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FORM 10-K/A-2
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 3, 1995 Commission File Number 1-5025
REVCO D.S., INC.
(Exact name of registrant as specified in its charter)
DELAWARE 34-1527876
(State of incorporation) (I.R.S. Employer Identification No.)
1925 ENTERPRISE PARKWAY
TWINSBURG, OHIO 44087
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 216/425-9811
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Common Stock, par value $.01 per share (New York Stock Exchange)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of August 18, 1995 was $961,049,554 (based on total shares
outstanding reduced by the number of shares held by directors and officers, at
the last sale price as reported on the New York Stock Exchange Composite Tape
on August 18, 1995).
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
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The following documents are incorporated herein by reference: the Registrant's
Annual Report to Stockholders for the fiscal year ended June 3, 1995 (into Part
II of this report); and the Registrant's Proxy Statement for the 1995 Annual
Meeting of Stockholders (into Part III of this report).
As of August 18, 1995, there were 67,110,552 shares of Common Stock
outstanding.
The Exhibit Index is located herein beginning at sequential page 8.
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PART II
The Registrant hereby amends the disclosures contained under the
caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations" set forth in Part II, Item 7 of the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 3, 1995 for the sole purpose
of adding the disclosures under the subheading "HSI Indenture Restrictive
Covenants". In accordance with Regulation 12b-15 promulgated under the
Securities Exchange Act of 1934, as amended, the complete text of Part II, Item
7 as amended follows.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion should be read in conjunction with the consolidated
financial statements of the Company.
On July 15, 1994, the Company completed its previously announced acquisition
(the "Acquisition") of Hook-SupeRx, Inc. ("HSI"). As a result of the
Acquisition, results of operations for the Company for fiscal 1995 are not
comparable to results of operations for fiscal 1994 and 1993. For financial
reporting purposes, the operating results of the Company include the operating
results of HSI retained operations since July 30, 1994, or for forty-four of
the fifty-three weeks included in fiscal 1995.
To enhance comparability and to provide a more meaningful discussion of
operating trends, unaudited pro forma amounts for both fiscal 1995 and fiscal
1994 have been presented in Note 13 to the consolidated financial statements.
The unaudited pro forma data reflects the financial results of the Company as
if the Acquisition had occurred, and certain transactions had been consummated,
as of the beginning of the periods presented.
RESULTS OF OPERATIONS
Comparison of the 53 Weeks Ended June 3, 1995 ("fiscal 1995") and the 52 Weeks
Ended May 28, 1994 ("fiscal 1994"): Net sales increased 77.0% to $4,431.9
million for fiscal 1995, from $2,504.0 million for fiscal 1994. HSI retained
operations generated $1,535.2 million of the net sales increase while net sales
from core Revco stores (prior to the HSI acquisition) increased $392.7 million
or 15.7%. On a comparable store basis, net sales in core Revco stores
increased 9.4%.
Prescription sales, which comprised 56.3% of net sales for fiscal 1995, were
primarily responsible for the overall increase in net sales, increasing
$1,161.3 million, or 87.1%. Prescription sales in core Revco stores increased
$292.4 million, or 21.9%. The number of prescriptions filled by the Company in
core Revco stores increased 17.2% from fiscal 1994 to fiscal 1995. Although a
portion of this increase in prescriptions filled is attributable to an increase
in the number of core Revco store locations, the majority of the increase is
attributable to comparable store sales growth. The increase in prescription
sales was attributable to an increase in managed care sales. These sales,
which the Company continues to market aggressively, continue to outpace the
overall growth rate in prescription business. Managed care sales, which
comprised 62.3% of total prescription sales in core Revco stores for fiscal
1995, increased 39.4% from fiscal 1994.
Over-the-counter ("OTC") sales increased $766.6 million, or 65.5%, to $1,936.8
million for fiscal 1995 from $1,170.2 million in fiscal 1994. OTC sales in
core Revco stores increased $100.3 million, or 8.6%. The majority of this
increase is attributable to the growth in the number of core Revco store
locations, which increased 5.0% to 1,311 retail locations at June 3, 1995 from
1,248 retail locations at May 28, 1994.
Cost of sales increased 78.0% to $3,100.1 million in fiscal 1995 from $1,742.0
million in fiscal 1994. Gross margin increased 74.8% but, as a percentage of
sales, declined to 30.1% in fiscal 1995 from 30.4% in fiscal 1994. Gross margin
was negatively impacted by a $9.6 million higher LIFO provision due to higher
inflation rates and inventory levels in fiscal 1995 versus fiscal 1994. The
LIFO charge in fiscal 1995 was $16.8 million or .4% of sales versus $7.2
million or .3% of sales in fiscal 1994. The remaining decrease in gross margin
as a percentage of sales is attributable to a decline in margin rates on
prescription sales. Margin rates associated with prescription sales declined
due to the increase in
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managed care sales as a percentage of total prescription sales. Managed care
sales have positively impacted the Company's net sales and gross margin growth,
but generally yield lower profit percentages than non-managed care sales.
Operating expenses increased $456.8 million, or 75.0%, but decreased as a
percentage of sales to 24.0% in fiscal 1995 from 24.3% in fiscal 1994. Despite
higher store labor and distribution costs in the HSI operations during fiscal
1995, the Company was able to leverage non-store expenses on a broader sales
base as a result of the HSI acquisition. The Company expects these synergies
to continue in the future.
Depreciation and amortization expense increased $37.8 million, from $52.6
million in fiscal 1994 to $90.4 million in fiscal 1995. Of this increase,
$21.1 million is due to the inclusion of HSI retained operations in the
Company's consolidated results of operations. Depreciation expense associated
with the installation of the Company's Prescription Access Link ("PAL") system
and point-of-sale ("POS") scanning in retained HSI stores, accounted for the
majority of the remaining increase. Goodwill recorded in the Acquisition of
$385.0 million is being amortized using a forty-year life.
