Item 1. Business General
Eckerd Corporation (the "Company" or "Eckerd") operates the Eckerd Drug store chain, which is one of the largest drug store chains in the United States. At January 28, 1995, the Eckerd Drug store chain consisted of 1,735 stores in 13 states located primarily in the Sunbelt, including 553 stores in Florida and 490 stores in Texas. Over its 42-year history, the Eckerd Drug store chain has built a strong market position in areas where demographic characteristics are favorable to drug store growth. The Company's 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, the Company ranks first or second in terms of drug store sales in 12 of the 14 major metropolitan markets in which it operates. The primary focus of Eckerd Drug stores is the sale of prescription and over-the-counter drugs, which, during fiscal 1994, generated approximately 61% of the Company's drug store sales. Another significant focus of Eckerd Drug stores is photofinishing. The Company offers overnight photofinishing services in all Eckerd Drug stores and operates Eckerd Express Photo centers, which are one-hour photofinishing mini-labs. Eckerd Express Photo centers were located in 481 Eckerd Drug stores at January 28, 1995.
The Company was formed in 1985 by Merrill Lynch Capital Partners, Inc. ("Merrill Lynch Capital Partners"), an affiliate of Merrill Lynch & Co., Inc. ("ML & Co."), for the purpose of acquiring the former Jack Eckerd Corporation ("Old Eckerd"), in April 1986 (the "Acquisition"). Merrill Lynch Capital Partners formed EDS Holdings Inc. ("EDS") and its wholly owned subsidiary, Eckerd Holdings II, Inc. ("EH II"), to acquire certain additional drug stores in July 1990. On August 12, 1993, the Company completed an initial public offering (the "IPO") in which it issued and sold 5,175,000 shares of Common Stock for $14.00 per share. In connection with the consummation of the IPO, the holders of EDS common stock exchanged their shares for shares of Common Stock. Immediately thereafter, EDS was merged into Eckerd with EH II becoming a wholly owned subsidiary of Eckerd. All references in this Form 10-K405 to the "Company" for periods prior to such acquisition mean the Company, EDS and their respective subsidiaries. In connection with the IPO the Company also amended its Restated Certificate of Incorporation to effect, among other things, (i) the reclassification of its Class A common stock and Class B common stock into Common Stock at certain specified rates, (ii) a 2-for-3 reverse stock split (the "Stock Split"), (iii) the adoption of certain provisions such as a classified board of directors and the prohibition of stockholder action by written consent, which could make non-negotiated acquisitions of the Company more difficult and (iv) the change of the Company's name from "Jack Eckerd Corporation" to "Eckerd Corporation." None of the Company's stockholders sold any shares of Common Stock in the IPO. On May 2, 1994, the company completed an underwritten secondary offering of 3,199,056 shares of Common Stock for $19.00 per share. The secondary offering only included shares of Common Stock owned by the Merrill Lynch Investors and certain institutional investors. Stockholders of the Company include (i) certain partnerships affiliated with Merrill Lynch Capital Partners and, (ii) certain other affiliates of ML & Co. ((i) and (ii), collectively, the "Merrill Lynch Investors") who beneficially owned 38.3% of the Common Stock of the Company as of March 31, 1995.
The Drug Store Industry
Prescription and over-the-counter medications have traditionally been sold by independent drug stores as well as conventional drug store chains, such as Eckerd Drug stores, and purchased by consumers with cash or credit cards. The drug store 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 drug store 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 ("third-party sales"). In a typical third-party sale, the drug store has a contract with a third-party payor, such as an insurance company, HMO, 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 third-party sales contracts often provide a high volume of prescription sales, such sales typically generate lower gross margins than non third-party sales due principally to the highly competitive nature of this business and recent efforts by third-party payors to contain costs. Larger drug store chains, such as Eckerd Drug stores, are better able to service the growing third-party segment than independent drug stores 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 drug store chains benefit as well as the third-party payment trend, the number of independent drug stores and smaller drug store chains has decreased as many of such retailers have been acquired by larger drug store chains. This trend is expected to continue because larger chains are better positioned to handle the increased third-party sales, purchase inventory on more advantageous terms and achieve other economies of scale with respect to their marketing, advertising, distribution and other expenditures. The Company believes that the number of independent drug stores and smaller drug store chains remaining in operation may provide significant acquisition opportunities for larger drug store chains, such as the Company. Strong demographic trends have also contributed to changes in the drug store 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.
In 1994, drug store chains and independent drug stores represented approximately 37% and 31%, respectively, of all pharmacy sales in the United States. In response to a number of factors, including the aging of the United States population, mass merchants (including discounters and deep discounters), supermarkets, combination food and drug stores, mail order distributors, hospitals, HMO's and other managed care providers have entered the pharmacy industry. Supermarkets, including combination food and drug stores, and mass merchants each represented approximately 11% of all pharmacy sales in the United States in 1994. Although the Company currently faces increased competition from these retailers, industry studies show that consumers in the over 65 age group tend to make purchases at traditional drug stores, such as Eckerd Drug stores, and maintain strong store loyalty.
Eckerd Drug Stores
In 1992, the Company celebrated the 40th anniversary of the opening of the first Eckerd Drug store. The Company has grown to its present size and developed its leading position in the industry through both internal expansion and acquisitions. As of January 28, 1995, the Company operated the number of Eckerd Drug stores and Eckerd Express Photo centers indicated below in each of the following states:
Drug Stores Eckerd With Eckerd Drug Express Photo Stores Centers
Florida 553 225 Texas 490 132 North Carolina 192 45 Georgia 164 44 Louisiana 110 17 South Carolina 82 13 Tennessee 35 1 New Jersey 27 1 Mississippi 26 - Oklahoma 26 - Alabama 18 3 Delaware 11 - Maryland 1 -
Total 1,735 481 Over the past five years, the Company has implemented several initiatives designed to increase the size, and improve the quality and operating performance, of the Company's store base. Among such initiatives are the opening and acquisition of new stores, the closure or divestiture of underperforming stores and an extensive remodeling program. Since 1986, 500 Eckerd Drug stores have been opened or acquired within the Company's existing markets, more than 300 underperforming stores have been closed or divested, and substantially all of the Company's remaining stores have been remodeled. In addition, the Company opened more than 450 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. As a result of, among other things, these actions, aggregate sales have increased from $2.73 billion in fiscal 1987 to $4.55 billion in fiscal 1994.
The following table summarizes the number of Eckerd Drug stores operated by the Company and the sales on an aggregate and per store basis for the last five years.
(1) Includes 96 stores acquired by, and managed on behalf of, EH II (two of which were closed in fiscal year 1991). Excludes 127 stores acquired by EH II that were liquidated or sold. (2) Includes 14 Eckerd Drug stores closed as a result of the acquisition of drug stores by EH II. (3) Excludes relocations.
