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 29, 1994 are as follows:
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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 facility and the Largo distribution center facility were consolidated into the new facility during 1993. Existing Orlando facilities which are owned are being offered for sale.
(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 29, 1994.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK, DEBT SECURITIES 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 26, 1994 was 974. The Company has not paid or declared any dividends on its common stock.
The Company's 11 1/8% Debentures are listed on the American Stock Exchange.
The Notes are listed on the New York Stock Exchange.
The Company is subject to restrictive covenants under its Credit Agreement and the Notes which restrict the payment of dividends.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The following historical selected financial data for the years presented below has been derived from the Company's consolidated financial statements. The historical financial data for the three fiscal years ended January 29, 1994 has been derived from, and should be read in conjunction with, the Company's audited consolidated financial statements and related notes which are incorporated by reference in Item 8

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and auditors' report for the Company as set forth under Item 14 of this Form 10-K are incorporated herein by reference.
Unaudited information on selected quarterly financial data of the Company for the years ended January 29, 1994 and January 30, 1993 required by this Item is presented below (in thousands):
Earnings (loss) 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 (loss) per common share.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The name, age and office or principal occupation of the executive officers and directors of the Company and certain information relating to their business experience are set forth below:
Mr. Turley is Chairman of the Board, President and Chief Executive Officer of the Company, positions he has held since 1975. He joined Old Eckerd in 1966 and has served as Senior Vice President (1971-1974) and President and Chief Executive Officer (1974-1975) 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 Director of the Company, positions he has held since July 6, 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. 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. Boyle was appointed Vice Chairman of the Board in February 1993. Prior thereto he was Senior Vice President/Finance and Administration of the Company, a position he has held for more than the past five years. He joined Old Eckerd as Senior Vice President/Finance and Administration in 1983.
Dr. Doluisio is Dean of the College of Pharmacy, University of Texas, Austin, Texas. Dr. Doluisio has been Dean since 1973 and has served as chairman of the American Pharmaceutical Association, the American Association of College of Pharmacy Council of Deans, the American Association for the Advancement of Science and as a trustee of the United States Pharmacopeia.
Mr. Dunn is retired Chairman of the Board and Chief Executive Officer of Maas Brothers/Jordan Marsh, a division of Allied Stores Corporation, New York, New York. In his 39-year career with Allied Stores, starting as an executive trainee, Mr. Dunn held numerous management positions including that of executive group manager of Allied Stores for Jordan Marsh and Maas Brothers in Florida, Cain-Sloan in Tennessee and Joske's in Texas. Mr. Dunn is also a director of Tech Data Corporation and Younkers, Inc.
Mr. Fitzgibbons has been a director of Merrill Lynch Capital Partners since 1988. He has been a Partner of Merrill Lynch Capital Partners since 1993; an Executive Vice President of Merrill Lynch Capital Partners from 1988 to 1993; a Senior Vice President of Merrill Lynch Capital Partners from 1987 to 1988; a Managing Director of the Investment Banking Division of Merrill Lynch & Co. ("ML & Co.") since 1978; and Vice President of Merrill Lynch from 1974 to 1988. He is also a director of Amstar Corporation, Borg-Warner Security Corporation, Borg-Warner Automotive, Inc., Consumer Markets, Inc., ESSEX Industries, Inc., Unifax, Inc., AmeriFoods Companies, Inc., White Swan, Inc. and United Artists Theatre Circuit, Inc.
Mr. Lehr is former Chairman of the Board of 3M Company, St. Paul, Minnesota. In his 39-year career with 3M Company, starting as an engineer, Mr. Lehr held numerous management positions and from 1980 to March 1986, when he retired, was Chairman of the Board and Chief Executive Officer. He also serves as a director of various IDS Funds.
Mr. Michas has been a director of Merrill Lynch Capital Partners since 1989. He has been a Partner of Merrill Lynch Capital Partners since 1993; a Senior Vice President of Merrill Lynch Capital Partners from 1990 to 1993; a Vice President of Merrill Lynch Capital Partners from 1987 to 1989; a Managing Director of the Investment Banking Division of ML & Co. since 1991; a Director of the Investment Banking Division of ML & Co. from 1990 to 1991; and a Vice President of the Investment Banking Division of ML & Co. from 1987 to 1989. He is also a director of Amstar Corporation, Borg-Warner Security Corporation, Borg-Warner Automotive, Inc. and Blue Bird Body Corporation.
Mr. Sidhu has been a director of Merrill Lynch Capital Partners since 1988. He has been a Partner of Merrill Lynch Capital Partners since 1993; a Senior Vice President of Merrill Lynch Capital Partners since 1987; a Vice President of Merrill Lynch Capital Partners from 1985 to 1987; a Managing Director of the Investment Banking Division of ML & Co. from 1989 to 1993; and a Director of the Investment Banking Division of ML & Co. from 1987 to 1989. He is also a director of Clinton Mills, Inc., First-USA, Inc., John Alden Financial Corporation and Wherehouse Entertainment, Inc.
Mr. Kelly was appointed Senior Vice President/Merchandising 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. Santo was appointed Senior Vice President/Administration in February 1993. Prior thereto he was Vice President/Legal Affairs of the Company, a position he has 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/Finance in February 1993. Prior thereto he was Vice President and Controller of the Company, a position he has held since September 1988. Mr. Wright became 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. Myers was appointed Senior Vice President/Pharmacy in February 1993. Prior thereto he was Vice President of the Company, a position he has 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. 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. Peacock is Vice President of the Company, a position he has held for more than the past five years. Mr. Peacock is also a Senior Regional Vice President for the North Texas Region of Eckerd Drug Company.
Messrs. Turley, Boyle, Doluisio, Dunn, Fitzgibbons and Lehr have been directors of the Company since May 1986. Mr. Sidhu became a director of the Company in April 1988 and Mr. Michas became a director of the Company in April 1990, and Mr. Newman became a director in July 1993.
The Board of Directors of the Company is divided into three classes serving staggered three-year terms. The terms of office of Messrs. Boyle, Doluisio and Sidhu will expire in 1994, the terms of office of Messrs. Michas, Dunn and Newman will expire in 1995 and the terms of office of Messrs. Fitzgibbons, Turley and Lehr will expire in 1996.
Messrs. Doluisio, Dunn and Lehr serve as members of the Audit Committee, Messrs. Fitzgibbons, Dunn and Lehr serve as members of the Executive Compensation and Stock Option Committee, and Messrs. Turley, Dunn and Fitzgibbons serve as members of the Executive Committee, of the Board of Directors of the Company. Officers of the Company serve at the discretion of the Board of Directors. Messrs. Fitzgibbons, Sidhu and Michas are employees of Merrill Lynch Capital Partners and serve on the Board of Directors of the Company as representatives of the Merrill Lynch Investors.
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.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information for the 1993, 1992 and 1991 fiscal years with respect to the Chief Executive Officer, each of the four most highly paid executive officers of the Company who were serving as executive officers at January 29, 1994 and one of the five most highly compensated executive officers of the Company during fiscal 1993 who was no longer an executive officer at January 29, 1994.
SUMMARY COMPENSATION TABLE
- --------------- (1) The Company entered into employment agreements with each of the named executive officers that provide for severance payments upon the occurrence of events such as death or termination. See "Employment Agreements."
(2) The amounts shown in this column consist of (i) tax "gross up" payments made with respect to certain compensation, including payments made with respect to the named executive officers' Management Notes (see (Footnotes continued on following page)
(Footnotes continued from preceding page) note (6)) that are reflected under the heading "All Other Compensation," and (ii) with respect to Mr. Turley, certain perquisites. See note (3).
(3) Included in this amount are an automobile allowance of $27,812 and payments for long-term disability insurance of $18,480.
(4) Mr. Newman's employment with the Company commenced on July 6, 1993. Under Mr. Newman's employment agreement, the aggregate amount of his annual bonus and Long Term Incentive Plan payouts are guaranteed to be not less than $250,000 in each of 1993 and 1994.
