year
ended January 28, 1995 of the Company (File No. 1-4844)).
10.8 Employment Agreement dated February 4, 1996 between the Company and
Francis A. Newman (incorporated by reference to Exhibit 10.26 to Form 10-K
for the year ended February 3, 1996 of the Company (File 1-4844)).
10.9 Employment Agreement dated February 4, 1996 between the Company and James
M. Santo (incorporated by reference to Exhibit 10.27 to Form 10-K for the
year ended February 3, 1996 of the Company (File 1-4844)).
10.10 Employment Agreement dated February 4, 1996 between the Company and Samuel
G. Wright (incorporated by reference to Exhibit 10.28 to Form 10-K for the
year ended February 3, 1996 of the Company (File 1-4844)).
10.11 Employment Agreement dated February 4, 1996 between the Company and
Kenneth L. Flynn (incorporated by reference to Exhibit 10.29 to Form 10-K
for the year ended February 3, 1996 of the Company (File 1-4844)).
10.12 The Executive Excess Benefit Plan of Jack Eckerd Corporation and Its
Subsidiaries (incorporated by reference to Exhibit 10.30 to Form 10-K for
the year ended February 3, 1996 of the Company (File 1-4844)).
10.13 Eckerd Corporation Executive Three (3) Year Bonus Plan (incorporated by
reference to Exhibit 10.31 to Form 10-K for the year ended February 3,
1996 of the Company (File 1-4844)).
10.14 Employment Agreement dated February 4, 1996 between the Company and
Stewart Turley (incorporated by reference to Exhibit 10.25 to Form 10-K
for the year ended February 3, 1996 of the Company (File 1-4844)).
10.15 Amendment No. 1 dated as of November 2, 1996 to Employment Agreement dated
February 4, 1996 between the Company and Francis A. Newman (incorporated
by reference to Exhibit 11 to the Schedule 14D-9 of the Company (File 1-
4844)).
17
<PAGE>
10.16 Amended and Restated Agreement and Plan of Merger among Eckerd
Corporation, J. C. Penney Company, Inc. and Omega Acquisition Corporation,
Inc., dated as of November 2, 1996 (incorporated by reference to Exhibit 9
to the Schedule 14D-9 of the Company (File 1-4844)).
10.17 Amendment dated February 25, 1997 to Amended and Restated Agreement and
Plan of Merger dated as of November 2, 1996, among J. C. Penney Company,
Inc., Omega Acquisition Corporation and Eckerd Corporation (incorporated
by reference to Exhibit 2(b) to the Annual Report on Form 10-K of J. C.
Penney Company, Inc. for the 52 weeks ended January 25, 1997 (File 1-
777)).
Exhibits filed herewith:
3.1 Certificate of Incorporation of the Company.
3.2 First Amendment to Certificate of Incorporation of the Company.
3.3 By-Laws of the Company, as amended.
4.3 First Supplemental Indenture, dated as of February 27, 1997, between the
Company and State Street Bank and Trust Company of Connecticut, National
Association, as Trustee.
12.1 Statement regarding computation of ratio of earnings to fixed charges of
the Company.
23.1 Consent of Independent Certified Public Accountants.
27 Financial data schedule.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the thirteen weeks
ended February 1, 1997.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Form 10-K405 report to
be signed on its behalf by the undersigned, thereunto duly authorized.
April 30, 1997 ECKERD CORPORATION
By:/s/Samuel G. Wright
--------------------------------------------
Samuel G. Wright
Executive Vice President
Chief Financial and Accounting 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 indicated on the date indicated.
Signature Titles Date
--------- ------ ----
/s/Francis A. Newman Chairman of the Board, President,
- --------------------------- Chief Executive Officer and
Francis A. Newman Director April 30, 1997
/s/Robert W. Hannan Director, Vice Chairman April 30, 1997
- ---------------------------
Robert W. Hannan
/s/Stewart Turley Director April 30, 1997
- ---------------------------
Stewart Turley
/s/Charles R. Lotter
- --------------------------- Director April 30, 1997
Charles R. Lotter
/s/Donald A. McKay
- --------------------------- Director April 30, 1997
Donald A. McKay
/s/W. Barger Tygart
- --------------------------- Director April 30, 1997
W. Barger Tygart
/s/Joseph D. Williams
- --------------------------- Director April 30, 1997
Joseph D. Williams
19
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE]
Independent Auditors' Report
----------------------------
The Board of Directors
Eckerd Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Eckerd
Corporation and subsidiaries as of February 1, 1997 and February 3, 1996, and
the related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended February 1, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Eckerd Corporation
and subsidiaries at February 1, 1997 and February 3, 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended February 1, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Tampa, Florida
April 15, 1997
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
February 1, 1997 and February 3, 1996
(In thousands, except share amounts)
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash (including short-term investments of $57,000 in 1997) $ 71,874 7,922
Receivables 102,393 70,137
Merchandise inventories 973,265 835,551
Prepaid expenses and other current assets 3,909 4,396
---------- ---------
Total current assets 1,151,441 918,006
---------- ---------
Property and equipment, at cost:
Land 34,478 17,420
Buildings 92,728 73,955
Furniture and equipment 440,253 368,251
Transportation equipment 14,700 14,225
Leasehold improvements 193,531 160,172
---------- ---------
775,690 634,023
Less accumulated depreciation and amortization 329,490 282,974
---------- ---------
Net property and equipment 446,200 351,049
---------- ---------
Excess of cost over net assets acquired, less accumulated
amortization of $24,393 and $19,986 85,656 62,162
Favorable lease interests, less accumulated amortization
of $417,745 and $404,001 108,125 131,961
Unamortized debt expenses (note 4) 3,553 6,086
Other assets 96,977 31,055
---------- ---------
$1,891,952 1,500,319
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
------------------------------------ ---- ----
Current liabilities:
Bank debit balances $ 54,252 59,620
Current installments of long-term debt (note 4) 768 1,020
Accounts payable 404,945 311,411
Accrued interest 15,241 12,533
Accrued payroll 67,172 70,205
Other accrued expenses (note 10) 241,304 152,219
---------- ---------
Total current liabilities 783,682 607,008
---------- ---------
Other noncurrent liabilities (note 10) 168,240 136,772
Long-term debt, excluding current installments (note 4) 779,951 701,798
Stockholders' equity (notes 1 and 6):
Preferred stock of $.01 par value. Authorized 20,000,000 shares;
none issued or outstanding -- --
Voting common stock of $.01 par value. Authorized 96,481,272
shares; issued and outstanding 70,419,975 and 69,937,790 704 700
Nonvoting common stock of $.01 par value. Authorized
3,518,728 shares; no shares issued -- --
Capital in excess of par value 320,550 317,654
Retained deficit (161,175) (263,613)
---------- ---------
Net stockholders' equity 160,079 54,741
Commitments and related party transactions (notes 8 and 9) ---------- ---------
$1,891,952 1,500,319
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended February 1, 1997, February 3, 1996
and January 28, 1995
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
(52 WEEKS) (53 WEEKS) (52 WEEKS)
---------- ---------- ----------
<S> <C> <C> <C>
Sales and other operating revenue (note 1(c)) $5,376,221 4,997,073 4,589,517
---------- --------- ---------
Costs and expenses:
Cost of sales, including store occupancy,
warehousing, and delivery expense 4,192,848 3,874,723 3,484,627
Operating and administrative expenses (note 10) 969,423 922,131 924,071
Acquisition and other one-time expenses (note 2(n)) 16,000 -- --
---------- --------- --------
5,178,271 4,796,854 4,408,698
---------- --------- ---------
Earnings before interest expense 197,950 200,219 180,819
---------- --------- ---------
Interest expense:
Interest expense, net 59,719 75,030 87,838
Amortization of original issue discount
and deferred debt expenses 972 1,806 5,897
---------- --------- ---------
Total interest expense 60,691 76,836 93,735
---------- --------- ---------
Earnings before income taxes
and extraordinary items 137,259 123,383 87,084
Income tax expense (note 5) 33,322 20,600 8,753
---------- --------- ---------
Earnings before extraordinary items 103,937 102,783 78,331
Extraordinary items:
Early retirement of debt, net of tax benefit of
$928, $1,907 and $1,607 (note 4) (1,499) (9,306) (30,523)
---------- --------- ---------
Net earnings $ 102,438 93,477 47,808
========== ========= =========
Earnings per share:
Earnings before extraordinary items $ 1.44 1.50 1.21
Extraordinary items (.02) (.14) (.47)
---------- --------- ---------
Net earnings $ 1.42 1.36 .74
========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended February 1, 1997, February 3, 1996
and January 28, 1995
(In thousands, except share amounts)
<TABLE>
<CAPTION>
CAPITAL TOTAL
VOTING NONVOTING IN STOCKHOLDERS'
COMMON COMMON EXCESS OF RETAINED EQUITY
STOCK STOCK PAR VALUE DEFICIT (DEFICIT)
----- ----- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 29, 1994 $620 6 225,250 (404,898) (179,022)
Expenses for secondary public stock offering -- -- (953) -- (953)
Common stock sold under employee stock option plan 2 -- 951 -- 953
Contribution of common stock to profit sharing plan 2 -- 894 -- 896
Issuance of 606,120 shares of common stock at
$12.50 per share for drugstore acquisition 6 -- 7,570 -- 7,576
Conversion of nonvoting common stock
to voting common stock 12 (6) (6) -- --
Net earnings -- -- -- 47,808 47,808
---- ---- ------- -------- --------
Balance at January 28, 1995 642 -- 233,706 (357,090) (122,742)
Common stock sold in public stock offering,
net of expenses of sale 54 -- 82,340 -- 82,394
Expenses for secondary public stock offering -- -- (329) -- (329)
Common stock sold under employee stock option plan 2 -- 1,043 -- 1,045
Contribution of common stock to profit sharing plan 2 -- 894 -- 896
Net earnings -- -- -- 93,477 93,477
---- ---- ------- -------- --------
Balance at February 3, 1996 700 -- 317,654 (263,613) 54,741
Common stock sold under employee stock option plan 2 -- 2,002 -- 2,004
Contribution of common stock to profit sharing plan 2 -- 894 -- 896
Net earnings -- -- -- 102,438 102,438
---- ---- ------- -------- --------
Balance at February 1, 1997 $704 -- 320,550 (161,175) 160,079
==== ==== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended February 1, 1997, February 3, 1996
and January 28, 1995
(In thousands)
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 102,438 93,477 47,808
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Gain on sale of subsidiary -- -- (54,125)
Reserve for store closing provision -- -- 48,988
Extraordinary charge related to early
retirement of debt and preferred stock 2,427 11,213 32,130
Depreciation and amortization 94,182 84,750 77,794
Amortization of original issue discount
and deferred debt expenses 972 1,806 5,897
Decrease (increase) in receivables (32,256) (17,650) 12,047
Increase in merchandise inventories (129,631) (44,475) (22,621)
Decrease (increase) in prepaid expenses
and other assets (739) (2,030) 3,048
Increase in deferred income taxes (40,372) -- --
Increase (decrease) in accounts payable and
accrued expenses 196,720 46,803 (31,978)
--------- -------- -------
Net cash provided by
operating activities 193,741 173,894 118,988
--------- -------- -------
Cash flows from investing activities:
Additions to property and equipment (167,761) (109,782) (57,246)
Sale of property and equipment 7,105 8,255 4,253
Net proceeds from sale of subsidiaries -- 5,231 114,912
Acquisition of certain drugstore assets (41,181) (76,902) (6,080)
Other (3,226) (7,887) (5,216)
--------- -------- -------
Net cash provided by (used in)
investing activities (205,063) (181,085) 50,623
--------- -------- -------
</TABLE>
(Continued)
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(In thousands)
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from financing activities:
Increase (decrease) in bank debit balances $ (5,368) 15,247 3,399
Additions to long-term debt 33,801 1,985 1,604
Reductions of long-term debt (901) (1,848) (2,926)
Net additions (reductions) under credit agreement (460,000) 4,627 (120,816)
Net additions under intercompany note to
J. C. Penney Company, Inc. 505,000 -- --
Common stock sold in public stock offering,
net of expenses of sale -- 82,394 --
Redemption of 11.125% subordinated debentures -- (95,500) (50,000)
Other, including proceeds from exercise of stock
options and deferred financing costs 2,742 (690) (4,084)
--------- ------- --------
Net cash provided by (used in)
financing activities 75,274 6,215 (172,823)
--------- ------- --------
Net increase (decrease) in cash
and short-term investments 63,952 (976) (3,212)
Cash and short-term investments at beginning of year 7,922 8,898 12,110
--------- ------- --------
Cash and short-term investments at end of year $ 71,874 7,922 8,898
========= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
February 1, 1997, February 3, 1996 and January 28, 1995
(In thousands, except share amounts)
(1) ORGANIZATION OF BUSINESS
(a) DESCRIPTION OF BUSINESS
Eckerd Corporation (Company) operates the Eckerd drugstore chain,
which is one of the largest drugstore chains in the United States. The
Company's stores are located primarily in the Sunbelt, with the
largest concentration of stores being in Florida and Texas.
