Annual Report (Form 10-K), fiscal year 1994

ITEM 1. BUSINESS
GENERAL
Perry Drug Stores, Inc. is the largest drugstore chain in Michigan. At October 31, 1994, the Company operated 216 retail drugstores and two deep discount health and beauty aids stores in Michigan. The Company was incorporated in the State of Michigan on May 6, 1920, and is the surviving corporation of the merger in March 1980 of two Michigan corporations -- Perry Pharmacy, Inc. (formerly known as A.S. Putnam & Co. which was founded in 1920) and Perry Drug Stores, Inc. (founded in 1957). The first "Perry" drugstore was opened in 1957. The term "Company" as used herein, unless the context otherwise indicates, refers to Perry Drug Stores, Inc. and its subsidiaries.
RECENT EVENTS
On December 29, 1994, Lake Acquisition Corporation, a Delaware corporation (the "Purchaser"), and a wholly owned subsidiary of Rite Aid Corporation, a Delaware corporation ("Parent"), publicly offered to purchase all outstanding shares of Common Stock of the Company, together with the associated preferred stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares") issued pursuant to the Rights Agreement, dated as of February 4, 1987, as amended as of June 2, 1989, and December 23, 1994, between the Company and State Street Bank & Trust Co., as successor Rights Agent (the "Rights Agreement"), at a price of $11.00 per Share (the "Offer Price"), net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase dated December 29, 1994, and the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of December 23, 1994 (the "Merger Agreement"), by and among Parent, the Purchaser and the Company. The Merger Agreement provided that, among other things, as soon as practicable after the consummation of the Offer and satisfaction or waiver of all conditions to the Merger, the Purchaser will be merged with and into the Company (the "Merger"), and the Company will continue as the surviving corporation.
The Company expects that the Merger will be consummated in March 1995. In the Merger, all Shares not tendered in the Offer, other than Shares owned by Purchaser or Parent, will be converted into the right to receive $11.00 in cash.
MERCHANDISING AND MARKETING
Pharmacy. The primary focus of the Company's business is its pharmacy operations. For the fiscal years ended October 31, 1994, 1993 and 1992, prescription sales accounted for approximately 54.1%, 52.4% and 48.9%, respectively, of the Company's revenues. The Company offers a complete line of both brand name and generic prescription drugs. At October 31, 1994, the Company operated 27 drugstores which were open 24 hours per day, 14 of which had 24-hour pharmacy departments.
As part of the marketing of its pharmacy operations, the Company has emphasized the convenience and advantages of its "PerryLink" computerized pharmacy system which electronically links all of the Company's drugstores throughout Michigan. PerryLink enables the Company's pharmacists to offer improved customer service by providing the capability to review a customer's medical information for possible allergies, drug interactions and therapeutic duplication, and to provide tax and insurance reporting information to the Company's customers. PerryLink allows each Company drugstore to have access to this customer information, thus eliminating the need to physically transfer prescription files between stores and making it possible for customers' prescriptions to be refilled at any of the Company's drugstores in the state.
General Merchandise. The Company's drugstores sell prescription and non-prescription drugs as well as a broad selection of traditional drugstore merchandise and services, including health aids and beauty care products (including cosmetics), film and photo processing, greeting cards, tobacco products, convenience foods, and alcoholic beverages.
In addition to offering nationally advertised products, the Company promotes its private label products. It presently offers approximately 1,000 private label products, including a wide variety of health aids, including proprietary remedies for colds, allergies and other ailments, beauty care and cosmetic products. Private label products enable the Company to sell products comparable in quality to name brand products but at lower prices while providing the Company with relatively higher profit margins than brand name products.
The percentages of revenues attributable to the Company's sale of general merchandise for the fiscal years ended October 31, 1994, 1993 and 1992 were 45.9%, 47.6% and 51.1%, respectively.
Advertising. The Company promotes the sale of its merchandise principally through the use of circulars and television and radio advertising. The Company has increased the use of television and radio advertising to focus on the professionalism of its "Red Coat" pharmacists, the advantages of the PerryLink system, the convenience of its 24-hour stores, as well as film and photo processing, beauty care products and competitive prices.
PURCHASING
The Company purchases a substantial portion of its merchandise, other than prescription drugs, directly from manufacturers, thus allowing it to take advantage of promotional programs and volume discounts that certain manufacturers offer to retailers. The Company purchases most of its prescription drugs directly from a major wholesaler. The Company believes it has numerous alternate sources of supply for the merchandise sold in its stores.
STORE OPERATIONS
The Company's stores are open virtually every day of the year, generally from 12 to 13 hours a day, at times tailored to each community's needs. The Company's 24-hour stores are located at strategic sites within the Company's marketing areas. The Company's stores are generally operated on a self-service basis with personnel available for customer assistance when the nature of the merchandise sold or services rendered require such personnel. Each store is individually supervised by a management team comprised of a store manager and one or more assistant managers.
At October 31, 1994, the Company operated 216 retail drugstores, all located in Michigan with approximately 61% of the stores located in the seven-county Detroit metropolitan area. In fiscal 1994, the Company opened ten, acquired thirteen and closed two drugstores and relocated two of its existing drugstores. In fiscal 1994 the Company also completed the closing or conversion of all but two of the remaining twelve A.L. Price deep discount health and beauty aids stores, which it had reacquired in fiscal 1993.
As part of its continuing efforts to improve customer service and operational efficiency, all of the Company's drugstores now have computerized point-of-sale systems. In addition, all of the Company's drugstores have been equipped with computerized direct-store-delivery systems to track products which are shipped directly from suppliers to the Company's stores. The Company expects these systems will result in faster checkout procedures and price adjustments, and, over time, strengthened inventory and cost controls.
COMPETITION
The drugstore business is highly competitive. The Company competes with local and national drugstores, hospital and mail order pharmacies and independent drugstores. Many items sold by the Company are also carried by mass merchandisers (including deep discount stores), supermarkets and department stores. Many of the businesses
with which the Company competes are larger or may have greater financial resources than the Company. The Company's strategy is to offer customer service, convenient locations, a broad merchandising mix and competitive prices. The Company's business is seasonal in nature. Traditionally, a higher proportion of net sales and net income is generated in the Company's first quarter.