Net interest expense (interest expense net of interest income) was $55.2
million for fiscal 1995 compared with $23.3 million for fiscal 1994. The
increase in interest expense between years is attributable to higher debt
balances outstanding as a result of the Acquisition.
The Company's effective income tax rate of 49.3% for fiscal 1995 differs from
the federal income tax statutory rate of 35.0% principally because of state and
local income taxes (6.4%) and permanent differences arising from: (1)
amortization of reorganization value in excess of amounts allocable to
identifiable assets totaling $17.6 million; and (2) amortization of goodwill
totaling $8.0 million. The Company expects its taxes payable to be
significantly lower than the amounts recorded in its income tax provision due
to the utilization of net operating loss carryforwards ("NOLs"). See the
discussion under "Certain Tax Matters" in the Liquidity and Capital Resources
section below.
Comparison of the 52 Weeks Ended May 28, 1994 ("fiscal 1994") and May 29, 1993
("fiscal 1993"): Net sales increased 11.7% to $2,504.0 million for fiscal 1994
from $2,242.1 million for fiscal 1993. On a comparable store basis, net sales
increased 8.5%.
Prescription sales, which comprised 53.3% of net sales for fiscal 1994, were
primarily responsible for the overall increase in net sales, increasing $207.7
million, or 18.4%. The number of prescriptions filled by the Company increased
12.4% from fiscal 1993 to fiscal 1994. Although a portion of this increase in
prescriptions filled is attributable to an increase in the number of store
locations, the majority of the increase is attributable to comparable store
sales growth. The increase in prescription sales was attributable to an
increase in managed care sales. Managed care sales, which comprised 54.4% of
total prescription sales for fiscal 1994, increased 38.5% from fiscal 1993.
OTC sales increased $54.2 million, or 4.9%, to $1,170.2 million for fiscal 1994
from $1,116.0 million in fiscal 1993. This increase is attributable to the
growth in both comparable store sales and the number of store locations. The
Company operated 1,248 retail locations at May 28, 1994, and 1,190 retail
locations at May 29, 1993.
Cost of sales increased 11.1% to $1,742.0 million in fiscal 1994 from $1,568.3
million in fiscal 1993. Gross margin increased 13.1% and, as a percentage of
sales, increased to 30.4% from 30.1% in fiscal 1993. Margin rates associated
with prescription sales declined due to the increase in managed care sales as a
percentage of total prescription sales. Managed care sales have positively
impacted the Company's net sales and gross margin growth, but generally yield
lower profit percentages than non-managed care sales. The decline in the
prescription margin rate was offset by an increase in the OTC gross margin rate
due to better purchasing, stronger vendor support and reduced inventory losses.
The overall gross margin
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rate was also favorably impacted by a $4.8 million lower LIFO provision due to
lower inflation rates in fiscal 1994 versus fiscal 1993.
Operating expenses increased $57.4 million, or 10.4%, but decreased as a
percentage of sales to 24.3% in fiscal 1994 from 24.6% in fiscal 1993. The
increase, on a dollar basis, was caused primarily by increased store level
operating expenses as a result of additional store openings and normal
inflationary increases in comparable store expenses.
Depreciation and amortization expense increased $6.3 million, from $46.3
million in fiscal 1993 to $52.6 million in fiscal 1994. This increase was
attributable to additional depreciation expense on current and prior year
additions of property, equipment and leasehold improvements.
Net interest expense was $23.3 million for fiscal 1994, compared with $41.0
million for fiscal 1993. As a result of a recapitalization plan completed
during the third quarter of fiscal 1993, interest expense comparisons between
fiscal 1994 and fiscal 1993 are not meaningful. The recapitalization plan
reduced the Company's total debt by $143.2 million and lowered interest rates
on the remaining debt outstanding.
The Company's effective income tax rate of 49.9% for fiscal 1994 differs from
the federal income tax statutory rate of 35.0% principally because of state and
local income taxes (6.9%) and permanent differences arising from amortization
of reorganization value in excess of amounts allocable to identifiable assets.
LIQUIDITY AND CAPITAL RESOURCES
The following discussion regarding liquidity and capital resources should be
read in conjunction with the Company's Consolidated Balance Sheets and the
Consolidated Statements of Cash Flows as of and for the periods ended June 3,
1995 and May 28, 1994.
Fiscal 1995: Cash, including temporary cash investments, decreased $21.0
million during fiscal 1995 to $3.4 million. Cash generated by operations,
before working capital items, totaled $205.5 million, an improvement of $78.5
million from the $127.0 million generated during fiscal 1994. Net changes in
working capital items (and other operating assets) resulted in a $195.5 million
use of cash. The majority of this use of cash, $164.5 million, represented an
increase in inventory levels, net of vendor support, to adequately stock the
retained HSI stores.
Net cash used for investing activities during fiscal 1995 was $416.4 million.
As discussed more fully in Note 2 to the consolidated financial statements, on
July 15, 1994, Revco acquired all of the outstanding common stock of HSI for a
merger consideration of $13.75 per share, for a total acquisition value of
$632.6 million, including acquired debt of HSI of $330.5 million at the
Acquisition date, resulting in a cash outlay to Revco of $302.1 million. A
substantial portion of this cash outlay was financed through a rights offering
of the Company's common stock, as discussed further below.
As discussed more fully in Note 2 to the consolidated financial statements, the
Company completed a Store Divestiture Program during the second quarter of
fiscal 1995 to divest certain of the acquired HSI operations. The gross cash
proceeds raised from this program were approximately $163.0 million. Net cash
proceeds, after estimated working capital paydowns, were $128.8 million.