During 1996, 1995 and 1994, the Company purchased 89 drugstores in
five transactions at an aggregate cost of $96,248. The operations of
such stores, which have been included in the consolidated financial
statements from dates of acquisition, are not material to the Company
and, accordingly, pro forma comparative operating numbers are not
presented.
(b) SECONDARY PUBLIC OFFERINGS
On May 2, 1994, the Company completed an underwritten secondary
offering of 6,398,112 shares of its Common Stock for $9.50 per share.
The secondary offering only included shares owned by certain
institutional stockholders. The Company did not receive any of the
proceeds from the sale of shares of common stock and was required to
pay certain expenses of the secondary offering.
On August 3, 1995, the Company completed an underwritten primary and
secondary offering of 12,351,000 shares of its Common Stock for $16.12
per share. The offering consisted of 5,350,000 shares sold by the
Company and 7,001,000 shares sold by certain institutional
stockholders.
On December 15, 1995, the Company completed an underwritten secondary
offering of 12,000,000 shares of its Common Stock for $21.00 per
share. The secondary offering only included shares owned by certain
institutional stockholders. The Company did not receive any of the
proceeds from the sale of shares of common stock and was required to
pay certain expenses of the secondary offering.
(c) SALE OF SUBSIDIARIES
On November 15, 1994, the Company completed the sale of its Insta-Care
Pharmacy Services (Insta-Care) operations for a total consideration of
$112,000 in cash. The net proceeds after certain closing adjustments
was approximately $94,000. Insta-Care operations are included in the
consolidated financial statements up to the closing date of the sale.
In 1994, Insta-Care sales were approximately $89,000 and earnings
before interest and income taxes were approximately $4,000. The
Company recognized a gain on the sale of Insta-Care of $49,470, net of
income taxes of $4,655. The gain of $54,125 before income taxes is
reported in the consolidated statement of operations as part of sales
and other operating revenue.
(Continued)
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
(d) MERGER WITH WHOLLY-OWNED SUBSIDIARY
OF J. C. PENNEY COMPANY, INC.
On November 2, 1996, the Company entered into a definitive agreement
to be acquired by J. C. Penney Company, Inc. (JCPenney). The aggregate
transaction value, including the assumption of Company debt and the
cash out of certain outstanding employee stock options, was
approximately $3.3 billion. The transaction was effected through a
cash tender offer at $35.00 per share for 50.1% of the outstanding
common stock of the Company, which was completed in December 1996. The
remaining shares of outstanding common stock of the Company were
exchanged in a second-step merger completed on February 27, 1997, in
which Company stockholders received 0.6604 shares of JCPenney common
stock for each share of Company common stock.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in the
consolidation.
(c) DEFINITION OF FISCAL YEAR
The Company's fiscal year ends on the Saturday nearest January 31.
Fiscal year 1996 ended February 1, 1997 and consisted of 52 weeks.
Fiscal year 1995 ended February 3, 1996 and consisted of 53 weeks.
Fiscal year 1994 ended January 28, 1995 and consisted of 52 weeks.
(Continued)
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
(d) MERCHANDISE INVENTORIES
Inventories consist principally of merchandise held for resale and are
based on physical inventories taken throughout the year. Inventories
are stated at the lower of cost (last-in, first-out) or market. At
February 1, 1997 and February 3, 1996, inventories would have been
higher than reported by approximately $109,900 and $91,900,
respectively, if the first-in, first-out method of valuing inventories
had been used by the Company.
(e) DEPRECIATION POLICY AND MAINTENANCE AND REPAIRS
Equipment is depreciated principally by the straight-line method over
the estimated useful lives of such assets. The principal lives in
years used to compute depreciation are: buildings, 16-45; furniture
and equipment, 1-10; transportation equipment, 1-8; and leasehold
improvements, 2-20.
Maintenance and repairs are charged to expense as incurred. The
Company's policy is to capitalize expenditures for renewals and
betterments and to reduce the asset accounts and the related allowance
for depreciation for the cost and accumulated depreciation of items
replaced, retired or fully depreciated.
(f) FAVORABLE LEASE INTERESTS
Favorable lease interests represent the present value of the excess of
current market rents at dates of acquisition over the below market
rents of leases acquired (principally store locations). Such costs are
amortized over the lives of the favorable leases averaging
approximately twenty years.
(g) UNAMORTIZED DEBT EXPENSES
Unamortized debt expenses represent underwriting discounts,
professional fees and other costs related to long-term debt which are
amortized over the life of the debt instruments.
(h) ADVERTISING COSTS
Net advertising costs are expensed when incurred and were $24,848,
$24,752 and $24,050 for the years ended February 1, 1997, February 3,
1996 and January 28, 1995, respectively.
(Continued)
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
(i) RECLASSIFICATION
Certain amounts have been reclassified in the 1995 consolidated
financial statements to conform to the 1996 consolidated financial
statement presentation.
(j) SUPPLEMENTAL CASH FLOW INFORMATION
The Company considers all liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Cash paid for interest was $57,214, $82,152 and $86,821 for the years
ended February 1, 1997, February 3, 1996 and January 28, 1995,
respectively.
Cash paid for income taxes was $23,281, $5,337 and $7,294 for the
years ended February 1, 1997, February 3, 1996 and January 28, 1995,
respectively.
(k) EARNINGS PER SHARE AND STOCK SPLIT
Primary earnings per share have been computed based on the weighted
average number of shares of common stock outstanding during each
fiscal year (72,113,725 in 1996, 68,606,482 in 1995 and 64,863,438 in
1994). All share information in these consolidated financial
statements has been restated to reflect the two-for-one stock split
effected in the form of a stock dividend declared April 1, 1996 (paid
on May 13, 1996).
(l) RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities in
June 1996. This standard was effective for transactions occurring
after December 31, 1996, and did not have a material impact on the
Company.
(m) STOCK-BASED COMPENSATION
The Company continues to account for stock options under Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees and implemented the disclosure-only provisions as permitted
by Statement of Financial Accounting Standards No. 123 (SFAS No. 123),
Accounting for Stock-Based Compensation.
(Continued)
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
(n) ACQUISITION AND OTHER ONE-TIME EXPENSES
Acquisition and other one-time expenses include acquisition
transaction costs of $12,500 and other one-time costs of $3,500.
(3) EMPLOYEES' BENEFIT PLANS
(a) PROFIT SHARING PLAN
The Company has a noncontributory profit sharing plan which covers all
full-time employees. The Company makes annual contributions to the
Plan at the discretion of the Company's Board of Directors. All funds
are held by a bank as trustee under a trust agreement. Included in
operating and administrative expenses are charges accrued for
contributions to the Plan of $11,827, $11,231 and $9,712 for February
1, 1997, February 3, 1996 and January 28, 1995, respectively.
Plan assets at fair value, consisting of fixed income securities, the
Company's stock and listed stocks, amounted to approximately $301,300
for the plan year ended December 31, 1996.
(b) PENSION PLANS
The Company has in effect a noncontributory pension plan covering all
full-time employees who qualify as to age and length of service.
Benefits are computed based on the average annual compensation for the
five consecutive years that produce the highest average during the
final ten years of creditable service. The Company's policy is to fund
the Plan in accordance with minimum Internal Revenue Service (IRS)
requirements.
The Company accounts for pension costs in accordance with Statement of
Financial Accounting Standards No. 87, Employers' Accounting for
Pensions.