(5) Each named executive officer participates in The Jack Eckerd Corporation Profit Sharing Plan (the "Profit Sharing Plan") and The Jack Eckerd Corporation Executive Excess Plan (the "Executive Excess Plan"). The Executive Excess Plan replaces benefits under the Profit Sharing Plan (and The Jack Eckerd Corporation Pension Plan) which are reduced under provisions of the Internal Revenue Code. The amounts allocable in 1993 to the named executive officers under the Profit Sharing Plan and the Executive Excess Plan (with respect to the Profit Sharing Plan) were not calculable as of the date hereof. The amounts allocable in 1992 were as follows: Mr. Turley, $16,622, Mr. Lambert, $9,870, Mr. Boyle, $8,533, Mr. Roberson, $3,106, and Mr. Santo, $3,111.
(6) The balances of the amounts shown in 1992 consist of the following amounts paid to each named executive officer equaling the principal amounts due on the named executive officers' Management Notes and the excess, if any, of the interest due on their Management Notes over the interest payable by the Company on their Convertible Debentures: Mr. Turley, $452,475, Mr. Lambert, $199,958, Mr. Boyle, $288,718, Mr. Roberson, $114,529, and Mr. Santo, $116,426. In 1992, payment on the Management Notes was accelerated and the Company made additional payments to the named executive officers in an amount equal to the remaining principal amount due on their Management Notes. The Management Notes were repaid in full and there are no future obligations by the Company or the named executive officers on these Management Notes. See "Compensation Committee Interlocks and Insider Participation."
(7) Mr. Lambert retired from his positions as Senior Vice President of the Company and President of Eckerd Drug Company and became a consultant to the Company effective September 30, 1993. Amounts paid to Mr. Lambert after September 30, 1993 which are included in his 1993 salary totalled $120,502. See "Separation Agreements."
(8) Mr. Roberson resigned from his employment with the Company effective March 31, 1994. See "Separation Agreements."
(9) No restricted stock was awarded during the year ended January 29, 1994. As of January 29, 1994 the named executive officers restricted stock holdings (number of shares and value) were as follows: Mr. Turley, 28,081, $554,600, Mr. Lambert, 15,431, $304,762, Mr. Roberson, 6,755, $133,411 and Mr. Santo, 6,013, $118,757. Mr. Newman and Mr. Boyle had no restricted stock holdings at January 29, 1994.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table presents information concerning grants of stock options during the 1993 fiscal year to each of the named executive officers. No stock appreciation rights were granted during the 1993 fiscal year.
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(1) Based on a total of 855,915 options granted to all employees. All options granted to the named executive officers were granted on August 12, 1993. Commencing three years after date of grant, the options are exercisable to the extent of 50%, with an additional 25% exercisable after each of the next two successive years.
(2) The market price on the date of grant used herein was the initial public offering price.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES (1)
The following table presents information concerning the exercise of stock options during the 1993 fiscal year and the value of unexercised stock options at the end of the 1993 fiscal year with respect to the named executive officers. No SARs are currently outstanding.
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(1) None of the named executive officers exercised any options during the 1993 fiscal year.
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR (1)
The following table presents information regarding Long-Term Incentive Plan Awards made during the 1993 fiscal year to each of the named executive officers.
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(1) All amounts shown represent grants made pursuant to the Company's Executive Three Year Bonus Plan. The bonus awards are granted annually and the payment of such awards are contingent on the attainment of certain performance criteria. The total payment with respect to a grant is based on the annual average increase in the Company's earnings before interest and taxes, as adjusted, and the average annual return on investment, during a three-year performance period consisting of the current year and the succeeding two years, subject to achieving certain specified minimum performance objectives for the three-year period, and are calculated as a percentage of a participant's annual base salary as of the beginning of a three-year performance period. The maximum amount of the bonus award is 50% of the participating executives' annual base salary at the beginning of a performance period. Since a target award is not applicable, the target amount is representative of the amount which would be paid on the payout date based on the previous fiscal year's performance results.
THE JACK ECKERD CORPORATION PENSION PLAN
The Jack Eckerd Corporation Pension Plan (the "Pension Plan") is qualified under the Code and is non-contributory. Employees who retire or terminate as vested participants are entitled to receive retirement benefits under a final average compensation formula. To the extent benefits cannot be provided under the Pension Plan due to the limitations imposed by Sections 415 and 401(a)(17) of the Code, such benefits will be provided for Messrs. Turley, Lambert and Boyle under The Jack Eckerd Corporation Executive Excess Plan (the "Excess Plan") which is not qualified under the Code. Mr. Roberson and Mr. Santo do not participate in the Excess Plan. Mr. Newman is not eligible to participate in this plan because he has not met the minimum length of service requirement.
The following table sets out the estimated Minimum Annual Retirement Benefits payable at age 65 for the noted levels of final average annual compensation and years of service:
PENSION PLAN TABLE
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(1) The Pension Plan provides for a Minimum Annual Retirement Benefit at age 65 after 25 years of service equal to 24% of final average compensation plus 15.5% of final average compensation in excess of an employee's average Social Security maximum taxable wage base for the 35 years ending with the employee's Social Security normal retirement age. The Minimum Annual Retirement Benefit includes the income which could be provided by a monthly annuity for life purchased with the Profit Sharing Plan vested account balance. Final average compensation is the average compensation (including base salary, Key Management Bonus, and Executive Three-Year Bonus) ("Salary," "Bonus," and "Long-Term Incentive Plan Payouts" in the Summary Compensation Table) for the highest consecutive five of the final ten years of employment. It also includes certain perquisites. The retirement benefit amounts shown are age 65 single life annuity amounts and are not subject to any deduction for Social Security or other offset amounts. The years of service and the current level of compensation recognized for retirement purposes (which would be used to calculate average annual compensation) for the named executive officers are as follows: Mr. Turley, 27 years and $716,181, Mr. Lambert, 23 years and $431,788, Mr. Boyle, 10 years and $372,321, Mr. Roberson, 16 years and $223,319, and Mr. Santo, 17 years and $202,703. The final average compensation for retirement purposes for the relevant five-year period is as follows: Mr. Turley $957,623, Mr. Lambert, $569,811, Mr. Boyle, $492,938, Mr. Roberson, $216,720, and Mr. Santo, $212,597.
(2) Mr. Newman is not eligible to participate in this plan because he has not met the minimum length of service requirements.
THE EXECUTIVE SUPPLEMENTAL BENEFIT PLAN
The Executive Supplemental Benefit Plan (the "ESBP") is a non-qualified, non-contributory plan that provides for supplemental retirement and death benefits for the executive officers, including the named executive officers, and other key management employees of the Company and its subsidiaries.
The following table sets out the estimated annual benefits payable at age 65 for the noted levels of mid-point salaries:
COVERED ANNUAL BENEFIT SALARY(1) PAYABLE(2) ---------------- ------------------------ $ 100,000 $ 25,000 200,000 50,000 300,000 75,000 400,000 100,000 500,000 125,000 600,000 150,000 700,000 175,000
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(1) Under the ESBP, the Company is obligated to pay a participant commencing at age 65 an annual amount equal to 25% of the participant's covered salary in equal monthly installments for 15 years. The covered salary is the mid-point salary of a salary range for a particular executive position that is calculated by the Company. It does not relate to the figures provided in the Summary Compensation Table. The mid-point range for 1993 recognized for retirement purposes of the named executive officers are as follows: Mr. Turley, $512,400, Mr. Newman, $484,500, Mr. Lambert, $318,200, Mr. Boyle, $263,000, Mr. Roberson, $163,200 and Mr. Santo, $135,000. The years of service for 1993 recognized for retirement purposes were the same as those provided with respect to the Pension Plan. The ESBP also provides that, in the event of the death of a participant prior to retirement, the participant's beneficiary is entitled to receive either (a) a lump sum payment equal to four times the participants covered salary, or (b) an amount equal to 90% of the participant's covered salary for the first year after death plus 45% of the covered salary annually for the next nine years.
(2) Assumes the sum of the participant's age and the number of years of service (which cannot be less than 5) is at least 70. If less than 70, benefits are prorated pursuant to a formula.