Payments charged to the Acquisition Reserve, discussed in Note 2 to the
consolidated financial statements, totaled $97.3 million during fiscal 1995.
The majority of these payments represent severance and payroll costs to former
HSI employees.
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Additions to property, equipment and leasehold improvements of $138.4 million
for fiscal 1995 include the capitalizable costs of the installation of PAL, POS
scanning and distribution systems in the retained HSI operations and costs
related to the HSI and Revco store base, as discussed more fully in the
"Capital Expenditures" section below.
Net cash provided by financing activities was $385.4 million. Financing for
the Acquisition was accomplished through two financing transactions:
(1) A rights offering to purchase an aggregate of 15.5 million shares of
common stock of Revco at a subscription price of $14.00 per share was
completed during the first quarter of 1995, raising gross proceeds of
$217.0 million.
(2) Revco and HSI entered into bank facilities (the "Bank Facilities")
which provide for up to a total of $660.0 million of term and
revolving credit facilities, as described more fully in Note 4 to the
consolidated financial statements.
In February 1995, the Company's Board of Directors authorized the repurchase by
the Company of up to one million of the Company's outstanding shares of common
stock. As of June 3, 1995, the Company had repurchased a total of 700,000
shares at an aggregate purchase price of $12.8 million under this repurchase
program.
Fiscal 1994: Cash, including temporary cash investments, increased $6.8
million during fiscal 1994 to $24.4 million despite the repayment, on an
accelerated basis, of over $76.0 million of long-term debt during the fiscal
year.
Cash generated by operations during fiscal 1994, before working capital items,
totaled $127.0 million, an improvement of $57.8 million from the $69.2 million
generated during fiscal 1993. Net changes in working capital items (and other
operating assets) resulted in a $.5 million source of cash.
Net cash used for investment activities during fiscal 1994 was $36.0 million,
all of which related to additions to property, equipment and leasehold
improvements.
Net cash used for financing activities included payments on long-term debt
totaling $76.2 million.
CAPITAL EXPENDITURES: During fiscal 1995, the Company reinvested $138.4
million in its operations, $38.4 million of which represented the capitalizable
costs of installing Revco's PAL, POS scanning and distribution systems in the
retained HSI operations. The installation of these systems was completed in
all HSI stores during the second quarter of 1995. An additional $32.1 million
was spent on the HSI store base during fiscal 1995 to begin remodeling the HSI
stores to Revco's store design and signage package. During fiscal 1995, Revco
completed the remodeling of approximately 155 acquired HSI stores.
In addition to the HSI stores, Revco reinvested $67.9 million in its core Revco
business, the majority of which was used to expand and upgrade the Revco store
base. In addition to other store improvements, 96 stores were opened or
acquired during fiscal 1995 and 37 stores were relocated.
The Company's present capital plans call for the upgrading and remodeling of
all of the retained HSI stores to Revco's store design and signage package over
a two-year period. During fiscal 1996, the Company intends to open
approximately 85 additional new Revco stores, more than half of which will be
freestanding units, and relocate an additional 55 existing Revco stores. The
Company has no material commitments in connection with these planned capital
expenditures. Funds for these expenditures are expected to be provided from
the Revolving Credit Facility and cash generated internally.
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CERTAIN TAX MATTERS: As of May 28, 1994, estimated NOLs reported on the
Company's federal income tax returns were approximately $415.7 million.
Approximately $141.1 million of these NOLs are subject to a use limitation
("restricted NOLs") of approximately $27.0 million per year under Section 382
of the Internal Revenue Code. The Company believes that it will not be able to
utilize approximately $81.2 million of the restricted NOLs because of the
allocation method for the annual use limitation under proposed income tax
regulations applicable to related corporations belonging to two separate
consolidated groups.
While the Company believes that it is justified in taking the positions that it
has taken with respect to the NOLs, the law with respect to the treatment of
some of the items making up the NOLs is unclear or unsettled. Although the
Company believes its calculations of the NOLs are reasonable, the NOLs and the
other items on the Company's tax returns are subject to audit by the IRS. Due
to the lack of specific guidance on certain significant issues, the Company's
position with respect to some or all of the items making up the NOLs could be
challenged by the IRS. If the IRS were to successfully disallow some or all of
the Company's NOLs, the Company would be able to offset less of its taxable
income with NOLs and other tax deductions.
For fiscal 1995, the Company will utilize approximately $43.1 million of
restricted NOLs and $47.0 million of unrestricted NOLs to offset projected
taxable income of the Company, leaving estimated NOLs for fiscal 1996 of
approximately $325.6 million, of which $81.2 million may not be able to be
utilized, as discussed above.
The Company's NOLs are attributable to the time period prior to the Company's
emergence from Chapter 11 of the United States Bankruptcy Code in fiscal 1992.
Under the recommended accounting principles for entities emerging from Chapter
11 ("Fresh Start Reporting"), benefits realized from these NOLs should reduce
reorganization value in excess of amounts allocable to identifiable assets.
Accordingly, estimated NOLs to be utilized during fiscal 1995 have not been
included in the Company's computation of its 1995 income tax provision, but
reflected instead as a reduction of reorganization value in excess of amounts
allocable to identifiable assets.
SOURCES OF LIQUIDITY: The Company has three principal sources of liquidity:
(1) cash and cash equivalents; (2) a $400.0 million Revolving Credit Facility;
and (3) cash from operations. Management of the Company believes that the
Company's cash on hand and cash from operations, together with borrowings and
letters of credit under the Revolving Credit Facility, will be sufficient to
cover its working capital, capital expenditure and debt service requirements
until the maturity date of the Revolving Credit Facility.