(Continued)
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
The funded status of the Company's pension plan at February 1, 1997 and
February 3, 1996 was:
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
(Projected)
<S> <C> <C>
Accumulated benefit obligation (including vested
benefits of $44,202 and $40,743 at January 1,
1996 (most recent valuation date) and January 1,
1995, respectively) $(47,843) (44,000)
Effect of anticipated future compensation levels
and other events (13,593) (10,911)
-------- -------
Projected benefit obligation for service rendered to date (61,436) (54,911)
Plan assets at fair value, consisting of fixed income
securities and listed stocks 55,384 44,751
-------- -------
Plan assets less than projected benefit obligation (6,052) (10,160)
Unrecognized prior service cost 2,054 2,245
Unrecognized net loss 3,995 7,465
Unrecognized net transition asset at January 1, 1987,
which is being amortized over 13 years (1,423) (2,100)
-------- -------
Accrued pension cost $ (1,426) (2,550)
======== =======
</TABLE>
Net periodic pension costs for the years ended February 1, 1997, February
3, 1996 and January 28, 1995 included the following (income) expense
components:
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Service costs (benefits earned
during the period) $ 3,963 3,606 3,552
Interest cost on projected
benefit obligation 4,062 3,790 3,159
Return on assets (3,945) (3,536) (3,411)
Amortization of prior service cost 191 191 (204)
Amortization of net transition asset (677) (677) (677)
Amortization of net loss 362 101 461
------- ------ ------
Net periodic pension cost $ 3,956 3,475 2,880
======= ====== ======
</TABLE>
(Continued)
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Assumptions used in determining the accumulated and projected benefit
obligations were:
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Weighted average discount rate 7.5% 7.5% 8.25%
Weighted average long-term
rate of return on assets 9% 9% 9%
Rate of compensation increases 5% 5% 5%
</TABLE>
The Company has in effect an Executive Supplemental Benefit Plan to
provide additional income for its executives after their retirement as
well as pre-retirement death benefits to beneficiaries of such
executives. Annual benefits will generally be no greater than 25 percent
of the participant's salary mid-point on the date the participant retires
or separates from service with the Company.
(4) LONG-TERM DEBT
Long-term debt at February 1, 1997 and February 3, 1996 was:
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
---------- ----------
<S> <C> <C>
Term loan, due November 29, 2000 (a) $ -- 230,000
Revolving credit (a) -- 230,000
Intercompany loan payable to JCPenney (b) 505,000 --
9.25% Senior Subordinated Notes due February 15, 2004,
$200,000 face amount (c) 200,000 200,000
Variable rate demand industrial development revenue
refunding bonds, due March 1, 2009 and
May 1, 2013 (d) 18,250 18,250
Other (principally notes secured by buildings, fixtures
and equipment) 57,469 24,568
-------- -------
Total long-term debt 780,719 702,818
Less amounts due within one year 768 1,020
-------- -------
Amounts due after one year $779,951 701,798
======== =======
</TABLE>
(Continued)
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
The aggregate minimum annual maturities of long-term debt for the next
five fiscal years are: 1997 - $768; 1998 - $16,341; 1999 - $145; 2000 -
$88; and 2001, $505,000.
(a) On June 15, 1993, the Company entered into a Credit Agreement which
was subsequently revised on August 3, 1994 and on November 29, 1995.
The original agreement was for a total of $950,000. The revised
agreements provided for a total loan facility of $850,000 and
$750,000, respectively. The revised loan agreements did not provide
any additional proceeds to the Company, but they provided improved
pricing, increased operating flexibility with respect to acquisitions,
capital expenditures and lease payments, and reduced annual term loan
amortization. With the November 29, 1995 revision, the revolving loan
facility was scheduled to mature on November 29, 2000 and was
increased to $500,000 (including the bank swingline loan facility and
the letter of credit and bankers' acceptance facility), and the Term
Loan facility maturity was extended to November 29, 2000, and was
reduced to $250,000. The Credit Agreement was terminated and all
outstanding balances were repaid on December 17, 1996 with proceeds
from the intercompany loan facility with JCPenney.
The Company has entered into interest rate cap agreements relating to
floating rate debt. The cap agreements are for $150,000 and mature at
various dates in 1998. The cap agreements have an approximate 7%
interest rate. At February 1, 1997, these agreements had a value to
the Company of approximately $120 over their carrying values of zero.
(b) On December 17, 1996, the Company borrowed $550,000 under an
intercompany loan facility from JCPenney. The intercompany loan is
unsecured and bears interest at .125% over the applicable JCPenney
cost of funds. The intercompany loan facility matures on December 17,
2001. At February 1, 1997, the interest rate on the principal amount
outstanding under the intercompany loan was 5.85%.
(c) On November 2, 1993, the Company issued $200,000 aggregate principal
amount of 9.25% Senior Subordinated Notes (Notes) due February 15,
2004. The Notes are unsecured and subordinated to all existing and
future senior debt (as defined) of the Company and are redeemable at
the option of the Company, in whole or in part, at any time after
February 15, 1999 at various redemption prices (as defined) plus
accrued interest to the date of redemption. Interest is payable semi-
annually on February 15 and August 15 of each year.
(Continued)
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
(d) The variable rate demand industrial development revenue refunding
bonds currently have an interest rate which is a daily rate
established by First National Bank of Chicago and is indicative of
current bid-side yields of high grade tax-exempt securities. At the
Company's option, and under certain conditions, the interest rate may
be changed to a monthly rate or a fixed rate. The bonds are secured by
the related buildings, leases and letters of credit. At February 1,
1997, the interest rate on the principal amount of these bonds was
3.30%.
(e) Extraordinary charges were recognized during the years ended February
1, 1997, February 3, 1996 and January 28, 1995, primarily from the
write-off of unamortized debt expenses related to the significant
revisions of the Credit Agreement in 1994 and 1995, as well as the
early repayment of debt from a portion of the net proceeds from the
sale of Insta-Care in 1994, the redemption of the 11.125% Subordinated
Debentures in 1994 and 1995, and from the termination of the Credit
Agreement in 1996.
(f) The fair value of the note payable to JCPenney and the variable rate
demand industrial development revenue refunding bonds approximate
their carrying value, based on the frequency of the interest rate
reset periods. The fair value of the Notes is approximately $214,500,
based on their quoted market price. The fair value of the other long-
term debt approximates its carrying value, based on the relatively
short remaining maturity of the debt.
(5) INCOME TAXES
Income tax expense before extraordinary items was:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $ 70,065 19,309 5,278
State 3,629 1,291 3,475
-------- ------ -----
73,694 20,600 8,753
-------- ------ -----
Deferred:
Federal (37,142) -- --
State (3,230) -- --
-------- ------ -----
(40,372) -- --
-------- ------ -----
Total $ 33,322 20,600 8,753
======== ====== =====
</TABLE>
(Continued)
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
For fiscal years 1996, 1995 and 1994, the income tax expense differs from
amounts computed by applying the Federal statutory rate of 35% to earnings
before income taxes and extraordinary items. The actual tax differs from
the expected tax as follows:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Expected tax $ 48,041 43,184 30,479
State taxes, net of Federal benefit 259 839 2,259
Changes in valuation allowance through
the use of loss carryforwards -- (42,239) (29,263)
Alternative minimum tax expense/
(utilization) (17,012) 19,189 --
Other 2,034 (373) 5,278
-------- ------- -------
$ 33,322 20,600 8,753
======== ======= =======
</TABLE>
The Company has alternative minimum tax credit carryforwards of
approximately $22,800.
During the year, the Company reached an agreement with the Internal Revenue
Service for the income tax return examinations relating to the January 31,
1987 and January 30, 1988 tax years. The settlement amount for the two-year
period was approximately $36,400. In connection with the settlement, the
Company's net operating loss carryforwards have been adjusted to zero while
deferred tax assets in the form of alternative minimum tax credit
carryforwards and deductions relating to changes in amortization methods
are now available. As such, a major portion of the settlement will provide
future tax benefits to the Company. The settlement results had an
immaterial effect on the total income tax expense for the current year. The
Federal income tax returns for the fiscal years ended January 28, 1989,
February 3, 1990, February 2, 1991 and February 1, 1992 are currently being
examined.
(Continued)
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Reserves and other liabilities $ 3,204 13,620
Amortization 42,326 7,452
Other 23,842 6,351
Loss carryforwards -- 67,111
Credit carryforwards 22,756 25,803
------- -------
Gross deferred tax assets 92,128 120,337
Less valuation allowance -- (67,111)
------- -------
Net deferred tax assets 92,128 53,226
------- -------
Deferred tax liabilities:
Inventory 35,371 37,698
Fixed assets 16,385 15,528
------- -------
Gross deferred tax liabilities 51,756 53,226
------- -------
Net deferred tax assets $40,372 --
======= =======
</TABLE>
(6) STOCKHOLDERS' EQUITY
(a) COMMON STOCK
The Company's authorized common stock consists of 100,000,000 shares
of Common Stock, par value $.01 per share (of which 3,518,728 shares
are Nonvoting Common Stock (Series I), par value $.01 per share).
(b) PREFERRED STOCK
The Company's authorized preferred stock consists of 20,000,000
shares. The preferred stock is issuable in series with terms as fixed
by the Board of Directors. No preferred stock has been issued.
(Continued)
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
(7) STOCK-BASED COMPENSATION
The Company has reserved 6,437,957 shares of its Common Stock for the
granting of stock options and other incentive awards to officers, directors
and key employees under the 1993 and 1995 Stock Option and Incentive Plans
of Eckerd Corporation. Options are granted at prices which are not less
than the fair market value of a share of common stock on the date of grant.
Commencing three years after the date of grant, all options are exercisable
to the extent of 50%, with an additional 25% exercisable after each of the
next two successive years. Unexercised options expire ten years after the
date of grant. Options granted under prior plans were surrendered and
granted under the terms of the 1993 plan. Shares under option and option
prices have been adjusted to reflect the two-for-one stock split (note
2(l)). In December 1996, after a change of control when JCPenney purchased
50.1% of the outstanding common stock of the Company, all stock options
outstanding became 100% exercisable. In connection with the acquisition of
the Company by JCPenney, all option holders were given the right to elect,
in whole or in part, to convert their options into an amount of cash equal
to the difference between $35.00 and the exercise price of their options.
On February 27, 1997, all options outstanding were either converted into
cash, if elected, or converted into a pro rata number of options to acquire
JCPenney common stock.
