- Rite Aid and Walgreens Boots
Alliance Mutually Agree to Terminate Previous Agreement Under Which
Walgreens Boots Alliance Was to Acquire All Outstanding Shares of
Rite Aid
- Rite Aid to Receive $325 Million
Termination Fee
- Asset Sale Repositions Rite Aid as
an Independent, Multi-Regional Drugstore Chain and Pharmacy
Benefits Manager With Compelling Footprint in Key Markets and
Strong Financial Position
- Proceeds to Be Used to Significantly
Reduce Debt and Strengthen Balance Sheet
- Agreement Provides Rite Aid With
10-Year Pharmaceutical Purchase Option Through WBA
Affiliate
- Company Reports Fiscal 2018 First
Quarter Results
Rite Aid Corporation (NYSE:RAD) today announced that it has
entered into an asset purchase agreement with Walgreens Boots
Alliance, Inc. (Nasdaq: WBA), whereby WBA will acquire 2,186
stores, related distribution assets and inventory from Rite Aid for
an all-cash purchase price of $5.175 billion, on a cash-free,
debt-free basis. Under the terms of the agreement, Rite Aid has the
option to purchase generic drugs that are sourced through an
affiliate of WBA at cost, substantially equivalent to Walgreens for
a period of 10 years.
The company also announced the immediate termination of the
merger agreement, which was announced on October 27, 2015 and
amended on January 29, 2017, under which WBA would have acquired
all outstanding shares of Rite Aid. The decision to terminate the
merger agreement follows feedback received from the Federal Trade
Commission ("FTC") that led the company to believe that the parties
would not have obtained FTC clearance to consummate the merger.
In connection with the termination, WBA has agreed to pay Rite
Aid a termination fee in the amount of $325 million in cash. In
light of the termination of the merger agreement, the divestiture
agreement with Fred’s, Inc. (Nasdaq: FRED) was also terminated,
effective today.
“While we believe that pursuing the merger with WBA was the
right thing to do for our investors and customers, this new
agreement provides a clear path forward and positions Rite Aid as a
strong, independent, multi-regional drugstore chain and pharmacy
benefits manager with a compelling footprint in key markets,” said
Rite Aid Chairman and CEO John Standley. “The transaction offers
clear solutions to assist us in addressing our pharmacy margin
challenges and allows us to significantly reduce debt, resulting in
a strong balance sheet and improved financial flexibility moving
forward.”
Standley continued, “I would like to thank our entire Rite Aid
team for their extraordinary efforts during this process and their
tremendous focus on taking great care of our customers and
patients. We have an outstanding team of associates and, with their
continued support, we will work together to deliver a great
customer experience, improve our business and deliver value to all
of our stakeholders.”
The 2,186 stores included in the agreement are primarily located
in the Northeast, Mid-Atlantic and Southeastern regions of the
United States. The three distribution centers included in the
agreement are located in Dayville, Conn., Philadelphia and
Spartanburg, S.C. Under the terms of the agreement, Rite Aid will
provide certain transition services to WBA for up to three years
after the closing of the transaction.
The transaction, which is expected to close within six months,
has been approved by the Boards of Directors of Rite Aid and WBA
and is subject to antitrust clearance under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and other customary
closing conditions. Approval of this transaction does not require a
shareholder vote.
Rite Aid expects to use a substantial majority of the net
proceeds from the transaction to repay existing indebtedness,
significantly reducing Rite Aid’s leverage levels. Rite Aid also
expects that the federal tax gain on the sale of the assets will be
largely offset by its net operating loss carryforwards, resulting
in a minimal cash tax payment on this transaction.
Following the completion of the transaction, Rite Aid will
continue to operate EnvisionRx, its pharmacy benefit manager,
RediClinic and Health Dialog and leverage the capabilities of these
subsidiaries to deliver a higher level of care in the communities
it serves.
First Quarter Summary
Today the company also reported operating results for its first
fiscal quarter ended June 3, 2017.
For the first quarter, the company reported revenues of $7.8
billion, net loss of $75.3 million, or $0.07 per diluted share,
Adjusted net loss of $52.4 million, or $0.05 per diluted share and
Adjusted EBITDA of $192.6 million, or 2.5 percent of revenues.