The Company intends to continue to expand its business through both internal expansion and acquisitions of smaller drug store chains and independent drug stores. Although the Company currently plans to expand Eckerd Drug stores within the Company's existing markets, the Company also considers strategic acquisitions in other markets. The Company opened or acquired 55 drug stores, including relocations, in fiscal 1994 and has a goal of opening (including relocations) 90 drug stores in fiscal 1995 and 100 drug stores per year in fiscal 1996 through 1999. In addition to such openings and acquisitions, the Company expects to sell or close a small number of drug stores per year in fiscal 1995 and thereafter through 1999, which would be intended to improve the quality of the Company's store base. In the fourth quarter of fiscal 1994, the Company decided to accelerate the closing of approximately 90 geographically dispersed, under-performing stores over the next twelve to eighteen months, and established a $49.0 million reserve for future store closings. These closings are in addition to the small number of stores the Company closes in the normal course of business. The cash costs associated with opening a drug store are estimated to be approximately $490,000, which includes initial inventory costs of approximately $260,000. The Company intends to use cash flow from operations to finance the cash costs of this growth, although borrowings may also be available to finance such 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 drug stores, 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'swarehouse 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.
Products and Services Pharmacy
The primary focus of Eckerd Drug stores is the sale of prescription and over-the-counter drugs. During fiscal 1994, Eckerd Drug Stores filled more than 89 million prescriptions, and sales of prescription and over-the-counter drugs generated approximately 61% of the Company's drug store sales. During the period from fiscal 1990 to fiscal 1994, the dollar volume of sales of prescription drugs by the Company increased 62.8%.
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 to high quality pharmacy service. The Company has also instituted several health-related programs such as health screenings, education and outreach programs, and customer relationship programs. The Company provides to prescription drug customers, the "Rx Advisor," a personalized easy-to-read publication, for each new prescription, which advises the customer of the specific dosages, drug interactions and side effects of his or her new prescription medicine.
Eckerd Drug store pharmacy departments are modern, clean and clearly identified by attractive signs. The pharmacy areas in many of 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 third party payors, such as insurance companies, health maintenance organizations, preferred provider organizations and other managed care providers and government agencies. In addition, the Company's computer systems provide on-line adjudication which permits the Company and the third-party 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. During the past five years, the Company has reduced the average number of days that receivables from third-party sales were outstanding from 48 days in fiscal 1990 to 22 days in fiscal 1994 (or more than 50%) while increasing sales by 187% during the same period. Third-party prescription sales accounted for approximately 64.6%, 58.0%, 49.6%, 43.1% and 36.0% of the Company's prescription sales in fiscal 1994, fiscal 1993, fiscal 1992, fiscal 1991 and fiscal 1990, respectively.
Nonpharmacy Merchandise In addition to prescription and over-the-counter drugs, Eckerd Drug stores sell a wide variety of nonpharmacy merchandise, including health and beauty aids, greeting cards and numerous other convenience products. Eckerd-brand products, which are attractively priced and provide higher margins than similar national brand products, represent a growing segment of products offered by Eckerd Drug stores.
Health. Eckerd Drug stores offer 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 Drug stores provide a helpful environment in which consumers can obtain product information from professional pharmacists, knowledgeable sales associates and store managers or from literature available throughout the store.
Beauty. Eckerd Drug stores offer an assortment of popular brand name cosmetics, fragrances and other beauty products. Management believes that Eckerd Drug stores provide the customer with a convenient format in which to purchase the lines of beauty products offered in its stores. 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 Company has recently completed an expansion which devoted more shelf space to this product category.
Greeting Cards. The greeting card department in Eckerd Drug stores offers a wide selection of contemporary and traditional cards, gift wrap, bows and novelties. The Company believes that the locations of its stores together with the wide selection offered by Eckerd Drug stores enable customers to satisfy their card and gift needs more conveniently than at traditional card stores. The Company has increased the space devoted to its greeting card department because of the profitability of such merchandise and because the Company believes that the demand for such merchandise will increase traffic in its stores.
Convenience Products. This merchandise category consists of an assortment of items, including candy, food, tobacco products, books and magazines, household products, seasonal merchandise and toys. These items are carefully positioned to provide optimum convenience to the customer with easy access in the front part of the store. The Company also seeks to serve its customers' needs by specifically tailoring items in this category to meet the needs of its customers in specific store locations. This strategy includes the introduction and further expansion of the food mart section offering convenience food items such as staple grocery shelf items, staple and chilled beverages, snack foods and specialty items in approximately 550 locations. The Company plans to add food mart sections to an additional 400 stores in fiscal 1995. For example, souvenirs and select summer products are offered in beach and tourist locations while convenience food is stressed in urban areas and malls.
Photofinishing
Another significant focus of Eckerd Drug stores is photofinishing. The Company offers overnight photofinishing services in all Eckerd Drug stores and operates Eckerd Express Photo centers, which are one-hour photo processing mini-labs. Eckerd Express Photo centers were located in 481 Eckerd Drug stores at January 28, 1995.
The Company is among the top three vertically integrated retail photofinishers in the United States, and the Company believes that it is the leading source of photofinishing in all of the major markets in which it operates. The Company processed over 28 million rolls of film in fiscal 1994 in its own photo labs and has several well known branded processing programs, including System 2(R) (two prints for the price of one), Ultralab 35(R) (larger size, higher quality prints) and Express Print 60 (one-hour processing). 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 currently intends to continue to expand its one-hour photofinishing business, with a goal of adding approximately 270 new Express Photo centers by 1999. The Company's photo departments also offer camera and photo accessories, small electronics, batteries and audio and video tapes. The entire photo department, including photofinishing, represented approximately 9.2% of the Company's total drug store sales in fiscal 1994.
Store Operations
Eckerd Drug stores are located and designed to maximize customer service and convenience and are situated in areas of high customer traffic, typically in neighborhood shopping centers with strong supermarket co-tenants or in strategically located free-standing stores. Eckerd Drug stores are designed to facilitate customer movement and feature well-stocked shelves, clearly identified aisles and well-lit interiors to maximize product visibility. Pharmacy departments are generally located near the back of the store to maximize customer exposure to the store. The stores are equipped with modern fixtures and equipment and most of them range in size from 8,200 to 10,800 square feet. About 85% of the floor space is selling area, with the remainder used for storeroom and office space.
To enhance productivity per square foot and maintain consistent merchandising, the Company utilizes centrally prepared formats for the display and stocking of products in the Company's stores, while continuing to allow some flexibility to store managers to modify the merchandise assortment based upon the Company's program of tailoring merchandise offerings to the markets in which the stores operate.
The typical Eckerd Drug store is open every day of the year except Christmas, with store hours geared to the needs of the specific markets. A select number of strategically located stores stay open until midnight or 24 hours a day.
Eckerd Drug stores are currently grouped under six operating regions located in or near Orlando and Deerfield Beach, Florida; Atlanta, Georgia; Charlotte, North Carolina; and Dallas and Houston, Texas. Each operating region is headed by a vice president who supervises the various districts comprising the region. Within each district, there are managers who are responsible for the drug stores in their districts and regularly visit their stores to assure quality of service and merchandising. District pharmacy managers supervise the pharmacy operations and district Express Photo managers supervise the Express Photo operations in the drug stores. Each drug store is individually supervised by a manager who receives training in the Company's merchandise offerings, customer service and management strategy.