TRADE NAMES, TRADEMARKS AND LICENSES
The Company has established rights to a number of trade names and trademarks and believes they are important to the conduct of its operations in the areas in which they are located. The Company has licenses relating to its pharmacy operations and the sale of alcoholic beverages as well as other general business licenses. The Company does not consider any single license to be materially important to the conduct of its business.
EMPLOYEES
The Company employs approximately 5,600 persons, approximately 55% of whom are part-time employees (working less than 32 hours per week). The Company considers its employee relations to be satisfactory.
ITEM 2.



ITEM 2. PROPERTIES
The Company's drugstores are located either in strip centers or are free-standing, with an average drugstore size of approximately 10,500 square feet. Generally, the Company's stores range in size from 5,000 to 14,000 square feet. All but one of the Company's drugstores are leased. The Company does not consider any single store lease to be material. The equipment, furniture, fixtures and signs in the stores are generally owned by the Company and are considered by the Company to be well maintained and in good operating condition.
In selecting new sites for its stores, the Company considers various criteria, including demographic information, the availability and cost of real estate, retail competition and existing general market conditions. The Company believes that it has the opportunity to grow within Michigan by increasing its existing sales, opening new stores and acquiring existing independent drugstores.
The Company's drugstores are serviced by the Company's 370,000 square foot distribution center located near Pontiac, Michigan in Waterford Township. Store orders are processed by computer and assembled at the distribution center for delivery to stores. Management considers the facility to be adequate for the Company's present needs as well as its need for the foreseeable future.
The Company's executive offices include its 30,000 square foot corporate headquarters, which is adjacent to the distribution center, and an additional building, which is owned in fee, contains 53,000 square feet of office space, and is located next to the Company's corporate headquarters and distribution center. The corporate headquarters and distribution center are leased from Waterford Township, Michigan under a capitalized lease and were financed with an industrial revenue bond issue. The lease expires in 2009, at which time the Company has the option to purchase the combined distribution and headquarters facility for $100.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
In fiscal 1994 the Company agreed to a proposed settlement of two lawsuits filed in 1993 by shareholders purporting to be class actions seeking damages for alleged violations of federal securities laws. Subject to court approval, which is expected in February 1995 after a hearing on the proposed settlement, the Company has agreed to pay $2.2 million, of which $925,000 and a portion of the attorneys fees will be covered by insurance. Although the Company believes it did not violate any laws, it feels that the settlement of this litigation is in the best interests of the Company in order to avoid the time and expense of protracted litigation. As a result of this settlement, the Company recorded a pretax charge of $1.5 million ($1.1 million after tax, or $0.09 per share) during fiscal 1994.
In fiscal 1994, the Company reached a settlement with a major third party provider relating to the interpretation of an existing reimbursement contract. As previously reported, this provider had initiated a review of the billing practices of numerous Michigan retail pharmacy participants, including the Company, in late 1993. The Company has agreed to pay the third party $5.5 million plus imputed interest by May 1, 1995. As a result of this settlement, during fiscal 1994, the Company recorded a pretax charge of $860,000 ($600,000 after tax, or $0.05 per share), net of established reserves. This charge, and the charge taken with respect to the settlement of litigation described above, are both included in warehouse, store operating and administrative expenses in the Company's Consolidated Statement of Operations.
The Company is also involved in various routine legal proceedings and claims incidental to the normal conduct of its business.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange under the symbol PDS. As of January 12, 1995, there were 3,195 record holders of the Company's Common Stock according to the records maintained by the Company's stock transfer agent. The price range of the Company's Common Stock during the last two fiscal years ended October 31 is shown in the table below.
The Company does not pay cash dividends. The agreements pertaining to the Company's long-term indebtedness contain covenants which restrict the Company's ability to pay dividends on its Common Stock. See Note 6 of Notes to Consolidated Financial Statements. In the event that the Merger with Rite Aid is not completed, the Company's ability to pay cash dividends in the future will depend upon its future earnings, results of operations, capital requirements, financial condition, and such other factors as the Company's Board of Directors deems relevant.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA. PERRY DRUG STORES, INC.
FIVE-YEAR FINANCIAL SUMMARY
Financial information for the years ended October 31, 1993 and 1992 has been restated to allocate the previously reported fourth quarter 1993 inventory charge over the periods believed to be affected, as described in Note 2 to Consolidated Financial Statements. Net earnings and earnings per share primary were increased in 1993 due to the restatement by $14,286, or $1.19 per share, and decreased in 1992 due to the restatement by $14,286, or $1.29 per share.
In an attempt to better match costs and revenues, the Company uses the LIFO method of accounting for a major portion of its inventories. Earnings data using the FIFO method of inventory valuation are presented as supplementary information to enable some comparison to companies using the FIFO method. FIFO earnings are computed adding the tax affected LIFO provision (benefit) for the year to the LIFO earnings (loss) for the year.
On June 27, 1991, the Company completed the divestiture of the Health Care Division for $16 million. The financial information presented above for the periods ending October 31, 1990 and 1991 have been restated to reclassify the results of this discontinued operation.
On January 22, 1988, the Company entered into an agreement to sell the Auto Parts Division to an affiliate of Northern Pacific Corporation for a cash price of $51 million, subject to closing adjustments. The proceeds from the sale were received on February 29, 1988. The financial information presented above for the periods ending October 31, 1990 and 1991 have been restated to reclassify the results of this discontinued operation.
Fully diluted earnings (loss) per share have not been presented because it would be anti-dilutive or immaterial.
Certain reclassifications have been made to prior years' financial statements to conform to the 1994 presentation.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS: FISCAL 1994 COMPARED TO FISCAL 1993
Net sales in fiscal 1994 were $737.1 million, a 5.5% increase over fiscal 1993 net sales of $698.4 million. The Company's deep discount health and beauty aids stores, reacquired in June 1993, contributed $13.8 million and $8.2 million of net sales in fiscal 1994 and 1993, respectively. The operations of these deep discount health and beauty aids stores were discontinued subsequent to year end.
Comparable drugstore sales (those with at least one year of volume comparisons) increased 2.7%. This net sales increase was due to an increase in prescription sales, partially offset by a decline in general merchandise sales.