Revenues for the quarter were $7.8 billion compared to revenues
of $8.2 billion in the prior year’s first quarter, a decrease of
$402.7 million or 4.9 percent. Retail Pharmacy Segment revenues
were $6.4 billion and decreased 4.9 percent compared to the prior
year period primarily as a result of a decrease in same store sales
and reimbursement rates. Revenues in the company’s Pharmacy
Services Segment were $1.5 billion and decreased 5.6 percent
compared to the prior year period, due to an election to
participate in fewer Medicare Part D regions, which caused a
decrease in covered lives at Envision Insurance Company.
Same store sales for the quarter decreased 3.9 percent over the
prior year, consisting of a 5.0 percent decrease in pharmacy sales
and a 1.5 percent decrease in front-end sales. Pharmacy sales
included an approximate 222 basis point negative impact from new
generic introductions. The number of prescriptions filled in same
stores, adjusted to 30-day equivalents, decreased 1.1 percent over
the prior year period due in part, to exclusion from certain
pharmacy networks that Rite Aid participated in the prior year.
Prescription sales accounted for 67.9 percent of total drugstore
sales, and third party prescription revenue was 98.3 percent of
pharmacy sales.
Net loss was $75.3 million or $0.07 per diluted share compared
to last year’s first quarter net loss of $4.6 million or $0.00 per
diluted share. The decline in operating results is due primarily to
a decline in Adjusted EBITDA, partially offset by a higher income
tax benefit.
Adjusted EBITDA (which is reconciled to net loss in the attached
tables) was $192.6 million or 2.5 percent of revenues for the first
quarter compared to $286.0 million or 3.5 percent of revenues for
the same period last year. The decline in Adjusted EBITDA is due to
a decrease of $100.9 million in the Retail Pharmacy Segment,
resulting from lower pharmacy gross profit, which decreased due to
lower reimbursement rates, which the company was unable to fully
offset with generic purchasing efficiencies and script count,
partially offset by good cost control. Adjusted EBITDA in the
Pharmacy Services Segment increased $7.4 million compared to the
prior year as a result of higher gross profit.
In the first quarter, the company opened 1 store, relocated 4
stores, remodeled 67 stores and expanded 1 store, bringing the
total number of wellness stores chainwide to 2,482. The company
closed 14 stores, resulting in a total store count of 4,523 at the
end of the first quarter.
Conference Call Broadcast
Rite Aid will hold an analyst call at 10:30 a.m. Eastern Time
today with remarks by Rite Aid's management team. Slides related to
materials discussed on the call will be available on both sites. A
playback of the call will be available on both sites starting at
1:30 p.m. Eastern Time today. A playback of the call will also be
available by telephone beginning at 1:30 p.m. Eastern Time today
until 11:59 p.m. Eastern Time on June 29, 2017. The playback number
is 1-855-859-2056 from within the U.S. and Canada or 1-404-537-3406
from outside the U.S. and Canada with the eight-digit reservation
number 47541423.
