<PAGE>
 
               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                 FORM 10-K405

             [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended February 1, 1997
                                       OR
           [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
                For the transition period from               to
                         
                         Commission File Number 1-4844

                              ECKERD CORPORATION
            (Exact name of registrant as specified in its charter)

               DELAWARE                                  51-0378122
       (State of incorporation)             (I.R.S. Employer Identification No.)

                             8333 Bryan Dairy Road
                                Largo, FL 33777
             (Address and zip code of principal executive offices)
                                 
                                (813) 399-6000
              (Registrant's telephone number including area code)

          Securities registered pursuant to Section 12(b) of the Act:

                                                        Name of each
        Title of each class                     exchange on which registered
        -------------------                     ----------------------------
9 1/4% Senior Subordinated Notes Due 2004         New York Stock Exchange

       Securities registered pursuant to Section 12(g) of the Act:  None

    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes X  No   .
                                              ---   ---

    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K405 or any amendment to
this Form 10-K405. [ X ]

    The registrant has no voting stock held by non-affiliates.

    As of March 31, 1997, the registrant had 100 shares of common stock
outstanding.
 
    Documents Incorporated by Reference:  None.

    THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a)
AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K405 WITH THE REDUCED
DISCLOSURE FORMAT PROVIDED FOR IN GENERAL INSTRUCTION I TO FORM 10-K.
<PAGE>
 
                              ECKERD CORPORATION
                  FEBRUARY 1, 1997 FORM 10-K405 ANNUAL REPORT
                               TABLE OF CONTENTS

ITEM                                                                      PAGE
----                                                                      ----

                                     PART I

 1.  Business                                                                3
 2.  Properties                                                              9
 3.  Legal Proceedings                                                      10

                                    PART II                              

                                                                         
 5.    Market for the Registrant's Common Equity and Related             
        Stockholder Matters                                                 10
 7.    Management's Discussion and Analysis of Financial Condition       
       and Results of Operations                                            11
 8.    Financial Statements and Supplementary Data                          14
 9.    Changes in and Disagreements with Accountants on Accounting and   
        Financial Disclosure                                                15
                                                                         

                                    PART IV                              
                                                                         
14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K       15

                                       2
<PAGE>
 
                                     PART I

ITEM 1. BUSINESS

GENERAL

    Eckerd Corporation (the "Company" or "Eckerd") operates the Eckerd drugstore
chain, which is one of the largest drugstore chains in the United States. At
February 1, 1997, the Eckerd chain consisted of 1,756 stores in 13 states
located primarily in the Sunbelt. Over its 44-year history, the Eckerd drugstore
chain has built a strong market position in areas where demographic
characteristics are favorable to drugstore growth. Eckerd stores are
concentrated in 10 of the 12 metropolitan statistical areas with the largest
percentage growth in population from 1980 to 1990, and, according to industry
sources, ranks first or second in terms of drugstore sales in 20 of the major
metropolitan markets in which it operates.

    The primary focus of Eckerd stores is the sale of prescription and over-the-
counter drugs, which, during fiscal 1996, generated approximately 63% of the
Company's sales. Eckerd stores sell a wide variety of nonpharmacy merchandise,
including health and beauty aids, convenience foods, greeting cards and numerous
other convenience products. Another significant focus of Eckerd stores is
photofinishing. All Eckerd stores offer overnight photofinishing services, and
at February 1, 1997 there were Eckerd Express Photo one-hour photofinishing 
mini-labs in 587 stores.

    The Company believes that customer service and convenience are critical in
positioning itself as the alternative to mass merchandisers, supermarkets and
other large format retailing channels. The Company emphasizes service and
convenience through pharmacy support services, store location and design,
merchandising programs and operating hours geared to the needs of the particular
market.

    The Company was formed by J. C. Penney Company, Inc. ("JCPenney") in 1996
for the purpose of acquiring the former Eckerd Corporation ("Old Eckerd") in a
transaction effected through a cash tender offer of $35.00 per share for 50.1%
of Old Eckerd's outstanding common stock (which was completed in December 1996),
followed by a second step merger completed on February 27, 1997 in which Old
Eckerd stockholders received 0.6604 shares of JCPenney common stock for each
remaining share of Old Eckerd common stock not purchased in the tender offer
(the "Acquisition"). Unless the context requires otherwise, references to the
Company or Eckerd relating to time periods prior to February 27, 1997 are to Old
Eckerd.

THE DRUGSTORE INDUSTRY

    Prescription and over-the-counter medications have traditionally been sold
by independent drugstores as well as drugstore chains, such as Eckerd.  The
drugstore industry has recently undergone significant changes as a result of the
following important trends:  (i) the increase in third-party payments for
prescription drugs, (ii) the consolidation within the drugstore industry, (iii)
the aging of the United States population and (iv) the increase in competition
from non-traditional retailers of prescription and over-the-counter drugs.

    During the last several years, a growing percentage of prescription drug
volume throughout the industry has been accounted for by sales to customers who
are covered by third-party payment programs ("managed care sales"). In a typical
managed care sale, the drugstore has a contract with

                                       3
<PAGE>
 
a managed care payor, such as an insurance company, health maintenance
organization ("HMO"), preferred provider organization ("PPO"), other managed
care provider, government agency or private employer, which agrees to pay for
part or all of the customer's eligible prescription purchases. Although these
managed care sales contracts often provide a high volume of prescription sales,
such sales typically generate lower gross margins than non-managed care sales
due principally to the highly competitive nature of this business and the high
level of competition between managed care firms and the resulting efforts to
reduce costs. Larger drugstore chains, such as Eckerd, are better able to
service the growing managed care segment than independent drugstores and smaller
chains as a result of the larger chains' more sophisticated technology systems,
larger number of stores and greater penetration within their markets.

    As a result of the economies of scale from which larger drugstore chains
benefit as well as the managed care payment trend, the number of independent
drugstores and smaller drugstore chains has decreased as many of such retailers
have been acquired by larger drugstore chains.  This trend is expected to
continue because larger chains are better positioned to handle the increased
managed care sales, purchase inventory on more advantageous terms and achieve
other economies of scale with respect to their marketing, advertising,
distribution and other expenditures.

    Strong demographic trends have also contributed to changes in the drugstore
industry, as the group of persons over age 50 is the fastest growing segment of
the United States population.  This trend has had, and is expected to continue
to have, a marked effect on the pharmacy business in the United States because
consumer prescription and over-the-counter drug usage generally increases with
age.  The Company's markets have large concentrations of, and are continuing to
experience significant growth in, the number of persons over age 65.

ECKERD DRUGSTORES

    As of February 1, 1997, the Company operated the number of Eckerd stores and
Eckerd Express Photo centers indicated below in each of the following states:
<TABLE>
<CAPTION>
                                                  Drugstores
                                      Eckerd      With Eckerd
                                       Drug      Express Photo
                                      Stores        Centers
                                      ------        -------   
             <S>                      <C>        <C>
             Florida                    583           267
             Texas                      475           159
             North Carolina             178            52
             Georgia                    177            63
             Louisiana                   95            21
             South Carolina              78            15
             New Jersey                  45             2
             Tennessee                   36             1
             Oklahoma                    34             2
             Mississippi                 25             -
             Alabama                     16             3
             Delaware                    12             2
             Maryland                     2             -
                                      -----           ---
                Total                 1,756           587
                                      =====           ===
</TABLE>

    Over the past five years the Company has implemented several initiatives
designed to improve the quality and operating performance of the Company's store
base. Among such

                                       4
<PAGE>
 
initiatives are the opening, relocation and acquisition of additional stores,
the closure or divestiture of underperforming stores and an extensive remodeling
program. Since the beginning of fiscal 1992, 300 Eckerd drugstores have been
opened or acquired within the Company's existing markets, more than 230
underperforming stores have been closed or divested, and a substantial number of
the Company's remaining stores have been remodeled. In addition, the Company
opened more than 200 Express Photo centers. The Company has also increased the
degree to which merchandise is tailored to specific markets, instituted a
chainwide shrinkage reduction program and made a significant investment in its
management information systems.

    The following table summarizes the number of Eckerd drugstores operated by
the Company and the sales on an aggregate and per store basis for the last five
years.
<TABLE>
<CAPTION>
                                                                  Fiscal Years
                                                               --------------------
                                             1996         1995             1994        1993        1992
                                          -----------  ----------       ----------  ----------  ----------
<S>                                       <C>          <C>              <C>         <C>         <C>
Number of Eckerd drugstores at
    beginning of period                        1,715       1,735            1,718       1,696       1,675
Stores opened or acquired (1)                     73          88   (2)         39          52          50
Stores sold or closed                            (32)       (108)  (3)        (22)        (30)        (29)
                                          ----------   ---------        ---------   ---------   ---------
Number of Eckerd drugstores             
    at end of period                           1,756       1,715            1,735       1,718       1,696
                                          ==========   =========        =========   =========   =========
 
Number with Express Photo centers                587         515              481         413         378
Sales of Eckerd drugstores (in            $5,359,611   4,986,804        4,436,926   4,052,302   3,759,246
 thousands)
Average annual sales per Eckerd drug
    store (in thousands)                  $    3,103       2,925            2,584       2,388       2,244
</TABLE>
______________________________
(1)  Excludes relocations.
(2)  Includes 40 Florida stores acquired from Rite Aid of Florida, Inc.
(3)  Consists of (i) 84 stores that were closed as a result of the Company's
     decision in the fourth quarter of fiscal 1994 to accelerate the closing of
     approximately 90 geographically dispersed, underperforming stores, and (ii)
     24 stores closed in the normal course of business.

    The Company intends to continue to expand its business through both internal
expansion and acquisitions of drugstore chains and independent drugstores.
Although the Company currently plans to expand within the Company's existing
markets, the Company also considers strategic acquisitions in other markets. The
Company opened or acquired 151 drugstores (including 78 relocations) in fiscal
1996 and has a goal of opening 150 drugstores (including relocations) in fiscal
1997 and expects the rate of new store development to accelerate each year
thereafter, through fiscal 2000. The majority of the new and relocated stores
are expected to be freestanding locations. In addition to such openings and
acquisitions, the Company expects to sell or close a small number of drugstores
per year in fiscal 1997 and thereafter through fiscal 2000. The cash costs
associated with opening a new drugstore are estimated to be approximately
$760,000, which includes initial inventory costs of approximately $385,000. The
Company intends to use cash flow from operations and borrowings to finance the
cash costs of this growth. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital Resources."

    In determining the areas in which to open or acquire drugstores, the Company
evaluates a number of demographic considerations, including the size, growth
pattern and per capita income of the population, as well as the competitive
environment and the accessibility of a proposed site to the customer and to the
Company's warehouse and distribution facilities. The Company also continually
reviews these factors and the performance of individual stores in determining
whether to close or relocate certain stores.

                                       5
<PAGE>
 
PRODUCTS AND SERVICES

Pharmacy

    The primary focus of Eckerd drugstores is the sale of prescription and over-
the-counter drugs. The Company seeks to position pharmacists as health-care
professionals who build relationships with their customers. Over the years,
marketing and advertising campaigns have been focused on reinforcing the
professionalism of the Company's pharmacists and positioning them as a key
factor in high quality pharmacy service. The Company has also instituted several
health-related programs such as health screenings, education and outreach
programs.

    Eckerd pharmacy departments are modern, clean and clearly identified by
attractive signs. The pharmacy areas in the Company's newer and remodeled stores
provide a consultation area and a waiting area with comfortable seating,
informational brochures and free blood pressure testing. The pharmacy areas are
designed to be conducive to customer service and counseling by the pharmacists.

    The Company has devoted substantial resources to marketing to managed care
payors, such as insurance companies, HMO's, PPO's and other managed care
providers and government agencies. This effort has produced managed care sales
of approximately 76% of prescription sales in fiscal 1996 compared to
approximately 50% in fiscal 1992. The Company's computer systems provide on-line
adjudication which permits the Company and the managed care payor to determine
electronically, at the time of sale, eligibility of the customer, coverage of
the prescription and pricing and co-payment requirement, if any, and
automatically bills the respective plan. On-line adjudication reduces losses
from rejected claims and eliminates a portion of the Company's paperwork for
billing and collection of receivables and costs associated therewith.