The Company has implemented various initiatives designed to reduce shrinkage expense. These initiatives include training and awareness programs, tailored audit programs for district managers, hiring of internal auditors and loss prevention specialists, and computerized exception reporting for, among other things, customer refunds, voids and cash overages and shortages from daily register check-outs. Purchasing and Distribution
Merchandising and buying are generally, as are all supplier payments, centralized at Company headquarters to assure consistency of marketing approach and efficiency in supplier relations. The Company has implemented an enhanced electronic buying system to improve inventory management and gross profit by enabling the Company to take better advantage of quantity discounts and forward buying opportunities, which the Company believes will lower the average cost of inventory. Additionally, it is anticipated that this buying system and its improved forecasting ability will improve service levels to the stores and will reduce average inventory required in the Company's distribution centers.
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 distributed 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 spot commercials is carried on throughout the year to promote sales. During the fiscal year ended January 28, 1995, these net advertising expenses totaled approximately 0.5% of Company 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. From the time of the Acquisition through fiscal 1994, the Company reduced its net advertising expense as a percentage of sales by more than 70%. In addition, the Company has derived additional cost savings through a rationalization of its advertising expenditures. Certain advertising expenditures related to the Company's overall corporate image have been reduced in favor of advertising efforts such as newspaper circulars. This change in advertising strategy has resulted in increased financial support from the Company's vendors and a more direct impact on sales. The Company believes that its current level of advertising expenditures is appropriate to support its existing marketing strategies.
The Company's communications and marketing programs are based upon an ongoing commitment to consumer research. Through regular telephone surveys in all major markets, exit interviews in its stores, and studies of various consumer groups, the Company is able to monitor changes in customer attitudes and shopping habits and adjust its marketing strategies accordingly.
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 third-party payors. The Company's Comp-U-Care System, installed in each pharmacy location, provides support for the pharmacy and assists pharmacists in their prescription processing activities, which in turn enhances the pharmacy's ability to service customers. The system's transfer of information between headquarters and each of the in-store pharmacy terminals allows central monitoring of prescription sales activity by store and item, centralized billing of third-party sales and daily updates to the stores' data files. The Comp-U-Care System performs on-line adjudication of customer and claim eligibility and reimbursement for the majority of the third-party payment plans in which the Company participates. 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. The Company believes that such systems are essential to service the increasing volume of third-party sales.
The Company is currently developing its advanced Comp-U-Care 2000 System, which is scheduled to be introduced in Eckerd Drug stores in fiscal 1995. The Comp-U-Care 2000 System will improve speed and productivity in the pharmacy; decrease customer wait time; enhance functionality, including expanded drug utilization reviews; and will ultimately in fiscal 1996 permit the transfer of information directly from one drug store to another enabling customers to fill and refill prescriptions at any Eckerd Drug store.
During fiscal 1994 the Company installed a satellite communications network, enhanced the point-of-sale ("POS") system and upgraded the merchandise buying system.
The Company currently has POS product scanning equipment in approximately 530 stores and expects to expand scanning to approximately 590 additional stores by the end of fiscal 1995. The Company has been expanding scanning to its higher volume stores and the over 1,100 stores installed by the end of fiscal 1995 will represent approximately 75% of front-end sales. Scanning systems will provide more and better merchant and store level information to facilitate inventory management, automatic re-ordering, product sales and gross profit analysis and inventory shrinkage control. The Company believes that broader use of scanning throughout the chain will improve customer service by decreasing customer check-out time and improving adherence to advertised sale or promotional prices.
The Company is expanding its use of electronic data interchange ("EDI") systems with certain of its major suppliers. EDI allows for the paperless ordering of products with immediate confirmation from the vendor on price, delivery terms and amount of goods ordered. The Company is also experimenting with automatic replenishment buying in connection with its warehouse and distribution systems, which includes the computer generation of purchase orders for certain vendors. These systems should also allow the Company to reduce lead time on orders and improve cash flow by reducing the amount of inventory required to be kept on hand. EDI will be expanded as the Company expands its scanning system.
The Company is also developing or purchasing software with applications in the human resources area to improve personnel scheduling; to expand the merchandise and store information data base systems to enable the Company to more efficiently manage its business; and to start the initial roll out of the warehouse management system to provide improved control and management of inventory and personnel.
In 1993, the Company and Integrated Systems Solutions Corporation ("ISSC"), a wholly-owned subsidiary of IBM, entered into a Systems Operations Service Agreement pursuant to which the Company and ISSC are developing a state of the art information systems operation to include pharmacy and POS systems for the Company's drug stores. Under the Company's supervision, ISSC 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 currently expected to be between $400.0 million and $440.0 million over such term, depending on optional services utilized. 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 drug stores operate in a highly competitive industry. The Company's drug stores 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 drug stores and other drug store chains, the Company faces competition from mass merchants (including discounters and deep discounters), supermarkets, combination food and drug stores, 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.
Regulation
All of the Company's pharmacists and stores are required to be licensed by the appropriate state boards of pharmacy. The Company's drug stores 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 a suspension or revocation of a license or registration.
The Company has a number of third-party 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 certain states, including Alabama, Georgia, New Jersey, North Carolina, Louisiana, Tennessee and Texas, and may be enacted in others. Although such statutes may adversely affect certain of the Company's third-party contracts, they may also provide the Company with opportunities regarding additional third-party contracts.
The Clinton Administration has stated that health care reform is one of its priorities. A health care reform plan by President Clinton as well as a number of competing health care reform proposals were introduced in Congress, and some may be introduced again this year. The Company cannot predict whether any federal health care reform legislation will eventually be passed and, if so, the impact on the Company's financial position or results of operations.
In 1993, the State of Florida enacted health care legislation that is applicable to state employees, small businesses with fewer than 50 employees and Medicaid recipients. Such legislation, which began to be implemented in 1994, created 11 health care purchasing cooperatives, which accepted bids from groups of health care providers (which include certain of the Company's managed health care clients) to provide goods and services to the cooperatives members. The Company expects to provide prescription drugs to the cooperatives members through its existing managed health care clients. However, the Company is unable to predict whether its efforts will be successful or whether the Florida legislation will have an adverse impact on the Company's financial position or results of operations.
Other Operations On March 31, 1994, the company closed on the sale of its Vision Group retail optical operations which was sold effective January 30, 1994 for an amount in cash and notes approximately equal to the book value of the related assets. In fiscal 1993, Vision Group sales were approximately $61 million and earnings before interest and taxes were approximately $3 million.
On November 15, 1994, the company closed on the sale of its Insta-Care Pharmacy Services (Insta-Care) institutional pharmacy services operations for a total consideration of $112 million in cash. The net proceeds after certain closing adjustments was approximately $94 million. In fiscal 1994, Insta-Care sales were approximately $89 million and earnings before interest and income taxes were approximately $3 million. The Company recognized a gain on the sale of Insta-Care of $49.5 million, net of income taxes of $4.6 million.
Employees As of January 28, 1995, the Company had approximately 42,700 employees, of which 22,200 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.