Cautionary Statement Regarding Forward Looking
Statements
Statements in this release that are not historical, are
forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Such statements include, but are not limited to, statements
regarding the expected timing of the closing of the sale of stores
and assets to WBA; the ability of the parties to complete the sale
and related transactions considering the various closing
conditions; the outcome of legal and regulatory matters, including
with respect to the outcome of discussions with the Federal Trade
Commission and otherwise in connection with the sale of stores and
assets of Rite Aid to WBA; the expected benefits of the
transactions such as improved operations, enhanced revenues and
cash flow, growth potential, market profile and financial strength;
the competitive ability and position of Rite Aid following
completion of the proposed transactions; the ability of Rite Aid to
implement new business strategies following the completion of the
proposed transactions and any assumptions underlying any of the
foregoing. Words such as “anticipate,” “believe,” “continue,”
“could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,”
“project,” “should,” and “will” and variations of such words and
similar expressions are intended to identify such forward-looking
statements. These forward-looking statements are not guarantees of
future performance and involve risks, assumptions and
uncertainties, including, but not limited to, our high level of
indebtedness and our ability to make interest and principal
payments on our debt and satisfy the other covenants contained in
our debt agreements; general economic, industry, market,
competitive, regulatory and political conditions; our ability to
improve the operating performance of our stores in accordance with
our long term strategy; the impact of private and public
third-party payers continued reduction in prescription drug
reimbursements and efforts to encourage mail order; our ability to
manage expenses and our investments in working capital; outcomes of
legal and regulatory matters; changes in legislation or
regulations, including healthcare reform; our ability to achieve
the benefits of our efforts to reduce the costs of our generic and
other drugs; risks related to the proposed transactions, including
the possibility that the transactions may not close, including
because a governmental entity (including the Federal Trade
Commission) may prohibit, delay or refuse to grant approval for the
consummation of the transactions, or may require conditions,
limitations or restrictions in connection with such approvals, the
risk that there may be a material adverse change of Rite Aid, or
the business of Rite Aid may suffer as a result of uncertainty
surrounding the proposed transactions; risks related to the ability
to realize the anticipated benefits of the proposed transactions;
risks associated with the financing of the proposed transaction;
disruption from the proposed transaction making it more difficult
to maintain business and operational relationships; the effect of
the pending sale on Rite Aid's business relationships (including,
without limitation, customers and suppliers), operating results and
business generally; risks related to diverting management's or
employees' attention from ongoing business operations; the risk
that Rite Aid's stock price may decline significantly if the
proposed transaction is not completed; significant transaction
costs; unknown liabilities; the risk of litigation and/or
regulatory actions related to the proposed transactions; potential
changes to our strategy in the event the proposed transactions do
not close, which may include delaying or reducing capital or other
expenditures, selling assets or other operations, attempting to
restructure or refinance our debt, or seeking additional capital,
and other business effects. These and other risks, assumptions and
uncertainties are more fully described in Item 1A (Risk Factors) of
our most recent Annual Report on Form 10-K, and in other documents
that we file or furnish with the Securities and Exchange
Commission, which you are encouraged to read. Should one or more of
these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially
from those indicated or anticipated by such forward-looking
statements. Accordingly, you are cautioned not to place undue
reliance on these forward- looking statements, which speak only as
of the date they are made. Rite Aid expressly disclaims any current
intention to update publicly any forward-looking statement after
the distribution of this release, whether as a result of new
information, future events, changes in assumptions or
otherwise.
Reconciliation of Non-GAAP Financial Measures
The company separately reports financial results on the basis of
Adjusted Net Income (Loss), Adjusted Net Income (Loss) per diluted
share, and Adjusted EBITDA, which are non-GAAP financial measures.
See the attached tables for a reconciliation of Adjusted Net Income
(Loss), Adjusted Net Income (Loss) per diluted share and Adjusted
EBITDA to net income (loss), and net income (loss) per diluted
share, which are the most directly comparable GAAP financial
measures. Adjusted Net Income (Loss) and Adjusted Net Income (Loss)
per diluted share exclude amortization of EnvisionRx intangible
assets, merger and acquisition-related costs, loss on debt
retirements and LIFO adjustments. Adjusted EBITDA is defined as net
income (loss) excluding the impact of income taxes, interest
expense, depreciation and amortization, LIFO adjustments, charges
or credits for facility closing and impairment, inventory
write-downs related to store closings, debt retirements and other
items (including stock-based compensation expense, merger and
acquisition-related costs, severance and costs related to
distribution center closures, gain or loss on sale of assets and
revenue deferrals related to our customer loyalty program).