On July 27, 1995, the Company completed a modification to the credit agreements
for the Bank Facilities. The key changes included in the modification are:
(1) the replacement of the HSI Term Credit Facility, the Revco Term Credit
Facility and the Revolving Credit Facility with a $650.0 million amortizing
revolving credit facility maturing on July 27, 2000; (2) a reduction in the
Company's effective borrowing rate subject to financial performance and
long-term debt rating criteria contained in the credit agreements; and (3) the
elimination of certain financial covenants contained in the existing credit
agreements.
HSI INDENTURE RESTRICTIVE COVENANTS: The indenture pursuant to which the
10.125% Senior Notes were issued contains restrictions with respect to certain
distributions or payments, including repayment of certain intercompany
indebtedness to Revco and its other subsidiaries. HSI and its subsidiaries are
prohibited from making distributions, loans or other payments to Revco, with
certain exceptions for payments made in connection with the operation of the
business or in the ordinary course of business, among others, unless the
consolidated net worth of HSI and its subsidiaries, after making such payment,
is $200.0 million or above.
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a) Documents filed as part of this report:
1. Financial Statements: The Registrant hereby amends its
Annual Report on Form 10-K for the fiscal year ended June
3, 1994 for the purpose of filing, in accordance with Rule
15d-21 promulgated under the Exchange Act, the financial
statements required by Form 11-K with respect to the 401(k)
Savings Plan (formerly known as the Profit Sharing and
Savings Plan) of Revco D.S., Inc. The foregoing financial
statements are set forth beginning on page F-1 of this
amendment.
3. Exhibits:
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER EXHIBIT DESCRIPTION NUMBER
------ ------------------- ------
23.1 -Consent of Arthur Andersen LLP, independent public
accountants, with respect to Registration Statement
Nos. 33-67816 and 33-91774
23.2 -Consent of Arthur Andersen LLP, independent public
accountants
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.
REVCO D.S., INC.
(Registrant)
Date: November 30, 1995 By: /s/ JACK A. STAPH
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Jack A. Staph,
Senior Vice President,
Secretary and General Counsel
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PROFIT SHARING AND SAVINGS PLAN OF REVCO D.S., INC.
Index
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Page
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Report of Independent Public Accountants . . . . . . . . . . . . . . . . . 2
Combined Statements of Net Assets Available for Plan Benefits
as of May 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . 3
Combined Statements of Changes in Net Assets Available for Plan Benefits
for the Years Ended May 31, 1995 and 1994 . . . . . . . . . . . . . . . . . 4
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 5
Schedule I:
Combining Statements of Net Assets Available for Plan Benefits
as of May 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . 11
Schedule II:
Combining Statements of Changes in Net Assets Available for
Plan Benefits for the Years Ended May 31, 1995 and 1994 . . . . . . 13
Schedule III:
Item 27a - Schedule of Assets Held for Investment Purposes
as of May 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . 15
Schedule IV:
Item 27d - Schedule of Reportable Transactions for the Year Ended
May 31, 1995 - Transactions in Excess of 5 Percent of the
Current Value of Plan Assets . . . . . . . . . . . . . . . . . . . 16
F-1
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Plan Committee of the
Profit Sharing and Savings Plan of
Revco D.S., Inc.:
We have audited the accompanying combined statements of net assets available
for plan benefits of the Profit Sharing and Savings Plan of Revco D.S., Inc.
(the "Plan") as of May 31, 1995 and 1994, and the related combined statements
of changes in net assets available for plan benefits for the years ended May
31, 1995 and 1994. These combined financial statements and schedules referred
to below are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these combined 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 combined financial statements referred to above present
fairly, in all material respects, the net assets available for plan benefits of
the Plan as of May 31, 1995 and 1994, and the changes in its net assets
available for plan benefits for the years ended May 31, 1995 and 1994, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets
held for investment purposes as of May 31, 1995 (Schedule III) and reportable
transactions (Schedule IV) are presented for purposes of additional analysis
and are not a required part of the basic financial statements but are
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. The supplemental schedules have been subjected to the
auditing procedures applied in our audits of the basic financial statements
and, in our opinion, are fairly stated in all material respects in relation to
the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
November 22, 1995.
F-2
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PROFIT SHARING AND SAVINGS PLAN OF REVCO D.S., INC.
COMBINED STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
May 31,
-------------------------------------------
1995 1994
---------------- ---------------
Assets:
Investments, at fair market value
Diversified Fixed Income Fund $57,503,212 $54,086,498
S&P 500 Index Fund 14,342,427 11,784,159
Aggressive Equity Fund 8,917,333 6,829,118
Revco Stock Fund 10,181,293 5,840,412
------------ ------------
Total investments 90,944,265 78,540,187
Receivables:
Dividend income 4,183 34,597
Company contributions 282,437 250,137
Participant contributions 735,403 248,936
----------- -----------
Total receivables 1,022,023 533,670
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Total assets 91,966,288 79,073,857
----------- -----------
Liabilities:
Other payables 30,509 30,117
----------- -----------
Net assets available for plan benefits $91,935,779 $79,043,740
=========== ===========
<FN>
The accompanying Notes to Financial Statements
are an integral part of these statements.
F-3
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PROFIT SHARING AND SAVINGS PLAN OF REVCO D.S., INC.