Nonpharmacy Merchandise

    In addition to prescription and over-the-counter drugs, Eckerd stores sell a
wide variety of nonpharmacy merchandise, including health and beauty aids,
convenience foods, greeting cards and numerous other convenience products.
Eckerd-brand products, which are attractively priced and generally provide
higher margins than similar national brand products, represent a growing segment
of products offered. Items such as Eckerd Award soft drinks, bottled water and
cookies are examples of Eckerd brand products offered by Eckerd stores.

    Health merchandise offerings include a broad assortment of popular national
brands as well as private label over-the-counter drugs and other products
related to dental care, foot care, vitamins and nutritional supplements,
feminine hygiene, family planning and baby care. Eckerd stores offer an
assortment of popular brand name cosmetics, fragrances and other beauty
products. Skin care products are an increasingly important component of the
beauty category due to the aging population and growing concern about the
effects of the environment on the skin. The greeting card department in Eckerd
stores offers a wide selection of contemporary and traditional cards, gift wrap,
bows and novelties. This wide selection and the locations of its stores should
enable customers to satisfy their card and gift needs more conveniently than at
traditional card stores. The convenience products merchandise category consists
of an assortment of items, including candy, soft drinks, cookies, bottled water,
tobacco products, books and magazines, household products, seasonal merchandise
and toys. During the last several years a food mart section offering convenience
food items such as staple grocery shelf items, staple and chilled beverages,
snack foods and specialty items has been introduced and is currently in over
1,350 stores. The Company also seeks to serve

                                       6
<PAGE>
 
its customers' needs by specifically tailoring items in this category to meet
the needs of its customers in specific store locations.

Photofinishing

    The Company believes that it is the leading source of photofinishing in all
of the major markets in which it operates. The Company believes that its branded
processing programs, which emphasize quality and service, have helped position
the Company as a leader in photofinishing. The Company's photo departments also
offer camera and photo accessories, small electronics, batteries and audio and
video tapes.

STORE OPERATIONS

    The Company will continue to remodel and reset its stores to provide modern,
well-identified stores, which are easily accessible to customers and will seek
to open new stores in easily accessible high traffic locations. The Company also
tailors its merchandising to provide the product mix and selection to best serve
the customers of each particular store. The Company typically provides several
conveniently located, modern stores in a community. The Company's stores range
in size from 8,200 to 11,200 square feet and are located primarily in
neighborhood strip centers or freestanding locations. Such stores are typically
open every day of the year except Christmas, with some open until midnight or 24
hours a day.

PURCHASING AND DISTRIBUTION

    Merchandising, buying and supplier payments are generally centralized at
Company headquarters to assure consistency and efficiency. The Company uses an
electronic buying system to aid in inventory and gross profit management which
enables the Company to take better advantage of quantity discounts and forward
buying opportunities, which the Company believes will lower the average cost of
inventory.

    Approximately 85% of store merchandise is purchased centrally and
distributed, principally by Company-operated trucks, through the Company's five
centrally located distribution facilities located in or near Orlando, Florida;
Atlanta, Georgia; Charlotte, North Carolina; and Dallas and Houston, Texas. The
remainder of store merchandise is shipped directly to the stores, some of which
is purchased at the store level.

ADVERTISING AND MARKETING

    A combination of newspaper advertising and TV and radio commercials is used
throughout the year to promote sales. The Company's concentration of stores
within its markets enables it to achieve economies of scale in its advertising
and marketing expenditures and also enables the Company to negotiate favorable
rates for advertising time and print production. The Company believes that its
current level of advertising expenditures is appropriate to support its existing
marketing strategies.

INFORMATION AND TECHNOLOGY

    The Company intends to continue to invest in information systems to improve
customer service, reduce operating costs, provide information needed to support
management decisions and enhance the Company's competitive position with managed
care payors. In fiscal 1994 and 1995 the Company completed the installation of a
satellite communications network, enhanced the point

                                       7
<PAGE>
 
of sale ("POS") reporting system and enhanced the merchandise and store
information management systems. In fiscal 1996 the Company completed the rollout
of POS scanning equipment to all stores and also completed the installation of a
state of the art pharmacy system in the stores.

    In 1993, the Company and IBM Global Services ("IGS"), a wholly-owned
subsidiary of International Business Machines, entered into a Systems Operations
Service Agreement. Under the Company's supervision, IGS manages the entire
information systems operation and is responsible for providing technology
services to the Company. The Systems Operations Services Agreement has a 10-year
term, and the total payments to be made by the Company thereunder are expected
to be $605.0 million over such term, based on currently anticipated services.
The Company believes that this arrangement has and will continue to enable the
Company to further improve customer service, replace the Company's existing
systems, reduce operating costs and capital expenditures for hardware, obtain
information needed to support management decisions on an improved basis and
increase the Company's focus on its core business.

COMPETITION
 
    The Company's retail drugstores operate in a highly competitive industry.
The Company's drugstores compete primarily on the basis of customer service,
convenience of location and store design, price and product mix and selection.

    In addition to traditional competition from independent drugstores and other
drugstore chains, the Company faces competition from discount stores,
supermarkets, combination food and drugstores, mail order distributors,
hospitals and HMOs. These other formats have experienced significant growth in
their market share of the prescription and over-the-counter drug business.

    The Company's Express Photo centers compete with a variety of photo
processors including other mini-labs, retail stores and photo specialty stores.
The Company's Express Photo business competes primarily on the basis of quality
of processing, quality and speed of service and value.

SEASONALITY

    The Company's sales and earnings are higher during peak holiday periods and
from Christmas through Easter in selected geographic areas. Sales of health-
related products peak during seasonal outbreaks of cough and cold/flu virus,
typically during the winter and spring. Accordingly, sales and earnings are
typically highest in the fourth quarter followed by the first quarter.

REGULATION

    All of the Company's pharmacists and stores are required to be licensed by
the appropriate state boards of pharmacy. The Company's drugstores and
distribution centers are also registered with the Federal Drug Enforcement
Administration. Most of the stores sell beer and wine and are subject to various
state and local liquor licensing requirements. By virtue of these license and
registration requirements, the Company is obligated to observe certain rules and
regulations, and a violation of such rules and regulations could result in fines
and/or a suspension or revocation of a license or registration.

    The Company has a number of managed care payor contracts pursuant to which
the Company is a provider of prescription drugs. "Freedom of choice" state
statutes, pursuant to which all pharmacies would be entitled to be a provider
under such a contract, have been enacted in 

                                       8
<PAGE>
 
certain states, including Alabama, Delaware, Georgia, Louisiana, Maryland,
Mississippi, New Jersey, North Carolina, South Carolina, Tennessee and Texas,
and may be enacted in others. Although such statutes may adversely affect
certain of the Company's managed care contracts, they may also provide the
Company with opportunities regarding additional managed care contracts.

    In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that would
effect major changes in the health care system, either nationally or at the
state level. The Company cannot predict whether any federal or state health care
reform legislation will eventually be passed, and if so, the impact thereof on
the Company's financial position or results of operations. Health care reform,
if implemented, could adversely affect the pricing of prescription drugs or the
amount of reimbursement from governmental agencies and managed care payors, and
consequently could be adverse to the Company. However, to the extent health care
reform expands the number of persons receiving health care benefits covering the
purchase of prescription drugs, it may also result in increased purchases of
such drugs and could thereby have a favorable impact on both the Company and the
retail drug industry in general. Nevertheless, there can be no assurance that
any future federal or state health care reform legislation will not adversely
affect the Company or the retail drugstore industry generally.

EMPLOYEES

    As of February 1, 1997, the Company had approximately 46,700 employees, of
which 24,300 were full-time employees. The Company believes that overall
employee relations are good. None of the Company's employees are represented by
unions.

PATENTS, TRADEMARKS AND TRADENAMES

    No patent, trademark, license, franchise or concession is considered to be
of material importance to the business of the Company other than the trade names
under which the Company operates its retail businesses, including the Eckerd
name. The Company also holds servicemarks for its photofinishing products,
private label products and information systems.

ITEM 2.  PROPERTIES

    The Company conducts substantially all of its retail businesses from stores
located in leased premises. Substantially all of these leases will expire within
the next twenty years. In the normal course of business, however, it is expected
that leases will be renewed through the exercise of existing options or
amendments, or replaced by leases on other properties. Most of the Company's
store leases provide for a fixed minimum rental together with a percentage
rental based on sales.

    The material office and distribution center properties owned or leased by
the Company at February 1, 1997 are as follows:

<TABLE>
<CAPTION>
                                                           Owned or
           Location                      Square Feet        Leased
           --------                      -----------     -------------
           <S>                           <C>             <C>
           Largo, Florida                  488,000       Owned (1)
           Charlotte, North Carolina       587,000       Owned
           Garland, Texas                  270,000       Owned
           Conroe, Texas                   345,000       Owned
           Orlando, Florida                587,000       Leased (2)
           Newnan, Georgia                 244,000       Owned (3)
           Hammond, Louisiana              185,000       Owned (3)(4)
</TABLE>

                                       9
<PAGE>
 
______________________________
(1)  Includes the Company headquarters.
(2)  In January 1993 the Company assumed a lease for an office and distribution
     facility of approximately 587,000 square feet (lease expires 2005).  The
     Company's existing Orlando facilities and the Largo distribution center
     facility were consolidated into the new facility during 1993.
(3)  Construction was financed pursuant to revenue bond issues. Because these
     properties are currently leased subject to nominal purchase options with
     development authorities which the Company anticipates it will exercise,
     they are listed as owned by the Company.
(4)  The Company closed the Hammond distribution center and has subleased the
     former Hammond, Louisiana office and distribution center.  The property has
     been listed for sale.

     The Company considers that all property owned or leased is well maintained
and in good condition.

ITEM 3. LEGAL PROCEEDINGS

     In the ordinary course of its business, the Company and its subsidiaries
are parties to various legal actions which the Company believes are routine in
nature and incidental to the operation of the business of the Company and its
subsidiaries. The Company believes that the outcome of the proceedings to which
the Company and its subsidiaries currently are parties will not have a material
adverse effect upon its operations or financial condition.


                                    PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS

     Old Eckerd's common stock was listed on the New York Stock Exchange until
February 27, 1997 when the Acquisition was completed (Symbol: ECK). As of March
31, 1997, there was one holder of the Company's common stock. All market price
per share information below for Old Eckerd has been restated to reflect a two-
for-one stock split effected in the form of a stock dividend declared April 1,
1996 (paid on May 13, 1996).
<TABLE>
<CAPTION>
                                       Fiscal 1996
                                      Quarter Ended
    Market Price                      -------------
Per Share Information     5/4/96    8/3/96    11/2/96    2/1/97
-----------------------  --------  --------  ---------  -------
<S>                      <C>       <C>       <C>        <C>
          High            $25.62    $25.87    $28.87     $34.87
          Low              21.31     19.75     22.25      30.02
</TABLE>
<TABLE>
<CAPTION>
                                       Fiscal 1995
                                      Quarter Ended
    Market Price                      -------------
Per Share Information     4/29/95   7/29/95   10/28/95   2/3/96
-----------------------  --------  --------  ---------  -------
<S>                      <C>       <C>       <C>        <C>
          High            $15.12    $17.31    $21.00     $22.37
          Low              12.25     14.19     16.31      19.06
</TABLE>

                                       10
<PAGE>
 
    The Company is subject to restrictive covenants under its 9.25% Senior
Subordinated Notes which restrict the payment of dividends.  Similar
restrictions were in place under the Company's bank credit facility until it was
repaid in December 1996.  The Company has not paid or declared any dividends on
its common stock.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
        FINANCIAL CONDITION

Condensed Consolidated Statements of Earnings
(In Thousands)
<TABLE>
<CAPTION>
                                        1996 Fiscal Year    1995 Fiscal Year          1994 Fiscal Year
                                       Ended February 1,   Ended February 3,         Ended January 28,
                                              1997                1996                      1995
                                              ----                ----                      ----               
                                                                               As Reported   As Adjusted/(1)/
                                                                               -----------   ----------------
<S>                                    <C>                 <C>                 <C>           <C>
Sales and other operating revenue          $5,376,221          4,997,073         4,589,517      4,446,728
Cost of sales                               4,192,848          3,874,723         3,484,627      3,425,860
Operating and administrative                                                                  
   expenses                                   969,423            922,131           924,071        849,253
Acquisition and other one-time                                                                
   expenses                                    16,000                 --                --             --
                                           ----------          ---------         ---------      ---------
Earnings before interest expense              197,950            200,219           180,819        171,615
Interest expense                               60,691             76,836            93,735         93,735
Income tax expense                             33,322             20,600             8,753          3,895
                                           ----------          ---------         ---------      ---------
Earnings before extraordinary items           103,937            102,783            78,331         73,985
Extraordinary items                            (1,499)            (9,306)          (30,523)       (30,523)
                                           ----------          ---------         ---------      ---------
Net earnings for the year                  $  102,438             93,477            47,808         43,462
                                           ==========          =========         =========      =========
</TABLE>

(1) Sales and other operating revenue excludes $54.1 million from the gain on
    the sale of Insta-Care Holdings, Inc. ("Insta-Care"), as well as $88.7
    million of Insta-Care sales prior to the disposition. Cost of sales,
    operating and administrative expenses and income tax expense exclude $58.8
    million, $25.8 million and $4.9 million of expenses related to Insta-Care's
    operations and sale. Operating and administrative expenses also exclude a
    charge of $49.0 million for future store closings.