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-five years. In the normal course of business, however, it is expected that leases will be renewed 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 January 28, 1995 are as follows:
Owned or Location Square Feet Leased Largo, Florida 488,000 Owned(1) Charlotte, North Carolina 587,000 Owned Garland, Texas 270,000 Owned Conroe, Texas 345,000 Owned Orlando, Florida 321,000 Owned(2) Orlando, Florida 587,000 Leased(2) Newnan, Georgia 244,000 Owned(3) Hammond, Louisiana 185,000 Owned(3)(4)
(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. One of the owned Orlando facilities was sold in May 1994, and the other owned facility is under contract to be sold. (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 subleased the former Hammond, Louisiana office and distribution center.
The Company considers that all property owned or leased is well maintained and in good condition.
Item 3.

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.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the last quarter of the fiscal year ended January 28, 1995.
Executive Officers of the Registrant
The name, age and office of the executive officers of the Company as of year end January 28, 1995 and certain information relating to their business experience are set forth below:
Name Age Position Stewart Turley 60 Director, Chairman of the Board and Chief Executive Officer Francis A. Newman 46 Director, President and Chief Operating Officer Kenneth L. Flynn 50 Senior Vice President/Store Operations Edward W. Kelly 49 Senior Vice President/Merchandising Robert L. Myers 49 Senior Vice President/Pharmacy James M. Santo 53 Senior Vice President/Administration and Secretary Samuel G. Wright 44 Senior Vice President and Chief Financial Officer Robert D. Boos 55 Vice President Martin W. Gladysz 42 Vice President/Treasurer Robert E. Lewis 34 Vice President/General Counsel and Assistant Secretary
Mr. Turley is Chairman of the Board and Chief Executive Officer of the Company, positions he has held since 1986. He served as President of the Company from 1986 until July 1993. He joined Old Eckerd in 1966 and has served as Senior Vice President (1971-1974) and President and Chief Executive Officer (1984-1985) prior to being elected to Chairman of the Board, President and Chief Executive Officer. He is also a director of Barnett Banks, Inc., Sprint Corporation and Springs Industries, Inc.
Mr. Newman is President, Chief Operating Officer and a director of the Company, positions he has held since July 1993. Prior to joining the Company, Mr. Newman served as President, Chief Executive Officer and a director of F&M Distributors, Inc. ("F&M"), a drug store chain, since 1986. F&M filed bankruptcy under Chapter 11 of the United States Bankruptcy Code in December 1994. Prior to joining F&M, he was the Executive Vice President of Household Merchandising, a retail firm, from 1984 to 1985 and the Senior Vice President of Merchandising for F.W. Woolworth, a retail firm, from 1980 to 1984. Mr. Newman is also a director of FabriCenters of America, a retail firm.
Mr. Flynn was appointed Senior Vice President/Store Operations of the Company in December 1994. Prior to joining the Company, Mr. Flynn was Executive Vice President with the Thrifty/Payless drug chain in Portland, Oregon. Prior to joining Thrifty/Payless in August 1993, Mr. Flynn was employed by Lucky Stores, Inc. for over 30 years most recently as Senior Vice President/Store Operations.
Mr. Kelly was appointed Senior Vice President/Merchandising of the Company in February 1993. Prior thereto he served as Vice President of Merchandising of Eckerd Drug Company, formerly Old Eckerd's principal subsidiary ("Eckerd Drug Company") and now the Company's principal division, for more than the past five years.
Mr. Myers was appointed Senior Vice President/Pharmacy of the Company in February 1993. Prior thereto he was a Vice President of the Company, a position he held for more than the past five years. In addition, Mr. Myers has served as Vice President of Pharmacy Services of Eckerd Drug Company for more than the past five years.
Mr. Santo was appointed Senior Vice President/Administration of the Company in February 1993. Prior thereto he was Vice President/Legal Affairs of the Company, a position he held for more than the past five years. In addition, Mr. Santo was appointed Secretary of the Company effective January 1, 1992.
Mr. Wright was appointed Senior Vice President and Chief Financial Officer of the Company in February 1995. Prior thereto Mr. Wright was appointed Senior Vice President/Finance in February 1993 and was also Vice President and Controller of the Company, from September 1988 until February 1993. Mr. Wright became a Vice President of the Company in June 1986. In addition, Mr. Wright has served as Vice President of Finance of Eckerd Drug Company since May 1985.
Mr. Boos was appointed Vice President of the Company in April 1991. In addition, Mr. Boos has been Vice President of Real Estate and Development of Eckerd Drug Company since August 1985. Mr. Boos joined Eckerd Drug Company in 1982.
Mr. Gladysz was appointed Vice President/Treasurer of the Company in May 1994. Prior to joining the Company, Mr. Gladysz was Executive Vice President/Treasurer for Fortune Bancorp, a Florida banking organization, a position he held for more than the past five years.
Mr. Lewis was appointed Vice President/General Counsel and Assistant Secretary of the Company in August 1994. Prior to joining the Company, Mr. Lewis was a shareholder in the law firm of Shackleford, Farrior, Stallings & Evans, P.A. in Tampa, Florida, from January 1992 to August 1994 and was an associate at that firm for more than five years prior thereto.
Officers are elected for a one-year term by the Board of Directors at its annual meeting. There is no family relationship between any of the aforementioned officers or directors of the Company.
PART II
Item 5.

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
The Company's common stock is listed on the New York Stock Exchange (Symbol: ECK) and started trading on August 6, 1993. The approximate number of shareholders of record on March 31, 1995 was 937. Fiscal 1994 Quarter Ended Market Price Per Share Information 4/30/94 7/30/94 10/29/9 1/28/95 High 24.00 25.25 31.50 32.00 Low 18.50 18.125 23.25 25.375
Fiscal 1993 Market Price Quarter Ended Per Share Information 10/30/93 1/29/94 High 18.00 20.75 Low 12.75 13.75
The Company is subject to restrictive covenants under its Credit Agreement and the 9 1/4% Senior Subordinated Notes which restrict the payment of dividends. The Company has not paid or declared any dividends on its common stock.
Item 6.

Item 6. Selected Financial Data
The selected financial information required by this item is included in the Company's 1994 annual report to stockholders on page 9 under the heading "Five Year Financial Operating Summary". Such information is incorporated herein by reference. The ratio of earnings to fixed charges was 1.7X and 1.0X in fiscal 1994 and 1991, respectively. In fiscal 1993, 1992 and 1990 earnings were inadequate to cover fixed charges, and the Company had a deficiency in earnings to fixed charges of $2,941,000, $4,123,000 and $35,982,000 in fiscal years 1993, 1992 and 1990, respectively.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The information required by this item is included in the Company's 1994 annual report to stockholders on pages 10 through 14 under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition". Such information is incorporated herein by reference.
Item 8.

Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements as of January 28, 1995 and January 29, 1994 and for each of the years in the three year period ended January 28, 1995 included in the Company's 1994 annual report to stockholders on pages 15 through 27 are incorporated herein by reference:
Consolidated Statements of Operations Consolidated Balance Sheets Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements
Information on selected quarterly financial data also required by this item is included in the Company's 1994 annual report to stockholders on page 30 under the heading "Quarterly Information (Unaudited)". Such information is incorporated herein by reference.