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
AVAILABLE FOR PLAN BENEFITS
Years Ended May 31,
-----------------------------------------
1995 1994
------------- ---------------
Additions to net assets attributable to:
Investment income:
Net appreciation of investments $5,164,711 $ 1,097,468
Interest 3,523,480 3,498,041
Dividends 363,383 214,193
----------- -----------
9,051,574 4,809,702
Contributions:
Company 1,185,659 1,033,494
Participants 7,301,895 6,268,701
----------- -----------
8,487,554 7,302,195
----------- -----------
Total additions 17,539,128 12,111,897
----------- -----------
Deductions from net assets attributable to:
Benefits paid 4,539,795 4,513,029
Administrative fees 107,294 88,766
----------- -----------
Total deductions 4,647,089 4,601,795
----------- -----------
Net increase 12,892,039 7,510,102
Net assets available for plan benefits:
Beginning of year 79,043,740 71,533,638
----------- -----------
End of year $91,935,779 $79,043,740
=========== ===========
<FN>
The accompanying Notes to Financial Statements
are an integral part of these statements.
F-4
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PROFIT SHARING AND SAVINGS PLAN OF REVCO D.S., INC.
NOTES TO FINANCIAL STATEMENTS
(1) Description of Plan
-------------------
The following is a summary description of the Profit Sharing and Savings
Plan of Revco D.S., Inc., as amended (the "Plan"), and does not purport
to be complete. The summary description is qualified in its entirety by
reference to the full text of the Plan.
General
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The Plan is a contributory, defined contribution plan covering all
qualified salaried employees of Revco D.S., Inc. and Subsidiaries (the
"Company") who have at least one full year of service and who are not
covered by a collective bargaining agreement that provides profit
sharing and savings benefits. In order to comply with Internal Revenue
Service ("IRS") non-discrimination testing, certain highly compensated
employees, as defined by the Plan, are excluded from participation in
the Plan. The Plan is subject to the provisions of the Employee
Retirement Income Security Act of 1974 ("ERISA").
The Plan is administered by a committee (the "Plan Committee" or the
"Plan Administrator") consisting of at least three individuals who are
appointed by the Company's Board of Directors. The Plan Administrator
has fiduciary authority to establish and review funding policies,
investment policies and other administrative matters related to the
Plan.
Participant and Company Contributions
-------------------------------------
Participants may contribute 2% to 6% of base salary as the basic deposit
and 1% to 4% of base salary as a supplemental deposit.
The Company matches 20% of the participants' basic deposits.
Forfeitures are used to reduce Company contributions. Company
contributions may be made in the form of cash or common stock of the
Company, or a combination thereof. Since September 1, 1993, the Company
matching contribution has been made in common stock of the Company and
is invested in the Revco Stock Fund. The number of shares contributed
to the Plan is calculated based on the fair market value of the stock on
the date of contribution.
Separate accounts are maintained for each participants' basic deposit,
supplemental deposit and Company contribution. Each account is credited
with an allocation of the Plan earnings on a monthly basis.
F-5
15
PROFIT SHARING AND SAVINGS PLAN OF REVCO D.S., INC.
NOTES TO FINANCIAL STATEMENTS
Investment of Participant and Company Contributions
---------------------------------------------------
Participant contributions are invested bi-weekly in one of the following
investment options or a combination thereof:
(a) Diversified Fixed Income Fund
The Diversified Fixed Income Fund is invested in various fixed
interest contracts issued by a diversified set of insurance
companies, or in such other forms of investments having a
fixed rate of return. The Diversified Fixed Income Fund is
invested in insurance contracts with Connecticut General Life
Insurance Company ("CIGNA") and Allstate Life Insurance
Company ("Allstate").
(b) S&P 500 Index Fund
The S&P 500 Index Fund is invested in such common stocks as to
closely approximate the investment results of the Standard and
Poor's 500 Industrials. The S&P 500 Index Fund is invested in
the Mellon Bank Employee Benefit Equity Market Fund.
(c) Aggressive Equity Fund
The Aggressive Equity Fund is invested in common stocks with
the primary objective of obtaining appreciation in value. The
Aggressive Equity Fund is invested in the Putnam Voyager Fund.
(d) Revco Stock Fund
The Revco Stock Fund is invested in the common stock of the
Company.
A participant may change his election with respect to future and past
contributions on a quarterly basis throughout the plan year.
Vesting
-------
Participants' interests in their voluntary contributions and earnings
thereon are immediately vested. Participants' interests in Company
contributions and the earnings thereon vest ratably at 20% per year,
over a five-year period, from the date of eligibility. Upon
retirement, death or disability, participants' interests in Company
contributions become fully vested.
F-6
16
PROFIT SHARING AND SAVINGS PLAN OF REVCO D.S., INC.
NOTES TO FINANCIAL STATEMENTS
Payment of Benefits and Withdrawals
-----------------------------------
Upon termination of service due to retirement, death or disability, a
participant or beneficiary may receive the value of his accounts in a
lump sum or in installments as determined by the Plan Committee in
consultation with the participant or beneficiary.
Upon termination of service prior to retirement, death or disability,
the participant's basic and supplemental deposit account and vested
portions of employer contributions may be distributed to the
participant in one lump sum or, if the participant's account balance
is greater than $3,500, may be maintained in the Plan until
retirement or age 70-1/2.
Withdrawals of supplemental deposit accounts, exclusive of earnings
thereon, may be made by participant request once each year without
affecting the participant's ability to continue making basic and
supplemental deposits. Withdrawals of basic deposit accounts and
vested portions of employer contributions and earnings thereon may be
made by application to the Plan Committee as to pre-June 1, 1984
contributions. Post-June 1, 1984 contribution withdrawals may be
made only in the case of severe financial hardship. Participants may
not contribute to the Plan for a period of at least twelve months
subsequent to withdrawing basic or employer contributions.
(2) Summary of Significant Accounting Policies
------------------------------------------
Basis of Accounting
-------------------
The accompanying financial statements of the Plan have been prepared
on the accrual basis of accounting, with the exception of benefit
payments. In accordance with the American Institute of Certified
Public Accountants' Audit and Accounting Guide for Audits of Employee
Benefit Plans, the Plan's financial statements account for benefit
payments as they are paid. The value of benefits payable at May 31,
1995 and 1994 was $1,019,000 and $1,576,072, respectively.