As of February 1, 1997, February 3, 1996 and January 28, 1995, 2,836,442,
3,531,658 and 458,354 shares of Common Stock were available for grant. At
February 1, 1997, options for 3,601,515 shares of Common Stock were
exercisable at $2.59 to $28.25 per share, with a weighted average option
price of $12.93. At February 3, 1996, options for 758,308 shares of Common
Stock were exercisable at $2.59 to $7.00 per share, with a weighted average
option price of $5.04. At January 28, 1995, options for 699,720 shares of
Common Stock were exercisable at $.28 to $7.00 per share, with a weighted
average option price of $4.67.
(Continued)
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
A summary of changes during the years ended February 1, 1997, February 3,
1996 and January 28, 1995 is set forth below:
<TABLE>
<CAPTION>
SHARES UNDER OPTION WEIGHTED AVERAGE
OPTION PRICES OPTION PRICE
--------- --------------- ----------------
<S> <C> <C> <C>
Outstanding January 29, 1994 2,814,008 $ .28 - $ 7.00 $ 6.14
Granted 171,000 $ 7.00 - $14.63 $11.57
Exercised (248,998) $ .28 - $ 7.00 $ 4.35
Canceled (184,018) $ .28 - $12.32 $ 6.82
---------
Outstanding January 28, 1995 2,551,992 $ .28 - $14.63 $ 6.32
Granted 1,059,134 $12.81 - $22.00 $15.71
Exercised (227,940) $ .28 - $ 7.00 $ 4.16
Canceled (132,438) $ 7.00 - $19.31 $ 8.84
---------
Outstanding at February 3, 1996 3,250,748 $ 2.59 - $22.00 $ 9.42
Granted 919,100 $20.75 - $28.25 $22.49
Exercised (344,449) $ 2.59 - $ 8.44 $ 5.39
Canceled (223,884) $ 7.00 - $27.25 $12.84
---------
Outstanding at February 1, 1997 3,601,515 $ 2.59 - $28.25 $12.93
=========
</TABLE>
The Company has elected to continue accounting for stock-based compensation
under the provisions of APB No. 25, Accounting for Stock Issued to
Employees. Accordingly, net income and earnings per share shown in the
consolidated statements of income do not reflect any compensation cost for
the Company's stock options. In accordance with SFAS No. 123, Accounting
for Stock-Based Compensation, the fair value of each fixed option granted
is estimated on the date of grant using the Black-Scholes option-pricing
model with the following assumptions.
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Dividend yield 0% 0%
Expected volatility 24.8% 24.8%
Risk-free interest rate 6.3% 6.3%
Expected life of option 5 years 5 years
Fair value per share of options granted $ 7.90 $5.54
SFAS 123 compensation expense (thousands) $2,273 $ 861
</TABLE>
The effect on earnings per share of recording compensation expense under
SFAS No. 123 was a reduction of approximately two cents per share in 1996
and one cent per share in 1995.
(Continued)
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
(8) COMMITMENTS
The Company conducts the major portion of its retail operations from leased
store premises under leases that will expire within the next 20 years. Such
leases generally contain renewal options exercisable at the option of the
Company. In addition to minimum rental payments, certain leases provide for
payment of taxes, maintenance, and percentage rentals based upon sales in
excess of stipulated amounts.
Rental expense for the years ended February 1, 1997, February 3, 1996 and
January 28, 1995 was:
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Minimum rentals $132,496 118,797 111,845
Percentage rentals 25,666 25,651 20,971
-------- ------- -------
$158,162 144,448 132,816
======== ======= =======
</TABLE>
At February 1, 1997, minimum rental commitments for the next five fiscal
years and thereafter under noncancelable leases were as follows: 1997 -
$124,575; 1998 - $116,608; 1999 - $108,391; 2000, - $110,020; 2001, -
$90,520; and thereafter - $743,708.
In 1987, the Company entered into an operating lease agreement for 72
stores with a third-party lessor established by an affiliate of Merrill
Lynch & Co. (which, through affiliated entities, controlled approximately
1% of the Company's common stock before the JCPenney acquisition). On
February 17, 1997, the Company purchased these properties for $33,111. This
transaction has been included in the February 1, 1997 balance sheet of the
Company as if the transaction had been closed as of that date.
During 1995 and 1994, the Company sold certain photo processing equipment
to an unrelated third party for approximately $4,900 and $14,800,
respectively, and entered into five-year leases with respect to such
equipment. No gain or loss was recorded in connection with these
transactions. Annual lease payments by the Company of $6,801 are required
over the term of the leases.
During 1993, the Company and IBM Global Services (IGS) entered into a
Systems Operations Service Agreement (Service Agreement) pursuant to which
IGS will manage the Company's entire information systems operation,
including the implementation of a new point-of-sale system with scanning
capabilities. The Service Agreement has a ten year term and the total
payments to be made by the Company are expected to be $605,000 over such
term, based on currently anticipated services. A portion of these payments
is being accounted for as capital expenditures. As of February 1, 1997, the
Company has acquired $113,270 of equipment, of which $30,000 has been
acquired under a deferred payment arrangement.
(Continued)
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
(9) TRANSACTIONS WITH RELATED PARTIES
In April 1989, the Company entered into a "Master Lease" agreement with a
third-party lessor established by an affiliate of Merrill Lynch & Co.
(which, through affiliated entities, controlled approximately 1% of the
Company's common stock before the JCPenney acquisition) whereby such lessor
would finance the acquisition of store sites and the construction of
buildings and acquisition of equipment. As of February 1, 1997, there were
twelve stores leased under the agreement with an aggregate cost of
approximately $18,400. The Company pays the Merrill Lynch affiliate a
structure fee of 1% of the cost of land, buildings and equipment financed
under the Master Lease plus an administration fee. The Company paid the
Merrill Lynch affiliate fees aggregating $40, $43 and $43 for the years
ended February 1, 1997, February 3, 1996 and January 28, 1995,
respectively.
During 1993, Merrill Lynch & Co., as one of the representatives of the
underwriters in the IPO, received underwriting commissions and related fees
of $1,847. In addition, as sole underwriter in the issuance of the Notes,
Merrill Lynch & Co. received approximately $4,000 in underwriting discounts
from the Company. During 1995, Merrill Lynch & Co., as one of the
representatives of the underwriters in the August offering, received
underwriting commissions and related fees of $3,000.
During 1996, Merrill Lynch & Co. acted as the Company's financial advisor
in connection with the acquisition of the Company by JCPenney. The Company
paid Merrill Lynch & Co. $11,500 for its fees and expenses in connection
with the acquisition of the Company by JCPenney.
(10) STORE CLOSING CHARGES
In 1994, the Company changed its accounting policy for closed stores to
record the loss at the time the decision is made to close the store, in
accordance with Emerging Issues Task Force Issue No. 94-3. In the fourth
quarter of 1994, the Company established a $48,988 provision for future
store closings. In addition to the small number of stores the Company would
close in the normal course of business, the Company accelerated the closing
of approximately 90 geographically dispersed under-performing stores. The
total charge of $48,988 was included in operating and administrative
expenses on the 1994 consolidated statement of operations. Of the total
charge, approximately $31,000 related to lease settlements and obligations
and other expenses to be incurred in connection with the store closings.
The remaining charge of approximately $18,000 was for the write-off of
impaired assets which included inventory liquidation and the write-off of
intangible and fixed assets. The effect of this accounting change on prior
periods was immaterial.
In 1996 and 1995, approximately $5,400 and $20,400, respectively, of the
provision was utilized for lease obligations, settlements, and asset write-
offs. Remaining expenses are anticipated to be less than the balance of the
provision; therefore, $10,800 of the provision was made available and
utilized for 1996 store closings approved in 1995, primarily related to the
relocation of existing stores.
<PAGE>
INDEPENDENT AUDITORS' REPORT
--------------------------
The Board of Directors
Eckerd Corporation and Subsidiaries:
Under date of April 15, 1997, we reported on the consolidated balance
sheets of Eckerd Corporation and subsidiaries as of February 1, 1997 and
February 3, 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three-
year period ended February 1, 1997, which are incorporated by reference in
the Form 10-K405. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule in the Form 10-K405. This financial statement
schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement
schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.
As discussed in note 10 to the consolidated financial statements, the
Company changed its accounting policy in fiscal year 1995 related to the
timing of the recognition of closed store obligations.
/s/ KPMG Peat Marwick LLP
Tampa, Florida
April 15, 1997
<PAGE>
SCHEDULE II
ECKERD CORPORATION AND SUBSIDIARIES
RESERVES
YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 28, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Charged Balance at
Beginning to End
Description of Period earnings Deductions Other of Period
- ----------- --------- -------- ---------- ----- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
receivables (a)
Year Ended
February 1, 1997 $3,000 $5,122 $5,122 -- $3,000
====== ====== ====== ======= ======
Year Ended
February 3, 1996 $3,000 $4,564 $4,564 -- $3,000
====== ====== ====== ======= ======
Year Ended
January 28, 1995 $5,000 $7,148 $4,924 $(4,224) $3,000
====== ====== ====== ======= ======
</TABLE>
- ------------------
Notes:
(a) This reserve is deducted from receivables in the balance sheets.
<PAGE>
EXHIBIT INDEX
Exhibits previously filed or filed by incorporation by reference:
4.1 Form of 9.25% Senior Subordinated Notes Due 2004 of the Company
(incorporated by reference to Exhibit 4.01 to the Current Report on Form
8-K dated October 26, 1993 of the Company (File No. 1-4844)).
4.2 Indenture dated as of November 1, 1993 between the Company and State
Street Bank and Trust Company of Connecticut, National Association, as
Trustee relating to the Company's 9-1/4% Senior Subordinated Notes Due
2004 (incorporated by reference to Exhibit 4.02 to the Current Report on
Form 8-K dated October 26, 1993 of the Company (File No. 1-4844)).
10.1 Commercial Paper Placement Agency Agreement dated July 17, 1989 between
the Company and Merrill Lynch Money Markets, Inc. (incorporated by
reference to Exhibit 10.15 of Form 10-K of the Company for the period
ended February 3, 1990).
10.2 Master Lease Agreement I dated as of May 18, 1993 between the Company and
Imaging Financial Services d/b/a EKCC ("IFS") (incorporated by reference
to Exhibit 10.28 to Amendment No. 1 to the Registration Statement on Form
S-2 of the Company (No. 33-64906)).
10.3 Master Lease Agreement II dated as of June 15, 1993 between the Company
and IFS (incorporated by reference to Exhibit 10.29 to Amendment No. 1 to
the Registration Statement on Form S-2 of the Company (No. 33-64906)).