RESULTS OF OPERATIONS

     The preceding as adjusted condensed consolidated statement of earnings for
the year ended January 28, 1995 and the following management's discussion and
analysis exclude the items noted above in footnote (1) to the condensed
consolidated statements of earnings to eliminate the operations and gain on the
sale of Insta-Care (sold effective November 15, 1994) and exclude the charge for
accelerated future store closings.  The year ended February 3, 1996 includes 53
weeks of operations, however any percentage increase comparisons with respect to
1995 in the following management's discussion and analysis are presented on a 52
week comparable basis with 1996 and 1994.

     Earnings before extraordinary items for 1996 (excluding $15.3 million, net
of income taxes, for Acquisition related and other one-time expenses) was $119.2
million (a 19.1% increase over 1995) compared to $102.8 million in 1995 and on
an adjusted basis, to $74.0 million in 1994.  Net income (excluding $15.3
million for Acquisition related and other one-time expenses) increased to $117.7
million in 1996 compared to $93.5 million in 1995 and $43.5 million on an
adjusted basis in 1994.

     Sales and other operating revenue for 1996 were $5.4 billion (a 9.7%
increase over 1995) compared to $5.0 billion for 1995 and $4.4 billion in 1994.
Sales benefited from significant increases in both 

                                       11
<PAGE>
 
prescription and front end sales. Also contributing to the increased sales were
revenues from Florida drugstores acquired from Rite Aid of Florida, Inc. in 1995
(the "Florida Rite Aid Acquisition"). Prescription sales were $3.0 billion for
1996 (a 14.4% increase over 1995) compared to $2.7 billion in 1995 and $2.2
billion in 1994.

     Comparable drugstore sales (stores open for one year or more) for
identical periods increased 7.8% in 1996, 8.8% in 1995 and 8.1% in 1994.  The
increase in comparable drugstore sales was primarily attributable to the
increase in sales of prescription drugs.  Comparable drugstore sales growth was
also positively affected by increased sales of non-prescription items in the
health and convenience food categories.

     Prescription sales as a percentage of drugstore sales was 55.9% for 1996
compared with 53.7% for 1995 and 50.5% for 1994.  The growth in prescription
sales was primarily the result of increased managed care prescription sales, the
Company's competitive cash pricing strategy and the Florida Rite Aid
Acquisition.  Managed care prescription sales represented 75.6%, 70.6% and 64.5%
of the Company's prescription sales in 1996, 1995 and 1994, respectively.  The
Company expects prescription sales to managed care payors, in terms of both
dollar volume and as a percentage of total prescription sales, to continue to
increase in 1997 and for the foreseeable future.  Managed care payors typically
negotiate lower prescription prices than those of non-managed care
prescriptions, resulting in decreasing gross profit margins on the Company's
prescription sales.  However, contracts with managed care payors generally
increase the volume of prescription sales and gross profit dollars.

     Cost of sales and related expenses in 1996 were $4.2 billion (a 9.4%
increase over 1995) compared to $3.9 billion in 1995 and $3.4 billion in 1994.
As a percentage of sales, cost of sales and related expenses were 78.0%, 77.5%
and 77.0% for 1996, 1995 and 1994, respectively.  The increase in cost of sales
and related expenses as a percentage of sales resulted primarily from the
continued increase in managed care prescription sales, which generally have
lower gross profit margins than non-managed care prescription sales.  The LIFO
charge was $18.0 million in 1996 compared to $15.0 million in 1995 and $10.8
million in 1994.  Operating and administrative expenses in 1996 excluding
Acquisition transaction expenses of $12.5 million and other one-time expenses of
$3.5 million were $969.4 million (an 11.3% increase over 1995) compared to
$922.1 million in 1995 and $849.3 million in 1994. As a percentage of sales,
operating and administrative expenses were reduced to 18.0% for 1996 compared to
18.5% for 1995 and 19.1% for 1994. The decrease in operating and administrative
expenses as a percentage of sales resulted primarily from operating efficiencies
related to the higher sales (including benefits derived from closing certain
underperforming stores) and cost controls which helped produce lower costs as a
percentage of sales in such expense categories as payroll, advertising and
insurance.

     Earnings before Acquisition related expenses and other one-time expenses,
interest expense, income taxes and extraordinary items in 1996 were $214.0
million (an 8.9% increase over 1995) compared to $200.2 million in 1995 and
$171.6 million in 1994.   The increase was due primarily to the increase in
gross profit dollars as a result of higher sales and other operating revenue and
the decrease in operating and administrative expenses as a percentage of sales
due to improved productivity and expense control.

     Total interest expense was $60.7 million in 1996 compared to $76.8 million
in 1995 and $93.7 million in 1994.  The decrease in interest expense was due to
lower average borrowings due to the Company's cash flow from operations as well
as paydowns of borrowings from net proceeds from the sale of non-retail
drugstore operations late in 1994, lower bank loan interest spreads and the
early retirement of high interest cost subordinated debentures in 1995 and 1994.

     Income tax expense was $33.3 million (a 24% effective rate), $20.6 million
(a 17% effective rate) and $3.9 million (a 5% effective rate) in 1996, 1995 and
1994, respectively.  Income tax expense represents 

                                       12
<PAGE>
 
alternative minimum tax and state income taxes for the Company, and reflects the
utilization of net operating loss carryforwards.

     The Company had extraordinary items of $1.5 million (net of tax benefit of
$0.9 million), $9.3 million (net of tax benefit of $1.9 million) and $30.5
million (net of tax benefit of $1.6 million) in 1996, 1995 and 1994,
respectively. Extraordinary items in 1996 are the writeoff of deferred costs
related to the bank credit agreement which was repaid in December 1996.
Extraordinary items in 1995 and 1994 are primarily from the write-off of
deferred costs related to debt refinancings.

Liquidity and Capital Resources

     In December 1996, the Company repaid all borrowings under its bank credit
facility, which consisted of $200.0 million in term loans and $324.0 million in
revolving loans.  The bank credit facility was repaid with the proceeds of a
loan that the Company received from JCPenney under an intercompany loan facility
(the "Intercompany Loan").  The Intercompany Loan, which is unsecured and
matures on December 17, 2001, bears interest at a spread of 1/8% over JCPenney's
applicable cost of funds.  As of February 1, 1997, the principal amount of the
Intercompany Loan was $505.0 million.

     On February 1, 1997, the Company had working capital of $367.8 million and
a current ratio of 1.5 to 1 compared to $311.0 million and 1.5 to 1 at February
3, 1996.  Cash flow provided by operating activities increased $19.8 million to
$193.7 million for 1996 compared with $173.9 million for 1995.  The increase was
principally attributable to $9.0 million higher net earnings in 1996, offset by
a reduction of $8.8 million in non-cash extraordinary charges related to the
early retirement of debt, an increase of $8.6 million in depreciation and
amortization including original issue discount amortization and an increase of
$11.0 million in working capital items.

     Net cash from investing activities for 1996 and 1995 used $205.1 million
and $181.1 million, respectively.  Uses of cash were principally for capital
expenditures of $167.8 million and $109.8 million for 1996 and 1995,
respectively, primarily for additions to the Company's drugstores and Express
Photo units and improvements to existing stores and for the installation of
point-of-sale product scanning equipment.  Fiscal 1996 and 1995 also included
the acquisition of $41.2 million and $76.9 million of assets, respectively,
primarily as a result of drugstore acquisitions and in 1995  the Florida Rite
Aid Acquisition. Capital improvements planned for fiscal 1997, including those
to be acquired under a deferred payment arrangement and through operating
leases, are expected to total approximately $140 million.  Funds for the planned
cash capital expenditures are expected to come from cash flow from operating
activities and available borrowings, if necessary.

     Financing activities for 1996 provided $75.3 million.  Cash was provided
by net borrowings of $45.0 million plus $33.8 million of additions to long-term
debt, offset by a $5.4 million decrease in bank debit balances.  Financing
activities for 1995 provided $6.2 million.  Proceeds from the sale of common
stock of $82.4 million combined with increased bank debit balances of $15.2
million at year end, together offset the redemption of the remaining $95.5
million of 11.125% subordinated debentures.

     Based upon the Company's ability to generate cash flow from operating
activities and its ability to borrow from JCPenney and other existing sources,
the Company believes that it will have the funds necessary to meet the principal
and interest payments on its debt as they become due and to operate and expand
its business.

                                       13
<PAGE>
 
     The payment of dividends and other distributions by the Company is subject
to restrictions under the 9.25% Senior Subordinated Notes.  The Company
currently does not plan to pay dividends on its common stock.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


     The following consolidated financial statements and auditors' report as of
February 1, 1997 and February 3, 1996 and for each of the years in the three
year period ended February 1, 1997 as set forth under item 14 of this Form 10-
K405 are incorporated herein by reference:

    Consolidated Statements of Earnings
    Consolidated Balance Sheets
    Consolidated Statements of Stockholders' Equity
    Consolidated Statements of Cash Flows
    Notes to Consolidated Financial Statements

    Information on selected unaudited quarterly financial data also required by
this item for the years ended February 1, 1997 and February 3, 1996 is presented
below (in thousands, except per share data).

<TABLE>
<CAPTION>
YEAR ENDED 2/1/97 (52 WEEKS)                              QUARTERS ENDED
                                                          --------------
                                            5/4/96      8/3/96     11/2/96     2/1/97
                                          ----------  ---------   ---------   ---------
<S>                                       <C>         <C>         <C>         <C>
  Sales and other operating revenue       $1,354,619  1,252,428   1,280,375   1,488,799
  Cost of sales, including store
   occupancy, warehousing and delivery 
   expense                                 1,051,423    979,784   1,012,451   1,149,190
  Operating and administrative expenses      237,533    236,208     238,295     257,387
  Acquisition and other one time                  
   expenses                                       --         --          --      16,000
  Interest expense                            15,139     15,372      15,581      14,599
                                          ----------  ---------   ---------   ---------
  Earnings before income taxes and
     extraordinary item                       50,524     21,064      14,048      51,623
  Income taxes                                11,114      4,608       3,118      14,482
                                          ----------  ---------   ---------   ---------
  Earnings before extraordinary item          39,410     16,456      10,930      37,141
  Extraordinary item-early retirement of
     debt, net of tax benefit                     --         --          --      (1,499)
                                          ----------  ---------   ---------   ---------
  Net earnings                            $   39,410     16,456      10,930      35,642
                                          ==========  =========   =========   =========
  Earnings before extraordinary item per
     common share                               $.55        .23         .15         .51
  Net earnings per common share                 $.55        .23         .15         .49
  Weighted average common shares
     outstanding                              71,887     71,825      72,154      72,589
</TABLE> 

                                       14
<PAGE>
 
<TABLE>
<CAPTION>
YEAR ENDED 2/3/96 (53 WEEKS)                              QUARTERS ENDED
                                                          --------------
                                            4/29/95    7/29/95     10/28/95    2/3/96
                                          ----------  ---------   ---------   ---------
<S>                                       <C>         <C>         <C>         <C>
  Sales and other operating revenue       $1,219,594  1,138,724   1,164,907   1,473,848
  Cost of sales, including store
   occupancy, warehousing and delivery 
   expense                                   939,488    885,108     915,137   1,134,990
  Operating and administrative expenses      220,591    221,832     224,301     255,407
  Interest expense                            20,356     19,593      18,720      18,167
                                          ----------  ---------   ---------   ---------
  Earnings before income taxes and
   extraordinary item                         39,159     12,191       6,749      65,284
  Income taxes                                 8,615        115       1,147      10,723
                                          ----------  ---------   ---------   ---------
  Earnings before extraordinary item          30,544     12,076       5,602      54,561
  Extraordinary item-early retirement of
   debt, net of tax benefit                       --     (1,021)     (5,012)     (3,273)
                                          ----------  ---------   ---------   ---------
  Net earnings                            $   30,544     11,055         590      51,288
                                          ==========  =========   =========   =========
  Earnings before extraordinary item per
   common share                                 $.47        .18         .08         .76
  Net earnings per common share                 $.47        .17         .01         .71
  Weighted average common shares
   outstanding                                65,626     65,794      71,242      71,764
</TABLE>

Earnings per common share are computed independently for each of the quarters.
Therefore, the sum of the quarterly earnings per share may not equal the annual
earnings per common share. All quarters have been restated to reflect a two-for-
one stock split effected in the form of a stock dividend declared April 1, 1996
(paid on May 13, 1996).