Prescription sales for fiscal 1994 increased 9.1% to $398.9 million, and were 54.1% of net sales as compared to 52.4% in fiscal 1993. The prescription sales increase was primarily due to a 4.1% increase in the number of prescriptions filled by the Company from 14.5 million in 1993 to 15.1 million in 1994, combined with an increase in product cost. The Company expects prescription sales growth to continue given the aging of the nation's population, continued emphasis on preventative care, the development of new drugs and drug therapies and continued pursuit of new customer segments including third party provider arrangements. During fiscal 1994, third party prescription sales represented approximately 78% of total prescription sales, as compared with 75% in fiscal 1993. The Company expects this level of third party activity to continue to increase. An increase in the level of third party prescription sales may contribute to a decline in profit margins, as profit margins on third party prescription sales are typically lower than those on non-third party prescription sales.
Comparable drugstore nonprescription sales are down slightly between years, a result of economic conditions and competitive factors. Competitive factors continue to be addressed through marketing programs and continued emphasis on customer care.
Cost of goods sold in fiscal 1994 decreased 0.9% as a percentage of net sales to 74.1% compared to 75.0% in fiscal 1993. Profit margins were impacted by many variables including sales mix, promotional activity and inflation. Prescription margins improved slightly and were coupled with a second consecutive year of increased general merchandise margins. The slight improvement in prescription margins is attributed to continued focus on offering generic drug equivalents when allowed and elimination of certain promotional practices. The continued rise in general merchandise margins is a result of what management believes to be an improvement in promotional mix and fewer markdowns of seasonal overstock and discontinued merchandise. The Company anticipates prescription margin pressures to continue while it expects to be able to better control general merchandise margins with new merchandising systems currently being implemented.
For a portion of its inventory, the Company uses the last-in, first-out (LIFO) method of inventory valuation which states cost of goods sold at more recent costs. During fiscal 1994, prescription inflation rates were moderate while general product inflation rates were minimal resulting in a LIFO charge to cost of good's sold of $467,000 compared to a charge of $169,000 in fiscal 1993. In 1993 however, liquidation of certain LIFO inventory quantities carried at lower costs prevailing in prior years had the effect of reducing the LIFO charge by $635,000. As a result, the net credit to cost of goods sold was $466,000 in fiscal 1993.
During the fiscal 1994 third quarter, the Company recorded a pretax charge of $1.5 million ($1.1 million after tax), or $0.09 per share, relating to the proposed settlement of litigation described in Note 7 of Notes to Consolidated Financial Statements. Also, in the fiscal 1994 third quarter, the Company recorded an extraordinary charge of $1.9 million pretax ($1.3 million after tax) or $0.11 per share which primarily reflects the net earnings effect of early retirement of the Company's former bank debt and 10% senior notes, which were replaced at the end of July with a new three year, $65 million revolving credit agreement, as described in Note 6 of Notes to Consolidated Financial Statements.
During the fiscal 1994 second quarter the Company recorded a pretax charge of $860,000 ($600,000 after tax), or $0.05 per share. This charge reflects the net earnings effect, after reserves, of the settlement with a major third party provider relating to the interpretation of an existing reimbursement contract. As previously reported, this provider had initiated a review of billing practices of numerous Michigan retail pharmacy participants, including the
Company, in late 1993. The Company agreed to pay the third party provider $5.5 million plus imputed interest on May 1, 1995.
During the fiscal 1993 first quarter, a $3.5 million pretax ($2.4 million after tax, or $0.20 per share), noncash charge was recorded to cover the remaining payments due from the 1991 divestiture of the Company's Chicago area stores.
Warehouse, store operating and administrative expenses in fiscal 1994 were 23.7% of net sales, down from 24.1% in fiscal 1993. This decrease was primarily due to a larger than usual reserve provided in fiscal 1993 for uncollectible accounts relating to receivables remaining from the previous divestiture of the Company's home health care business.
Interest expense in fiscal 1994 decreased by 2.4% to $8.3 million. The decrease was a product of the benefits of lower overall average borrowings being mostly offset by a rise in interest rates. The rise in interest rates was attributable to a rise in the prime borrowing rate as well as higher contractual rates being paid by the Company under its operable credit arrangements during fiscal 1994. Overall borrowings (notes payable and long-term debt, including current portions) were reduced by $9.6 million during fiscal 1994. This debt reduction was funded by operations.
The effective income tax rates in fiscal 1994 and fiscal 1993 were 27.6% and (26.7%), respectively. Due to the losses in fiscal 1993 and 1992, the Company had recorded net tax benefits of approximately $10.1 million in 1993 consisting of refundable taxes and anticipated future tax benefits. The Company had provided a valuation allowance of approximately one third of the gross tax assets recorded. During fiscal 1994, the Company realized most of these tax benefits by collecting its refundable amounts and by utilizing a majority of its net operation tax loss carryforwards. Considering the carryforward periods remaining on unutilized net operating loss carryforwards as well as operating performance of the Company, the remaining valuation allowance on these tax assets was eliminated in 1994. The Company has fully reserved for the remaining capital loss carry forwards and maintains a reserve on certain other tax assets. There currently remains approximately $5.0 million in net tax benefits recorded. The Company intends to continue to evaluate the realizability of its deferred tax assets through evaluation of the adequacy of the established valuation allowance in relation to actual operating performance, executed or proposed tax strategies and other changes in facts or circumstances. See Note 8 of Notes to Consolidated Financial Statements for additional explanation.
During fiscal 1994, primarily as a result of increased sales and improved profit margins being only partially offset by the second and third quarter charges described above, the Company's net earnings were $4.8 million as compared to a net operating loss of $4.2 million in fiscal 1993.
Subsequent to year end, the Company entered into an agreement with Rite Aid Corporation pursuant to which Rite Aid Corporation would purchase all the outstanding shares of common stock of the Company for $11.00 per share, or approximately $132 million in cash. See Notes 11, 12 and 14 of Notes to Consolidated Financial Statements for additional explanation.