EMPLOYMENT AGREEMENTS
Messrs. Boyle and Turley entered into employment agreements with the Company which became effective April 30, 1986 that provided for base salaries of $216,000 and $410,000, respectively, and for such bonuses under the Company's bonus plan as the Board, in its discretion, shall determine. Each employment agreement provides for an initial term of employment of three years and, thereafter, is automatically renewed on a year-to-year basis, unless terminated by the Company or such employee.
Each of the above employment agreements provides that (i) upon the death of the employee, the Company will make a lump sum payment to his beneficiary, estate or representative in an amount equal to his current annual base salary and (ii) upon involuntary termination of employment for disability or any reason other than for cause, the Company will make a lump sum payment to such employee equal to two times such employee's current annual base salary (or, if greater, the base salary which would have been paid to such employee during the remaining term of his employment agreement if he had not been terminated) plus a pro rata portion of any bonus payable to the employee under certain bonus compensation plans in the year of such disability or involuntary termination and, subject to certain limitations, will continue such employee's life, disability and hospitalization insurance and medical and dental plans for a two-year period. The employment agreement with Mr. Lambert and the Company, which provided similar terms, was terminated effective September 30, 1993 pursuant to a consulting agreement. See "Separation Agreements."
In October 1988 the Company entered into an employment agreement with Mr. Santo that provides that upon involuntary termination of employment (except for cause) the Company will pay him a severance payment in an amount equal to his then current annual base salary in monthly
installments plus a pro rata portion of certain bonus compensation payable under certain bonus plans, and, subject to certain limitations, the Company will continue certain insurance and medical benefits. The severance payments and benefits are payable for one year or 18 months, depending on length of service. The agreement is for a one-year term and is automatically renewed on a year-to-year basis, unless terminated by the Company or Mr. Santo. Mr. Roberson had an employment agreement which had substantially the same terms as Mr. Santo's employment agreement which was terminated effective March 31, 1994. See "Separation Agreements."
On June 9, 1993, the Company entered into an employment agreement with Mr. Newman whose period of employment as President of the Company commenced July 6, 1993. The agreement provides that upon involuntary termination of employment (except for cause) the Company will pay Mr. Newman a severance payment in an amount equal to two times his then current annual base salary in monthly installments plus a pro rata portion of certain bonus compensation payable under certain bonus plans, and, subject to certain limitations, the Company will continue certain insurance and medical benefits. The severance payments and benefits are payable for two years. The agreement is for a two-year term and is automatically renewed on a year-to-year basis, unless terminated by the Company or Mr. Newman.
SEPARATION AGREEMENTS
Harry W. Lambert, who served as Senior Vice President of the Company and President of Eckerd Drug Company for more than the past five years, retired from both positions effective September 30, 1993. Mr. Lambert entered into a consulting agreement with the Company which became effective October 1, 1993 (the "Consulting Agreement"), pursuant to which Mr. Lambert has agreed to act as a consultant and advisor to the Company. In consideration of such services, Mr. Lambert is entitled to compensation in the amount of $30,000 per month until March 31, 1994 and $19,726 per month from April 1, 1994 until April 15, 1997, the date the Consulting Agreement terminates, and will continue to participate in certain of the Company's employee benefit programs.
Richard W. Roberson, who served as Senior Vice President of the Company, President of the Vision Group and Chairman of the Board and Chief Executive Officer of Insta- Care, entered into a separation agreement with the Company effective as of March 31, 1994 in conjunction with the sale of the assets of the Vision Group to an investor group which includes Mr. Roberson. See "Item 13. Certain Relationships and Related Transactions." Under the terms of the separation agreement, the Company will pay Mr. Roberson an aggregate of $200,000 in quarterly payments of $25,000 commencing July 15, 1994 and ending on April 15, 1996, which payments are contingent upon his continued employment with Visionworks.
MANAGEMENT RESTRICTED STOCK
Prior to the consummation of the IPO, the Management Investors and certain other employees of Eckerd owned shares of Class B common stock, 60% of which was fully vested. The remaining non-vested shares of Class B common stock were designed to vest upon the achievement of specified levels of financial performance and other criteria. Immediately prior to the consummation of the IPO, all shares of vested Class B common stock and 50% of the non-vested shares of Class B common stock were exchanged for Common Stock at the rate of 0.69118 shares of Common Stock for each share of Class B common stock (prior to the Stock Split). The remaining shares of non-vested Class B common stock were exchanged at the same exchange ratio for shares of Common Stock subject to certain restrictions (the "Management Restricted Stock"). The Management Restricted Stock will vest automatically on July 31, 1998 provided that the holder thereof is then employed by the Company. The Management Restricted Stock may vest earlier over a three-year period upon the achievement by the Company of certain levels of performance as indicated by the market price of the Common Stock of the Company during each of the 12-month periods ended July 31, 1994, 1995 and 1996 (each of the dates or events upon which the Management Restricted Stock may vest is referred to as a "Restricted Stock Event").
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
At January 29, 1994, the Company's Executive Compensation and Stock Option Committee consisted of Lewis W. Lehr, Donald F. Dunn and Albert J. Fitzgibbons, III. Mr. Turley, an executive officer of the Company, was a member of the Executive Compensation and Stock Option Committee until August 5, 1993, at which time he was replaced by Mr. Dunn. Mr. Fitzgibbons is Executive Vice President and a member of the Board of Directors of Merrill Lynch Capital Partners and is a Managing Director of ML & Co., which are affiliates of the Company.
Merrill Lynch Capital Partners is a Delaware corporation and a wholly owned subsidiary of ML & Co. which initiates and structures transactions commonly referred to as leveraged or management buyouts involving publicly owned companies, privately owned companies and subsidiaries and divisions of both publicly and privately owned companies, and manages a fund of equity capital committed by institutional investors for investment in the equity portion of leveraged buyout transactions.
Merrill Lynch Capital Partners is the direct or indirect managing partner of Merrill Lynch Capital Appreciation Partnership No. II, L.P., ML Offshore LBO Partnership No. II, ML Employees LBO Partnership No. I, L.P., Merrill Lynch KECALP L.P. 1986, Merrill Lynch Capital Appreciation Partnership No. B-IX, L.P., ML Offshore LBO Partnership No. B-IX, MLCP Associates L.P. No. II, Merrill Lynch KECALP L.P. 1989, ML IBK Positions, Inc., Merchant Banking L.P. No. IV, ML Oklahoma Venture Partners, Limited Partnership and ML Venture Partners II, L.P., which are stockholders of the Company. Merrill Lynch Interfunding, Inc., an affiliate of Merrill Lynch Capital Partners, is also a stockholder of the Company.
In January 1987, the Company entered into a sale and leaseback agreement involving 72 Eckerd Drug stores, in a transaction arranged by and including certain affiliates of ML & Co. Pursuant to this agreement, the Company sold 72 Eckerd Drug stores for $48.1 million and is obligated to lease them back for a minimum term of ten years. The Company paid a fee equal to 1 1/2% of the sales price, or approximately $721,500, to an affiliate of ML & Co. for arranging the transaction. Lease payments by the Company, payable semi-annually, are approximately $5.9 million per annum. In addition, an affiliate of ML & Co. will receive a management fee of approximately $100,000 per annum, payable out of such lease payments during the term of the lease. The Company believes that the terms of this agreement were no less favorable to the Company than could have been obtained from unaffiliated third parties.
In April 1989, the Company entered into a Master Lease (the "Master Lease") with a third-party lessor ("Lessor") established by an affiliate of ML & Co. Under the Master Lease the Lessor finances the purchase of sites for development as Visionworks and Eckerd Drug stores and finances the construction of the buildings and the acquisition of equipment. The selection of sites and construction of improvements was undertaken by the Company acting as the Lessor's agent pursuant to a construction agency agreement (the "Agreement for Lease"). Under the Agreement for Lease, the Company constructed the improvements and leased the properties from the Lessor pursuant to the Master Lease. As of January 29, 1994, there were 12 stores leased under the Master Lease with a total acquisition and construction cost of approximately $18.4 million. The Company pays a structure fee to the ML & Co. affiliate equal to 1% of the cost of the land, building and equipment leased under the Master Lease plus an administration fee. The Company paid the ML & Co. affiliate fees totalling $44,000, $45,000 and $408,000 for the years ended January 29, 1994, January 30, 1993 and February 1, 1992, respectively. The Company believes that the terms of this arrangement were no less favorable to the Company than could have been obtained from unaffiliated third parties.