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant
Information required by this item regarding the directors of the Company is included in the Company's definitive proxy statement dated April 24, 1995 for the 1995 annual meeting of stockholders on pages 2 through 4 under the headings "Nominees For Election of Directors In Class II With Terms Expiring in 1998"; "Directors in Class III With Terms Expiring in 1996" and "Directors in Class I with Terms Expiring in 1997". Such information is incorporated herein by reference. Information required by this item regarding executive officers of the Company is contained in Part I of this Form 10-K405 under the item entitled "Executive Officers of the Registrant".
Item 11.

Item 11. Executive Compensation
Information regarding management remuneration is included in the Company's definitive proxy statement dated April 24, 1995 for the 1995 annual meeting of stockholders on pages 1 and 2, and 8 through 14 under the headings "Nomination and Election of Directors" and "Executive Compensation". Such information is incorporated herein by reference.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners and of management is included in the Company's definitive proxy statement dated April 24, 1995 for the 1995 annual meeting of stockholders on pages 5 through 7 under the heading "Security Ownership Of Certain Persons". Such information is incorporated herein by reference.
Item 13.

Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions is included in the Company's definitive proxy statement dated April 24, 1995 for the 1995 annual meeting of stockholders on pages 13 and 17 under the headings "Executive Compensation - Compensation Committee Interlocks and Insider Participation" and "Certain Transactions". Such information is incorporated herein by reference.
PART IV
Item 14.

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 March 20, 1995 in this Form 10-K405 are filed herewith:
Eckerd Corporation and Subsidiaries
Financial Statements: Independent Auditors' Report Consolidated Balance Sheets as of January 28, 1995 and January 29, 1994 Consolidated Statements of Operations for the Years Ended January 28, 1995, January 29, 1994 and January 30, 1993 Consolidated Statements of Stockholders' Equity for the Years Ended January 28, 1995, January 29, 1994 and January 30, Consolidated Statements of Cash Flows for the Years Ended January 28, 1995, January 29, 1994 and January 30, 1993 Notes to Consolidated Financial Statements Schedules: II - Reserves Independent Auditor's Report
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 March 20, 1995, relating to the consolidated financial statements appearing in the Form 10-K405, into Registration Statement Numbers 33-49977 and 33-50755 on Form S-8 and Registration Statement Numbers 33-10721, 33-50223, and 33-56261 on Form S-3.
2. Exhibits:
Exhibits previously filed or filed by incorporation by reference:
3.1(i) Restated Certificate of Incorporation of Eckerd Corporation (the "Company") (incorporated by reference to Exhibit 3.1(i) to the Registration Statement on Form S-3 of the Company (No. 33-50223)).
3.2(ii) Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.2(ii) to the Registration Statement on Form S-3 of the Company (No. 33-50223)).
4.1 Form of certificate for the Company's Common Stock, par value $.01 per share (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-2 of the Company (No. 33-64906)).
4.2 Indenture dated as of May 1, 1986 by and between the Company and Mellon Bank, N.A. as trustee, relating to the 11 1/8% Subordinated Debentures due 2001 (incorporated by reference to the Registration Statement on Form S-1 of Eckerd Holdings Inc. (No. 33-4576)). (On February 6, 1991, Mellon Bank, N.A. was succeeded by Security Pacific National Trust Company, as trustee.)
4.3 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 91/4% 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)).
4.4 Form of 9 1/4% 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)).
10.1 Merrill Lynch Common Stock Purchase Agreement dated as of April 1, 1986 by and among the Company and the Merrill Lynch Investors (incorporated by reference to the Registration Statement on Form S-4 of Eckerd Holdings Inc. (No. 33-4497)).
10.2 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).
10.3 Registration Rights Agreement dated as of April 30, 1986 by and among the Company, the Merrill Lynch Investors, Morgan Capital Corporation and the other bank affiliates listed therein, the institutional and corporate investors listed therein and certain members of management of the Company (incorporated by reference to Exhibit 10.19 to the Registration Statement on Form S-2 of the Company (No. 33-64906)).
10.4 First Amendment to Registration Rights Agreement among the Company, EDS Holdings Inc., the Merrill Lynch Investors, the Bank Affiliates, the Institutional Investors and the Management Investors (incorporated by reference to Exhibit 10.20 to Amendment No. 1 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.5 First Employees Management Stock Option Plan (incorporated by reference to the Registration Statement on Form S-8 of the Company (No. 33-30761)).
10.6 Employment Agreement dated as of April 30, 1986, between the Company and Stewart Turley (incorporated by reference to Exhibit 10.23 to the Registration Statement on FormS-2 of the Company (No. 33-64906)).
10.7 Employment Agreement dated as of April 30, 1986, between the Company and John W. Boyle (incorporated by reference to Exhibit 10.25 to the Registration Statement on Form S-2 of the Company (No. 33-64906)).
10.8 Employment Agreement dated June 9, 1993, between the Company and Francis A. Newman (incorporated by reference to Exhibit 10.27 to the Registration Statement on Form S-2 of the Company (No. 33-64906)).
10.9 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)).
10.10 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)).
10.11 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)).
10.12 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)).
10.13 1993 Stock Option and Incentive Plan of the Company (incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 of the Company (No. 33-49977)).
10.14 Employment Agreement dated October 1, 1988 between the Company and James M. Santo (incorporated by reference to Exhibit 10.38 to Form 10-K for the year ended January 29, 1994 of the Company (File No. 1-4844)).
10.15 Employment Agreement dated October 1, 1988 between the Company and Robert L. Myers (incorporated by reference to Exhibit 10.38 to Form 10K/A for the year ended January 29, 1994 of the Company (File No. 1-4844)).
10.16 Credit Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (the "Credit Agreement"), among the Company, the lenders named therein, Chemical Bank and NationsBank of Florida, N.A. as managing agents and swingline lenders, and Chemical Bank, as administrative agent and NationsBank of Florida, N.A. as documentation agent (incorporated by reference to Exhibit 10.1 to form 10-Q of the Company for twenty-six weeks ended July 30, 1994).
12.1 Statement regarding computation of ratio of earnings to fixed charges of the Company (incorporated by reference to Exhibit 12.1 to the Registration Statement on Form S-3 of the Company (No. 33-50223)).
Exhibits filed herewith:
10.17 Employment Agreement dated October 1, 1988 between the Company and Samuel G. Wright.
10.18 Receivables Purchase Agreement dated as of January 26, 1995 between the Company and Three Rivers Funding Corporation.
10.19 First Amendment to Receivables Purchase Agreement dated as of March 31, 1995 between the Company and Three Rivers Funding Corporation.
10.20 Registration Rights Agreement dated as of December 31, 1994 by and among the Company and the Eckerd Corporation Profit Sharing Plan.
10.21 Guarantee Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 (the "Guarantee Agreement") among the subsidiaries of the Company listed therein and Chemical Bank, as collateral agent.
10.22 Indemnity, Subrogation and Contribution Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 (the "Indemnity, Subrogation and Contribution Agreement"), among the Company, each subsidiary of the Company listed therein and Chemical Bank, as collateral agent. 10.23 Pledge Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 among the Company, each subsidiary of the Registrant listed therein and Chemical Bank, as collateral agent.
10.24 Security Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 among the Company, each subsidiary of the Company listed therein and Chemical Bank, as collateral agent.
10.25 Trademark Security Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 among the Company, each subsidiary of the Company listed therein and Chemical Bank, as collateral agent.