RESULTS OF OPERATIONS: FISCAL 1993 COMPARED TO FISCAL 1992
Net sales in fiscal 1993 were $698.4 million, a 3.6% increase over fiscal 1992 net sales of $674.4 million. Overall, comparable drugstore sales (those with at least one year of volume comparisons) increased 2.1%. This net sales increase was due to an increase in prescription sales, offset by a decline in general merchandise sales.
Prescription sales for fiscal 1993 increased 10.8% to $365.7 million, and were 52.4% of net sales as compared to 48.9% in fiscal 1992. The prescription sales increase was due to a 3.5% increase in the number of prescriptions filled by the Company from 14.0 million in 1992 to 14.5 million in 1993, combined with an increase in product cost. During fiscal 1993, third party prescription sales represented approximately 75% of total prescription sales, as compared with 73% in fiscal 1992.
Comparable drugstore nonprescription sales were down slightly between years, a result of economic conditions and competitive factors.
Cost of goods sold in fiscal 1993 decreased 1.3% as a percentage of net sales to 75.0% compared to 76.3% in fiscal 1992. Profit margins were impacted by many variables including sales mix, promotional activity and inflation. Prescription margins were lower and continued to be impacted by third party provider pressures and increasing pharmaceutical product costs. General merchandise margins were higher than the prior year. The Company attributes this increase to a reduction in promotional activity, improved purchasing control resulting in fewer markdowns of seasonal overstock and discontinued merchandise and enhanced pricing integrity and shrinkage controls attributable to the completion of the installation of point-of-sale, direct store delivery and electronic article surveillance systems during fiscal 1993.
For a portion of its inventory, the Company uses the last-in, first-out (LIFO) method of inventory valuation which states cost of goods sold at most recent costs. During fiscal 1993, prescription inflation rates decreased resulting in a LIFO charge to cost of goods sold of $169,000 compared to a charge of $879,000 in fiscal 1992. In each year however, liquidation of certain LIFO inventory quantities carried at lower costs prevailing in prior years had the effect of reducing the LIFO charge by $635,000 and $492,000, respectively. As a result, the net charge (credit) to cost of goods sold was ($466,000) and $387,000 in fiscal 1993 and 1992, respectively.
Warehouse, store operating and administrative expenses in fiscal 1993 were 24.1% of net sales, up from 23.5% in fiscal 1992. This increase was primarily attributable to increased lease costs for point of sale, direct store delivery and electronic article surveillance systems installed during 1993 and an increase in the reserve for uncollectible accounts relating to receivables remaining from the late 1990 divestiture of the Company's home health care business.
Interest expense in fiscal 1993 decreased by 18.7% to $8.5 million. The decrease was due to lower average short term borrowings, a decrease in the average interest rate and a decrease in long-term borrowings. Long-term debt (including current portions) was reduced by $12.7 million during fiscal 1993. This debt reduction was funded by operations.
During the first quarter of fiscal 1993, a $3.5 million pretax ($2.4 million after tax) noncash charge was recorded to cover the remaining payments due from the 1991 divestiture of the Company's Chicago area stores.
The effective income tax rates in fiscal 1993 and fiscal 1992 were (26.7%) and (32.9%), respectively. Due to the losses in fiscal 1993 and 1992, the Company recorded net tax benefits of approximately $10.1 million consisting of $3.6 million for refundable income taxes and $6.5 million for anticipated future income tax benefits. The Company believed that these future tax benefits, consisting primarily of tax credits and net operating loss carryforwards utilizable through the year 2008, would be fully utilized through the generation of taxable income from ordinary and recurring operations. The Company provided a valuation allowance of approximately one third of the gross tax assets recorded. See Note 8 of Notes to Consolidated Financial Statements for additional explanation.
During fiscal 1993, primarily as a result of increased sales, improved profit margins and interest savings all partially offset by the first quarter charge described above, the Company's net operating loss was $4.2 million as compared to $6.0 million in fiscal 1992.
LIQUIDITY AND FINANCIAL CONDITION
The Company's primary sources of working capital are cash flow from operations and borrowings under its revolving credit agreement. The Company had working capital of $65.5, $50.6 and $64.2 million at October 31, 1994, 1993 and 1992, respectively. The Company's working capital will fluctuate in relation to (i) inventory levels during the course of the year, (ii) the number of new store openings, (iii) payment terms from its vendors and (iv) the dates on which periods end in relation to accounts payable payment dates.
Cash provided by operating activities was $20.4 million during fiscal 1994 as compared to $23.4 provided by operating activities during fiscal 1993. The decrease was primarily attributable to an increase in third party receivables which resulted from an increase in third party prescription sales and the timing of collections in relation to month end.
In July 1994, as described in Note 6 of Notes to Consolidated Financial Statements, the Company entered into a new three year secured, revolving credit agreement which provides for borrowings up to $65 million. Borrowings outstanding under the facility were $40.8 million at October 31, 1994.
Capital expenditures, including acquisitions, were approximately $8.1 million and $13.9 million during fiscal 1994 and 1993, respectively. These expenditures were primarily for new store construction, acquisitions and remodeling. During fiscal 1994 the Company opened ten new drugstores, relocated two existing stores to more attractive locations and acquired thirteen independent drugstores, ten of which were consolidated into existing stores. In addition, two under-performing drugstores and five deep discount health and beauty aids stores were closed. The Company expects to open or acquire 45 new drugstores over the next three years. Total capital expenditures are planned to be approximately $10.0 million in fiscal 1995 and are expected to be funded by operations.
Net cash used for financing activities amounted to $9.8 million and $10.4 million in fiscal 1994 and 1993, respectively. These amounts consisted primarily of scheduled payments of long-term debt.
As a result of net earnings during fiscal 1994 coupled with the reduction of long-term debt, the Company's percentage of long-term debt capitalization decreased to 62.5% at October 31, 1992. The Company's current ratio was 1.7 to 1.0, 1.5 to 1.0 and 1.7 to 1.0 at October 31, 1994, 1993 and 1992.
The Company believes that its working capital needs, planned capital expenditures and scheduled debt reductions can be funded from operations and available credit lives.
ITEM 8.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements (together with the report thereon of Arthur Andersen LLP) under this Item are listed in Item 14.
ITEM 9.