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     Not applicable.


                                    PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES,  AND REPORTS ON FORM 8-K

    Listed below are all financial statements, notes, schedules, and exhibits
filed as part of this Form 10-K405 annual report:



    (a)  Financial Statements and Schedules



     1.  The following financial statements and schedules of the Company
     together with the Report of Independent Certified Public Accountants dated
     April 15, 1997 in this Form 10-K405 are filed herewith:

                                       15
<PAGE>
 
     Financial Statements:
         Independent Auditors' Report
         Consolidated Balance Sheets as of February 1, 1997 and February 3, 1996
         Consolidated Statements of Earnings for the Years Ended February 1,
               1997, February 3, 1996 and January 28, 1995
         Consolidated Statements of Stockholders' Equity for the Years Ended
               February 1, 1997, February 3, 1996 and January 28, 1995
         Consolidated Statements of Cash Flows for the Years Ended February 1,
               1997, February 3, 1996 and January 28, 1995
         Notes to Consolidated Financial Statements

     Schedules:
         Independent Auditors' Report
         II - Reserves

         All other schedules for the Company are omitted as the required
     information is inapplicable or the information is presented in the
     respective consolidated financial statements or related notes.

         Also filed in this Form 10-K405 is the consent of KPMG Peat Marwick LLP
     to the incorporation by reference of their auditors' report dated April 15,
     1997, relating to the consolidated financial statements appearing in the
     Form 10-K405, into Registration Statement Number 33-50223 on Form S-3.

     2. Exhibits:

     Exhibits previously filed or filed by incorporation by reference:

 4.1  Form of 9.25% Senior Subordinated Notes Due 2004 of the Company
      (incorporated by reference to Exhibit 4.01 to the Current Report on Form 
      8-K dated October 26, 1993 of the Company (File No. 1-4844)).

 4.2  Indenture dated as of November 1, 1993 between the Company and State
      Street Bank and Trust Company of Connecticut, National Association, as
      Trustee relating to the Company's 9-1/4% Senior Subordinated Notes Due
      2004 (incorporated by reference to Exhibit 4.02 to the Current Report on
      Form 8-K dated October 26, 1993 of the Company (File No. 1-4844)).

10.1  Commercial Paper Placement Agency Agreement dated July 17, 1989 between
      the Company and Merrill Lynch Money Markets, Inc. (incorporated by
      reference to Exhibit 10.15 of Form 10-K of the Company for the period
      ended February 3, 1990).

10.2  Master Lease Agreement I dated as of May 18, 1993 between the Company and
      Imaging Financial Services d/b/a EKCC ("IFS") (incorporated by reference
      to Exhibit 10.28 to Amendment No. 1 to the Registration Statement on Form
      S-2 of the Company (No. 33-64906)).

10.3  Master Lease Agreement II dated as of June 15, 1993 between the Company
      and IFS (incorporated by reference to Exhibit 10.29 to Amendment No. 1 to
      the Registration Statement on Form S-2 of the Company (No. 33-64906)).

                                       16
<PAGE>
 
10.4  Systems Operations Service Agreement dated as of July 14, 1993 between the
      Company and Integrated Systems Solutions Corporation (incorporated by
      reference to Exhibit 10.30 to Amendment No. 1 to the Registration
      Statement on Form S-2 of the Company (No. 33-64906)).

10.5  Letter dated March 16, 1993 between IFS and the Company relating to IFS
      Sale and Leaseback (incorporated by reference to Exhibit 10.31 to
      Amendment No. 2 of the Registration Statement on Form S-2 of the Company
      (No. 33-64906)).

10.6  Receivables Purchase Agreement dated as of January 26, 1995 between the
      Company and Three Rivers Funding Corporation (incorporated by reference to
      Exhibit 10.18 to Form 10-K405 for the year ended January 28, 1995 of the
      Company (File No. 1-4844)).
    
10.7  First Amendment to Receivables Purchase Agreement dated as of March 31,
      1995 between the Company and Three Rivers Funding Corporation
      (incorporated by reference to Exhibit 10.19 to Form 10-K405 for the year
      ended January 28, 1995 of the Company (File No. 1-4844)).
      
10.8  Employment Agreement dated February 4, 1996 between the Company and
      Francis A. Newman (incorporated by reference to Exhibit 10.26 to Form 10-K
      for the year ended February 3, 1996 of the Company (File 1-4844)).

10.9  Employment Agreement dated February 4, 1996 between the Company and James
      M. Santo (incorporated by reference to Exhibit 10.27 to Form 10-K for the
      year ended February 3, 1996 of the Company (File 1-4844)).

10.10 Employment Agreement dated February 4, 1996 between the Company and Samuel
      G. Wright (incorporated by reference to Exhibit 10.28 to Form 10-K for the
      year ended February 3, 1996 of the Company (File 1-4844)).

10.11 Employment Agreement dated February 4, 1996 between the Company and
      Kenneth L. Flynn (incorporated by reference to Exhibit 10.29 to Form 10-K
      for the year ended February 3, 1996 of the Company (File 1-4844)).

10.12 The Executive Excess Benefit Plan of Jack Eckerd Corporation and Its
      Subsidiaries (incorporated by reference to Exhibit 10.30 to Form 10-K for
      the year ended February 3, 1996 of the Company (File 1-4844)).

10.13 Eckerd Corporation Executive Three (3) Year Bonus Plan (incorporated by
      reference to Exhibit 10.31 to Form 10-K for the year ended February 3,
      1996 of the Company (File 1-4844)).

10.14 Employment Agreement dated February 4, 1996 between the Company and
      Stewart Turley (incorporated by reference to Exhibit 10.25 to Form 10-K
      for the year ended February 3, 1996 of the Company (File 1-4844)).

10.15 Amendment No. 1 dated as of November 2, 1996 to Employment Agreement dated
      February 4, 1996 between the Company and Francis A. Newman (incorporated
      by reference to Exhibit 11 to the Schedule 14D-9 of the Company (File 1-
      4844)).

                                       17
<PAGE>
 
10.16 Amended and Restated Agreement and Plan of Merger among Eckerd
      Corporation, J. C. Penney Company, Inc. and Omega Acquisition Corporation,
      Inc., dated as of November 2, 1996 (incorporated by reference to Exhibit 9
      to the Schedule 14D-9 of the Company (File 1-4844)).

10.17 Amendment dated February 25, 1997 to Amended and Restated Agreement and
      Plan of Merger dated as of November 2, 1996, among J. C. Penney Company,
      Inc., Omega Acquisition Corporation and Eckerd Corporation (incorporated
      by reference to Exhibit 2(b) to the Annual Report on Form 10-K of J. C.
      Penney Company, Inc. for the 52 weeks ended January 25, 1997 (File 1-
      777)).

      Exhibits filed herewith:

 3.1  Certificate of Incorporation of the Company.

 3.2  First Amendment to Certificate of Incorporation of the Company.

 3.3  By-Laws of the Company, as amended.

 4.3  First Supplemental Indenture, dated as of February 27, 1997, between the
      Company and State Street Bank and Trust Company of Connecticut, National
      Association, as Trustee.

12.1  Statement regarding computation of ratio of earnings to fixed charges of
      the Company.

23.1  Consent of Independent Certified Public Accountants.


27    Financial data schedule.

      (b) Reports on Form 8-K

     The Company did not file any reports on Form 8-K during the thirteen weeks
ended February 1, 1997.

                                       18
<PAGE>
 
                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Form 10-K405 report to
be signed on its behalf by the undersigned, thereunto duly authorized.

April 30, 1997                  ECKERD CORPORATION


                                By:/s/Samuel G. Wright
                                   --------------------------------------------
                                                  Samuel G. Wright
                                              Executive Vice President
                                       Chief Financial and Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on the date indicated.

         Signature                      Titles                         Date
         ---------                      ------                         ----


/s/Francis A. Newman         Chairman of the Board, President,
---------------------------  Chief Executive Officer and
        Francis A. Newman    Director                             April 30, 1997


/s/Robert W. Hannan          Director, Vice Chairman              April 30, 1997
---------------------------
        Robert W. Hannan
 
 
/s/Stewart Turley            Director                             April 30, 1997
---------------------------
        Stewart Turley


/s/Charles R. Lotter
---------------------------  Director                             April 30, 1997
        Charles R. Lotter


/s/Donald A. McKay
---------------------------  Director                             April 30, 1997
        Donald A. McKay


/s/W. Barger Tygart
---------------------------  Director                             April 30, 1997
        W. Barger Tygart


/s/Joseph D. Williams
---------------------------  Director                             April 30, 1997
        Joseph D. Williams

                                       19
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE]



                         Independent Auditors' Report
                         ----------------------------


The Board of Directors
Eckerd Corporation and Subsidiaries:

We have audited the accompanying consolidated balance sheets of Eckerd 
Corporation and subsidiaries as of February 1, 1997 and February 3, 1996, and 
the related consolidated statements of earnings, stockholders' equity, and cash 
flows for each of the years in the three-year period ended February 1, 1997.  
These consolidated financial statements are the responsibility of the Company's 
management.  Our responsibility is to express an opinion on these consolidated 
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by 
management, as well as evaluating the overall financial statement presentation. 
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present 
fairly, in all material respects, the financial position of Eckerd Corporation 
and subsidiaries at February 1, 1997 and February 3, 1996, and the results of 
their operations and their cash flows for each of the years in the three-year 
period ended February 1, 1997, in conformity with generally accepted accounting 
principles.




/s/ KPMG Peat Marwick LLP

Tampa, Florida
April 15, 1997
<PAGE>
 
                      ECKERD CORPORATION AND SUBSIDIARIES

                          Consolidated Balance Sheets

                     February 1, 1997 and February 3, 1996

                     (In thousands, except share amounts)


<TABLE>
<CAPTION>
                            ASSETS                                          1997        1996
                            ------                                          ----        ----
<S>                                                                      <C>         <C>
Current assets:                                                          
  Cash (including short-term investments of $57,000 in 1997)             $   71,874      7,922
  Receivables                                                               102,393     70,137
  Merchandise inventories                                                   973,265    835,551
  Prepaid expenses and other current assets                                   3,909      4,396
                                                                         ----------  ---------
          Total current assets                                            1,151,441    918,006
                                                                         ----------  ---------
Property and equipment, at cost:                                         
  Land                                                                       34,478     17,420
  Buildings                                                                  92,728     73,955
  Furniture and equipment                                                   440,253    368,251
  Transportation equipment                                                   14,700     14,225
  Leasehold improvements                                                    193,531    160,172
                                                                         ----------  ---------
                                                                            775,690    634,023
     Less accumulated depreciation and amortization                         329,490    282,974
                                                                         ----------  ---------
          Net property and equipment                                        446,200    351,049
                                                                         ----------  ---------
Excess of cost over net assets acquired, less accumulated                
  amortization of $24,393 and $19,986                                        85,656     62,162
Favorable lease interests, less accumulated amortization                 
  of $417,745 and $404,001                                                  108,125    131,961
Unamortized debt expenses (note 4)                                            3,553      6,086
Other assets                                                                 96,977     31,055
                                                                         ----------  ---------
                                                                         $1,891,952  1,500,319
                                                                         ==========  =========
 
                LIABILITIES AND STOCKHOLDERS' EQUITY                        1997        1996
                ------------------------------------                        ----        ----
                                                                                      