In July 1989, the Company entered into a Placement Agency Agreement with Merrill Lynch Money Markets, Inc., an affiliate of ML & Co. Under the Placement Agency Agreement, Merrill Lynch Money Markets, Inc. acted as the exclusive Placement Agent for the private placement to accredited investors of the Company's unsecured notes with maturities of up to 270 days from date of issue. The Company did not pay Merrill Lynch Money Markets, Inc. any amounts in connection with this facility during the year ended January 29, 1994. The Company believes that the terms of this
arrangement were no less favorable to the Company than could have been obtained from unaffiliated third parties.
On June 15, 1993, the Company, EDS and EH II amended the EH II Management Agreement (the "EH II Management Agreement Amendment"). Pursuant to the EH II Management Agreement Amendment, EH II paid to Eckerd an accrued and previously deferred management fee, including interest payable thereon, of approximately $22.0 million and an advance, representing prepayment by EH II of the management fee to be earned by Eckerd in the future, of approximately $18.0 million. Such advance was evidenced by the EH II Note. The EH II Management Agreement was terminated, and the EH II Note was repaid, upon consummation of the IPO.
Eckerd also entered into an Exchange Agreement dated as of July 23, 1990 (the "EDS Exchange Agreement") pursuant to which the holders of EDS common stock had the right to exchange their shares for shares of Class A common stock of Eckerd on a share-for-share basis (subject to anti-dilution adjustments) and which granted Eckerd rights of first refusal on the common stock and certain assets of EH II. The Company and the stockholders of EDS amended the Exchange Agreement as of July 29, 1993 to provide for the exchange of EDS common stock for Common Stock at the rate of 1.95 shares of Common Stock for each share of EDS common stock (prior to the Stock Split). Such exchange rate was determined based upon the analysis and opinion of Bear, Stearns & Co. Inc., one of the representatives of the underwriters in the IPO. The Merrill Lynch Investors owned approximately 74.14% of the common stock of EDS.
Certain members of management (the "Management Group") purchased, at the effective time of the Acquisition, an aggregate of $8.36 million principal amount of convertible debentures of the Company in exchange for $3.14 million in recourse notes and $5.22 million in non-recourse notes (the "Management Notes"). In April 1992, the Management Notes, which then totaled $2.83 million, were paid in their entirety and the convertible debentures which totaled $8.09 million were exchanged for 1,304,289 shares of Class A common stock of Eckerd. During 1992 and 1993 a total of seven members of the Management Group left the Company. The Company repurchased the Common Stock (507,939 shares) from these former members of the Management Group for cash and notes totaling $13.35 million.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), an affiliate of each of ML & Co. and Merrill Lynch Capital Partners, acted as one of the representatives of the underwriters in the IPO and received underwriting commissions and related fees of approximately $1.85 million in connection therewith.
In addition, in its role as sole underwriter in the issuance of the Notes, Merrill Lynch received approximately $4.0 million in underwriting discounts from the Company.
COMPENSATION OF DIRECTORS
Members of the Board of Directors who are not employees of the Company are paid for their services as members of the Board an annual fee of $18,000 and a fee of $1,500 for each Board or Committee meeting attended, unless the Committee meeting is held in conjunction with a Board meeting, in which case the Committee member is paid a fee of $1,000 for attending the Committee meeting. Employee directors receive no fee for Board or Committee services.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial ownership of the Common Stock as of March 26, 1994 by (i) each of the directors of the Company, (ii) each of the named executive officers of the Company (iii) each person known by the Company to be the beneficial owner of approximately five percent or more of the outstanding Common Stock and (iv) all of the Company's directors and executive officers as a group. Unless otherwise indicated, the Company believes that the beneficial owner has sole voting and investment power over such shares. The following table treats the 136,808 shares of Management Restricted Stock as issued and outstanding.
- --------------- * Less than one percent
(1) Shares of Common Stock beneficially owned by the Merrill Lynch Investors are owned of record as follows: 941,148 shares by Merrill Lynch Interfunding, Inc., 9,816,294 shares by Merrill Lynch Capital Appreciation Partnership No. II, L.P., 249,567 shares by ML Offshore LBO Partnership No. II, 244,022 shares by ML Employees LBO Partnership No. I, L.P., 98,597 shares by Merrill Lynch KECALP L.P. 1986, 1,350,577 shares by Merrill Lynch Capital Appreciation Partnership No. B-IX, L.P., 791,101 shares by ML Offshore LBO Partnership No. B-IX, 21,419 shares by MLCP Associates L.P. No. II., 133,856 shares by Merrill Lynch KECALP L.P. 1989, 895,676 shares by ML IBK Positions, Inc., 46,513 shares by Merchant Banking L.P. No. IV, 15,491 shares by ML Oklahoma Venture Partners, Limited Partnership and 92,843 shares by ML Venture Partners II, L.P. The address for the Merrill Lynch Investors and each of the aforementioned record holders is c/o Merrill Lynch & Co., Inc., Merrill Lynch World Headquarters, North Tower, 18th Floor, New York, New York 10281-1201.
(2) Includes 165,452 shares of Common Stock beneficially owned by Equitable Variable Life Insurance Company. The address for The Equitable Life Assurance Society of the United States and Equitable Variable Life Insurance Company is 1285 Avenue of the Americas, 19th Floor, New York, New York 10019.
(3) Includes 1,036,400 shares of Common Stock and 605,022 shares of Non-Voting Common Stock beneficially owned by J.P. Morgan Capital Corporation ("MCC"). MCC may convert shares of Non-Voting Common Stock into shares of Common Stock to the extent that it would not own more than 4.9% of the voting securities of the Company. The address for MCC is 60 Wall Street, New York, NY 10260.
(4) The address for the Company Employees' Profit Sharing Plan is P.O. Box 4689, Clearwater, Florida 34618. NationsBank of Georgia, N.A. is the trustee of the Company Employees' Profit (Footnotes continued on following page)
(Footnotes continued from preceding page) Sharing Plan. Total does not reflect the 192,000 shares of Common Stock of the Company that the Company has irrevocably committed to deposit to the Company Employees' Profit Sharing Plan over the next three years.
(5) Total does not reflect the 40,234 shares of Common Stock transferred by Mr. Turley to certain family members. Mr. Turley disclaims beneficial ownership of such shares. Total includes options covering 44,421 shares of Common Stock which are exercisable as of March 26, 1994 or within 60 days thereafter. Includes 28,081 shares of Management Restricted Stock which vest upon the occurrence of Restricted Stock Events but does not reflect the 6,650 shares of Management Restricted Stock transferred by Mr. Turley and certain family members. Mr. Turley disclaims beneficial ownership of such shares.
(6) Total does not reflect 127,393 shares of Common Stock transferred to certain irrevocable trusts established by Mr. Boyle. Mr. Boyle disclaims beneficial ownership of such shares. Total includes options covering 20,800 shares of Common Stock which are exercisable as of March 26, 1994 or within 60 days thereafter. Total does not reflect 15,432 shares of Management Restricted Stock which vest upon the occurrence of Restricted Stock Events transferred by Mr. Boyle to certain family members. Mr. Boyle disclaims beneficial ownersip of such shares.
(7) Total includes options covering 3,334 shares of Common Stock which are exercisable as of March 26, 1994 or within 60 days thereafter. Includes 277 shares of Management Restricted Stock which vest upon the occurrence of Restricted Stock Events.
(8) Total includes options covering 3,334 shares of Common Stock which are exercisable as of March 26, 1994 or within 60 days thereafter. Includes 277 shares of Management Restricted Stock which vest upon the occurrence of Restricted Stock Events.
(9) Messrs. Fitzgibbons, Michas and Sidhu are directors of the Company and officers of Merrill Lynch Capital Partners, ML & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated. Each disclaims beneficial ownership of shares of Common Stock beneficially owned by the Merrill Lynch Investors. The business address for Messrs. Fitzgibbons, Michas and Sidhu is set forth in Note 2 above.