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



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Thomas O. Fox, Age 65; a director since 1979; President of Accent-Lincoln-Mercury, Inc., a St. Louis, Missouri automobile dealership from 1990 to 1992. Prior to that time, he served for 15 years as Director for Community Affairs for WJBK TV-2, Detroit, Michigan. Currently, he is President of Paramount Vending and Food Services. Mr. Fox is also a registered pharmacist.
Andy Giancamilli, Age 44; a director since 1993; President of the Company and Chief Operating Officer since 1993, Mr. Giancamilli also served as Executive Vice President--Operations from 1992 to 1993, Senior Vice President--Store Operations from 1991 to 1992, Vice President--Pharmacy Operations from 1990 to 1991 and Group Vice President--Drug Store Operations from 1988 to 1990.
Walter J. McCarthy, Jr., Age 69; a director since 1984; Retired; former Chairman of the Board and Chief Executive Officer of The Detroit Edison Company from 1981 to 1990. Mr. McCarthy also serves as a director of The Detroit Edison Company, Comerica Bank and Federal-Mogul Corporation.
John C. Nicholls, Jr., Age 61; a director since 1988; Treasurer and Assistant Secretary of Masco Corporation, a building, home improvement, and specialty consumer products company, since 1968.
Jack A. Robinson, Age 64; a director since 1971; Chairman of the Board since 1974. Mr. Robinson also served as President of the Company from 1971 to 1980 and from 1991 to 1993. By virtue of his position with the Company and his share ownership, Mr. Robinson may be deemed a "control person" of the Company.
Jerome L. Schostak, Age 61; a director since 1990; Chairman of the Board and Chief Executive Officer of Schostak Brothers & Company, Inc., a commercial and industrial real estate development, management and brokerage firm, since 1970. Mr. Schostak also serves as a director of FirstFed Michigan Corporation.
Jerry E. Stone, Age 63; a director since 1991; Senior Vice President and Chief Financial Officer of the Company since 1989 and its Treasurer since 1991. From 1986 to 1989, Mr. Stone served as Vice President - Manufacturing of Talon, Inc., a privately held company with manufacturing and retail interests.
EXECUTIVE OFFICERS
The following information is furnished with respect to each of the Company's executive officers. All of the executive officers of the Company have been elected by the Board of Directors to serve until the 1995 annual election of officers or until their successors are elected and qualified. Except for Messrs. Kuske and Szymanski, the Company's executive officers have been employed with the Company for more than five years and have held positions of similar responsibility during such period.
COMPLIANCE WITH THE SECURITIES EXCHANGE ACT
The Company's executive officers and directors are required under the Exchange Act to file reports of ownership and changes in ownership with the Securities and Exchange Commission and the New York Stock Exchange. Copies of those reports must also be furnished to the Company. Based solely on a review of the copies of reports furnished to the Company and written representations that no other reports were filed, the Company believes that during the preceding year all required filings applicable to executive officers and directors were made on a timely basis.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation relating to the Chief Executive Officer and the other four most highly paid executive officers of the Company who earned more than $100,000 in salary and bonus in fiscal 1994 (the "Named Officers") for services rendered in all capacities to the Company during fiscal years ended October 31, 1994, 1993 and 1992.
SUMMARY COMPENSATION TABLE
(1) In accordance with the transitional provisions applicable to the rules on executive officer compensation disclosure adopted by the Commission, information with respect to the amounts for Other Annual Compensation and All Other Compensation for the fiscal year ended October 31, 1992 has not been included.
(2) Perquisites did not exceed established reporting thresholds for any of the Named Officers. The amounts shown represent the amount of reimbursement for the payment of taxes relating to certain Company-provided life insurance policies.
(3) The number shown includes options granted under the Company's stock option plans. In addition, Messrs. Robinson, Giancamilli, Berlow, Shapiro and Stone hold restricted shares whose net value (calculated at the Offer Price less acquisition cost) was $250,000, $102,500, $81,250, $15,370 and $91,250, respectively, as of December 28,1994. Such restricted shares are eligible to receive dividends, if any, paid by the Company. Further information concerning these plans is set forth under the caption "Summary of Compensation Plans."
(4) The amounts shown represent (a) the vested portion of the Company's annual contributions to the Company's Pension Plan, (b) contributions made by the Company pursuant to the Company's 401(k) Plan, and (c) the dollar value of certain insurance premiums for the Named Officers. The amounts contributed by the Company during fiscal 1994 for each of the Named Officers under the Pension Plan, under the Company's 401(k) Plan, and for the Named Officers' portion of life insurance premiums, respectively, were as follows: Mr. Robinson--$4,717, $0 and $19,827; Mr. Giancamilli--$4,215, $700 and $3,593; Mr. Berlow--$3,796, $700 and $2,500; Mr. Shapiro--$2,281, $700 and $4,250; and Mr. Stone--$4,200, $700 and $8,804. The Company is entitled to (i) the cash surrender value of each split-dollar life insurance policy to the extent of the Company's portion of the premium payments and will recover its portion of the premium payments on the earlier of the twentieth anniversary of each policy or the death of the insured participant and (ii) under certain circumstances, to a portion of the life insurance proceeds. The remainder of the cash surrender value offsets benefits to be received under the supplemental retirement plan. The amount shown for 1994 and 1993 with respect to Mr. Robinson also includes $40,521 paid in each year, representing the Company-paid premium for an additional life insurance policy.
OPTION GRANTS
The Company has in effect employee stock option and restricted stock plans pursuant to which options and rights to purchase Common Stock of the Company are granted to officers and other key employees of the Company. The following table provides information concerning all grants to the Named Officers during fiscal 1994 and options granted on November 1, 1994:
(1) All options are non-qualified and were granted at exercise prices equal to fair market value on the date of grant. Each option is fully exercisable on the first anniversary date of the date of grant, except that all options granted on November 1, 1994 will become exercisable upon a change in control of the Company, which would occur upon completion of the Offer.
(2) Options have been valued on the basis of the difference between their respective exercise prices and the Offer Price.
OPTION VALUES
No options were exercised by the Named Officers during the fiscal year ending October 31, 1994. The following table provides information concerning the number and value of unexercised options held at December 28, 1994:
(1) Represents the total gain which would be realized if all such options were cancelled pursuant to the Merger Agreement in exchange for a cash payment as provided therein.