Current liabilities:                                                                  
  Bank debit balances                                                    $   54,252     59,620
  Current installments of long-term debt (note 4)                               768      1,020
  Accounts payable                                                          404,945    311,411
  Accrued interest                                                           15,241     12,533
  Accrued payroll                                                            67,172     70,205
  Other accrued expenses (note 10)                                          241,304    152,219
                                                                         ----------  ---------
          Total current liabilities                                         783,682    607,008
                                                                         ----------  ---------
Other noncurrent liabilities (note 10)                                      168,240    136,772
Long-term debt, excluding current installments (note 4)                     779,951    701,798
                                                                                      
Stockholders' equity (notes 1 and 6):                                                 
  Preferred stock of $.01 par value.  Authorized 20,000,000 shares;                   
     none issued or outstanding                                                --         --   
  Voting common stock of $.01 par value.  Authorized 96,481,272                       
     shares; issued and outstanding 70,419,975 and 69,937,790                   704        700
  Nonvoting common stock of $.01 par value.  Authorized                               
     3,518,728 shares; no shares issued                                        --         --
  Capital in excess of par value                                            320,550    317,654
  Retained deficit                                                         (161,175)  (263,613)
                                                                         ----------  ---------
          Net stockholders' equity                                          160,079     54,741
                                                                                      
Commitments and related party transactions (notes 8 and 9)               ----------  ---------
                                                                         $1,891,952  1,500,319
                                                                         ==========  =========
</TABLE>  
See accompanying notes to consolidated financial statements.           
<PAGE>
 
                      ECKERD CORPORATION AND SUBSIDIARIES

                      Consolidated Statements of Earnings

                Years ended February 1, 1997, February 3, 1996
                             and January 28, 1995

                   (In thousands, except per share amounts)

<TABLE>
<CAPTION>
 
 
                                                          FEBRUARY 1,   FEBRUARY 3,   JANUARY 28,
                                                             1997          1996          1995
                                                          (52 WEEKS)    (53 WEEKS)    (52 WEEKS)
                                                          ----------    ----------    ----------
<S>                                                      <C>            <C>           <C>
Sales and other operating revenue (note 1(c))             $5,376,221     4,997,073     4,589,517
                                                          ----------     ---------     ---------
Costs and expenses:
  Cost of sales, including store occupancy,
     warehousing, and delivery expense                     4,192,848     3,874,723     3,484,627
  Operating and administrative expenses (note 10)            969,423       922,131       924,071
  Acquisition and other one-time expenses (note 2(n))         16,000         --            --
                                                          ----------     ---------     --------
                                                           5,178,271     4,796,854     4,408,698
                                                          ----------     ---------     ---------
          Earnings before interest expense                   197,950       200,219       180,819
                                                          ----------     ---------     ---------
Interest expense:
  Interest expense, net                                       59,719        75,030        87,838
  Amortization of original issue discount
     and deferred debt expenses                                  972         1,806         5,897
                                                          ----------     ---------     ---------
          Total interest expense                              60,691        76,836        93,735
                                                          ----------     ---------     ---------
          Earnings before income taxes
            and extraordinary items                          137,259       123,383        87,084
 
Income tax expense (note 5)                                   33,322        20,600         8,753
                                                          ----------     ---------     ---------
          Earnings before extraordinary items                103,937       102,783        78,331
 
Extraordinary items:
  Early retirement of debt, net of tax benefit of
     $928, $1,907 and $1,607 (note 4)                         (1,499)       (9,306)      (30,523)
                                                          ----------     ---------     ---------
          Net earnings                                    $  102,438        93,477        47,808
                                                          ==========     =========     =========
Earnings per share:
  Earnings before extraordinary items                     $     1.44          1.50          1.21
  Extraordinary items                                           (.02)         (.14)         (.47)
                                                          ----------     ---------     ---------
          Net earnings                                    $     1.42          1.36           .74
                                                          ==========     =========     =========
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>
 
                      ECKERD CORPORATION AND SUBSIDIARIES

                Consolidated Statements of Stockholders' Equity

                Years ended February 1, 1997, February 3, 1996
                             and January 28, 1995

                     (In thousands, except share amounts)


<TABLE>
<CAPTION>
                                                                             CAPITAL                    TOTAL
                                                        VOTING  NONVOTING      IN                   STOCKHOLDERS'
                                                        COMMON    COMMON    EXCESS OF   RETAINED        EQUITY
                                                        STOCK     STOCK     PAR VALUE    DEFICIT      (DEFICIT)
                                                        -----     -----     ---------    -------      ---------
<S>                                                     <C>     <C>         <C>         <C>        <C>
Balance at January 29, 1994                               $620       6       225,250    (404,898)      (179,022)
                                                                                                       
 Expenses for secondary public stock offering               --      --          (953)         --           (953)
 Common stock sold under employee stock option plan          2      --           951          --            953
 Contribution of common stock to profit sharing plan         2      --           894          --            896
 Issuance of 606,120 shares of common stock at                                                         
   $12.50 per share for drugstore acquisition                6      --         7,570          --          7,576
 Conversion of nonvoting common stock                                                                  
   to voting common stock                                   12      (6)           (6)         --             --
 Net earnings                                               --      --            --      47,808         47,808
                                                          ----    ----       -------    --------       --------
Balance at January 28, 1995                                642      --       233,706    (357,090)      (122,742)
                                                                                                       
 Common stock sold in public stock offering,                                                           
   net of expenses of sale                                  54      --        82,340          --         82,394
 Expenses for secondary public stock offering               --      --          (329)         --           (329)
 Common stock sold under employee stock option plan          2      --         1,043          --          1,045
 Contribution of common stock to profit sharing plan         2      --           894          --            896
 Net earnings                                               --      --            --      93,477         93,477
                                                          ----    ----       -------    --------       --------
Balance at February 3, 1996                                700      --       317,654    (263,613)        54,741
                                                                                                       
 Common stock sold under employee stock option plan          2      --         2,002          --          2,004       
 Contribution of common stock to profit sharing plan         2      --           894          --            896       
 Net earnings                                               --      --            --     102,438        102,438
                                                          ----    ----       -------    --------       --------
Balance at February 1, 1997                               $704      --       320,550    (161,175)       160,079
                                                          ====    ====       =======    ========       ========
 
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
 
                      ECKERD CORPORATION AND SUBSIDIARIES

                     Consolidated Statements of Cash Flows

                Years ended February 1, 1997, February 3, 1996
                             and January 28, 1995

                                (In thousands)


<TABLE>
<CAPTION>
                                                       FEBRUARY 1,   FEBRUARY 3,   JANUARY 28,
                                                           1997          1996          1995
                                                       ------------  ------------  ------------
<S>                                                    <C>           <C>           <C>
Cash flows from operating activities:
  Net earnings                                           $ 102,438        93,477        47,808
  Adjustments to reconcile net earnings to net cash
   provided by operating activities:
       Gain on sale of subsidiary                             --            --         (54,125)
       Reserve for store closing provision                    --            --          48,988
       Extraordinary charge related to early
        retirement of debt and preferred stock               2,427        11,213        32,130
       Depreciation and amortization                        94,182        84,750        77,794
       Amortization of original issue discount
        and deferred debt expenses                             972         1,806         5,897
       Decrease (increase) in receivables                  (32,256)      (17,650)       12,047
       Increase in merchandise inventories                (129,631)      (44,475)      (22,621)
       Decrease (increase) in prepaid expenses
        and other assets                                      (739)       (2,030)        3,048
       Increase in deferred income taxes                   (40,372)         --            --
       Increase (decrease) in accounts payable and
        accrued expenses                                   196,720        46,803       (31,978)
                                                         ---------      --------       -------
            Net cash provided by
             operating activities                          193,741       173,894       118,988
                                                         ---------      --------       -------
Cash flows from investing activities:
  Additions to property and equipment                     (167,761)     (109,782)      (57,246)
  Sale of property and equipment                             7,105         8,255         4,253
  Net proceeds from sale of subsidiaries                      --           5,231       114,912
  Acquisition of certain drugstore assets                  (41,181)      (76,902)       (6,080)
  Other                                                     (3,226)       (7,887)       (5,216)
                                                         ---------      --------       -------
            Net cash provided by (used in)
             investing activities                         (205,063)     (181,085)       50,623
                                                         ---------      --------       -------
</TABLE>
                                                         (Continued)
<PAGE>
 
                      ECKERD CORPORATION AND SUBSIDIARIES

               Consolidated Statements of Cash Flows, Continued

                                (In thousands)


<TABLE>
<CAPTION>
 
                                                        FEBRUARY 1,   FEBRUARY 3,   JANUARY 28,
                                                            1997         1996          1995
                                                        ------------  -----------   -----------
<S>                                                     <C>           <C>           <C>
Cash flows from financing activities:
  Increase (decrease) in bank debit balances              $  (5,368)       15,247         3,399
  Additions to long-term debt                                33,801         1,985         1,604
  Reductions of long-term debt                                 (901)       (1,848)       (2,926)
  Net additions (reductions) under credit agreement        (460,000)        4,627      (120,816)
  Net additions under intercompany note to
   J. C. Penney Company, Inc.                               505,000          --            --
  Common stock sold in public stock offering,
   net of expenses of sale                                     --          82,394          --    
  Redemption of 11.125% subordinated debentures                --         (95,500)      (50,000)
  Other, including proceeds from exercise of stock
   options and deferred financing costs                       2,742          (690)       (4,084)
                                                          ---------       -------      --------
            Net cash provided by (used in)
             financing activities                            75,274         6,215      (172,823)
                                                          ---------       -------      --------
            Net increase (decrease) in cash
             and short-term investments                      63,952          (976)       (3,212)
 
Cash and short-term investments at beginning of year          7,922         8,898        12,110
                                                          ---------       -------      --------
Cash and short-term investments at end of year            $  71,874         7,922         8,898
                                                          =========       =======      ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
 
                      ECKERD CORPORATION AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

            February 1, 1997, February 3, 1996 and January 28, 1995

                     (In thousands, except share amounts)



(1)  ORGANIZATION OF BUSINESS

     (a)  DESCRIPTION OF BUSINESS

          Eckerd Corporation (Company) operates the Eckerd drugstore chain,
          which is one of the largest drugstore chains in the United States. The
          Company's stores are located primarily in the Sunbelt, with the
          largest concentration of stores being in Florida and Texas.

          During 1996, 1995 and 1994, the Company purchased 89 drugstores in
          five transactions at an aggregate cost of $96,248. The operations of
          such stores, which have been included in the consolidated financial
          statements from dates of acquisition, are not material to the Company
          and, accordingly, pro forma comparative operating numbers are not
          presented.

     (b)  SECONDARY PUBLIC OFFERINGS

          On May 2, 1994, the Company completed an underwritten secondary
          offering of 6,398,112 shares of its Common Stock for $9.50 per share.
          The secondary offering only included shares owned by certain
          institutional stockholders. The Company did not receive any of the
          proceeds from the sale of shares of common stock and was required to
          pay certain expenses of the secondary offering.

          On August 3, 1995, the Company completed an underwritten primary and
          secondary offering of 12,351,000 shares of its Common Stock for $16.12
          per share. The offering consisted of 5,350,000 shares sold by the
          Company and 7,001,000 shares sold by certain institutional
          stockholders.

          On December 15, 1995, the Company completed an underwritten secondary
          offering of 12,000,000 shares of its Common Stock for $21.00 per
          share. The secondary offering only included shares owned by certain
          institutional stockholders. The Company did not receive any of the
          proceeds from the sale of shares of common stock and was required to
          pay certain expenses of the secondary offering.

     (c)  SALE OF SUBSIDIARIES

          On November 15, 1994, the Company completed the sale of its Insta-Care
          Pharmacy Services (Insta-Care) operations for a total consideration of
          $112,000 in cash. The net proceeds after certain closing adjustments
          was approximately $94,000. Insta-Care operations are included in the
          consolidated financial statements up to the closing date of the sale.
          In 1994, Insta-Care sales were approximately $89,000 and earnings
          before interest and income taxes were approximately $4,000. The
          Company recognized a gain on the sale of Insta-Care of $49,470, net of
          income taxes of $4,655. The gain of $54,125 before income taxes is
          reported in the consolidated statement of operations as part of sales
          and other operating revenue.

                                                                     (Continued)
<PAGE>
 
                      ECKERD CORPORATION AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                     (In thousands, except share amounts)



     (d)  MERGER WITH WHOLLY-OWNED SUBSIDIARY
          OF J. C. PENNEY COMPANY, INC.