10.26 Revolving Note dated as of August 3, 1994 made by the Company in favor of Chemical Bank issued pursuant to the Credit Agreement.
10.27 Term Note dated as of August 3, 1994 made by the Company in favor of Chemical Bank issued pursuant to the Credit Agreement.
10.28 Swingline Note dated as of August 3, 1994 made by the Company in favor of Chemical Bank issued pursuant to the Credit Agreement.
10.29 Deed of Trust, Security Agreement and Assignment of Leases and Rents dated as of June 14, 1993, as amended and restated as of August 3, 1994, by the Company in favor of Kenneth Plifka, as trustee, for the benefit of Chemical Bank, as collateral agent, relating to certain real property located in Dallas County, Texas.
10.30 Deed of Trust, Security Agreement and Assignment of Leases and Rents dated as of June 14, 1993, as amended and restated as of August 3, 1994, by the Company in favor of Kenneth Plifka, as trustee, for the benefit of Chemical Bank, as collateral agent, relating to certain real property located in Montgomery County, Texas.
10.31 Amendment, Consent and Waiver dated as of October 31, 1994 to the Credit Agreement, the Guarantee Agreement, the Indemnity, Subrogation and Contribution Agreement.
10.32 Amended and Restated Mortgage, Security Agreement and Assignment of Leases and Rents dated as of August 3, 1994, as mortgagor and Chemical Bank, as mortgagee.
12.2 Statement regarding computation of ratio of earnings to fixed charges of the Company.
13 The following sections of the 1994 annual report to stockholders of the Company incorporated by reference and included in Parts II and IV of this Form 10-K405:
Five Year Financial Operating Summary. Management's Discussion and Analysis of Results of Operations and Financial Condition. Consolidated Financial Statements and Independent Auditor's Report. Quarterly Information.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Certified Public Accountants.
27 Financial data schedules.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the thirteen weeks ended January 28, 1995.
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 27, 1995 ECKERD CORPORATION
By:/s/ Samuel G. Wright Samuel G. Wright Senior 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/Stewart Turley Stewart Turley Chairman of the Board April 27, 1995 and Chief Executive Officer
/s/Francis A. Newman Francis A. Newman President, Chief April 27, 1995 Operating Officer and Director
/s/John W. Boyle John W. Boyle Director April 27, 1995
/s/James T. Doluisio James T. Doluisio Director April 27, 1995
/s/Donald F. Dunn Donald F. Dunn Director April 27, 1995
/s/Albert J. Fitzgibbons, III Albert J. Fitzgibbons, III Director April 27, 1995
/s/Lewis W. Lehr Lewis W. Lehr Director April 27, 1995
/s.Alexis P. Michas Alexis P. Michas Director April 27, 1995
/s/Rupinder S. Sidhu Rupinder S. Sidhu Director April 27, 1995
Independent Auditor's Report
The Board of Directors Eckerd Corporation and Subsidiaries:
Under date of March 20, 1995, we reported on the consolidated balance sheets of Eckerd Corporation and subsidiaries as of January 28, 1995 and January 29, 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended January 28, 1995, 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 9 to the consolidated financial statements, the Company changed its accounting policy in the current year related to the timing of the recognition of closed store obligations.
KPMG PEAT MARWICK LLP
Tampa, Florida March 20, 1995
Schedule II
Notes: (a) This reserve is deducted from receivables in the balance sheets.
Exhibit Index Eckerd Corporation Form 10-K405 for the Fiscal Year Ended January 28, 1995 Exhibit Page Number Description of Exhibit Number
3.1(i) Restated Certificate of Incorporation of Eckerd * Corporation (the "Company") (incorporated by reference to Exhibit 3.1(i) to the Registration Statement on Form S-3 of the Company (No. 33-50223)). 3.2(ii) Amended and Restated By-laws of the Company * (incorporated by reference to Exhibit 3.2(ii) to the Registration Statement on Form S-3 of the Company (No. 33-50223)).
4.1 Form of certificate for the Company's Common * Stock, par value $.01 per share (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-2 of the Company (No. 33- 64906)).
4.2 Indenture dated as of May 1, 1986 by and between * the Company and Mellon Bank, N.A. as trustee, relating to the 11 1/8% Subordinated Debentures due 2001 (incorporated by reference to the Registration Statement on Form S-1 of Eckerd Holdings Inc. (No. 33-4576)). (On February 6, 1991, Mellon Bank, N.A. was succeeded by Security Pacific National Trust Company, as trustee.)
4.3 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)). 4.4 Form of 9 1/4% Senior Subordinated Notes Due * 2004 of the Company (incorporated by reference to Exhibit 4.01 to the Current Report of Form 8-K dated October 26, 1993 of the Company (File No. 1-4844)).
10.1 Merrill Lynch Common Stock Purchase Agreement * dated as of April 1, 1986 by and among the Company and the Merrill Lynch Investors (incorporated by reference to the Registration Statement on Form S-4 of Eckerd Holdings Inc. (No. 33-4497)).
10.2 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).
10.3 Registration Rights Agreement dated as of * April 30, 1986 by and among the Company, the Merrill Lynch Investors, Morgan Capital Corporation and the other bank affiliates listed therein, the institutional and corporate investors listed therein and certain members of management of the Company (incorporated by reference to Exhibit 10.19 to the Registration Statement on Form S-2 of the Company (No. 33-64906)).
10.4 First Amendment to Registration Rights Agreement * among the Company, EDS Holdings Inc., the Merrill Lynch Investors, the Bank Affiliates, the Institutional Investors and the Management Investors (incorporated by reference to Exhibit 10.20 to Amendment No. 1 to the Registration Statement on Form S-2 of the Company (No. 33- 64906)).
10.5 First Employees Management Stock Option Plan * (incorporated by reference to the Registration Statement on Form S-8 of the Company (No. 33-30761)).
10.6 Employment Agreement dated as of April 30, 1986, * between the Company and Stewart Turley (incorporated by reference to Exhibit 10.23 to the Registration Statement on Form S-2 of the Company (No. 33-64906)).
10.7 Employment Agreement dated as of April 30, 1986, * between the Company and John W. Boyle (incorporated by reference to Exhibit 10.25 to the Registration Statement on Form S-2 of the Company (No. 33-64906)).
10.8 Employment Agreement dated June 9, 1993, between * the Company and Francis A. Newman (incorporated by reference to Exhibit 10.27 to the Registration Statement on Form S-2 of the Company (No. 33- 64906)).
10.9 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)).
10.10 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)).
10.11 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)).
10.12 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)).
10.13 1993 Stock Option and Incentive Plan of the * Company (incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 of the Company (No. 33-49977)).
10.14 Employment Agreement dated October 1, 1988 * between the Company and James M. Santo (incorporated by reference to Exhibit 10.38 to Form 10-K for the year ended January 29, 1994 of the Company (File No. 1-4844)).
10.15 Employment Agreement dated October 1, 1988 * between the Company and Robert L. Myers (incorporated by reference to Exhibit 10.38 to Form 10K/A for the year ended January 29, 1994 of the Company (File No. 1-4844)).