(10) Total includes options covering 3,334 shares of Common Stock which are exercisable as of March 26, 1994 or within 60 days thereafter. Total includes 277 shares of Management Restricted Stock which vest upon the occurrence of Restricted Stock Events.
(11) Total includes options covering 3,334 shares of Common Stock which are exercisable as of March 26, 1994 or within 60 days thereafter. Total includes 277 shares of Management Restricted Stock which vest upon the occurrence of Restricted Stock Events.
(12) Total includes options covering 4,675 shares of Common Stock which are exercisable as of March 26, 1994 or within 60 days thereafter, including options covering 295 shares of Common Stock which vest upon the occurrence of Restricted Stock Events.
(13) Total includes options covering 4,717 shares of Common Stock which are exercisable as of March 26, 1994 or within 60 days thereafter, including options covering 277 shares of Common Stock which vest upon the occurrence of Restricted Stock Events.
(14) Total includes options covering 20,800 shares of Common Stock which are exercisable as of March 26, 1994 or within 60 days thereafter. Includes 15,431 shares of Management Restricted Stock which vest upon the occurrence of Restricted Stock Events.
(15) Total includes options covering 10,400 shares of Common Stock which are exercisable as of March 26, 1994 or within 60 days thereafter. Includes 6,755 shares of Management Restricted Stock which vest upon the occurrence of Restricted Stock Events.
(16) Total does not reflect the 3,696 shares of Common Stock transferred by Mr. Santo to certain family members. Mr. Santo disclaims beneficial ownership of such shares. Total includes options covering 9,100 shares of Common Stock which are exercisable as of March 26, 1994 or within 60 days thereafter. Includes 6,013 shares of Management Restricted Stock which vest upon the occurrence of Restricted Stock Events but does not reflect 743 shares of Management Restricted Stock transferred by Mr. Santo to certain family members. Mr. Santo disclaims beneficial ownership of such shares.
(Footnotes continued on following page)
(Footnotes continued from preceding page)
(17) The total number of all directors and officers as a group includes Harry W. Lambert who retired from his positions with the Company effective September 30, 1993 and is currently a consultant and advisor to the Company.
(18) Total includes options covering 168,524 shares of Common Stock which are exercisable as of March 26, 1994 or within 60 days thereafter, including options covering 941 shares of Common Stock which vest upon the occurrence of Restricted Stock Events. Total includes 78,500 shares of Management Restricted Stock which vest upon the occurrence of Restricted Stock Events.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company sold the business and assets of its Vision Group effective January 30, 1994 to an investment group which included Richard W. Roberson, President of Vision Group and Senior Vice President of the Company, for an amount in cash and notes, approximately equal to the book value of the assets. Mr. Roberson is not a member of the Board of Directors and took no part in the Board's decision to approve the sale to the investment group.
See "Item 11. Executive Compensation--Compensation Committee Interlocks and Insider Participation."
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-K annual report:
(a)(1) Financial statements and Schedules
The following financial statements and schedules of the Company together with the Report of Independent Certified Public Acocuntants dated March 18, 1994 on pages 42 through 61 of this Form 10-K are filed herewith:
ECKERD CORPORATION AND SUBSIDIARIES
Financial Statements:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of January 29, 1994 and January 30,
Consolidated Statements of Operations for the Years Ended January 29, 1994, January 30, 1993 and February 1, 1992,
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended January 29, 1994, January 30, 1993 and February 1, 1992
Consolidated Statements of Cash Flows for the Years Ended January 29, 1994, January 30, 1993 and February 1, 1992
Notes to Consolidated Financial Statements
Schedules:
V --Property, Plant and Equipment VI --Accumulated Depreciation and Amortization of Plant and Equipment VIII --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 report is the consent of KPMG Peat Marwick to the incorporation by reference of their auditors' report dated March 18, 1994, relating to the consolidated financial statements appearing in this report, into Registration Statement Numbers 33-49977 and 33-50755 on Form S-8 and Registration Statement Numbers 33-10721 and 33-50223 on Form S-3.
(a)(2) Exhibits
Exhibits filed by incorporation herein by reference:
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated January 4, 1994 announcing an agreement in principle to sell its Vision Group division.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
March 31, 1994 ECKERD CORPORATION
By /s/ SAMUEL G. WRIGHT --------------------------------- Samuel G. Wright Senior Vice President-Finance
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.
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 January 29, 1994 and January 30, 1993, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the years in the three-year period ended January 29, 1994. 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 January 29, 1994 and January 30, 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended January 29, 1994, in conformity with generally accepted accounting principles.
Tampa, Florida March 18, 1994
ECKERD CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JANUARY 29, 1994 AND JANUARY 30, 1993 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
See accompanying notes to consolidated financial statements.
ECKERD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993, AND FEBRUARY 1, 1992 (IN THOUSANDS)
See accompanying notes to consolidated financial statements.
ECKERD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992 (IN THOUSANDS)
See accompanying notes to consolidated financial statements.
ECKERD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992 (IN THOUSANDS)
See accompanying notes to consolidated financial statements.
ECKERD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(1) ORGANIZATION OF BUSINESS
(a) Acquisitions and Merger
On April 30, 1986, all of the outstanding capital stock of Jack Eckerd Corporation (predecessor company) was acquired by certain affiliates of Merrill Lynch Capital Partners, Inc., affiliates of certain banks which provided a portion of the financing for the acquisition and certain members of management. The acquisition has been accounted for using the purchase method of accounting. The cost of acquiring the capital stock has been allocated to assets based on fair market values at April 30, 1986 as determined by American Appraisal Associates, Inc.
The excess of cost over net assets acquired at May 1, 1986, as well as subsequent acquisitions, are being amortized on a straight-line basis over a period of 20 years.
During 1992 and 1993, Eckerd Corporation (Company) purchased fifty-two drug stores (7 stores were closed subsequent to the acquisition) in three transactions at an aggregate cost of $41,926. 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) Initial Public Offering and Common Stock Exchange
On August 12, 1993, the Company completed an initial public offering (IPO) in which it issued and sold 5,175,000 shares of its Common Stock par value $.01 per share (Common Stock) for $14.00 per share. In addition in connection with the IPO, the Company 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 (Reclassification); ii) a 2-for-3 reverse stock split (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."
In connection with the consummation of the IPO, the shareholders of EDS Holdings Inc. (EDS) exchanged their shares for shares of the Company's common stock. This transaction was accounted for as a combination of companies under common control in a manner similar to a pooling of interests.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts have been eliminated in the consolidation.
(b) Definition of Fiscal Year
The fiscal year ends on the Saturday nearest January 31. Fiscal years 1993, 1992 and 1991 ended January 29, 1994, January 30, 1993 and February 1, 1992, respectively, consisted of 52 weeks.
(c) 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--LIFO) or market. At January 29, 1994 and January 30, 1993, if the first-in, first-out (FIFO) method of valuing
ECKERD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) inventories had been used by the Company, inventories would have been higher than reported by approximately $66,100 and $57,600, respectively.
(d) Income Taxes
Effective January 31, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS), "Accounting for Income Taxes." Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect of a change in tax rates on deferred tax assets or liabilities is recognized in income in the period that included the enactment.
Previously, the Company accounted for income taxes under Accounting Principles Board Opinion No. 11, which did not give recognition to future events other than the recovery of assets and settlement of liabilities at their carrying amounts. The adoption of SFAS No. 109 had no material effect on the Company's financial position or results of operations. Prior years' financial statements were not restated.
(e) Depreciation Policy and Maintenance and Repairs
Plant and equipment is depreciated principally by the straight-line method over the estimated useful lives of such assets. The principal lives used to compute depreciation are:
Buildings........................................... 16-45 Furniture and equipment............................. 1-10 Transportation equipment............................ 1-8 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.
The 1992 balances for plant and equipment have been restated to reflect the write-off of certain fully depreciated assets during 1993.
(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 the Company's then existing operating leases of real property (principally store locations). Such costs are amortized by the interest method 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 the two issues of subordinated debentures which are amortized over the life of the related debentures; and professional fees and other costs related to the Company's long-term debt refinancings (see note 4) which are amortized over the life of the related agreements.