10.4 Systems Operations Service Agreement dated as of July 14, 1993 between the
Company and Integrated Systems Solutions Corporation (incorporated by
reference to Exhibit 10.30 to Amendment No. 1 to the Registration
Statement on Form S-2 of the Company (No. 33-64906)).
10.5 Letter dated March 16, 1993 between IFS and the Company relating to IFS
Sale and Leaseback (incorporated by reference to Exhibit 10.31 to
Amendment No. 2 of the Registration Statement on Form S-2 of the Company
(No. 33-64906)).
10.6 Receivables Purchase Agreement dated as of January 26, 1995 between the
Company and Three Rivers Funding Corporation (incorporated by reference to
Exhibit 10.18 to Form 10-K405 for the year ended January 28, 1995 of the
Company (File No. 1-4844)).
10.7 First Amendment to Receivables Purchase Agreement dated as of March 31,
1995 between the Company and Three Rivers Funding Corporation
(incorporated by reference to Exhibit 10.19 to Form 10-K405 for the year
ended January 28, 1995 of the Company (File No. 1-4844)).
10.8 Employment Agreement dated February 4, 1996 between the Company and
Francis A. Newman (incorporated by reference to Exhibit 10.26 to Form 10-K
for the year ended February 3, 1996 of the Company (File 1-4844)).
10.9 Employment Agreement dated February 4, 1996 between the Company and James
M. Santo (incorporated by reference to Exhibit 10.27 to Form 10-K for the
year ended February 3, 1996 of the Company (File 1-4844)).
<PAGE>
10.10 Employment Agreement dated February 4, 1996 between the Company and Samuel
G. Wright (incorporated by reference to Exhibit 10.28 to Form 10-K for the
year ended February 3, 1996 of the Company (File 1-4844)).
10.11 Employment Agreement dated February 4, 1996 between the Company and
Kenneth L. Flynn (incorporated by reference to Exhibit 10.29 to Form 10-K
for the year ended February 3, 1996 of the Company (File 1-4844)).
10.12 The Executive Excess Benefit Plan of Jack Eckerd Corporation and Its
Subsidiaries (incorporated by reference to Exhibit 10.30 to Form 10-K for
the year ended February 3, 1996 of the Company (File 1-4844)).
10.13 Eckerd Corporation Executive Three (3) Year Bonus Plan (incorporated by
reference to Exhibit 10.31 to Form 10-K for the year ended February 3,
1996 of the Company (File 1-4844)).
10.14 Employment Agreement dated February 4, 1996 between the Company and
Stewart Turley (incorporated by reference to Exhibit 10.25 to Form 10-K
for the year ended February 3, 1996 of the Company (File 1-4844)).
10.15 Amendment No. 1 dated as of November 2, 1996 to Employment Agreement dated
February 4, 1996 between the Company and Francis A. Newman (incorporated
by reference to Exhibit 11 to the Schedule 14D-9 of the Company (File
1-4844)).
10.16 Amended and Restated Agreement and Plan of Merger among Eckerd
Corporation, J. C. Penney Company, Inc. and Omega Acquisition Corporation,
Inc., dated as of November 2, 1996 (incorporated by reference to Exhibit 9
to the Schedule 14D-9 of the Company (File 1-4844)).
10.17 Amendment dated February 25, 1997 to Amended and Restated Agreement and
Plan of Merger dated as of November 2, 1996, among J. C. Penney Company,
Inc., Omega Acquisition Corporation and Eckerd Corporation (incorporated
by reference to Exhibit 2(b) to the Annual Report on Form 10-K of J. C.
Penney Company, Inc. for the 52 weeks ended January 25, 1997 (File
1-777)).
Exhibits filed herewith:
3.1 Certificate of Incorporation of the Company.
3.2 First Amendment to Certificate of Incorporation of the Company.
3.3 By-Laws of the Company, as amended.
4.3 First Supplemental Indenture, dated as of February 27, 1997, between the
Company and State Street Bank and Trust Company of Connecticut, National
Association, as Trustee.
12.1 Statement regarding computation of ratio of earnings to fixed charges of
the Company.
23.1 Consent of Independent Certified Public Accountants.
27 Financial data schedule.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
OMEGA ACQUISITION CORPORATION
FIRST. The name of the Corporation is Omega Acquisition
Corporation.
SECOND. The address of its registered office in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, State
of Delaware. The name of the registered agent of the corporation at such
address is the Corporation Trust Company.
THIRD. The nature of the business to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which the Corporation
shall have authority to issue is One Thousand (1,000) shares of common stock;
each such share shall have a par value of $.01.
FIFTH. The name and mailing address of each incorporator is as
follows:
NAME ADDRESS
---- -------
Cory A. Wolfe c/o Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
SIXTH. The Corporation is to have perpetual existence.
SEVENTH. In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly
<PAGE>
authorized to make, alter or repeal the By-Laws of the Corporation.
EIGHTH. Meetings of stockholders may be held within or without the
State of Delaware as the By-Laws may provide. The books of the Corporation may
be kept (subject to any provisions contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the By-Laws of the Corporation. Elections of
Directors need not be by written ballot unless the By-Laws of the Corporation
shall so provide.
NINTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereinafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
TENTH. To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended, a director of
this Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director.
ELEVENTH The Corporation shall have the power to indemnify any person
who was or is a party or is threatened to be made a party to, or testifies in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative in nature, by reason of the fact that
such person is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding to
the full extent permitted by law, and the Corporation may adopt By-laws or enter
into agreements with any such person for the purpose of providing for such
indemnification.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate
of Incorporation on this 31st day of October, 1996.
/s/ CORY A. WOLFE
----------------------
Cory A. Wolfe
Sole Incorporator
3
<PAGE>
EXHIBIT 3.2
FIRST AMENDMENT
to
CERTIFICATE OF INCORPORATION
of
OMEGA ACQUISITION CORPORATION
This First Amendment to Certificate of Incorporation of Omega
Acquisition Corporation, a Delaware corporation (the "Corporation"), has been
duly adopted, approved and prepared for filing in the State of Delaware in
accordance with the provisions of Section 242 of the Delaware General
Corporation Law.
FIRST: The original Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on October 31, 1996.
SECOND: Article ELEVENTH of said Certificate of Incorporation is
hereby amended as follows:
1. Article ELEVENTH of the Certificate of Incorporation is hereby
amended to read in its entirety as follows:
ELEVENTH. 1. The Corporation shall indemnify its directors and
---------
officers to the fullest extent authorized or permitted by law, as now or
hereafter in effect, and such right to indemnification shall continue as to a
person who has ceased to be a director or officer of the Corporation and shall
inure to the benefit of his or her heirs, executors and personal and legal
representatives. The right to indemnification conferred in this Article
ELEVENTH shall include the right to be paid by this Corporation the expenses
incurred in defending or otherwise participating in any proceeding in advance of
its final disposition.
<PAGE>
2. The Corporation may, to the extent authorized from time to time by the Board
of Directors, provide rights to indemnification and to the advancement of
expenses to employees and agents of the Corporation who are not directors or
officers similar to those conferred in this Article ELEVENTH to directors and
officers of the Corporation.
3. The rights to indemnification and to the advancement of expenses conferred
in this Article ELEVENTH shall not be exclusive of any other right which any
person may have or hereafter acquire under this Certificate of Incorporation,
the Bylaws, any statute, agreement, vote of stockholders or disinterested
directors, or otherwise.
4. Any repeal or modification of this Article ELEVENTH by the stockholders of
the Corporation shall not adversely affect any rights to indemnification and
advancement of expenses of a director or officer of the Corporation existing at
the time of such repeal or modification with respect to any acts or omissions
occurring prior to such repeal or modification.
IN WITNESS WHEREOF, the undersigned has executed this amendment as of the
25th day of February, 1997.
By: /s/ D.A. McKay
----------------------------------
Name: D.A. McKay
Title: President
<PAGE>
EXHIBIT 3.3
BY-LAWS
OF
OMEGA ACQUISITION CORPORATION
(a Delaware corporation)
ARTICLE I
Stockholders
------------
SECTION 1. Annual Meetings. The annual meeting of stockholders for
---------------
the election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year at such date and time,
within or without the State of Delaware, as the Board of Directors shall
determine.
SECTION 2. Special Meetings. Special meetings of stockholders for
----------------
the transaction of such business as may properly come before the meeting may be
called by order of the Board of Directors or by stockholders holding together at
least a majority of all the shares of the Corporation entitled to vote at the
meeting, and shall be held at such date and time, within or without the State of
Delaware, as may be specified by such order. Whenever the directors shall fail
to fix such place, the meeting shall be held at the principal executive office
of the Corporation.
SECTION 3. Notice of Meetings. Written notice of all meetings of the
------------------
stockholders shall be mailed or delivered to each stockholder not less than 10
nor more than
<PAGE>
60 days prior to the meeting. Notice of any special meeting shall state in
general terms the purpose or purposes for which the meeting is to be held.
SECTION 4. Stockholder Lists. The officer who has charge of the
-----------------
stock ledger of the Corporation shall prepare and make, at least 10 days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, either at a place within the city where
the meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the Corporation, or to vote in person or by proxy at any
meeting of stockholders.
SECTION 5. Quorum. Except as otherwise provided by law or the
------
Corporation's Certificate of Incorporation, a quorum for the transaction of
business at any meeting of stockholders shall consist of the holders of record
of a majority of the issued and outstanding shares of the capital stock of the
Corporation entitled to vote at the meeting, present in person or by proxy. At
all meetings of the stockholders at which a quorum is present, all matters,
except as otherwise provided by law or the Certificate of Incorporation, shall
be decided by the vote of the holders of a majority of the shares entitled to
vote thereat present in person or by proxy. If there be no such quorum, the
2
<PAGE>
holders of a majority of such shares so present or represented may adjourn the
meeting from time to time, without further notice, until a quorum shall have
been obtained. When a quorum is once present it is not broken by the subsequent
withdrawal of any stockholder.