Investments
-----------
Effective April 1, 1995 the Plan changed trustees from KeyCorp
Investment Management and Trust Services to the Northern Trust
Company. The fair market value of investments has been determined
through the use of current values provided by the investment manager
of the respective funds in which the Plan has investments. The fair
market value of the Revco Stock Fund is based on the calculated value
using the May 31, 1995 closing stock price per the New York Stock
Exchange.
F-7
17
PROFIT SHARING AND SAVINGS PLAN OF REVCO D.S., INC.
NOTES TO FINANCIAL STATEMENTS
(3) Plan Termination
----------------
The Company expects the Plan to be permanent and continue indefinitely.
Although it has not expressed any intent to do so, the Company has the
right to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA. In the event of plan
termination, participants will become fully vested in their respective
balances of the employer's contribution account.
(4) Investments
-----------
The following table presents the fair value of investments. Investments
that represent 5% or more of the Plan's net assets are separately
identified.
May 31,
-----------------------------------------
Investments at Fair Value 1995 1994
----------------------------------------------------- ---------------- -----------------
Group Insurance Contracts
Allstate 5.8% group insurance contract $11,512,791 $10,881,655
CIGNA group insurance contract 45,346,604 42,954,497
Mutual Funds
Putnam Voyager Fund 8,384,024 6,786,252
Other 169,977 --
Bank Collective Fund
Mellon Bank Employee Benefit Equity
Market Fund 14,066,853 11,714,488
Common Stock
Revco D.S., Inc. Common Stock 10,047,149 5,804,707
Cash Equivalents 1,416,867 398,588
-------------- -----------------
$90,944,265 $78,540,187
=============== =================
F-8
18
PROFIT SHARING AND SAVINGS PLAN OF REVCO D.S., INC.
NOTES TO FINANCIAL STATEMENTS
The following table presents the net appreciation (depreciation) in fair
value for each significant class of investments:
Years Ended May 31,
-------------------------------
1995 1994
---------- ----------
Group Insurance Contracts $ -- $ (244,275)
Mutual Funds 1,188,201 122,922
Bank Collective Fund 2,014,371 (78,858)
Common Stock 1,962,139 1,297,679
--------- ----------
$5,164,711 $1,097,468
========== ==========
(5) Transactions with Parties-in-Interest
-------------------------------------
Fees paid during the year for services rendered by parties-in-interest
were based on customary and reasonable rates for such services.
(6) Federal Income Taxes
--------------------
The Plan, as amended and restated September 1, 1993, with proposed
amendments, was submitted to the IRS and received a favorable
determination letter that the Plan and its related trust meet the
applicable requirements of Section 401(a) of the Internal Revenue Code
(the "Code"), including all applicable changes made to the Code by the
Tax Reform Act of 1986 and subsequent legislation. Accordingly, no
provision for federal income taxes has been made in the accompanying
financial statements.
(7) Reconciliation of Financial Statements to the Form 5500
-------------------------------------------------------
The following is a reconciliation of net assets available for plan
benefits per the financial statements to the Form 5500:
May 31,
--------------------------------------------
1995 1994
-------------- ---------------
Net assets available for plan benefits,
per financial statements $91,935,779 $79,043,740
Amounts allocated to
withdrawing participants (1,019,000) (1,576,072)
-------------- --------------
Net assets per the Form 5500 $90,916,779 $77,467,668
=============== ===============
F-9
19
PROFIT SHARING AND SAVINGS PLAN OF REVCO D.S., INC.
NOTES TO FINANCIAL STATEMENTS
The following is a reconciliation of benefits paid to participants per
the financial statements to the Form 5500 for the year ended May 31, 1995:
Benefits paid per the financial statements $ 4,539,795
Amounts allocated to withdrawing
participants at May 31, 1994 (1,576,072)
Amounts allocated to withdrawing
participants at May 31, 1995 1,019,000
-----------
Benefits paid per the Form 5500 $ 3,982,723
===========
(8) Subsequent Event
----------------
On July 15, 1994, the Company acquired all of the outstanding common
stock of Hook-SupeRx, Inc. ("HSI") under a merger agreement dated as of
March 31, 1994 that was approved by HSI's stockholders on July 8, 1994.
As of June 1, 1995, all participants in the Hook-SupeRx, Inc. Savings
and Profit Sharing Plan (the "HSI Plan") became eligible to participate
in the Company's Plan. The Company's Plan was amended effective June 1,
1995 to, among other things: (1) expand coverage to all employees of
the Company and HSI, both salaried and hourly, (2) revise the percentage
of the Company's match to 40% of the participants' basic deposit, up to
3% of base salary, (3) enhance investment elections, and (4) increase
flexibility to revise participant elections. The Plan was renamed the
Revco D.S., Inc. 401(k) Savings Plan as of that date. The Company has
announced its intention to merge the Plan and the HSI Plan during 1996.
F-10
20
SCHEDULE I
PROFIT SHARING AND SAVINGS PLAN OF REVCO D.S., INC.