ECKERD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) (h) Original Issue Debt Discount
Original issue debt discount is the difference between the principal amount of the two issues of subordinated debentures and their issue price to the public. Such discount which is treated as a reduction of the principal amount of such debentures is amortized to provide a level interest cost over the term of the respective debenture issues.
(i) Advertising Costs
Advertising costs are expensed when incurred and were $26,758, $45,918 and $47,998 for the years ended January 29, 1994, January 30, 1993 and February 1, 1992, respectively.
(j) Reclassifications
Certain amounts have been reclassified in the 1991 and 1992 financial statements to conform to the 1993 financial statement presentation.
(k) Statement of Cash Flows
The Company considers all liquid investments with a maturity of three months or less when purchased to be cash equivalents.
During 1992, the Company converted debentures, which were held by certain members of management, totaling $8,092 to 1,304,289 shares of Common Stock.
Cash paid for interest was $120,329, $128,896 and $116,661 for the years ended January 29, 1994, January 30, 1993 and February 1, 1992, respectively.
(1) Earnings (Loss) Per Share
Primary earnings per share have been computed based on the weighted average number of shares of common stock outstanding during each fiscal year (29,392,805 in 1993, 26,573,902 in 1992, and 25,677,103 in 1991) restated for the August 12, 1993 Reclassification and Stock Split.
(3) EMPLOYEES' BENEFIT PLANS
(a) Profit Sharing Plan
The Company has in effect a noncontributory profit sharing plan which covers all regular, 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 $8,765, $7,433 and $8,517 for January 29, 1994, January 30, 1993 and February 1, 1992, respectively.
Plan assets at fair value, consisting of fixed income securities, the Company's stock and listed stocks, amounted to approximately $199.4 million for the plan year ended December 31, 1993.
(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.
ECKERD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(3) EMPLOYEES' BENEFIT PLANS--(CONTINUED) The Company accounts for pension costs in accordance with Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions."
The following table sets forth the funded status of the Company's pension plan as of the most recent actuarial measurement dates, December 31, 1993 and 1992:
Net periodic pension costs for the years ended January 29, 1994, January 30, 1993 and February 1, 1992 included the following (income) expense components:
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.
ECKERD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(4) LONG-TERM DEBT
Long-term debt at January 29, 1994 and January 30, 1993 was:
The aggregate minimum annual maturities of long-term debt for the next five fiscal years are: 1994, $1,905; 1995, $67,765; 1996, $85,870; 1997, $85,583 and 1998, $95,040. Although the Tranche A term loan commitment requires a repayment of $28,348 during fiscal year 1994, the Company has excess availability under the revolving credit commitment, and accordingly, has not treated the 1994 required repayment as current.
(a) On June 15, 1993, The Company entered into a new Credit Agreement, which provides for i) a $650,000 term loan facility (Senior Term Loans) consisting of a six-year amortizing Tranche A term loan facility of $500,000 (Tranche A Term Loans) and a seven-year amortizing Tranche B term loan facility of $150,000 (Tranche B Term Loans); and ii) a $300,000 six-year revolving credit facility ($30,000 of which is available as a swingline loan facility and $155,000 as a letter of credit and bankers' acceptance facility) (Revolving Loans).
The Company used the proceeds of (i) Tranche A Term Loan borrowings of $500,000, (ii) Tranche B Term Loan borrowings of $150,000, and (iii) Revolving Loan borrowings of $70,000 to (a) repay in full all amounts outstanding under the prior credit agreement dated as of July 13, 1990, as amended, with Morgan Guaranty Trust Company of New York and other lenders, which consisted of a revolving credit facility and a term loan facility; (b) to prepay in full the Hancock Senior Notes and the 11.75% Senior Notes, (c) to deposit with a trustee an amount sufficient to satisfy and discharge in full all indebtedness under the Floating Rate Notes; (d) to redeem approximately $295,200 of the 13% Discount Debentures (the remaining $50,000 was subsequently redeemed with the proceeds from the
ECKERD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(4) LONG-TERM DEBT--(CONTINUED) issuance of the 9 1/4% Senior Subordinated Notes (note 4(b)); (e) to redeem the 14 1/2% Preferred Stock in full; and (f) to pay fees and expenses in connection with these transactions.
An extraordinary charge of $44,354 (net of tax benefit of $929) was recognized during the year ended January 29, 1994 in connection with the early repayment of debt and preferred stock from the proceeds of the new Credit Agreement, IPO and the Note issuance (note 4(b)).
The Tranche A Term Loans and the Revolving Loans bear interest at various rates approximating, at the Companys option (i) Prime plus 1 3/4% or (ii) Adjusted LIBOR plus 2 3/4%. The spread above Prime and LIBOR may decrease by 1/2 of 1% in two separate instances if certain levels of funded debt and ratios of funded debt to specified measures of earnings are achieved by the Company.
The Tranche B Term Loans bear interest at various rates approximating, at the Company's option (i) Prime plus 2% or (ii) Adjusted LIBOR plus 3%.
Interest on Prime borrowings will be paid quarterly. Interest on LIBOR borrowings will be payable at the end of the relevant interest period (one, two, three or six month periods, except that with respect to six-month periods, interest shall be payable every three months). The Company is required to pay a commitment fee of 1/2 of 1% per annum on the undrawn amount of the term loan and revolving facilities. The Company is also required to pay Letter of Credit fees and Bankers' Acceptance fees.
During 1993, the Company entered into interest rate cap agreements relating to the Credit Agreement. The cap agreements are for $200,000 and mature at various dates over the next three years. The cap agreements have an approximate 6% interest rate.
Principal of the Tranche A Term Loans and the Tranche B Term Loans will be amortized on the following schedule:
TRANCHE A TRANCHE B FISCAL YEAR TERM LOAN TERM LOAN ----------- ----------- ----------- 1994...................................... $ 28,348 -- 1995...................................... 66,146 -- 1996...................................... 85,045 -- 1997...................................... 85,045 -- 1998...................................... 85,044 9,449 1999...................................... 80,320 18,899 2000...................................... -- 113,393 ----------- ----------- ----------- -----------
Principal of the Tranche A Term Loans will be amortized in quarterly payments and mature in full on July 31, 1999. Principal of the Tranche B Term Loans will be amortized in semi-annual payments and mature in full on June 15, 2000. The Company has the right to prepay any borrowings under the Credit Agreement in whole or in part at any time.
The Company is required to prepay borrowings under the Credit Agreement with (i) 50% of the consolidated excess cash flow (as calculated in accordance with the Credit Agreement) of the Company for the preceding fiscal year; (ii) in any fiscal year, the excess of the aggregate net proceeds of dispositions of assets of the Company and its subsidiaries over $6,000; (iii) in any fiscal year, the net proceeds of any incurrence of debt (other than indebtedness permitted under the Credit Agreement); and (iv) all of the net proceeds of any equity issuance until such prepayment or prepayments equal $75,000 (approximately 8,000 remain at January 29, 1994), and thereafter, 75% of such net proceeds.
ECKERD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(4) LONG-TERM DEBT--(CONTINUED) Prepayments are to be applied pro rata between outstanding Tranche A Term loans and Tranche B Term Loans, applied pro rata among scheduled payments, and, after such loans are paid in full, to the Swingline Loans and then the Revolving Loans.
The borrowings under the Credit Agreement are secured by a pledge of all capital stock of the Company's subsidiaries, as well as substantially all personal property, including inventory and accounts receivable and certain real property (as defined), contain certain restrictive covenants which provide limitations on the Company with respect to incurring debt, the incurring of liens, making investments, payment of dividends and purchase of shares of stock of the Company, payment of lease expenses, consolidations and mergers, sale of assets, and transactions with affiliates. The Credit Agreement also requires the Company to satisfy certain financial ratios. At January 29, 1994, the Company was in compliance with these covenants.
(b) On November 2, 1993, the Company issued $200,000 aggregate principal amount of 9 1/4% 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, commencing February 15, 1994.
The Company used the net proceeds from the issuance of the Notes to redeem the remaining $50,000 of the 13% Discount Subordinated Debentures and $145,000 of the 11 1/8% Subordinated Debentures (note 4(c)).