SECTION 6. Organization. Meetings of stockholders shall be presided
------------
over by the Chairman, if any, or if none or in the Chairman's absence the Vice-
Chairman, if any, or if none or in the Vice-Chairman's absence the President, if
any, or if none or in the President's absence a Vice-President, or, if none of
the foregoing is present, by a chairman to be chosen by the stockholders
entitled to vote who are present in person or by proxy at the meeting. The
Secretary of the Corporation, or in the Secretary's absence an Assistant
Secretary, shall act as secretary of every meeting, but if neither the Secretary
nor an Assistant Secretary is present, the presiding officer of the meeting
shall appoint any person present to act as secretary of the meeting.
SECTION 7. Voting; Proxies; Required Vote.
------------------------------
(a) At each meeting of stockholders, every stockholder shall be entitled to
vote in person or by proxy appointed by instrument in writing, subscribed by
such stockholder or by such stockholder's duly authorized attorney-in-fact, and,
unless the Certificate of Incorporation provides otherwise, shall have one vote
for each share of stock entitled to vote registered in the name of such
stockholder on the books of the Corporation on the applicable record date fixed
pursuant to these By-laws. At all elections of directors the voting may but
need not be by ballot and a plurality of the votes cast there shall elect.
Except as otherwise required by law or the Certificate of Incorporation, any
other action shall be authorized by a majority of the votes cast.
(b) Any action required or permitted to be taken at any meeting of
stockholders may, except as otherwise
3
<PAGE>
required by law or the Certificate of Incorporation, be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by a majority of the holders of record of
the issued and outstanding capital stock of the Corporation, and the writing or
writings are filed with the permanent records of the Corporation. Prompt notice
of the taking of corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
SECTION 8. Inspectors. The Board of Directors, in advance of any
----------
meeting, may, but need not, appoint one or more inspectors of election to act at
the meeting or any adjournment thereof. If an inspector or inspectors are not
so appointed, the person presiding at the meeting may, but need not, appoint one
or more inspectors. In case any person who may be appointed as an inspector
fails to appear or act, the vacancy may be filled by appointment made by the
directors in advance of the meeting or at the meeting by the person presiding
thereat. Each inspector, if any, before entering upon the discharge of his or
her duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability. The inspectors, if any, shall determine the number of shares of
stock outstanding and the voting power of each, the shares of stock represented
at the meeting, the existence of a quorum, and the validity and effect of
proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all stockholders.
On request of the person presiding at the meeting, the inspector or inspectors,
if any, shall make a report in writing of any challenge, question or matter
determined by such inspector or inspectors and execute a certificate of any fact
found by such inspector or inspectors.
4
<PAGE>
ARTICLE II
Board of Directors
------------------
SECTION 1. General Powers. The business, property and affairs of the
--------------
Corporation shall be managed by, or under the direction of, the Board of
Directors.
SECTION 2. Qualification; Number; Term; Remuneration. (a) Each
-----------------------------------------
director shall be at least 18 years of age. A director need not be a
stockholder, a citizen of the United States, or a resident of the State of
Delaware. The number of directors constituting the entire Board shall be two
(2), or such greater number as may be fixed from time to time by action of the
stockholders or Board of Directors, one of whom may be selected by the Board of
Directors to be its Chairman. The use of the phrase "entire Board" herein
refers to the total number of directors which the Corporation would have if
there were no vacancies.
(b) Directors who are elected at an annual meeting of stockholders,
and directors who are elected in the interim to fill vacancies and newly created
directorships, shall hold office until the next annual meeting of stockholders
and until their successors are elected and qualified or until their earlier
resignation or removal.
(c) Directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation
5
<PAGE>
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
SECTION 3. Quorum and Manner of Voting. Except as otherwise provided
---------------------------
by law, the presence of a majority of the directors of the Board shall
constitute a quorum. A majority of the directors present, whether or not a
quorum is present, may adjourn a meeting from time to time to another time and
place without notice. The vote of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors.
SECTION 4. Places of Meetings. Meetings of the Board of Directors
------------------
may be held at any place within or without the State of Delaware, as may from
time to time be fixed by resolution of the Board of Directors, or as may be
specified in the notice of meeting.
SECTION 5. Annual Meeting. Following the annual meeting of
--------------
stockholders, the newly elected Board of Directors shall meet for the purpose of
the election of officers and the transaction of such other business as may
properly come before the meeting. Such meeting may be held without notice
immediately after the annual meeting of stockholders at the same place at which
such stockholders' meeting is held.
SECTION 6. Regular Meetings. Regular meetings of the Board of
----------------
Directors shall be held at such times and places as the Board of Directors shall
from time to time by resolution determine. Notice need not be given of regular
meetings of the Board of Directors held at times and places fixed by resolution
of the Board of Directors.
SECTION 7. Special Meetings. Special meetings of the Board of
----------------
Directors shall be held whenever called by the
6
<PAGE>
Chairman of the Board, President or Vice-President or by a majority of the
directors then in office.
SECTION 8. Notice of Meetings. A notice of the place, date and time
------------------
and the purpose or purposes of each meeting of the Board of Directors shall be
given to each director by mailing the same at least two days before the meeting,
or by telegraphing or telephoning the same or by delivering the same personally
not later than the day before the day of the meeting.
SECTION 9. Organization. At all meetings of the Board of Directors,
------------
the Chairman, if any, or if none or in the Chairman's absence or inability to
act the President, or in the President's absence or inability to act any Vice-
President who is a member of the Board of Directors, or in such Vice-President's
absence or inability to act a chairman chosen by the directors, shall preside.
The Secretary of the Corporation shall act as secretary at all meetings of the
Board of Directors when present, and, in the Secretary's absence, the presiding
officer may appoint any person to act as secretary.
SECTION 10. Resignation; Removal. Any director may resign at any
--------------------
time upon written notice to the Corporation and such resignation shall take
effect upon receipt thereof by the President or Secretary, unless otherwise
specified in the resignation. Any or all of the directors may be removed, with
or without cause, at any time, by the holders of a majority of the shares of
stock outstanding and entitled to vote for the election of directors.
SECTION 11. Vacancies. Unless otherwise provided in these By-laws,
---------
vacancies on the Board of Directors, whether caused by resignation, death,
disqualification, removal, an increase in the authorized number of directors or
otherwise, may be filled by the affirmative vote of a
7
<PAGE>
majority of the remaining directors, although less than a quorum, or by a sole
remaining director, or at a special meeting of the stockholders, by the holders
of shares entitled to vote for the election of directors.
SECTION 12. Action by Written Consent. Any action required or
-------------------------
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all the directors consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors.
ARTICLE III
Committees
----------
SECTION 1. Appointment. From time to time the Board of Directors by
-----------
a resolution adopted by the Board may appoint any committee or committees for
any purpose or purposes, to the extent lawful, which shall have powers as shall
be determined and specified by the Board of Directors in the resolution of
appointment.
SECTION 2. Procedures, Quorum and Manner of Acting. Each committee
---------------------------------------
shall fix its own rules of procedure, and shall meet where and as provided by
such rules or by resolution of the Board of Directors. Except as otherwise
provided by law, the presence of a majority of the then appointed members of a
committee shall constitute a quorum for the transaction of business by that
committee, and in every case where a quorum is present the affirmative vote of a
majority of the members of the committee present shall be the act of the
committee. Each committee shall keep minutes of its proceedings, and actions
taken by a committee shall be reported to the Board of Directors.
8
<PAGE>
SECTION 3. Action by Written Consent. Any action required or
-------------------------
permitted to be taken at any meeting of any committee of the Board of Directors
may be taken without a meeting if all the members of the committee consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the committee.
SECTION 4. Term; Termination. In the event any person shall cease to
-----------------
be a director of the Corporation, such person shall simultaneously therewith
cease to be a member of any committee appointed by the Board of Directors.
ARTICLE IV
Officers
--------
SECTION 1. Election and Qualifications. The Board of Directors shall
---------------------------
elect the officers of the Corporation, which shall include a President and a
Secretary, and may include, by election or appointment, one or more Vice-
Presidents (any one or more of whom may be given an additional designation of
rank or function), a Treasurer and such assistant secretaries, such Assistant
Treasurers and such other officers as the Board may from time to time deem
proper. Each officer shall have such powers and duties as may be prescribed by
these By-laws and as may be assigned by the Board of Directors or the President.
Any two or more offices may be held by the same person except the offices of
President and Secretary.
SECTION 2. Term of Office and Remuneration. The term of office of
-------------------------------
all officers shall be one year and until their respective successors have been
elected and qualified, but any officer may be removed from office, either with
or without cause, at any time by the Board of Directors. Any vacancy in any
office arising from any cause may be filled for the unexpired portion of the
term by the Board of
9
<PAGE>
Directors. The remuneration of all officers of the Corporation may be fixed by
the Board of Directors or in such manner as the Board of Directors shall
provide.
SECTION 3. Resignation; Removal. Any officer may resign at any time
--------------------
upon written notice to the Corporation and such resignation shall take effect
upon receipt thereof by the President or Secretary, unless otherwise specified
in the resignation. Any officer shall be subject to removal, with or without
cause, at any time by vote of all of the directors of the Board.
SECTION 4. Chairman of the Board. The Chairman of the Board of
---------------------
Directors, if there be one, shall preside at all meetings of the Board of
Directors and shall have such other powers and duties as may from time to time
be assigned by the Board of Directors.
SECTION 5. President and Chief Executive Officer. The President
-------------------------------------
shall be the chief executive officer of the Corporation, and shall have such
duties as customarily pertain to that office. The President shall have general
management and supervision of the property, business and affairs of the
Corporation and over its other officers; may appoint and remove assistant
officers and other agents and employees, other than officers referred to in
Section 1 of this Article IV; and may execute and deliver in the name of the
Corporation powers of attorney, contracts, bonds and other obligations and
instruments.
SECTION 6. Vice-President. A Vice-President may execute and deliver
--------------
in the name of the Corporation contracts and other obligations and instruments
pertaining to the regular course of the duties of said office, and shall have
such other authority as from time to time may be assigned by the Board of
Directors or the President.
10
<PAGE>
SECTION 7. Treasurer. The Treasurer shall in general have all duties
---------
incident to the position of Treasurer and such other duties as may be assigned
by the Board of Directors or the President.
SECTION 8. Secretary. The Secretary shall in general have all the
---------
duties incident to the office of Secretary and such other duties as may be
assigned by the Board of Directors or the President.
SECTION 9. Assistant Officers. Any assistant officer shall have such
------------------
powers and duties of the officer such assistant officer assists as such officer
or the Board of Directors shall from time to time prescribe.