COMBINING STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
MAY 31, 1995
-------------------------------------------------------------------------------------------
DIVERSIFIED S & P AGGRESSIVE REVCO
FIXED INCOME 500 INDEX EQUITY STOCK
FUND FUND FUND FUND TOTAL
-------------- ------------- -------------- ------------ -----------
ASSETS:
- --------------
Investments, at fair market value:
Group insurance contracts $56,859,395 $ -- $ -- $ -- $56,859,395
Mutual funds -- 169,977 8,384,024 -- 8,554,001
Bank collective fund -- 14,066,853 -- -- 14,066,853
Common stock -- -- -- 10,047,149 10,047,149
Cash equivalents 643,817 105,597 533,309 134,144 1,416,867
-------------- ------------- -------------- ------------ -----------
Total investments 57,503,212 14,342,427 8,917,333 10,181,293 90,944,265
Receivables:
Dividend income -- 4,183 -- -- 4,183
Company contributions -- -- -- 282,437 282,437
Participant contributions 429,676 127,330 130,546 47,851 735,403
-------------- ------------- -------------- ------------ -----------
Total receivables 429,676 131,513 130,546 330,288 1,022,023
-------------- ------------- -------------- ------------ -----------
TOTAL ASSETS 57,932,888 14,473,940 9,047,879 10,511,581 91,966,288
-------------- ------------- -------------- ------------ -----------
LIABILITIES:
- --------------
Other payables 17,002 6,773 3,386 3,348 30,509
-------------- ------------- -------------- ------------ -----------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $57,915,886 $14,467,167 $9,044,493 $10,508,233 $91,935,779
============== ============= ============== ============ ===========
<FN>
The accompanying Notes to Financial Statements are an integral part of these statements.
F-11
21
SCHEDULE I
PROFIT SHARING AND SAVINGS PLAN OF REVCO D.S., INC.
COMBINING STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
MAY 31, 1994
-------------------------------------------------------------------------------------------
DIVERSIFIED S & P AGGRESSIVE REVCO
FIXED INCOME 500 INDEX EQUITY STOCK
FUND FUND FUND FUND TOTAL
-------------- ------------- -------------- ------------ -----------
ASSETS:
- --------------
Investments, at fair market value:
Group insurance contracts $53,836,152 $ -- $ -- $ -- $53,836,152
Mutual fund -- -- 6,786,252 -- 6,786,252
Bank collective fund -- 11,714,488 -- -- 11,714,488
Common stock -- -- -- 5,804,707 5,804,707
Cash equivalents 250,346 69,671 42,866 35,705 398,588
-------------- ------------- -------------- ------------ -----------
Total investments 54,086,498 11,784,159 6,829,118 5,840,412 78,540,187
Receivables:
Dividend income -- 34,597 -- -- 34,597
Company contributions -- -- -- 250,137 250,137
Participant contributions 118,374 55,983 48,584 25,995 248,936
-------------- ------------- -------------- ------------ -----------
Total receivables 118,374 90,580 48,584 276,132 533,670
-------------- ------------- -------------- ------------ -----------
TOTAL ASSETS 54,204,872 11,874,739 6,877,702 6,116,544 79,073,857
-------------- ------------- -------------- ------------ -----------
LIABILITIES:
- ---------------
Other payables 18,331 7,427 4,359 -- 30,117
-------------- ------------- -------------- ------------ -----------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $54,186,541 $11,867,312 $6,873,343 $6,116,544 $79,043,740
============== ============= ============== ============ ===========
<FN>
The accompanying Notes to Financial Statements are an integral part of these statements.
F-12
22
SCHEDULE II
PROFIT SHARING AND SAVINGS PLAN OF REVCO D.S., INC.
COMBINING STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
YEAR ENDED MAY 31, 1995
-------------------------------------------------------------------------------------------
DIVERSIFIED S & P AGGRESSIVE REVCO
FIXED INCOME 500 INDEX EQUITY STOCK
FUND FUND FUND FUND TOTAL
----------------- -------------- -------------- ----------- ----------
ADDITIONS TO NET ASSETS ATTRIBUTABLE TO:
- ----------------------------------------
Investment income:
Net appreciation of investments $ -- $ 2,014,371 $ 1,188,201 $1,962,139 $5,164,711
Interest 3,490,746 11,031 18,982 2,721 3,523,480
Dividends -- 363,383 -- -- 363,383
-------------- -------------- ------------- ----------- -----------
3,490,746 2,388,785 1,207,183 1,964,860 9,051,574
Contributions:
Company -- -- -- 1,185,659 1,185,659
Participants 3,472,670 1,543,932 1,447,975 837,318 7,301,895
-------------- -------------- ------------- ----------- -----------
3,472,670 1,543,932 1,447,975 2,022,977 8,487,554
-------------- -------------- ------------- ----------- -----------
TOTAL ADDITIONS 6,963,416 3,932,717 2,655,158 3,987,837 17,539,128
-------------- -------------- ------------- ----------- -----------
DEDUCTIONS FROM NET ASSETS ATTRIBUTABLE TO:
- -------------------------------------------
Benefits paid 3,226,603 669,092 288,042 356,058 4,539,795
Administrative fees 58,780 22,438 12,167 13,909 107,294
-------------- -------------- ------------- ----------- -----------
TOTAL DEDUCTIONS 3,285,383 691,530 300,209 369,967 4,647,089
-------------- -------------- ------------- ----------- -----------
Transfers 51,312 (641,332) (183,799) 773,819 --
-------------- -------------- ------------- ----------- -----------
NET INCREASE 3,729,345 2,599,855 2,171,150 4,391,689 12,892,039
NET ASSETS AVAILABLE FOR PLAN BENEFITS:
Beginning of year 54,186,541 11,867,312 6,873,343 6,116,544 79,043,740
-------------- -------------- ------------- ----------- -----------
End of year $57,915,886 $14,467,167 $9,044,493 $10,508,233 $91,935,779
============== ============== ============= =========== ===========
<FN>
The accompanying Notes to Financial Statements are an integral part of these statements.
F-13
23
SCHEDULE II
PROFIT SHARING AND SAVINGS PLAN OF REVCO D.S., INC.