COMPENSATION OF DIRECTORS
Directors who are not employed by the Company or its subsidiaries are paid an annual fee of $15,000 plus $750 for each meeting of the Board of Directors attended and $400 for each committee meeting attended. A committee chairman receives a fee of $600 for each meeting of the committee attended. In addition, directors are reimbursed for travel and other expenses relating to their attendance at Board or committee meetings.
Each of the Company's independent directors automatically received annual stock option grants in 1992, 1993 and 1994, pursuant to the Company's 1987-Non-Qualified Stock Option Plan, to purchase a total of 9,000 shares of the Company's Common Stock at exercise prices equal to 100% of the fair market value of the Common Stock on the date of each respective grant. These options become exercisable one year, and expire five years, after their respective grant dates, except that all options become exercisable upon a change in control of the Company, which would occur upon completion of the Offer.
EMPLOYMENT AGREEMENT AND SEVERANCE ARRANGEMENTS
The Company has entered into an employment agreement with Mr. Robinson which expires on October 31, 1997. The employment agreement provides for, among other things, (a) a minimum annual salary of $400,000, subject to annual review; (b) termination payments to Mr. Robinson if the Company terminates his employment without cause; and (c) certain death and disability benefits. In addition, Mr. Robinson together with the other Named Officers are entitled to certain severance benefits in the event of a change of control of the Company as described below.
The Company has entered into severance agreements with Messrs. Giancamilli, Berlow, Shapiro and Stone. These severance agreements, which are substantially similar, and Mr. Robinson's employment agreement, provide that upon termination of employment by the Company, other than for Cause (as defined in such severance agreements) or termination of employment by such officers for Good Reason (as defined in the severance agreements) within two years following a Change in Control (as defined in the severance agreements) Messrs. Robinson, Giancamilli, Berlow and Stone will be entitled to receive a cash payment in an amount equal to three times, and Mr. Shapiro will be entitled to receive a cash payment in an amount equal to 1-1/2 times, such person's highest annual compensation from the Company during the three calendar years preceding the date of such person's termination. In addition, Messrs. Robinson, Giancamilli, Berlow and Stone will be entitled to receive a cash payment in an amount equal to three times amounts payable to them under the Company's Short Term Bonus Plan as a result of a Change in Control, described below. Each such officer other than Mr. Shapiro is also entitled to continue his participation in the Company's fringe benefit programs until the earlier of three years following his termination of employment or the commencement of comparable benefits from another employer. In addition, Mr. Robinson's severance agreement provides for a tax gross-up payment to assure that his severance benefits will not be subject to a net reduction due to the imposition of excise taxes which may be payable under the Internal Revenue Code of 1986, as amended.
A Change in Control for purposes of such employment and severance agreements will be deemed to have occurred upon completion of the Offer. Thereafter, the Named Officers will be entitled to receive the benefits under their respective severance agreements, and total severance payments to those persons under such severance arrangements would be approximately $4,000,000, exclusive of Mr. Robinson's tax gross-up payment. Such severance payments are exclusive of the value attributable to such persons with respect to (a) any stock options held by them which may become exercisable and/or (b) the lapse of restrictions on any restricted stock held by them, as a result of such change in control.
SUMMARY OF COMPENSATION PLANS
SHORT TERM BONUS PLAN
The Company's Short Term Bonus Plan ("Bonus Plan") was adopted for the purpose of rewarding executive officers and selected key executive employees of the Company and its subsidiaries who are expected to contribute materially to the operating success of the Company. The Bonus Plan covers all of the Company's current officers (24 persons). The participants, performance criteria and goals and award opportunities under the Bonus Plan are determined by the Executive Compensation Committee of the Board of Directors. The Bonus Plan provides that an award to a participant will be a percentage of the participant's base salary at the end of the fiscal year. Provided that minimum goals are achieved with respect to the performance criteria, awards are payable after the close of each fiscal year. The corporate performance for fiscal 1995 is based on the Company's earnings before interest and taxes as a percentage of revenues. The Bonus Plan also provides that upon a Change in Control of the Company (which is defined therein to include completion of the Offer), 100% of the target performance levels will be deemed to have been attained and each participant will be entitled to an award that is pro rated over the months in the fiscal year that have elapsed as of the date of the change in control.
PENSION PLAN
Pursuant to its Pension Plan ("Pension Plan"), the Company contributes 2% of each eligible employee's annual compensation (including employee pre-tax contributions under the Company's benefit plans, but excluding bonuses, non-cash awards and incentive compensation) into a fund in which each employee's monetary interest is individually determined and is the basis of the benefit. The Pension Plan provides that forfeitures shall be used to reduce the Company's annual contributions to the Pension Plan. The Pension Plan generally covers all employees of the Company and its subsidiaries. Employees covered by collective bargaining agreements are not eligible to participate in the Pension Plan, but are covered under a separate defined contribution pension plan. All directors and officers of the Company who are employees are covered under the Pension Plan. Payment of an employee's entire pension account is available when the employee reaches normal retirement age or if the employee dies or becomes totally disabled while employed by the Company. Otherwise, the Company's contributions to the Pension Plan become fully vested after an employee has completed five years of service with the Company. The vested portion of an employee's pension account is payable after the employee's termination of employment for reasons other than retirement, death or disability.
THRIFT INCENTIVE PLAN
Under the terms of the Company's Thrift Incentive Plan ("Thrift Plan"), which was established pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended, eligible employees may contribute annually on a pre-tax basis from 2% up to 14% of their rate of annual base compensation into a fund in which each employee's monetary interest is individually determined and is the basis of the benefit. The maximum annual employee contribution, which in 1994 was $9,240, is adjusted periodically for cost of living increases. The Company matches each participating employee's contributions dollar-for-dollar up to a maximum annual matching contribution of 2% of the employee's annual compensation or $700, whichever is less. Payment of an employee's entire Thrift Plan account is available when the employee reaches normal retirement age or it the employee dies or becomes totally disabled while employed by the Company. The vested portion of an employee's Thrift Plan account is payable after the employee's termination of employment for reasons other than retirement, death or disability. The Company's annual matching contributions become fully vested after an employee has completed five years of service with the Company. Under certain circumstances, an employee may make withdrawals from the Thrift Plan while employed by the Company. The Thrift Plan generally covers all full-time employees of the Company and its subsidiaries. Employees covered by collective bargaining agreements are not eligible to participate in the Thrift Plan, but are eligible to participate in a separate Section 401(k) plan. All directors and officers of the Company who are employees are eligible to participate in the Thrift Plan.