10.16 Credit Agreement dated as of June 14, 1993, as * amended, and restated as of August 3, 1994 (the "Credit Agreement"), among the Company, the lenders named therein, Chemical Bank and NationsBank of Florida, N.A. as managing agents and swingline lenders, and Chemical Bank, as administrative agent and NationsBank of Florida, N.A. as documentation agent (incorporated by reference to Exhibit 10.1 to form 10-Q of the Company for twenty-six weeks ended July 30, 1994).
10.17 Employment Agreement dated October 1, 1988 between the Company and Samuel G. Wright.
10.18 Receivables Purchase Agreement dated as of January 26, 1995 between the Company and Three Rivers Funding Corporation. 10.19 First Amendment to Receivables Purchase Agreement dated as of March 31, 1995 between the Company and Three Rivers Funding Corporation.
10.20 Registration Rights Agreement dated as of December 31, 1994 by and among the Company and the Eckerd Corporation Profit Sharing Plan.
10.21 Guarantee Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 (the "Guarantee Agreement") among the subsidiaries of the Company listed therein and Chemical Bank, as collateral agent. 10.22 Indemnity, Subrogation and Contribution Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 (the "Indemnity, Subrogation and Contribution Agreement"), among the Company, each subsidiary of the Company listed therein and Chemical Bank, as collateral agent.
10.23 Pledge Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 among the Company, each subsidiary of the Company listed therein and Chemical Bank, as collateral agent.
10.24 Security Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 among the Company, each subsidiary of the Company listed therein and Chemical Bank, as collateral agent.
10.25 Trademark Security Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 among the Company, each subsidiary of the Company listed therein and Chemical Bank, as collateral agent.
10.26 Revolving Note dated as of August 3, 1994 made by the Company in favor of Chemical Bank issued pursuant to the Credit Agreement.
10.27 Term Note dated as of August 3, 1994 made by the Company in favor of Chemical Bank issued pursuant to the Credit Agreement.
10.28 Swingline Note dated as of August 3, 1994 made by the Company in favor of Chemical Bank issued pursuant to the Credit Agreement.
10.29 Deed of Trust, Security Agreement and Assignment of Leases and Rents dated as of June 14, 1993, as amended and restated as of August 3, 1994, by the Company in favor of Kenneth Plifka, as trustee, for the benefit of Chemical Bank, as collateral agent, relating to certain real property located in Dallas County, Texas.
10.30 Deed of Trust, Security Agreement and Assignment of Leases and Rents dated as of June 14, 1993, as amended and restated as of August 3, 1994, by the Company in favor of Kenneth Plifka, as trustee, for the benefit of Chemical Bank, as collateral agent, relating to certain real property located in Montgomery County, Texas.
10.31 Amendment, Consent and Waiver dated as of October 31, 1994 to the Credit Agreement, the Guarantee Agreement, the Indemnity, Subrogation and Contribution Agreement.
10.32 Amended and Restated Mortgage, Security Agreement and Assignment of Leases and Rents dated as of August 3, 1994, as mortgagor and Chemical Bank, as mortgagee.
12.1 Statement regarding computation of ratio earnings to * fixed charges of the Company (incorporated by reference to Exhibit 12.1 to the Registration Statement on Form S-3 of the Company (No. 33-50223)).
12.2 Statement regarding computation of ratio of earnings to fixed charges of the Company.
13 The following sections of the 1994 annual report to stockholders of the Company incorporated by reference and included in Parts II and IV of this Form 10-K405:
Five Year Financial Operating Summary. Management's Discussion and Analysis of Results of Operations and Financial Condition. Consolidated Financial Statements and Independent Auditor's Report. Quarterly Information.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Certified Public Accountants.
27 Financial data schedules.
* Filed by incorporation by reference.


Item 4. Submission of Matters to a Vote of Security Holders
	 None.
Part II
Item 5.

Item 5. Market for the Registrant's Common Equity and Related Stockholder 	 Matters
a) There is no established trading market for the certificates 	 representing ownership of the beneficial interest in the Trust.
b) As of March 29, 1996 there were three holders of certificates 	 representing ownership of the beneficial interest in the Trust.
Item 8.

Item 8. Financial Statements and Supplementary Data
	 See attached audited financial statements.
Item 9.

Item 9. Disagreements on Accounting and Financial Disclosure
	 None.
Part III
Item 13.

Item 13. Certain Relationships and Related Transactions
	 None.
Part IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules and Reports 	 on Form 8-K
a) The following documents are filed as part of this report:
1. Financial Statements 	 Report of Independent Public Accountants 	 Statements of Assets and Liabilities as of 	 December 31, 1995 and 1994 	 Statements of Income and Expenses, for the Years Ended 	 December 31, 1995, 1994 and 1993 	 Statements of Cash Flows, for the Years Ended 	 December 31, 1995, 1994 and 1993 	 Notes to Financial Statements
2. Financial Statement Schedules are omitted because they are 	 inapplicable.
3. Exhibits
	 Exhibit 	 Number Description of Exhibit
	 4.1 Form of Trust Agreement, including the 			 form of Rural Electric Cooperative 			 Grantor Trust Certificate 			 (incorporated by reference to Form 10- 			 K for the fiscal year ended December 			 31, 1987).
	 10.1 Loan Agreement (incorporated by 			 reference to Exhibit 10.1 to 			 Registration Statement on Form S-1 			 [No. 33-14490]).
	 10.2 Loan Guarantee and Servicing Agreement 			 (incorporated by reference to Exhibit 			 10.2 to Registration Statement on Form 			 S-1 [No. 33-14490]).
b) Form 8-K dated October 2, 1995. 	 Semi-annual Report to Certificateholders dated September 30, 1995.
Supplemental information to be furnished with reports filed pursuant to Section 15(d) of the Act by Registrants which have not registered securities pursuant to Section 12 of the Act.
No annual report, proxy statement, form of proxy or other proxy soliciting material has been sent to Certificateholders, and the Registrant does not presently contemplate sending any such material subsequent to the filing of this report.
	Pursuant to the requirements of Section 13 or 15(d) of the Securities 	Act of 1934, the Registrant has duly caused this report to be signed 	on its behalf by the undersigned, thereunto duly authorized, in the 	County of Fairfax, Commonwealth of Virginia on the 29 day of March, 	1996.
	 RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (SOYLAND) 1987 A-4
	 By: NATIONAL RURAL UTILITIES COOPERATIVE 		 FINANCE CORPORATION as Servicer
	 By: /s/ Sheldon C. Petersen 		 Sheldon C. Petersen, Governor and 			 Chief Executive Officer
		 RURAL ELECTRIC COOPERATIVE GRANTOR 			 TRUST (SOYLAND) 1987-A4
	 FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995, 1994 AND 1993 			TOGETHER WITH AUDITORS' REPORT
		 Report of Independent Public Accountants
To the Trustee of Rural Electric Cooperative Grantor Trust (Soyland) 1987-A4, and
To the Board of Directors of National Rural Utilities Cooperative Finance Corporation
We have audited the accompanying statements of assets and liabilities of Rural Electric Cooperative Grantor Trust (Soyland) 1987-A4 as of December 31, 1995 and 1994, and the related statements of income and expenses and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an 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 financial statements referred to above present fairly, in all material respects, the financial position of Rural Electric Cooperative Grantor Trust (Soyland) 1987-A4 as of December 31, 1995 and 1994, the results of and its operations and its cash flows for the years ended December 31, 1995, 1994 and 1993, in conformity with generally accepted accounting principles.