          On November 2, 1996, the Company entered into a definitive agreement
          to be acquired by J. C. Penney Company, Inc. (JCPenney). The aggregate
          transaction value, including the assumption of Company debt and the
          cash out of certain outstanding employee stock options, was
          approximately $3.3 billion. The transaction was effected through a
          cash tender offer at $35.00 per share for 50.1% of the outstanding
          common stock of the Company, which was completed in December 1996. The
          remaining shares of outstanding common stock of the Company were
          exchanged in a second-step merger completed on February 27, 1997, in
          which Company stockholders received 0.6604 shares of JCPenney common
          stock for each share of Company common stock.


(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (a)  USE OF ESTIMATES

          The preparation of financial statements in conformity with generally
          accepted accounting principles requires management to make estimates
          and assumptions that affect the reported amounts of assets and
          liabilities and disclosure of contingent assets and liabilities at the
          date of the financial statements, and the reported amounts of revenues
          and expenses during the reporting period. Actual results could differ
          from those estimates.

     (b)  PRINCIPLES OF CONSOLIDATION

          The consolidated financial statements include the accounts of the
          Company and its wholly-owned subsidiaries. All significant
          intercompany balances and transactions have been eliminated in the
          consolidation.

     (c)  DEFINITION OF FISCAL YEAR

          The Company's fiscal year ends on the Saturday nearest January 31.
          Fiscal year 1996 ended February 1, 1997 and consisted of 52 weeks.
          Fiscal year 1995 ended February 3, 1996 and consisted of 53 weeks.
          Fiscal year 1994 ended January 28, 1995 and consisted of 52 weeks.


                                                                     (Continued)
<PAGE>
 
                      ECKERD CORPORATION AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                     (In thousands, except share amounts)



     (d)  MERCHANDISE INVENTORIES

          Inventories consist principally of merchandise held for resale and are
          based on physical inventories taken throughout the year. Inventories
          are stated at the lower of cost (last-in, first-out) or market. At
          February 1, 1997 and February 3, 1996, inventories would have been
          higher than reported by approximately $109,900 and $91,900,
          respectively, if the first-in, first-out method of valuing inventories
          had been used by the Company.

     (e)  DEPRECIATION POLICY AND MAINTENANCE AND REPAIRS

          Equipment is depreciated principally by the straight-line method over
          the estimated useful lives of such assets. The principal lives in
          years used to compute depreciation are:  buildings, 16-45; furniture
          and equipment, 1-10; transportation equipment, 1-8; and leasehold
          improvements, 2-20.

          Maintenance and repairs are charged to expense as incurred. The
          Company's policy is to capitalize expenditures for renewals and
          betterments and to reduce the asset accounts and the related allowance
          for depreciation for the cost and accumulated depreciation of items
          replaced, retired or fully depreciated.

     (f)  FAVORABLE LEASE INTERESTS

          Favorable lease interests represent the present value of the excess of
          current market rents at dates of acquisition over the below market
          rents of leases acquired (principally store locations). Such costs are
          amortized over the lives of the favorable leases averaging
          approximately twenty years.

     (g)  UNAMORTIZED DEBT EXPENSES

          Unamortized debt expenses represent underwriting discounts,
          professional fees and other costs related to long-term debt which are
          amortized over the life of the debt instruments.

     (h)  ADVERTISING COSTS

          Net advertising costs are expensed when incurred and were $24,848,
          $24,752 and $24,050 for the years ended February 1, 1997, February 3,
          1996 and January 28, 1995, respectively.

                                                                     (Continued)
<PAGE>
 
                      ECKERD CORPORATION AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                     (In thousands, except share amounts)



     (i)  RECLASSIFICATION

          Certain amounts have been reclassified in the 1995 consolidated
          financial statements to conform to the 1996 consolidated financial
          statement presentation.

     (j)  SUPPLEMENTAL CASH FLOW INFORMATION

          The Company considers all liquid investments with a maturity of three
          months or less when purchased to be cash equivalents.

          Cash paid for interest was $57,214, $82,152 and $86,821 for the years
          ended February 1, 1997, February 3, 1996 and January 28, 1995,
          respectively.

          Cash paid for income taxes was $23,281, $5,337 and $7,294 for the
          years ended February 1, 1997, February 3, 1996 and January 28, 1995,
          respectively.

      (k) EARNINGS PER SHARE AND STOCK SPLIT

          Primary earnings per share have been computed based on the weighted
          average number of shares of common stock outstanding during each
          fiscal year (72,113,725 in 1996, 68,606,482 in 1995 and 64,863,438 in
          1994). All share information in these consolidated financial
          statements has been restated to reflect the two-for-one stock split
          effected in the form of a stock dividend declared April 1, 1996 (paid
          on May 13, 1996).

      (l) RECENT ACCOUNTING PRONOUNCEMENTS

          The Financial Accounting Standards Board issued Statement of Financial
          Accounting Standards (SFAS) No. 125, Accounting for Transfers and
          Servicing of Financial Assets and Extinguishments of Liabilities in
          June 1996. This standard was effective for transactions occurring
          after December 31, 1996, and did not have a material impact on the
          Company.

      (m) STOCK-BASED COMPENSATION

          The Company continues to account for stock options under Accounting
          Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
          Employees and implemented the disclosure-only provisions as permitted
          by Statement of Financial Accounting Standards No. 123 (SFAS No. 123),
          Accounting for Stock-Based Compensation.


                                                                     (Continued)
<PAGE>
 
                      ECKERD CORPORATION AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                     (In thousands, except share amounts)



     (n)  ACQUISITION AND OTHER ONE-TIME EXPENSES

          Acquisition and other one-time expenses include acquisition
          transaction costs of $12,500 and other one-time costs of $3,500.


(3)  EMPLOYEES' BENEFIT PLANS

     (a)  PROFIT SHARING PLAN

          The Company has a noncontributory profit sharing plan which covers all
          full-time employees. The Company makes annual contributions to the
          Plan at the discretion of the Company's Board of Directors. All funds
          are held by a bank as trustee under a trust agreement. Included in
          operating and administrative expenses are charges accrued for
          contributions to the Plan of $11,827, $11,231 and $9,712 for February
          1, 1997, February 3, 1996 and January 28, 1995, respectively.

          Plan assets at fair value, consisting of fixed income securities, the
          Company's stock and listed stocks, amounted to approximately $301,300
          for the plan year ended December 31, 1996.

      (b) PENSION PLANS

          The Company has in effect a noncontributory pension plan covering all
          full-time employees who qualify as to age and length of service.
          Benefits are computed based on the average annual compensation for the
          five consecutive years that produce the highest average during the
          final ten years of creditable service. The Company's policy is to fund
          the Plan in accordance with minimum Internal Revenue Service (IRS)
          requirements.

          The Company accounts for pension costs in accordance with Statement of
          Financial Accounting Standards No. 87, Employers' Accounting for
          Pensions.


                                                                     (Continued)
<PAGE>
 
                      ECKERD CORPORATION AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                     (In thousands, except share amounts)



       The funded status of the Company's pension plan at February 1, 1997 and
       February 3, 1996 was:
<TABLE>
<CAPTION>
                                                                        FEBRUARY 1,    FEBRUARY 3,
                                                                           1997           1996
                                                                        -----------    -----------
                                                                        (Projected)
<S>                                                                     <C>           <C>
          Accumulated benefit obligation (including vested
            benefits of $44,202 and $40,743 at January 1,
            1996 (most recent valuation date) and January 1,
            1995, respectively)                                           $(47,843)      (44,000)
          Effect of anticipated future compensation levels
            and other events                                               (13,593)      (10,911)
                                                                          --------       -------
          Projected benefit obligation for service rendered to date        (61,436)      (54,911)
          Plan assets at fair value, consisting of fixed income
            securities and listed stocks                                    55,384        44,751
                                                                          --------       -------
              Plan assets less than projected benefit obligation            (6,052)      (10,160)
 
          Unrecognized prior service cost                                    2,054         2,245
          Unrecognized net loss                                              3,995         7,465
          Unrecognized net transition asset at January 1, 1987,
            which is being amortized over 13 years                          (1,423)       (2,100)
                                                                          --------       -------
              Accrued pension cost                                        $ (1,426)       (2,550)
                                                                          ========       =======
</TABLE>
       Net periodic pension costs for the years ended February 1, 1997, February
       3, 1996 and January 28, 1995 included the following (income) expense
       components:
<TABLE>
<CAPTION>
 
                                                   FEBRUARY 1,   FEBRUARY 3,   JANUARY 28,
                                                      1997          1996          1995
                                                   -----------   -----------   -----------
<S>                                                <C>           <C>           <C>
          Service costs (benefits earned
            during the period)                        $ 3,963         3,606         3,552
          Interest cost on projected
            benefit obligation                          4,062         3,790         3,159
          Return on assets                             (3,945)       (3,536)       (3,411)
          Amortization of prior service cost              191           191          (204)
          Amortization of net transition asset           (677)         (677)         (677)
          Amortization of net loss                        362           101           461
                                                      -------        ------        ------
               Net periodic pension cost              $ 3,956         3,475         2,880
                                                      =======        ======        ======
</TABLE>
                                                                     (Continued)
<PAGE>
 
                      ECKERD CORPORATION AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                     (In thousands, except share amounts)



       Assumptions used in determining the accumulated and projected benefit
       obligations were:
<TABLE>
<CAPTION>
 
                                               FEBRUARY 1,   FEBRUARY 3,   JANUARY 28,
                                                  1997          1996          1995
                                               -----------   -----------   -----------
<S>                                            <C>           <C>           <C>
            Weighted average discount rate            7.5%          7.5%         8.25%
            Weighted average long-term
               rate of return on assets                 9%            9%            9%
            Rate of compensation increases              5%            5%            5%
</TABLE>

       The Company has in effect an Executive Supplemental Benefit Plan to
       provide additional income for its executives after their retirement as
       well as pre-retirement death benefits to beneficiaries of such
       executives.  Annual benefits will generally be no greater than 25 percent
       of the participant's salary mid-point on the date the participant retires
       or separates from service with the Company.

 
(4)    LONG-TERM DEBT

       Long-term debt at February 1, 1997 and February 3, 1996 was:
<TABLE>
<CAPTION>
 
                                                                  FEBRUARY 1,  FEBRUARY 3,
                                                                     1997         1996
                                                                  ----------   ----------
<S>                                                               <C>          <C>
      Term loan, due November 29, 2000 (a)                          $  --         230,000
      Revolving credit (a)                                             --         230,000
      Intercompany loan payable to JCPenney (b)                      505,000        --
      9.25% Senior Subordinated Notes due February 15, 2004,
         $200,000 face amount (c)                                    200,000      200,000
      Variable rate demand industrial development revenue
         refunding bonds, due March 1, 2009 and
         May 1, 2013 (d)                                              18,250       18,250
      Other (principally notes secured by buildings, fixtures
         and equipment)                                               57,469       24,568
                                                                    --------      -------
           Total long-term debt                                      780,719      702,818
 
           Less amounts due within one year                              768        1,020
                                                                    --------      -------
           Amounts due after one year                               $779,951      701,798
                                                                    ========      =======
</TABLE>

                                                                     (Continued)
<PAGE>
 
                      ECKERD CORPORATION AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                     (In thousands, except share amounts)



      The aggregate minimum annual maturities of long-term debt for the next
      five fiscal years are: 1997 - $768; 1998 - $16,341; 1999 - $145; 2000 -
      $88; and 2001, $505,000.

      (a) On June 15, 1993, the Company entered into a Credit Agreement which
          was subsequently revised on August 3, 1994 and on November 29, 1995.
          The original agreement was for a total of $950,000. The revised
          agreements provided for a total loan facility of $850,000 and
          $750,000, respectively. The revised loan agreements did not provide
          any additional proceeds to the Company, but they provided improved
          pricing, increased operating flexibility with respect to acquisitions,
          capital expenditures and lease payments, and reduced annual term loan
          amortization. With the November 29, 1995 revision, the revolving loan
          facility was scheduled to mature on November 29, 2000 and was
          increased to $500,000 (including the bank swingline loan facility and
          the letter of credit and bankers' acceptance facility), and the Term
          Loan facility maturity was extended to November 29, 2000, and was
          reduced to $250,000. The Credit Agreement was terminated and all
          outstanding balances were repaid on December 17, 1996 with proceeds
          from the intercompany loan facility with JCPenney.