SUPPLEMENTAL RETIREMENT BENEFIT
Pursuant to the Company's Top Executive Retirement Plan ("Retirement Plan"), selected key employees of the Company are provided with supplemental retirement benefits. The Retirement Plan is an unfunded, non-qualified plan and, except for certain fiduciary and reporting requirements, is not subject to the provisions of the Employee Retirement Income Security Act of 1974.
Upon retirement at age 65 with at least 10 years of employment, the maximum additional retirement benefit (which is payable in monthly installments for life, beginning at age 65) will be equal to 50% of the participant's average annual cash compensation (including salary and bonuses) for the five-year period in which that average is the highest, reduced by the aggregate of the participant's other Company-provided primary retirement benefits the participant's primary social security benefits and cash withdrawal benefits under the split-dollar life insurance program. A participant who retires at age 65 with less than 10 years of employment will be paid a reduced benefit. The benefit will be actuarially increased for those participants who continue employment with the Company after age 65. Presently, Messrs. Robinson, Giancamilli, Berlow, Shapiro and Stone are participating in the Retirement Plan. Messrs. Robinson, Berlow, Shapiro and Giancamilli each have more than 16 years and Mr. Stone has five years of credited employment.
A participant may request early retirement after reach age 55 if the participant has completed 15 years of employment with the Company. A participant requesting early retirement will receive a reduced benefit commencing at age 65 unless the Executive Compensation Committee authorizes such benefit to be paid prior to the participant's
65th birthday. Under certain circumstances, the surviving spouse of a participant is entitled to receive a reduced benefit pursuant to the terms of the Retirement Plan.
A participant who terminates employment with the Company before reaching age 55 and completing 15 years of employment forfeits all benefits under the Retirement Plan. Periods of absence due to the participant's long-term disability are included as credited years of employment.
Examples of annual benefits payable (at age 65) to participants in various average annual compensation and credited years of employment classifications pursuant to the Retirement Plan are shown in the table below.
SPLIT DOLLAR LIFE INSURANCE PROGRAM
Under the Company's Split Dollar Life Insurance Program ("Split Dollar Program"), all of the Named Officers, receive portable life insurance. The Split Dollar Program provides that the Company is entitled to the cash surrender value of each policy to the extent of the premiums paid by the Company and that the Company will recover such premium payments on the earlier of the twentieth anniversary of each policy or the death of the insured participant. The amount received by the Company is a general asset that may be used for general corporate purposes. The death benefit under each policy is payable to the participant's beneficiary. Premiums are paid by both the Company and the individual participant. The Split Dollar Program constitutes an employee welfare benefit plan under the provisions of the Employee Retirement Income Security Act of 1974.
STOCK OPTION PLANS
Pursuant to the Company's 1982 Incentive Stock Option Plan, as amended ("Incentive Plan"), which expired by its terms in 1992, the Company granted incentive and non-qualified stock options to selected key salaried employees of the Company and its subsidiaries, including directors and officers who were also employees. The Company reserved 450,000 shares of its Common Stock for issuance under the Incentive Plan. At December 28, 1994, options for 126,600 shares, at option prices ranging from $8.125 to $8.50 per share and averaging $8.20 per share, were outstanding under the Incentive Plan.
Under the Company's 1987 Non-Qualified Stock Option Plan, as amended ("Non-Qualified Plan"), which expires by its terms in 1997, options to acquire shares of Common Stock of the Company may be granted to directors and selected key salaried employees, including officers, of the Company and its subsidiaries. The Company has reserved 300,000 shares of its Common Stock for issuance under the Non-Qualified Plan. At December 28, 1994, options for 214,450 shares, at option prices ranging from $5.75 to $10.00 per share and averaging $7.10 per share, were outstanding under the Non-Qualified Plan.
RESTRICTED STOCK PLAN
Pursuant to the Company's 1986 Restricted Stock Plan, as amended ("Restricted Plan"), which expires in 1995, rights to purchase shares of Common Stock may be granted to selected executive employees at prices and upon terms determined by the Executive Compensation Committee of the Board, provided that the purchase price of the shares may not be less than the par value ($.05 per share) of the Common Stock or greater than 100% of the fair market value of shares of the Common Stock on the date the right to purchase is granted. A person granted the right to
purchase shares under the Restricted Plan has a period of 60 days from the date of grant to exercise such right. Participants purchasing shares under the Restricted Plan are subject to restrictions prohibiting the disposition thereof, and obligating such participants to resell such shares to the Company at the original purchase price under certain circumstances and until such restrictions lapse. In general, if the purchaser remains in the employ of the Company or its subsidiaries, the restrictions with respect to such shares will lapse in four equal annual installments commencing on the third anniversary of the date of purchase; i.e., the restrictions will fully lapse six years after purchase. The Restricted Plan provides that all restrictions on shares purchased thereunder automatically will lapse upon a Change in Control of the Company (as defined in such plan).
Under the Company's Restricted Plan, 300,000 shares of the Company's Common Stock were reserved for sale to selected executive employees of the Company and its subsidiaries. At December 28, 1994, an aggregate of 151,525 shares had been sold by the Company at an average price of $1.00 per share. Presently, 10 executive employees hold shares subject to restrictions under the Restricted Plan.
During the fiscal year ended October 31, 1994, amounts were expensed by the Company with respect to 26,413 shares for which restrictions lapsed during such period including 12,500, 500, 4,375, 513 and 6,375 shares sold to Messrs. Robinson, Giancamilli, Berlow, Shapiro and Stone, respectively. During the fiscal year ended October 31, 1994, no rights were granted under the Restricted Plan.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Based on information available to the Company (a Schedule 13G dated January 24, 1994), 888,600 shares of Common Stock, representing 7.39% of the shares outstanding, were beneficially owned on December 31, 1993, by David L. Babson & Company, Inc. ("Babson"), One Memorial Drive, Cambridge, Massachusetts 02142-1300. Of these shares, Babson has reported that it has sole power to vote or direct the vote over 790,000 shares (6.57% of the outstanding shares), shares power to vote or direct the vote over 98,600 shares (0.82%) and has sole dispositive power over all 888,600 shares beneficially owned.