(c) The 11 1/8% subordinated debentures are 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 anytime at 100% of their principal amount plus accrued interest to the date of redemption. During 1993, $145,000 face amount of these subordinated debentures were redeemed by the Company (note 4(b)).
(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.
ECKERD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(5) INCOME TAXES
For fiscal years 1993, 1992 and 1991, the income tax provision before utilization of net operating losses and extraordinary item amounted to $2,556, $2,864 and $2,927, which differs from amounts computed by applying the Federal and State statutory rates of 38% in the year ended January 29, 1994 and 34% for the years ended January 30, 1993 and February 1, 1992 to earnings (loss) before income taxes and extraordinary items. The actual tax differs from the expected tax (benefit) as follows:
"Other" consists principally of alternative minimum tax which is caused by differences in net operating loss utilization rates and depreciation. The amount of alternative minimum tax paid is available in future years to offset regular corporate income tax.
For the years ended January 30, 1993 and February 1, 1992, the Company utilized approximately $762 and $1,680, respectively, of net operating loss carryforwards for financial statement purposes.
The Company has Federal income tax loss carryforwards of approximately $332,600 for income tax purposes which are available to offset future taxable income, if any, through 2008.
The Company's Federal income tax returns have been examined through year-end 1984 and any assessments have been paid or accrued. The Federal income tax returns for 1985, 1986, 1987 and 1988 are currently being examined. The Company believes that an adequate provision for income taxes has been made for all open years.
ECKERD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(5) INCOME TAXES--(CONTINUED) Temporary differences and carryforwards which give rise to deferred tax assets and liabilities are as follows:
Upon adoption of Statement 109, effective January 31, 1993, the Company determined a valuation allowance requirement in the amount of $108.9 million.
(6) REDEEMABLE PREFERRED STOCK
As discussed in note 4(a), seventy-five thousand shares of 14 1/2% cumulative redeemable preferred stock with a stated value of $1,000 ($.01 par value) were redeemed during 1993. Dividends of $4,924 were paid during 1993.
(7) 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.
(c) Stock Options
The Company reserves 1,666,667 shares of its Common Stock for the granting of stock options and other incentive awards to officers, directors and key employees under the 1993 Stock Option and Incentive Plan 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
ECKERD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(7) STOCKHOLDERS' EQUITY--(CONTINUED) 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 Reclassification and the Stock Split (note 1(b)).
As of January 29, 1994, January 30, 1993 and February 1, 1992, 222,668, 363,451 and 96,929 shares of Common Stock were available for grant. At January 29, 1994, options for 450,393 shares of Common Stock were exercisable at $.56-$14.00 per share. At January 30, 1993, options for 490,777 shares of Common Stock were exercisable at $.56-$30.00 per share. At February 1, 1992, options for 488,357 shares of Common Stock were exercisable at $.56-$20.62 per share.
A summary of changes during the years ended January 29, 1994, January 30, 1993 and February 1, 1992 is set forth below:
Options previously granted at prices greater than $14.00 per share were modified to $14.00 per share at the date of the IPO.
No accounting entries will be made until after the options have been exercised at which time the par value of shares sold will be credited to common stock and the excess of the proceeds of the sale over par value of shares sold will be credited to capital in excess of par value.
(8) COMMITMENTS
The Company conducts the major portion of its retail operations from leased store premises under leases that will expire within the next 25 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.
ECKERD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(8) COMMITMENTS--(CONTINUED) The rental expense for the years ended January 29, 1994, January 30, 1993 and February 1, 1992 was:
At January 29, 1994, minimum rental commitments under noncancelable leases were as follows:
FISCAL YEAR ----------- 1994.............................................. $ 102,834 1995.............................................. 98,440 1996.............................................. 93,590 1997.............................................. 86,977 1998.............................................. 75,255 Thereafter........................................ 471,496 ----------- $ 928,592 ----------- -----------
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, controls a majority of the Company's common stock). The lease agreement has certain restrictive covenants, which, upon violation by the Company, gives the lessor the right to require the lessee to purchase the leased stores at the remaining balance of the lease contract. At January 29, 1994, the balance subject to the repurchase terms is $38,046. At January 29, 1994, the Company was in compliance with these covenants.
During 1993, the Company sold certain photo processing equipment to an unrelated third party for approximately $35,000, and entered into a five-year lease with respect to such equipment. No gain or loss was recorded in connection with this transaction. Annual lease payments of $6,892 are required over the term of the lease.
During 1993, the Company and Integrated Systems Solutions Corporation (ISSC) entered into a Systems Operations Service Agreement (Service Agreement) pursuant to which ISSC 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 between $320,000 and $440,000 over such term, depending on the optional services utilized.
(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 controls a majority of the Company's common stock) whereby such lessor would finance the acquisition of store sites and the construction of buildings and acquisition of equipment. As of January 29, 1994, there were 12 stores leased under the agreement with an aggregate cost of approximately $18,400. The Company pays the
ECKERD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(9) TRANSACTIONS WITH RELATED PARTIES--(CONTINUED) 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 $44, $45 and $408 for the years ended January 29, 1994, January 30, 1993 and February 1, 1992, respectively.
In July 1989, the Company entered into a Placement Agency Agreement with an affiliate of Merrill Lynch & Co. whereby such affiliate would act as exclusive placement agent for the private placement of up to a maximum of $200,000 at any one time, of unsecured notes. The Company did not issue any of these unsecured notes during the years ended January 29, 1994 and January 30, 1993. There were no notes outstanding under this facility at January 29, 1994 and January 30, 1993.
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.
(10) SUBSEQUENT EVENT
Effective January 30, 1994, the Company entered into an agreement in principal to sell certain assets of its Vision Group division. The Company does not expect to recognize any significant gain or loss upon disposition.
SCHEDULE V
ECKERD CORPORATION AND SUBSIDIARIES PROPERTY, PLANT AND EQUIPMENT YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992 (IN THOUSANDS)
- ---------------
Notes:
(a) Transfers from construction in progress and reclassifications.
(b) Acquisition of certain drug store assets.
SCHEDULE VI
ECKERD CORPORATION AND SUBSIDIARIES ACCUMULATED DEPRECIATION AND AMORTIZATION OF PLANT AND EQUIPMENT YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992 (IN THOUSANDS)
- ---------------
Notes: (a) Reclassifications.
Depreciation is expensed principally by the straight line method over the estimated useful lives of such assets as follows: Buildings 16-45 years; furniture and equipment 1-10 years; transportation equipment 1-8 years and leasehold improvements 2-20 years.
SCHEDULE VIII
ECKERD CORPORATION AND SUBSIDIARIES RESERVES YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992 (IN THOUSANDS)
- ---------------
Notes:
(a) This reserve is deducted from receivables in the balance sheets.
EXHIBIT INDEX ECKERD CORPORATION FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 29, 1994
- ---------------
* Incorporated by reference.


ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its business, primarily involving claims for personal injuries and property damage incurred in the transportation of freight. The Company believes adverse results in one or more of these cases would not have a material adverse effect on its competitive position, financial position or its results of operations. The Company maintains insurance in an amount which Management believes is currently sufficient to cover its risks.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
American Freightways Corporation's Common Stock has been traded under the symbol "AFWY" on the National Market System of the National Association of Securities Dealers Automated Quotation System (NASDAQ). The following table sets forth, for the periods indicated, the range of high and low prices for the Company's Common Stock as reported by NASDAQ through February 13, 1995. The latest price for the Company's Common Stock on February 13, 1995, as reported by the NASDAQ was $20.50 per share. At February 13, 1995, there were approximately 2,116 holders of record of the Company's Common Stock. The following market prices have been adjusted to reflect a 2-for-1 stock split paid on May 27, 1993, to shareholders of record on May 7, 1993.
The Company has not paid cash dividends in the past and does not intend to pay cash dividends in the foreseeable future. Under certain of the Company's loan agreements, the Company is subject to certain restrictions on its ability to pay dividends. See Note 3 to the Consolidated Financial Statements incorporated by reference herein.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data are derived from consolidated financial statements of the Company. The data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements, related notes and other financial information included elsewhere herein.