          The Company has entered into interest rate cap agreements relating to
          floating rate debt. The cap agreements are for $150,000 and mature at
          various dates in 1998. The cap agreements have an approximate 7%
          interest rate. At February 1, 1997, these agreements had a value to
          the Company of approximately $120 over their carrying values of zero.

      (b) On December 17, 1996, the Company borrowed $550,000 under an
          intercompany loan facility from JCPenney. The intercompany loan is
          unsecured and bears interest at .125% over the applicable JCPenney
          cost of funds. The intercompany loan facility matures on December 17,
          2001. At February 1, 1997, the interest rate on the principal amount
          outstanding under the intercompany loan was 5.85%.

      (c) On November 2, 1993, the Company issued $200,000 aggregate principal
          amount of 9.25% Senior Subordinated Notes (Notes) due February 15,
          2004. The Notes are unsecured and subordinated to all existing and
          future senior debt (as defined) of the Company and are redeemable at
          the option of the Company, in whole or in part, at any time after
          February 15, 1999 at various redemption prices (as defined) plus
          accrued interest to the date of redemption. Interest is payable semi-
          annually on February 15 and August 15 of each year.



                                                                     (Continued)
<PAGE>
 
                      ECKERD CORPORATION AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                     (In thousands, except share amounts)



      (d) The variable rate demand industrial development revenue refunding
          bonds currently have an interest rate which is a daily rate
          established by First National Bank of Chicago and is indicative of
          current bid-side yields of high grade tax-exempt securities. At the
          Company's option, and under certain conditions, the interest rate may
          be changed to a monthly rate or a fixed rate. The bonds are secured by
          the related buildings, leases and letters of credit. At February 1,
          1997, the interest rate on the principal amount of these bonds was
          3.30%.

      (e) Extraordinary charges were recognized during the years ended February
          1, 1997, February 3, 1996 and January 28, 1995, primarily from the
          write-off of unamortized debt expenses related to the significant
          revisions of the Credit Agreement in 1994 and 1995, as well as the
          early repayment of debt from a portion of the net proceeds from the
          sale of Insta-Care in 1994, the redemption of the 11.125% Subordinated
          Debentures in 1994 and 1995, and from the termination of the Credit
          Agreement in 1996.

      (f) The fair value of the note payable to JCPenney and the variable rate
          demand industrial development revenue refunding bonds approximate
          their carrying value, based on the frequency of the interest rate
          reset periods. The fair value of the Notes is approximately $214,500,
          based on their quoted market price. The fair value of the other long-
          term debt approximates its carrying value, based on the relatively
          short remaining maturity of the debt.
          

(5)   INCOME TAXES

      Income tax expense before extraordinary items was:
<TABLE>
<CAPTION>
 
                                       YEAR ENDED
                          -------------------------------------
                          FEBRUARY 1,   FEBRUARY 3,  JANUARY 28,
                             1997          1996         1995
                          -----------   ----------   ----------
<S>                       <C>           <C>          <C>
          Current:
            Federal         $ 70,065        19,309        5,278
            State              3,629         1,291        3,475
                            --------        ------        -----
                              73,694        20,600        8,753
                            --------        ------        -----
          Deferred:
            Federal          (37,142)         --           --
            State             (3,230)         --           --
                            --------        ------        -----
                             (40,372)         --           --
                            --------        ------        -----
            Total           $ 33,322        20,600        8,753
                            ========        ======        =====
</TABLE>
                                                                     (Continued)
<PAGE>
 
                      ECKERD CORPORATION AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                     (In thousands, except share amounts)



     For fiscal years 1996, 1995 and 1994, the income tax expense differs from
     amounts computed by applying the Federal statutory rate of 35% to earnings
     before income taxes and extraordinary items. The actual tax differs from
     the expected tax as follows:
<TABLE>
<CAPTION>
 
                                                                        YEAR ENDED
                                                          ---------------------------------------
                                                          FEBRUARY 1,   FEBRUARY 3,   JANUARY 28,
                                                             1997          1996         1995
                                                          -----------   -----------   -----------
<S>                                                       <C>           <C>           <C>
         Expected tax                                       $ 48,041        43,184        30,479
         State taxes, net of Federal benefit                     259           839         2,259
         Changes in valuation allowance through             
          the use of loss carryforwards                         --         (42,239)      (29,263)
         Alternative minimum tax expense/                   
          (utilization)                                      (17,012)       19,189         --
         Other                                                 2,034          (373)        5,278
                                                            --------       -------       -------
                                                            $ 33,322        20,600         8,753
                                                            ========       =======       =======
</TABLE> 
     The Company has alternative minimum tax credit carryforwards of
     approximately $22,800.

     During the year, the Company reached an agreement with the Internal Revenue
     Service for the income tax return examinations relating to the January 31,
     1987 and January 30, 1988 tax years. The settlement amount for the two-year
     period was approximately $36,400. In connection with the settlement, the
     Company's net operating loss carryforwards have been adjusted to zero while
     deferred tax assets in the form of alternative minimum tax credit
     carryforwards and deductions relating to changes in amortization methods
     are now available. As such, a major portion of the settlement will provide
     future tax benefits to the Company. The settlement results had an
     immaterial effect on the total income tax expense for the current year. The
     Federal income tax returns for the fiscal years ended January 28, 1989,
     February 3, 1990, February 2, 1991 and February 1, 1992 are currently being
     examined.


                                                                     (Continued)
<PAGE>
 
                      ECKERD CORPORATION AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                     (In thousands, except share amounts)



     Temporary differences and carryforwards which give rise to deferred tax
     assets and liabilities are as follows:
<TABLE>
<CAPTION>
 
                                                FEBRUARY 1,   FEBRUARY 3,
                                                   1997          1996
                                                -----------   -----------
<S>                                             <C>           <C>
         Deferred tax assets:
           Reserves and other liabilities           $ 3,204       13,620
           Amortization                              42,326        7,452
           Other                                     23,842        6,351
           Loss carryforwards                          --         67,111
           Credit carryforwards                      22,756       25,803
                                                    -------      -------
              Gross deferred tax assets              92,128      120,337
 
           Less valuation allowance                    --        (67,111)
                                                    -------      -------
              Net deferred tax assets                92,128       53,226
                                                    -------      -------
         Deferred tax liabilities:
           Inventory                                 35,371       37,698
           Fixed assets                              16,385       15,528
                                                    -------      -------
              Gross deferred tax liabilities         51,756       53,226
                                                    -------      -------
              Net deferred tax assets               $40,372         -- 
                                                    =======      =======
</TABLE>

(6)  STOCKHOLDERS' EQUITY

     (a)  COMMON STOCK

          The Company's authorized common stock consists of 100,000,000 shares
          of Common Stock, par value $.01 per share (of which 3,518,728 shares
          are Nonvoting Common Stock (Series I), par value $.01 per share).

     (b)  PREFERRED STOCK

          The Company's authorized preferred stock consists of 20,000,000
          shares. The preferred stock is issuable in series with terms as fixed
          by the Board of Directors. No preferred stock has been issued.


                                                                     (Continued)
<PAGE>
 
                      ECKERD CORPORATION AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                     (In thousands, except share amounts)



(7)  STOCK-BASED COMPENSATION

     The Company has reserved 6,437,957 shares of its Common Stock for the
     granting of stock options and other incentive awards to officers, directors
     and key employees under the 1993 and 1995 Stock Option and Incentive Plans
     of Eckerd Corporation. Options are granted at prices which are not less
     than the fair market value of a share of common stock on the date of grant.
     Commencing three years after the date of grant, all options are exercisable
     to the extent of 50%, with an additional 25% exercisable after each of the
     next two successive years. Unexercised options expire ten years after the
     date of grant. Options granted under prior plans were surrendered and
     granted under the terms of the 1993 plan. Shares under option and option
     prices have been adjusted to reflect the two-for-one stock split (note
     2(l)). In December 1996, after a change of control when JCPenney purchased
     50.1% of the outstanding common stock of the Company, all stock options
     outstanding became 100% exercisable. In connection with the acquisition of
     the Company by JCPenney, all option holders were given the right to elect,
     in whole or in part, to convert their options into an amount of cash equal
     to the difference between $35.00 and the exercise price of their options.
     On February 27, 1997, all options outstanding were either converted into
     cash, if elected, or converted into a pro rata number of options to acquire
     JCPenney common stock.

     As of February 1, 1997, February 3, 1996 and January 28, 1995, 2,836,442,
     3,531,658 and 458,354 shares of Common Stock were available for grant. At
     February 1, 1997, options for 3,601,515 shares of Common Stock were
     exercisable at $2.59 to $28.25 per share, with a weighted average option
     price of $12.93. At February 3, 1996, options for 758,308 shares of Common
     Stock were exercisable at $2.59 to $7.00 per share, with a weighted average
     option price of $5.04. At January 28, 1995, options for 699,720 shares of
     Common Stock were exercisable at $.28 to $7.00 per share, with a weighted
     average option price of $4.67.


                                                                     (Continued)
<PAGE>
 
                      ECKERD CORPORATION AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                     (In thousands, except share amounts)



     A summary of changes during the years ended February 1, 1997, February 3,
     1996 and January 28, 1995 is set forth below:
<TABLE>
<CAPTION>
 
                                          SHARES UNDER      OPTION      WEIGHTED AVERAGE
                                             OPTION         PRICES        OPTION PRICE
                                           ---------    --------------- ----------------
<S>                                       <C>           <C>             <C>
        Outstanding January 29, 1994       2,814,008    $  .28 - $ 7.00       $ 6.14
         Granted                             171,000    $ 7.00 - $14.63       $11.57
         Exercised                          (248,998)   $  .28 - $ 7.00       $ 4.35
         Canceled                           (184,018)   $  .28 - $12.32       $ 6.82
                                           ---------                          
        Outstanding January 28, 1995       2,551,992    $  .28 - $14.63       $ 6.32
         Granted                           1,059,134    $12.81 - $22.00       $15.71
         Exercised                          (227,940)   $  .28 - $ 7.00       $ 4.16
         Canceled                           (132,438)   $ 7.00 - $19.31       $ 8.84
                                           ---------                          
        Outstanding at February 3, 1996    3,250,748    $ 2.59 - $22.00       $ 9.42
         Granted                             919,100    $20.75 - $28.25       $22.49
         Exercised                          (344,449)   $ 2.59 - $ 8.44       $ 5.39
         Canceled                           (223,884)   $ 7.00 - $27.25       $12.84
                                           ---------                          
        Outstanding at February 1, 1997    3,601,515    $ 2.59 - $28.25       $12.93
                                           =========                          
</TABLE>

     The Company has elected to continue accounting for stock-based compensation
     under the provisions of APB No. 25, Accounting for Stock Issued to
     Employees. Accordingly, net income and earnings per share shown in the
     consolidated statements of income do not reflect any compensation cost for
     the Company's stock options. In accordance with SFAS No. 123, Accounting
     for Stock-Based Compensation, the fair value of each fixed option granted
     is estimated on the date of grant using the Black-Scholes option-pricing
     model with the following assumptions.
<TABLE>
<CAPTION>
 
                                                        1996      1995
                                                      --------  --------
<S>                                                   <C>       <C>
         Dividend yield                                   0%        0%
         Expected volatility                           24.8%     24.8%
         Risk-free interest rate                        6.3%      6.3%
         Expected life of option                      5 years   5 years
         Fair value per share of options granted       $ 7.90     $5.54
         SFAS 123 compensation expense (thousands)     $2,273     $ 861
</TABLE>

     The effect on earnings per share of recording compensation expense under
     SFAS No. 123 was a reduction of approximately two cents per share in 1996
     and one cent per share in 1995.


                                                                     (Continued)
<PAGE>
 
                      ECKERD CORPORATION AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                     (In thousands, except share amounts)



(8)  COMMITMENTS

     The Company conducts the major portion of its retail operations from leased
     store premises under leases that will expire within the next 20 years. Such
     leases generally contain renewal options exercisable at the option of the
     Company. In addition to minimum rental payments, certain leases provide for
     payment of taxes, maintenance, and percentage rentals based upon sales in
     excess of stipulated amounts.