COMBINING STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
YEAR ENDED MAY 31, 1994
-----------------------------------------------------------------
DIVERSIFIED S & P AGGRESSIVE REVCO
FIXED INCOME 500 INDEX EQUITY STOCK
FUND FUND FUND FUND
-------------- ------------- ----------- ----------
ADDITIONS TO NET ASSETS ATTRIBUTABLE TO:
- ----------------------------------------
Investment income:
Net appreciation of investments $ -- $ (78,858) $ 122,922 $1,297,679
Interest 2,515,498 15,456 444 1,035
Dividends -- 214,193 -- --
-------------- ------------- ----------- ----------
2,515,498 150,791 123,366 1,298,714
Contributions:
Company -- -- -- 780,757
Participants 2,485,052 1,202,779 850,784 461,849
-------------- ------------- ----------- ----------
2,485,052 1,202,779 850,784 1,242,606
-------------- ------------- ----------- ----------
TOTAL ADDITIONS 5,000,550 1,353,570 974,150 2,541,320
-------------- ------------- ----------- ----------
DEDUCTIONS FROM NET ASSETS ATTRIBUTABLE TO:
- ------------------------------------------
Benefits paid 2,469,883 829,143 78,172 33,336
Administrative fees 51,943 20,256 6,840 1,638
-------------- ------------- ----------- ----------
TOTAL DEDUCTIONS 2,521,826 849,399 85,012 34,974
-------------- ------------- ----------- ----------
Transfers 51,707,817 11,363,141 5,984,205 3,610,198
-------------- ------------- ----------- ----------
NET INCREASE (DECREASE) 54,186,541 11,867,312 6,873,343 6,116,544
NET ASSETS AVAILABLE FOR PLAN BENEFITS:
Beginning of year -- -- -- --
-------------- ------------- ----------- ----------
End of year $ 54,186,541 $11,867,312 $6,873,343 $6,116,544
============== ============= =========== ==========
YEAR ENDED MAY 31, 1994
----------------------------------------------------
GUARANTEED INVESTMENT
INCOME GROWTH
FUND FUND TOTAL
--------------- ------------ ----------
ADDITIONS TO NET ASSETS ATTRIBUTABLE TO:
- ----------------------------------------
Investment income:
Net appreciation of investments $ -- $ (244,275) $1,097,468
Interest 965,331 277 3,498,041
Dividends -- -- 214,193
--------------- ------------ ----------
965,331 (243,998) 4,809,702
Contributions:
Company 252,737 -- 1,033,494
Participants 815,301 452,936 6,268,701
--------------- ------------ ----------
1,068,038 452,936 7,302,195
--------------- ------------ ----------
TOTAL ADDITIONS 2,033,369 208,938 12,111,897
--------------- ------------ ----------
DEDUCTIONS FROM NET ASSETS ATTRIBUTABLE TO:
- ------------------------------------------
Benefits paid 986,076 116,419 4,513,029
Administrative fees 6,280 1,809 88,766
--------------- ------------ ----------
TOTAL DEDUCTIONS 992,356 118,228 4,601,795
--------------- ------------ ----------
Transfers (56,543,249) (16,122,112) --
--------------- ------------ ----------
NET INCREASE (DECREASE) (55,502,236) (16,031,402) 7,510,102
NET ASSETS AVAILABLE FOR PLAN BENEFITS:
Beginning of year 55,502,236 16,031,402 71,533,638
--------------- ------------ ----------
End of year $ -- $ -- $79,043,740
=============== ============ ==========
<FN>
The accompanying Notes to Financial Statements are an integral part of these statements.
F-14
24
SCHEDULE III
PROFIT SHARING AND SAVINGS PLAN OF REVCO D.S., INC.
ITEM 27A - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF MAY 31, 1995
EIN# 34-1527876; PLAN #019
IDENTITY OF PARTY INVOLVED DESCRIPTION COST MARKET VALUE
- ------------------------------ --------------- ---------- --------------
Allstate Life Insurance 5.8% Group Annuity
Company Contract $11,512,791 $11,512,791
Connecticut General Life Group Annuity
Insurance Company Contract 45,346,604 45,346,604
* Mellon Bank Employee Benefit Equity Market
Fund 12,179,142 14,066,853
* Putnam Management Company, Inc. Putnam Voyager Fund 7,626,431 8,384,024
* The Northern Trust Company Collective Stock Index Fund 163,215 169,977
* Revco D.S., Inc. Common Stock 7,124,501 10,047,149
* Mellon Bank Employee Benefit Temporary
Investment Fund 47 47
* KeyCorp Investment Management Employee Benefit Money
and Trust Services Market Fund 28,530 28,530
* The Northern Trust Company Collective Government
Short-Term Investment Fund 1,388,290 1,388,290
----------- -----------
$85,369,551 $90,944,265
=========== ===========
<FN>
* Known Party-in-Interest to the Plan.
F-15
25
SCHEDULE IV
PROFIT SHARING AND SAVINGS PLAN OF REVCO D.S., INC.
ITEM 27D - SCHEDULE OF REPORTABLE TRANSACTIONS
TRANSACTIONS IN EXCESS OF 5 PERCENT OF THE
CURRENT VALUE OF PLAN ASSETS
FOR THE YEAR ENDED MAY 31, 1995
EIN #34-1527876; PLAN #019
IDENTITY OF DESCRIPTION OF NUMBER OF PURCHASE NUMBER OF SELLING COST NET GAIN
PARTY INVOLVED ASSETS TRANSACTIONS PRICE TRANSACTIONS PRICE ASSET (LOSS)
- -------------------- ---------------- ------------ ---------- ------------ ------------ ---------- ---------
* KeyCorp Investment Employee Benefit
Management and Money Market Fund
Trust Services 158 $7,535,777 125 $7,904,393 $7,904,393 $ --
<FN>
* Known Party-in-Interest to the Plan.
F-16