March 11, 1996 /s/ Arthur Andersen LLP Washington, D. C.
	 RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (SOYLAND) 1987-A4
			STATEMENTS OF ASSETS AND LIABILITIES
			 AS OF DECEMBER 31, 1995 AND 1994
						 1995 1994
A S S E T S
Interest Receivable $ 1,361,416 $ 1,361,416
Note Receivable 50,000,000 50,000,000
Total Assets $51,361,416 $51,361,416
L I A B I L I T I E S
Interest Payable - Grantor Trust $ 1,350,083 $ 1,350,083 Certificates
Servicer Fees Payable 11,333 11,333
Rural Electric Cooperative Grantor Trust Certificates 50,000,000 50,000,000
Total Liabilities $51,361,416 $51,361,416
	 RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (SOYLAND) 1987-A4
		 NOTES TO FINANCIAL STATEMENTS
		 DECEMBER 31, 1995, 1994 AND 1993
1. ORGANIZATION AND OPERATIONS
Rural Electric Cooperative Grantor Trust (Soyland) 1987-A4 (the "Trust") was formed under a Trust Agreement dated March 19, 1987 among National Rural Utilities Cooperative Finance Corporation ("CFC"), Soyland Power Cooperative, Inc. (the "Cooperative") and The First National Bank of Chicago (the "Trustee"). On that date, CFC made a loan to the Cooperative which issued a note (the "Note"), evidencing the borrowing, to the Trust. The Trust issued to CFC Rural Electric Cooperative Grantor Trust (Soyland) 9.53% Certificates Due 2006 (the "Certificates") in the amount of $50,000,000. The Certificates are solely the obligations of the Trust and are not insured or guaranteed by CFC, the Cooperative, the Trustee, the Rural Utilities Service ("RUS") of the United States Depart- ment of Agriculture ("USDA") nor any other governmental agency. Each Certificate represents an undivided fractional interest in the Trust. CFC is the depositor of the Trust and acts as Servicer of the Note. CFC filed, on behalf of the Trust, a Registration Statement on Form S-1 (Registration No. 33-14490) which became effective on July 15, 1987, and CFC resold the Certificates thereunder.
The assets of the Trust consist primarily of the Note which is guaranteed (the "Guarantee") as to timely payment of principal and interest by the United States of America, acting through the Administrator of RUS. The amounts of principal and interest payments on the Note held by the Trust are sufficient to cover the scheduled principal and interest payments on the Certificates issued by the Trust and the scheduled amounts of servicer fees. The General Counsel of the USDA has issued an opinion that the Guarantee is supported by the full faith and credit of the United States of America.
Debt service and servicer fee payments on the Note are made to the Trustee semi-annually (March 19 and September 19) by the Cooperative. The Trustee deposits all such receipts in the Trust account. The Trustee is authorized by the Trust Agreement to invest all funds in the Trust account at the direction of CFC in certain eligible investments that mature no later than the business day next preceding the day (March 30 and September 30) such amounts are to be distributed to the Certificateholders and the Servicer. The interest earned on the investments is distributed to the Cooperative. Any funds that are not so invested must be held by the Trustee in the Trust account. The Trustee may not reinvest any returns of principal or investment earnings on eligible investments and the Trustee may not sell any eligible investment prior to its maturity except, at the direction of CFC, to preserve the value of the corpus of the Trust.
On or before five business days after each date on which payments are made on the Certificates, the Trustee is obligated to supply the holders of such Certificates a report provided by the Servicer, which includes certain pertinent information as to how the payment is to be allocated to principal, interest, servicer fees and premium, if any, as well as the principal balance outstanding after such payment.
The fiscal year of the Trust is the calendar year. Within the prescribed period of time for tax reporting purposes, after the end of each calendar year during the term of the Trust Agreement, the Trustee is obligated to prepare and mail to each Certificateholder of record for the Trust, at any time during such year, a report setting forth the information as is reasonably necessary for the preparation of such Certificateholder's Federal income tax return.
Payments of principal on the Certificates are scheduled to be repaid over a period of five years, beginning in 2002. The principal payment in 2002 is scheduled to be $7,900,000.The Certificates are not subject to re- demption prior to March 20, 1997. Thereafter, such Certificates are subject to optional redemption, in whole and without premium, upon redemption or purchase of the related Note. The Trust Agreement will terminate after payment in full has been made on the Certificates issued thereunder.
2. TAX STATUS OF THE TRUST
Milbank, Tweed, Hadley & McCloy, counsel to CFC, has advised CFC with respect to the Trust that, in its opinion, (i) the Trust will not be classified as an association taxable as a corporation, but will be classified as a grantor trust and (ii) each Certificateholder will be treated for Federal income tax purposes as the owner of an undivided fractional interest in each of the assets held by the Trust.
It is expected that the Trust will not have any liability for Federal or state income taxes for the current or future years.
3. INTEREST AND SERVICER FEE ACCOUNTING
The Trust records interest income as it is earned and accrues interest expense and servicer fees as they are incurred. Servicer fees represent eight basis points of the outstanding principal balance of the Certifi- cates and the Note.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instru- ments is made in accordance with FASB Statement No. 107, "Disclosure about Fair Value of Financial Instruments." Whenever possible, the estimated fair value amounts have been determined using quoted market information as of December 31, 1995, along with other valuation methodologies which are summarized below. Below is a summary of significant methodologies used in estimating fair value amounts and a schedule of fair values at December 31, 1995.
The carrying amounts reported for Interest Receivable, Interest Payable - Grantor Trust Certificates, and Servicer Fees Payable approximate fair values due to the short term maturity of these instruments.
Note Receivable
Fair value is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
Rural Electric Cooperative Grantor Trust Certificates
The fair value of the Certificate is estimated using quoted market prices for similar notes over the same remaining maturities.
The carrying and estimated fair values of the Trust's financial instruments as of December 31, 1995, are as follows:
					 Carrying Fair 					 Value Value
Assets: Interest Receivable 1,361,416 1,361,416 Note Receivable 50,000,000 71,746,993
Liabilities: Interest Payable - Grantor Trust Certificates 1,350,083 1,350,083 Servicer Fees Payable 11,333 11,333 Rural Electric Cooperative Grantor Trust Certificates 50,000,000 71,766,234
	 RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (SOYLAND) 1987 A-4
			 Exhibit Index
Exhibit Number Description of Exhibit
4.1 Form of Trust Agreement, including the form of Rural Electric 	 Cooperative Grantor Trust Certificate (incorporated by reference 	 to Form 10-K for the fiscal year ended December 31, 1987).
10.1 Loan Agreement (incorporated by reference to Exhibit 10.1 to 	 Registration Statement on Form S-1 [No. 33-14490]).
10.2 Loan Guarantee and Servicing Agreement (incorporated by reference 	 to Exhibit 10.2 to Registration Statement on Form S-1 [No. 33-14490]).