ARTICLE V
Books and Records
-----------------
SECTION 1. Location. The books and records of the Corporation may be
--------
kept at such place or places within or outside the State of Delaware as the
Board of Directors or the respective officers in charge thereof may from time to
time determine. The record books containing the names and addresses of all
stockholders, the number and class of shares of stock held by each and the dates
when they respectively became the owners of record thereof shall be kept by the
Secretary as prescribed in the By-laws and by such officer or agent as shall be
designated by the Board of Directors.
SECTION 2. Addresses of Stockholders. Notices of meetings and all
-------------------------
other corporate notices may be delivered personally or mailed to each
stockholder at the stockholder's address as it appears on the records of the
Corporation.
11
<PAGE>
SECTION 3. Fixing Date for Determination of Stockholders of Record.
-------------------------------------------------------
(a) In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors and which record date shall not be more than 60 nor less
than 10 days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors and which date shall not be more than 10 days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required, shall be the first date on which a signed written consent setting
forth the action taken or proposed to be taken is delivered to the Corporation
by delivery to its registered office in this State, its principal place of
business, or an officer or agent of the Corporation having custody of the book
in
12
<PAGE>
which proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required by this
chapter, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the Board of Directors adopts the resolution taking such
prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted and which record date shall be not more than 60 days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
13
<PAGE>
ARTICLE VI
Certificates Representing Stock
-------------------------------
SECTION 1. Certificates; Signatures. The shares of the Corporation
------------------------
shall be represented by certificates, provided that the Board of Directors of
the Corporation may provide by resolution or resolutions that some or all of any
or all classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock represented
by certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate, signed by or in the name of the Corporation by
the Chairman or Vice-Chairman of the Board of Directors, or the President or
Vice-President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary of the Corporation, representing the number of shares
registered in certificate form. Any and all signatures on any such certificate
may be facsimiles. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
The name of the holder of record of the shares represented thereby, with the
number of such shares and the date of issue, shall be entered on the books of
the Corporation.
SECTION 2. Transfers of Stock. Upon compliance with provisions
------------------
restricting the transfer or registration of transfer of shares of stock, if any,
shares of capital stock shall be transferable on the books of the Corporation
only
14
<PAGE>
by the holder of record thereof in person, or by duly authorized attorney,
upon surrender and cancellation of certificates for a like number of shares,
properly endorsed, and the payment of all taxes due thereon.
SECTION 3. Fractional Shares. The Corporation may, but shall not be
-----------------
required to, issue certificates for fractions of a share where necessary to
effect authorized transactions, or the Corporation may pay in cash the fair
value of fractions of a share as of the time when those entitled to receive such
fractions are determined, or it may issue scrip in registered or bearer form
over the manual or facsimile signature of an officer of the Corporation or of
its agent, exchangeable as therein provided for full shares, but such scrip
shall not entitle the holder to any rights of a stockholder except as therein
provided.
The Board of Directors shall have power and authority to make all such
rules and regulations as it may deem expedient concerning the issue, transfer
and registration of certificates representing shares of the Corporation.
SECTION 4. Lost, Stolen or Destroyed Certificates. The Corporation
---------------------------------------
may issue a new certificate of stock in place of any certificate, theretofore
issued by it, alleged to have been lost, stolen or destroyed, and the Board of
Directors may require the owner of any lost, stolen or destroyed certificate, or
his legal representative, to give the Corporation a bond sufficient to indemnify
the Corporation against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
any such new certificate.
15
<PAGE>
ARTICLE VII
Dividends
---------
Subject always to the provisions of law and the Certificate of
Incorporation, the Board of Directors shall have full power to determine whether
any, and, if any, what part of any, funds legally available for the payment of
dividends shall be declared as dividends and paid to stockholders; the division
of the whole or any part of such funds of the Corporation shall rest wholly
within the lawful discretion of the Board of Directors, and it shall not be
required at any time, against such discretion, to divide or pay any part of such
funds among or to the stockholders as dividends or otherwise; and before payment
of any dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the Board of Directors from time to
time, in its absolute discretion, thinks proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for such other purpose as the Board of Directors
shall think conducive to the interest of the Corporation, and the Board of
Directors may modify or abolish any such reserve in the manner in which it was
created.
ARTICLE VIII
Ratification
------------
Any transaction, questioned in any law suit on the ground of lack of
authority, defective or irregular execution, adverse interest of director,
officer or stockholder, non-disclosure, miscomputation, or the application of
improper principles or practices of accounting, may be ratified before or after
judgment, by the Board of Directors or by the stockholders, and if so ratified
shall have the same force and effect as if the questioned transaction had been
originally duly authorized. Such ratification shall be binding upon the
Corporation and its stockholders and shall
16
<PAGE>
constitute a bar to any claim or execution of any judgment in respect of such
questioned transaction.
ARTICLE IX
Corporate Seal
--------------
The corporate seal shall have inscribed thereon the name of the
Corporation and the year of its incorporation, and shall be in such form and
contain such other words and/or figures as the Board of Directors shall
determine. The corporate seal may be used by printing, engraving, litho-
graphing, stamping or otherwise making, placing or affixing, or causing to be
printed, engraved, lithographed, stamped or otherwise made, placed or affixed,
upon any paper or document, by any process whatsoever, an impression, facsimile
or other reproduction of said corporate seal.
ARTICLE X
Fiscal Year
-----------
The fiscal year of the Corporation shall be fixed, and shall be
subject to change, by the Board of Directors. Unless otherwise fixed by the
Board of Directors, the fiscal year of the Corporation shall be the calendar
year.
ARTICLE XI
Waiver of Notice
----------------
Whenever notice is required to be given by these By-laws or by the
Certificate of Incorporation or by law, a written waiver thereof, signed by the
person or persons
17
<PAGE>
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent to notice.
ARTICLE XII
Bank Accounts, Drafts, Contracts, Etc.
--------------------------------------
SECTION 1. Bank Accounts and Drafts. In addition to such bank
------------------------
accounts as may be authorized by the Board of Directors, the primary financial
officer or any person designated by said primary financial officer, whether or
not an employee of the Corporation, may authorize such bank accounts to be
opened or maintained in the name and on behalf of the Corporation as he may deem
necessary or appropriate, payments from such bank accounts to be made upon and
according to the check of the Corporation in accordance with the written
instructions of said primary financial officer, or other person so designated by
the Treasurer.
SECTION 2. Contracts. The Board of Directors may authorize any
---------
person or persons, in the name and on behalf of the Corporation, to enter into
or execute and deliver any and all deeds, bonds, mortgages, contracts and other
obligations or instruments, and such authority may be general or confined to
specific instances.
SECTION 3. Proxies; Powers of Attorney; Other Instruments. The
---------------------------------- -----------
Chairman, the President or any other person designated by either of them shall
have the power and authority to execute and deliver proxies, powers of attorney
and other instruments on behalf of the Corporation in connection with the
rights and powers incident to the ownership of stock by the Corporation. The
Chairman, the President or any other person authorized by proxy or power of
attorney executed and delivered by either of them on behalf of the Corporation
may attend and vote at any meeting of stockholders
18
<PAGE>
of any company in which the Corporation may hold stock, and may exercise on
behalf of the Corporation any and all of the rights and powers incident to the
ownership of such stock at any such meeting, or otherwise as specified in the
proxy or power of attorney so authorizing any such person. The Board of
Directors, from time to time, may confer like powers upon any other person.
SECTION 4. Financial Reports. The Board of Directors may appoint the
-----------------
primary financial officer or other fiscal officer and/or the Secretary or any
other officer to cause to be prepared and furnished to stockholders entitled
thereto any special financial notice and/or financial statement, as the case may
be, which may be required by any provision of law.
ARTICLE XIII
Amendments
----------
The Board of Directors shall have power to adopt, amend or repeal By-
laws. By-laws adopted by the Board of Directors may be repealed or changed, and
new By-laws made, by the stockholders, and the stockholders may prescribe that
any By-law made by them shall not be altered, amended or repealed by the Board
of Directors.
19
<PAGE>
ARTICLE XIV
-----------
INDEMNIFICATION
---------------
Section 1. Power to Indemnify in Actions, Suits or Proceedings other Than
--------------------------------------------------------------
Those by or in the Right of the Corporation. Subject to Section 3 of this
- --------------------------------------------
Article XIV, the Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he or she is or was a director or officer of the Corporation, or is or
was a director or officer of the Corporation serving at the request of the
Corporation as a director or officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding if he or she acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
20
<PAGE>
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in
------------------------------------------------------------
the Right of the Corporation. Subject to Section 3 of this Article XIV, the
- ----------------------------
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he or she is or was a director or officer of the Corporation, or is or
was a director or officer of the Corporation serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him or her in connection with the defense or settlement of such action or suit
if he or she acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the Corporation; except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 3. Authorization of Indemnification. Any indemnification under
---------------------------------
this Article XIV (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article XIV, as the case may be. Such
determination shall be made (i) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not
21
<PAGE>
parties to such action, suit or proceeding, or (ii) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders. To the extent, however, that a director or officer of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding described above, or in defense of any claim, issue or
matter therein, he or she shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him or her in connection
therewith, without the necessity of authorization in the specific case.
Section 4. Good Faith Defined. For purposes of any determination under
-------------------
Section 3 of this Article XIV, a person shall be deemed to have acted in good
faith and in a manner he or she reasonable believed to be in or not opposed to
the best interests of the Corporation, or, with respect to any criminal action
or proceeding, to have had no reasonable cause to believe his or her conduct was
unlawful, if his or her action is based on the records or books of account of
the Corporation or another enterprise, or on information supplied to him or her
by the officers of the Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corporation or another
enterprise or on information or records given or reports made to the Corporation
or another enterprise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the Corporation or
another enterprise. The term "another enterprise" as used in this Section 4
shall mean any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise of which such person is or was serving
at the request of the Corporation as a director, officer, employee or agent.
The provisions of this Section 4 shall not be deemed to be exclusive or to limit
in any way the circumstances in which a person may be deemed to have met the
applicable standard of
22
<PAGE>
conduct set forth in Sections 1 or 2 of this Article XIV, as the case may be.