Based on information available to the Company (a Schedule 13G dated February 9, 1994), 618,150 shares of Common Stock, representing 5.14% of the shares outstanding, were beneficially owned on December 31, 1993, by Dimensional Fund Advisors, Inc. ("Dimensional"), 1299 Ocean Avenue, 11th Floor, Santa Monica, California 96401. Of these shares, Dimensional has reported that it has sole power to vote or direct the vote over 441,850 shares (3.67% of the outstanding shares), shares power to vote or direct the vote over 176,300 shares (1.47%) and has sole dispositive power over all 618,150 shares beneficially owned.
The following table sets forth the number of shares of the Company's Common Stock (which is the only class of stock outstanding) beneficially owned, as of December 28, 1994, together with the percentage of the outstanding shares which such ownership represents, by each director, each executive officer named under "Executive Compensation" and all directors and executive officers of the Company as a group. The information with respect to directors and officers has been obtained from the respective individuals and is reported in accordance with the beneficial ownership rules of the Securities and Exchange Commission under which a person may be deemed to be the beneficial owner of a security if such person has or shares voting power or investment power with respect to such security or has the right to acquire such ownership within the next 60 days.
* Less than 1%
(1) Excludes 42,286 shares owned beneficially by Mr. Robinson's wife, as to which Mr. Robinson disclaims any beneficial interest, and includes 982,090 shares held in trust of which Mr. Robinson is a trustee and primary beneficiary. Mr. Robinson's address is 5400 Perry Drive, P.O. Box 436021, Pontiac, Michigan 48343-6021.
(2) Includes 25,000 shares which Mr. Berlow has the right to acquire currently or within the next 60 days pursuant to outstanding employee stock options. Excludes 3,016 shares held by Mr. Berlow's wife as custodian for their children, as to which Mr. Berlow disclaims any beneficial interest.
(3) Includes 325 shares which are owned jointly by Mr. Fox and his wife and 6,000 shares which Mr. Fox has the right to acquire currently or within the next 60 days pursuant to outstanding director stock options.
(4) Includes 500 shares which are owned jointly by Mr. Giancamilli and his wife and 47,000 shares which Mr. Giancamilli has the right to acquire currently or within the next 60 days pursuant to outstanding employee stock options. Excludes 13 shares which are held by Mr. Giancamilli as custodian for his children, as to which Mr. Giancamilli disclaims any beneficial interest.
(5) Includes 2,000 shares which are owned jointly by Mr. McCarthy and his wife and 6,000 shares which Mr. McCarthy has the right to acquire currently or within the next 60 days pursuant to outstanding director stock options.
(6) Includes 6,000 shares which Mr. Nicholls has the right to acquire currently or within the next 60 days pursuant to outstanding director stock options.
(7) Includes 6,000 shares which Mr. Schostak has the right to acquire currently or within the next 60 days pursuant to outstanding director stock options.
(8) Includes 10,000 shares which Mr. Shapiro has the right to acquire currently or within the next 60 days pursuant to outstanding employee stock options.
(9) Includes 500 shares jointly owned with spouse and 20,500 shares which Mr. Stone has the right to acquire currently or within the next 60 days, pursuant to outstanding employee stock options.
(10) Includes 148,100 shares which all directors and executive officers as a group have the right to acquire currently or within the next 60 days pursuant to outstanding director or employee stock options.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to five long-term store leases executed between 1977 and 1993 (and which terminate between 1995 and 2009) between the Company and various partnerships of which Jerome L. Schostak, a director of the Company, is a partner, the Company paid $357,718 in rentals during the fiscal year ended October 31, 1994. Mr. Schostak's
interests in the various partnerships range from 7.3% to 65.0%. The terms of the foregoing leases are believed by management to be at least as favorable to the Company as could have been obtained from unaffiliated persons or entities. PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report.
1. Financial Statements and Supplementary Information.
The following financial statements and supplementary data are included in this report:
2. Financial Statement Schedules.
All schedules are omitted because they are not applicable or not required or because the required information is included in the financial statements or notes thereto.
3. Exhibits.
11 Statement re computation of per share earnings.*
22 Subsidiaries of the Registrant.*
24 Consent of Independent Public Accountants.*
27 Financial Data Schedule.*
-------------- * Filed herewith
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the last quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on January 25, 1995.
PERRY DRUG STORES, INC.
By: /S/ JERRY E. STONE ---------------------------------- Jerry E. Stone - Senior Vice President, Chief Financial Officer, Treasurer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
PERRY DRUG STORES, INC.
PERRY DRUG STORES, INC. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
................................................................................
To Perry Drug Stores, Inc.:
We have audited the accompanying consolidated balance sheets of Perry Drug Stores, Inc. (a Michigan corporation) and subsidiaries as of October 31, 1994 and 1993, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended October 31, 1994 (as restated, see Note 2). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform 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 financial statements referred to above present fairly, in all material respects, the financial position of Perry Drug Stores, Inc. and subsidiaries as of October 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan December 13, 1994 (Except with respect to the matters discussed in Note 14, as to which the date is December 27, 1994).
PERRY DRUG STORES, INC.
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these statements.
PERRY DRUG STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these statements.
PERRY DRUG STORES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock -- 30,000,000 shares, $0.05 par value authorized.
Serial Preferred Stock -- 5,000,000 shares, without par value authorized; none issued.
Series A $5.00 Preferred Stock -- 150,000 shares, without par value authorized; none issued.
The accompanying notes are an integral part of these statements.
PERRY DRUG STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these statements.
PERRY DRUG STORES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
................................................................................
PERRY DRUG STORES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERRY DRUG STORES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERRY DRUG STORES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
................................................................................
PERRY DRUG STORES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
................................................................................
PERRY DRUG STORES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERRY DRUG STORES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
................................................................................
EXHIBIT INDEX