     Rental expense for the years ended February 1, 1997, February 3, 1996 and
     January 28, 1995 was:
<TABLE>
<CAPTION>
 
                                FEBRUARY 1,  FEBRUARY 3,  JANUARY 28,
                                   1997         1996         1995
                                -----------  -----------  -----------
<S>                             <C>          <C>          <C>
          Minimum rentals          $132,496      118,797      111,845
          Percentage rentals         25,666       25,651       20,971
                                   --------      -------      -------
                                   $158,162      144,448      132,816
                                   ========      =======      =======
</TABLE>

     At February 1, 1997, minimum rental commitments for the next five fiscal
     years and thereafter under noncancelable leases were as follows:  1997 -
     $124,575; 1998 - $116,608; 1999 - $108,391; 2000, - $110,020; 2001, -
     $90,520; and thereafter - $743,708.

     In 1987, the Company entered into an operating lease agreement for 72
     stores with a third-party lessor established by an affiliate of Merrill
     Lynch & Co. (which, through affiliated entities, controlled approximately
     1% of the Company's common stock before the JCPenney acquisition). On
     February 17, 1997, the Company purchased these properties for $33,111. This
     transaction has been included in the February 1, 1997 balance sheet of the
     Company as if the transaction had been closed as of that date.

     During 1995 and 1994, the Company sold certain photo processing equipment
     to an unrelated third party for approximately $4,900 and $14,800,
     respectively, and entered into five-year leases with respect to such
     equipment. No gain or loss was recorded in connection with these
     transactions. Annual lease payments by the Company of $6,801 are required
     over the term of the leases.

     During 1993, the Company and IBM Global Services (IGS) entered into a
     Systems Operations Service Agreement (Service Agreement) pursuant to which
     IGS will manage the Company's entire information systems operation,
     including the implementation of a new point-of-sale system with scanning
     capabilities. The Service Agreement has a ten year term and the total
     payments to be made by the Company are expected to be $605,000 over such
     term, based on currently anticipated services. A portion of these payments
     is being accounted for as capital expenditures. As of February 1, 1997, the
     Company has acquired $113,270 of equipment, of which $30,000 has been
     acquired under a deferred payment arrangement.

                                                                     (Continued)
<PAGE>
 
                      ECKERD CORPORATION AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                     (In thousands, except share amounts)



(9)  TRANSACTIONS WITH RELATED PARTIES

     In April 1989, the Company entered into a "Master Lease" agreement with a
     third-party lessor established by an affiliate of Merrill Lynch & Co.
     (which, through affiliated entities, controlled approximately 1% of the
     Company's common stock before the JCPenney acquisition) whereby such lessor
     would finance the acquisition of store sites and the construction of
     buildings and acquisition of equipment. As of February 1, 1997, there were
     twelve stores leased under the agreement with an aggregate cost of
     approximately $18,400. The Company pays the Merrill Lynch affiliate a
     structure fee of 1% of the cost of land, buildings and equipment financed
     under the Master Lease plus an administration fee. The Company paid the
     Merrill Lynch affiliate fees aggregating $40, $43 and $43 for the years
     ended February 1, 1997, February 3, 1996 and January 28, 1995,
     respectively.

     During 1993, Merrill Lynch & Co., as one of the representatives of the
     underwriters in the IPO, received underwriting commissions and related fees
     of $1,847. In addition, as sole underwriter in the issuance of the Notes,
     Merrill Lynch & Co. received approximately $4,000 in underwriting discounts
     from the Company. During 1995, Merrill Lynch & Co., as one of the
     representatives of the underwriters in the August offering, received
     underwriting commissions and related fees of $3,000.

     During 1996, Merrill Lynch & Co. acted as the Company's financial advisor
     in connection with the acquisition of the Company by JCPenney. The Company
     paid Merrill Lynch & Co. $11,500 for its fees and expenses in connection
     with the acquisition of the Company by JCPenney.


(10) STORE CLOSING CHARGES

     In 1994, the Company changed its accounting policy for closed stores to
     record the loss at the time the decision is made to close the store, in
     accordance with Emerging Issues Task Force Issue No. 94-3. In the fourth
     quarter of 1994, the Company established a $48,988 provision for future
     store closings. In addition to the small number of stores the Company would
     close in the normal course of business, the Company accelerated the closing
     of approximately 90 geographically dispersed under-performing stores. The
     total charge of $48,988 was included in operating and administrative
     expenses on the 1994 consolidated statement of operations. Of the total
     charge, approximately $31,000 related to lease settlements and obligations
     and other expenses to be incurred in connection with the store closings.
     The remaining charge of approximately $18,000 was for the write-off of
     impaired assets which included inventory liquidation and the write-off of
     intangible and fixed assets. The effect of this accounting change on prior
     periods was immaterial.

     In 1996 and 1995, approximately $5,400 and $20,400, respectively, of the
     provision was utilized for lease obligations, settlements, and asset write-
     offs. Remaining expenses are anticipated to be less than the balance of the
     provision; therefore, $10,800 of the provision was made available and
     utilized for 1996 store closings approved in 1995, primarily related to the
     relocation of existing stores.


<PAGE>
 
 
                         INDEPENDENT AUDITORS' REPORT
                          --------------------------


The Board of Directors
Eckerd Corporation and Subsidiaries:

Under date of April 15, 1997, we reported on the consolidated balance
sheets of Eckerd Corporation and subsidiaries as of February 1, 1997 and
February 3, 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three-
year period ended February 1, 1997, which are incorporated by reference in
the Form 10-K405.  In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule in the Form 10-K405.  This financial statement
schedule is the responsibility of the Company's management.  Our
responsibility is to express an opinion on this financial statement
schedule based on our audits.

In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.

As discussed in note 10 to the consolidated financial statements, the
Company changed its accounting policy in fiscal year 1995 related to the
timing of the recognition of closed store obligations.



                                          /s/ KPMG Peat Marwick LLP
                                         


Tampa, Florida
April 15, 1997
<PAGE>
 
                                                                     SCHEDULE II


                      ECKERD CORPORATION AND SUBSIDIARIES
                                   RESERVES
      YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 28, 1995
                                (IN THOUSANDS)


<TABLE> 
<CAPTION> 
                         Balance at  Charged                         Balance at 
                         Beginning      to                              End
Description              of Period   earnings   Deductions   Other   of Period
-----------              ---------   --------   ----------   -----   ----------
<S>                      <C>         <C>        <C>          <C>     <C> 
Allowance for doubtful 
 receivables (a)
  Year Ended 
   February 1, 1997        $3,000      $5,122      $5,122       --      $3,000
                           ======      ======      ======    =======    ====== 
  Year Ended
   February 3, 1996        $3,000      $4,564      $4,564       --      $3,000
                           ======      ======      ======    =======    ====== 
  Year Ended
   January 28, 1995        $5,000      $7,148      $4,924    $(4,224)   $3,000
                           ======      ======      ======    =======    ====== 
</TABLE> 
------------------
Notes:
(a) This reserve is deducted from receivables in the balance sheets.

<PAGE>
 
                                 EXHIBIT INDEX

     Exhibits previously filed or filed by incorporation by reference:

 4.1  Form of 9.25% Senior Subordinated Notes Due 2004 of the Company
      (incorporated by reference to Exhibit 4.01 to the Current Report on Form 
      8-K dated October 26, 1993 of the Company (File No. 1-4844)).

 4.2  Indenture dated as of November 1, 1993 between the Company and State
      Street Bank and Trust Company of Connecticut, National Association, as
      Trustee relating to the Company's 9-1/4% Senior Subordinated Notes Due
      2004 (incorporated by reference to Exhibit 4.02 to the Current Report on
      Form 8-K dated October 26, 1993 of the Company (File No. 1-4844)).

10.1  Commercial Paper Placement Agency Agreement dated July 17, 1989 between
      the Company and Merrill Lynch Money Markets, Inc. (incorporated by
      reference to Exhibit 10.15 of Form 10-K of the Company for the period
      ended February 3, 1990).

10.2  Master Lease Agreement I dated as of May 18, 1993 between the Company and
      Imaging Financial Services d/b/a EKCC ("IFS") (incorporated by reference
      to Exhibit 10.28 to Amendment No. 1 to the Registration Statement on Form
      S-2 of the Company (No. 33-64906)).

10.3  Master Lease Agreement II dated as of June 15, 1993 between the Company
      and IFS (incorporated by reference to Exhibit 10.29 to Amendment No. 1 to
      the Registration Statement on Form S-2 of the Company (No. 33-64906)).

10.4  Systems Operations Service Agreement dated as of July 14, 1993 between the
      Company and Integrated Systems Solutions Corporation (incorporated by
      reference to Exhibit 10.30 to Amendment No. 1 to the Registration
      Statement on Form S-2 of the Company (No. 33-64906)).

10.5  Letter dated March 16, 1993 between IFS and the Company relating to IFS
      Sale and Leaseback (incorporated by reference to Exhibit 10.31 to
      Amendment No. 2 of the Registration Statement on Form S-2 of the Company
      (No. 33-64906)).

10.6  Receivables Purchase Agreement dated as of January 26, 1995 between the
      Company and Three Rivers Funding Corporation (incorporated by reference to
      Exhibit 10.18 to Form 10-K405 for the year ended January 28, 1995 of the
      Company (File No. 1-4844)).
    
10.7  First Amendment to Receivables Purchase Agreement dated as of March 31,
      1995 between the Company and Three Rivers Funding Corporation
      (incorporated by reference to Exhibit 10.19 to Form 10-K405 for the year
      ended January 28, 1995 of the Company (File No. 1-4844)).
      
10.8  Employment Agreement dated February 4, 1996 between the Company and
      Francis A. Newman (incorporated by reference to Exhibit 10.26 to Form 10-K
      for the year ended February 3, 1996 of the Company (File 1-4844)).

10.9  Employment Agreement dated February 4, 1996 between the Company and James
      M. Santo (incorporated by reference to Exhibit 10.27 to Form 10-K for the
      year ended February 3, 1996 of the Company (File 1-4844)).

<PAGE>

10.10 Employment Agreement dated February 4, 1996 between the Company and Samuel
      G. Wright (incorporated by reference to Exhibit 10.28 to Form 10-K for the
      year ended February 3, 1996 of the Company (File 1-4844)).

10.11 Employment Agreement dated February 4, 1996 between the Company and
      Kenneth L. Flynn (incorporated by reference to Exhibit 10.29 to Form 10-K
      for the year ended February 3, 1996 of the Company (File 1-4844)).

10.12 The Executive Excess Benefit Plan of Jack Eckerd Corporation and Its
      Subsidiaries (incorporated by reference to Exhibit 10.30 to Form 10-K for
      the year ended February 3, 1996 of the Company (File 1-4844)).

10.13 Eckerd Corporation Executive Three (3) Year Bonus Plan (incorporated by
      reference to Exhibit 10.31 to Form 10-K for the year ended February 3,
      1996 of the Company (File 1-4844)).

10.14 Employment Agreement dated February 4, 1996 between the Company and
      Stewart Turley (incorporated by reference to Exhibit 10.25 to Form 10-K
      for the year ended February 3, 1996 of the Company (File 1-4844)).

10.15 Amendment No. 1 dated as of November 2, 1996 to Employment Agreement dated
      February 4, 1996 between the Company and Francis A. Newman (incorporated
      by reference to Exhibit 11 to the Schedule 14D-9 of the Company (File 
      1-4844)).

10.16 Amended and Restated Agreement and Plan of Merger among Eckerd
      Corporation, J. C. Penney Company, Inc. and Omega Acquisition Corporation,
      Inc., dated as of November 2, 1996 (incorporated by reference to Exhibit 9
      to the Schedule 14D-9 of the Company (File 1-4844)).

10.17 Amendment dated February 25, 1997 to Amended and Restated Agreement and
      Plan of Merger dated as of November 2, 1996, among J. C. Penney Company,
      Inc., Omega Acquisition Corporation and Eckerd Corporation (incorporated
      by reference to Exhibit 2(b) to the Annual Report on Form 10-K of J. C.
      Penney Company, Inc. for the 52 weeks ended January 25, 1997 (File 
      1-777)).

      Exhibits filed herewith:

 3.1  Certificate of Incorporation of the Company.

 3.2  First Amendment to Certificate of Incorporation of the Company.

 3.3  By-Laws of the Company, as amended.

 4.3  First Supplemental Indenture, dated as of February 27, 1997, between the
      Company and State Street Bank and Trust Company of Connecticut, National
      Association, as Trustee.

12.1  Statement regarding computation of ratio of earnings to fixed charges of
      the Company.

23.1  Consent of Independent Certified Public Accountants.


27    Financial data schedule.