Section 5. Indemnification by a Court. Notwithstanding any contrary
---------------------------
determination in the specific case under Section 3 of this Article XIV, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to any court of competent jurisdiction in the State of
Delaware for indemnification to the extent otherwise permissible under Sections
1 and 2 of this Article XIV. The basis of such indemnification by a court shall
be a determination by such court that indemnification of the director or officer
is proper in the circumstances because he or she met the applicable standards of
conduct set forth in Sections 1 or 2 of this Article XIV, as the case may be.
Neither a contrary determination in the specific case under Section 3 of this
Article XIV nor the absence of any determination thereunder shall be a defense
to such application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director or officer seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses incurred by a director
----------------------------
or officer in defending or investigating a threatened or pending action, suit or
proceeding shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he or she is not entitled to be indemnified by the
Corporation as authorized in this Article XIV.
23
<PAGE>
Section 7. Nonexclusivity of Indemnification and Advancement of Expenses.
--------------------------------------------------------------
The indemnification and advancement of expenses provided by or granted pursuant
to this Article XIV shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
any Bylaw, agreement, contract, vote of stockholders or disinterested directors
or pursuant to the direction (howsoever embodied) of any court of competent
jurisdiction or otherwise, both as to action in his or her official capacity and
as to action in another capacity while holding such office, it being the policy
of the Corporation that indemnification of the persons specified in Sections 1
and 2 of this Article XIV shall be made to the fullest extent permitted by law.
The provisions of this Article XIV shall not be deemed to preclude the
indemnification of any person who is not specified in Sections 1 or 2 of this
Article XIV but whom the Corporation has the power or obligation to indemnify
under the provisions of the General Corporation Law of the State of Delaware, or
otherwise.
Section 8. Insurance. The Corporation may purchase and maintain insurance
----------
on behalf of any person who is or was a director or officer of the Corporation,
or is or was a director or officer of the Corporation serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise against any liability asserted against him or her and incurred by him
or her in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power or the obligation to
indemnify him or her against such liability under the provisions of this Article
XIV.
Section 9. Certain Definitions. For purposes of this Article XIV,
--------------------
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation
24
<PAGE>
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors or officers, so that any person who is or
was a director or officer of such constituent corporation, or is or was a
director or officer of such constituent corporation serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, shall stand in the same position under the provisions of this
Article XIV with respect to the resulting or surviving corporation as he or she
would have with respect to such constituent corporation if its separate
existence had continued. For purposes of this Article XIV, references to
"fines" shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and references to "serving at the request of the
Corporation" shall include any service as a director, officer, employee or agent
of the Corporation which imposes duties on, or involves services by, such
director or officer with respect to an employee benefit plan, its participants
or beneficiaries; and a person who acted in good faith and in a manner he or she
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
XIV.
Section 10. Survival of Indemnification and Advancement of Expenses.
--------------------------------------------------------
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article XIV shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
Section 11. Limitation on Indemnification. Notwithstanding anything
------------------------------
contained in this Article XIV to the contrary, except for
25
<PAGE>
proceedings to enforce rights to indemnification (which shall be governed by
Section 5 hereof), the Corporation shall not be obligated to indemnify any
director or officer in connection with a proceeding (or part thereof) initiated
by such person unless such proceeding (or part thereof) was authorized or
consented to by the Board of Directors of the Corporation.
Section 12. Indemnification of Employees and Agents. The Corporation
----------------------------------------
may, to the extent authorized from time to time by the Board of Directors,
provide rights to indemnification and to the advancement of expenses to
employees and agents of the Corporation similar to those conferred in this
Article XIV to directors and officers of the Corporation.
26
<PAGE>
EXHIBIT 4.3
FIRST SUPPLEMENTAL INDENTURE
Dated as of February 27, 1997
ECKERD CORPORATION
TO
STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT,
NATIONAL ASSOCIATION
Trustee
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of February 27,1997, between
ECKERD CORPORATION, a corporation duly organized and existing under the laws of
the State of Delaware and the surviving corporation of the merger of Eckerd
Corporation, a Delaware corporation ("Old Eckerd"), with and into Omega
Acquisition Corporation (the "Company") and STATE STREET BANK AND TRUST COMPANY
OF CONNECTICUT, NATIONAL ASSOCIATION (the "Trustee").
W I T N E S S E T H:
-------------------
WHEREAS, Old Eckerd and the Trustee are parties to an Indenture, dated as
of November 1, 1993 (the "Indenture"), pursuant to which Eckerd has issued its
9-1/4% Senior Subordinated Notes Due 2004 (the "Securities");
WHEREAS, on the date hereof Old Eckerd was merged with and into the Company
(the Merger") and the Company changed its name to "Eckerd Corporation";
WHEREAS, the Company and the Trustee desire to enter into this Supplemental
Indenture pursuant to Section 901(1) of the Indenture.
NOW, THEREFORE, the Company and the Trustee agree as follows:
SECTION 1 ASSUMPTION OF PAYMENT, PERFORMANCE AND OBSERVANCE. The Company
-------------------------------------------------
expressly confirms that it hereby assumes the due and punctual payment of the
principal of, premium, if any, and interest on all of the Securities, according
to their tenor, and the due and punctual performance and observance of every
covenant and condition of the Indenture to be performed or observed by Old
Eckerd thereunder.
SECTION 2 SUCCESSION. As of the date of this First Supplemental Indenture,
----------
the Company succeeds to and is substituted for Old Eckerd as the "Company" under
the Indenture, with the same effect as if the Company had been an original party
to the Indenture.
SECTION 3 REPRESENTATIONS. The Company hereby represents and warrants to
---------------
the Trustee, as follows:
(i) The Company is a corporation duly organized and validly existing
under the laws of the State of Delaware; and
<PAGE>
2
(ii) Immediately prior to and immediately after the Merger, no Default
or Event of Default occurred and was or is continuing.
SECTION 4 DEFINITIONS. All of the terms used in this First Supplemental
-----------
Indenture and not otherwise defined herein shall have the meanings specified in
the Indenture.
SECTION 5 GOVERNING LAW. This First Supplemental Indenture shall be
------------
construed in accordance with and governed by the laws of the State of New York.
SECTION 6 COUNTERPARTS. This First Supplemental Indenture may be executed
------------
in any number of counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same instrument.
SECTION 7 PART OF INDENTURE. This First Supplemental Indenture is executed
-----------------
by the Company and the Trustee pursuant to Section 901(1) of the Indenture and
shall be deemed to be a part of the Indenture for all purposes.
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed and acknowledged, all as of the day and year first
above written.
ECKERD CORPORATION
By: /s/ James M. Santo
--------------------------------
Name: James M. Santo
Title: Executive Vice President/
Administration
STATE STREET BANK AND TRUST
COMPANY OF CONNECTICUT,
NATIONAL ASSOCIATION
By: /s/ Andrew M. Sinasky
--------------------------------
Name: Andrew M. Sinasky
Title: Assistant Vice President
<PAGE>
EXHIBIT 12.1
ECKERD CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996, JANUARY 28, 1995, JANUARY 29,
1994 AND JANUARY 30, 1993
<TABLE>
<CAPTION>
February February January January January
1, 1997 3, 1996 28, 1995 29, 1994 30, 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings before income taxes and
extraordinary item $137,259 123,383 87,084 43,969 (2,021)
Add:
Portion of rents representative of
the interest factor (*) 44,165 39,599 37,282 37,024 34,845
Interest expense 60,691 76,836 93,735 113,215 137,404
-------- ------- ------- ------- --------
Income as adjusted $242,115 239,818 218,101 194,208 170,228
======== ======= ======= ======= --------
Fixed charges:
Interest expense 60,691 76,836 93,735 113,215 137,404
Portion of rents representative of
interest factor 44,165 39,599 37,282 37,024 34,845
-------- ------- ------- ------- -------
Total fixed charges $104,856 116,435 131,017 150,239 172,249
======== ======= ======= =======
Ratio of earnings to fixed charges 2.31 2.06 1.66 1.29
======== ======= ======= ======= -------
Deficiency in earnings to fixed charges $ 2,021
========
</TABLE>
(*) The portion of rents representative
of the interest factor is calculated
as 33-1/3% of minimum rentals.
<PAGE>
EXHIBIT 23.1
The Board of Directors
Eckerd Corporation and Subsidiaries:
Re: Registration Statement on Form S-3 (No. 33-50223)
We consent to the incorporation by reference in the above referenced
registration statement of Eckerd Corporation and subsidiaries of our report
dated April 15, 1997, relating to the consolidated balance sheets of Eckerd
Corporation and subsidiaries as of February 1, 1997 and February 3, 1996,
and the related consolidated statements of earnings, stockholders' equity
and cash flows, and the related schedules for each of the years in the
three-year period ended February 1, 1997, which report appears in the
February 1, 1997 Annual Report on Form 10-K405 of Eckerd Corporation and
subsidiaries.
/s/ KPMG Peat Marwick LLP
Tampa, Florida
May 1, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000031364
<NAME> ECKERD CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> FEB-01-1997
<CASH> 71,874
<SECURITIES> 0
<RECEIVABLES> 105,393
<ALLOWANCES> 3,000
<INVENTORY> 973,265
<CURRENT-ASSETS> 1,151,441
<PP&E> 775,690
<DEPRECIATION> 329,490
<TOTAL-ASSETS> 1,891,952
<CURRENT-LIABILITIES> 783,682
<BONDS> 779,951
0
0
<COMMON> 704
<OTHER-SE> 159,375
<TOTAL-LIABILITY-AND-EQUITY> 1,891,952
<SALES> 5,376,221
<TOTAL-REVENUES> 5,376,221
<CGS> 4,192,848
<TOTAL-COSTS> 4,192,848
<OTHER-EXPENSES> 980,301
<LOSS-PROVISION> 5,122
<INTEREST-EXPENSE> 60,691
<INCOME-PRETAX> 137,259
<INCOME-TAX> 33,322
<INCOME-CONTINUING> 103,937
<DISCONTINUED> 0
<EXTRAORDINARY> (1,499)
<CHANGES> 0
<NET-INCOME> 102,438
<EPS-PRIMARY> 1.42<F1>
<EPS-DILUTED> 1.42<F1>
<FN>
<F1>EPS RPIMARY AND DILUTED REFLECTS THE TWO-FOR-ONE STOCK SPLIT EFFECTED IN THE
FORM OF A STOCK DIVIDEND WHICH WAS PAID ON MAY 13, 1996 TO STOCKHOLDERS OF
RECORD ON APRIL 22, 1996.
</FN>
</TABLE>