(1) Assumes the change in accounting method for recognition of revenue as required by EITF 91-9 occurred January 1, 1990.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Item is incorporated by this reference to Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1994, pages 25 through 31.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and consolidated financial statements included on pages 32 through 40 of the Annual Report to Shareholders for the year ended December 31, 1994, are incorporated herein by reference.
Quarterly Results of Operations on page 39 of the Annual Report to Shareholders for the year ended December 31, 1994, is incorporated herein by reference.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The executive officers and directors of American Freightways as of February 13, 1995, are as follows:
The remainder of this Item 10, Directors and Executive Officers of the Registrant, is incorporated by this reference to Registrant's Notice and Proxy Statement for its Annual Meeting of Shareholders to be held on Tuesday, March 28, 1995.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
This Item is incorporated by this reference to applicable portions of the Registrant's Notice and Proxy Statement for its 1995 Annual Meeting of Shareholders to be held on Tuesday, March 28, 1995.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This Item is incorporated by this reference to applicable portions of the Registrant's Notice and Proxy Statement for its 1995 Annual Meeting of Shareholders to be held on Tuesday, March 28, 1995.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS
This Item is incorporated by this reference to applicable portions of the Registrant's Notice and Proxy Statement for its 1995 Annual Meeting of Shareholders to be held on Tuesday, March 28, 1995.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (l) and (2) The response to this portion of Item 14 is submitted as a separate section of this report.
(3) The exhibits as listed in the Exhibit Index, are submitted as a separate section of this report.
(b) Current Reports on Form 8-K:
None.
(c) See Item 14(a)(3) above.
(d) The response to this portion of Item 14 is submitted as a separate section of this report.
INDEX TO EXHIBITS
3(a) Amended and Restated Articles of Incorporation of American Freightways Corporation.
3(b) Amended and Restated Bylaws of American Freightways Corporation.
10(a) Loan and Security Agreement among Union Planters National Bank, the Registrant and certain subsidiaries dated January 18, 1989, incorporated by reference from the Registrant's Registration Statement on Form S-1 dated March 30, 1989, No. 33-27073.
10(b) Amended Stock Purchase Plan for Certain employees of Registrant and subsidiaries incorporated by reference to Registrant's Registration Statement on Form S-1 dated February 19, 1991, No. 33 38997.
10(c) Non-statutory Stock Option Plan for Independent Directors incorporated by reference to Registrant's Registration Statement on Form S-1 dated February 19, 1991, No. 33-38997.
10(d) Note Agreement among Prudential Capital Corporation, the Registrant and certain subsidiaries dated December 5, 1991 incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991.
10(e) Credit Agreement among NationsBank of Texas, N. A., as Agent, the Registrant and certain subsidiaries dated April 14, 1992 incorporated by reference to Registrant's Form 10-Q for the quarterly period ended March 31, 1992.
10(f) Amendment Number 1 to Note Agreement among Prudential Capital Corporation, the Registrant and certain subsidiaries dated December 5, 1991 incorporated by reference to Registrant's Form 10-Q for the quarterly period ended June 30, 1992.
10(g) Promissory Note among NationsBank of Texas, N.A., the Registrant and certain subsidiaries dated August 15, 1992, incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.
10(h) First Amendment to Credit Agreement among NationsBank of Texas, N.A., as Agent, the Registrant and certain subsidiaries dated December 30, 1992, incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.
10(i) 1993 Chairman Stock Option Plan incorporated by reference to Registrant's Notice and Proxy Statement for its Annual Meeting of Shareholders held on Thursday, April 22, 1993.
10(j) 1993 Non-Employee Director Stock Option Plan incorporated by reference to Registrant's Notice and Proxy Statement for its Annual Meeting of Shareholders held on Thursday, April 22, 1993.
10(k) 1993 Stock Option Plan for Key Employees incorporated by reference to Registrant's Registration Statement on Form S-8 dated June 2, 1993.
10(l) $50,000,000 Master Shelf Agreement ($10,000,000 note attached) with The Prudential Insurance Company of America dated September 3, 1993, incorporated by reference to Registrant's Form 10-Q for the quarterly period ended September 30, 1993.
10(m) Second Amendment to Credit Agreement among NationsBank of Texas, N.A., as Agent, the Registrant and certain subsidiaries dated February 1, 1994, incorporated by reference to Registrant's Form 10-K for the fiscal year ended December 31, 1993.
10(n) $10,000,000 Note dated February 2, 1994, issued under the $50,000,000 Master Shelf Agreement with The Prudential Insurance Company of America dated September 3, 1993, incorporated by reference to Registrant's Form 10-K for the fiscal year ended December 31, 1993.
10(o) American Freightways Corporation Excess Benefit Plan dated September 1, 1993, incorporated by reference to Registrant's Form 10-K for the fiscal year ended December 31, 1993.
10(p) American Freightways Corporation Amended and Restated Excess Benefit Plan dated December 28, 1993, incorporated by reference to Registrant's Form 10-K for the fiscal year ended December 31, 1993.
10(q) Amended Stock Purchase Plan for Certain employees of Registrant and subsidiaries incorporated by reference to Registrant's Registration Statement on Form S-8 dated March 18, 1994.
10(r) $10,000,000 Note dated April 13, 1994, issued under the $50,000,000 Master Shelf Agreement with The Prudential Insurance Company of America dated September 3, 1993, incorporated by reference to Registrant's Form 10-Q for the quarterly period ended June 30, 1994.
10(s) Amended and Restated Credit Agreement among NationsBank of Texas, N.A., as Agent, the Registrant and certain subsidiaries dated October 20, 1994.
10(t) Letter Amendment No. 3 to Note Agreement with The Prudential Insurance Company of America dated October 19, 1994.
10(u) Letter Amendment No. 1 to Master Shelf Agreement with The Prudential Insurance Company of America dated October 19, 1994.
10(v) Letter Amendment No. 2 to Master Shelf Agreement with The Prudential Insurance Company of America dated December 14, 1994.
13 Annual Report to Stockholders for the fiscal year ended December 31, 1994.
22 Subsidiaries of Registrant
24 Consent of Ernst & Young LLP
27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section 13 or 15 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated this 13th day of February, 1995.
American Freightways Corporation
By: /s/James R. Dodd ---------------- James R. Dodd Chief Financial Officer; Director (Chief 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 and on the dates indicated.
/s/F. S. Garrison February 13, 1995 - --------------------------------------- ----------------- F. S. Garrison Date Chairman of the Board of Directors, Chief Executive Officer (Principal Executive Officer)
/s/James R. Dodd February 13, 1995 - --------------------------------------- ----------------- James R. Dodd Date Chief Financial Officer; Director (Chief Accounting Officer)
/s/Tom Garrison February 13, 1995 - --------------------------------------- ----------------- Tom Garrison Date Director
/s/T. J. Jones February 13, 1995 - --------------------------------------- ----------------- T. J. Jones Date Director
/s/Frank Conner February 13, 1995 - --------------------------------------- ----------------- Frank Conner Date Director
/s/Ben A. Garrison February 13, 1995 - --------------------------------------- ----------------- Ben A. Garrison Date Director
/s/Ken Reeves February 13, 1995 - --------------------------------------- ----------------- Ken Reeves Date Director
ANNUAL REPORT ON FORM 10-K--ITEM 8, ITEM 14(A)(1) AND (2), (C) AND (D) AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of American Freightways Corporation and subsidiaries included in the Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1994 are incorporated by reference in Item 8:
Consolidated Balance Sheets as of December 31, 1994 and 1993.
Consolidated Statements of Income for the years ended December 31, 1994, 1993 and 1992.
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994, 1993 and 1992.
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992.
Notes to Consolidated Financial Statements--December 31, 1994.
The following consolidated financial statement schedules of American Freightways Corporation and subsidiaries are included in Item 14(d):
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES
Consolidated Financial Statement Schedule:
Schedule VIII Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
AMERICAN FREIGHTWAYS CORPORATION
Note 1 - Recoveries of amounts previously written off.
Note 2 - Uncollectible accounts written off.