RITE AID CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (unaudited)
June 3, 2017 March 4, 2017 ASSETS Current assets:
Cash and cash equivalents $ 214,449 $ 245,410 Accounts receivable,
net 1,781,175 1,771,126 Inventories, net of LIFO reserve of
$1,016,650 and $999,776 2,789,176 2,837,211 Prepaid expenses and
other current assets 192,767 211,541
Total current assets
4,977,567 5,065,288 Property, plant and equipment, net 2,218,333
2,251,692 Goodwill 1,715,479 1,715,479 Other intangibles, net
787,969 835,795 Deferred tax assets 1,556,301 1,505,564 Other
assets 204,489 219,934 Total assets $
11,460,138 $ 11,593,752 LIABILITIES AND
STOCKHOLDERS' EQUITY Current liabilities: Current maturities of
long-term debt and lease financing obligations $ 22,460 $ 21,335
Accounts payable 1,646,457 1,613,909 Accrued salaries, wages and
other current liabilities 1,339,778 1,370,004
Total current liabilities 3,008,695 3,005,248 Long-term
debt, less current maturities 7,177,918 7,263,288 Lease financing
obligations, less current maturities 39,889 44,070 Other noncurrent
liabilities 673,008 667,076 Total
liabilities 10,899,510 10,979,682 Commitments and
contingencies - - Stockholders' equity: Common stock 1,053,685
1,053,690 Additional paid-in capital 4,848,675 4,839,854
Accumulated deficit (5,299,929 ) (5,237,157 ) Accumulated other
comprehensive loss (41,803 ) (42,317 ) Total
stockholders' equity 560,628 614,070
Total liabilities and stockholders' equity $ 11,460,138 $
11,593,752 RITE AID CORPORATION AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts) (unaudited)
Thirteen weeks endedJune 3, 2017
Thirteen weeks endedMay 28, 2016
Revenues $ 7,781,453 $ 8,184,181 Costs and expenses: Cost of
revenues 6,022,419 6,289,881 Selling, general and administrative
expenses 1,761,290 1,793,247 Lease termination and impairment
charges 4,086 5,781 Interest expense 109,937 105,113 (Gain) loss on
sale of assets, net (5,721 ) 1,056
7,892,011 8,195,078 Loss before
income taxes (110,558 ) (10,897 ) Income tax benefit (35,209
) (6,309 ) Net loss $ (75,349 ) $ (4,588 ) Basic and
diluted loss per share: Numerator for loss per share: Loss
attributable to common stockholders - basic and diluted $ (75,349 )
$ (4,588 ) Denominator: Basic and diluted
weighted average shares 1,046,826 1,042,437
Basic and diluted loss per share $ (0.07 ) $ (0.00 )
RITE AID CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands)
(unaudited)
Thirteen weeks endedJune 3, 2017
Thirteen weeks endedMay 28, 2016
Net loss $ (75,349 ) $ (4,588 ) Other comprehensive income: Defined
benefit pension plans: Amortization of prior service cost, net
transition obligation and net actuarial losses included in net
periodic pension cost, net of $342 and $451 tax expense 514
681 Total other comprehensive income
514 681 Comprehensive loss $ (74,835 ) $
(3,907 ) RITE AID CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL SEGMENT OPERATING INFORMATION (Dollars in
thousands) (unaudited)
Thirteen weeks endedJune 3, 2017
Thirteen weeks endedMay 28, 2016
Retail Pharmacy Segment Revenues (a) $ 6,350,208 $
6,675,548 Cost of revenues (a) 4,696,146
4,870,181 Gross profit 1,654,062 1,805,367 LIFO charge
16,874 13,751 FIFO gross profit
1,670,936 1,819,118 Gross profit as a percentage of revenues
26.05 % 27.04 % LIFO charge as a percentage of revenues 0.27 % 0.21
% FIFO gross profit as a percentage of revenues 26.31 % 27.25 %
Selling, general and administrative expenses 1,682,391
1,723,903 Selling, general and administrative expenses as a
percentage of revenues 26.49 % 25.82 % Cash interest expense
104,423 99,682 Non-cash interest expense 5,476
5,429 Total interest expense 109,899 105,111 Adjusted
EBITDA 143,965 244,827 Adjusted EBITDA as a percentage of revenues
2.27 % 3.67 %
Pharmacy Services Segment
Revenues (a) $ 1,513,241 $ 1,602,359 Cost of revenues (a)
1,408,269 1,513,426 Gross profit 104,972
88,933 Gross profit as a percentage of revenues 6.94 % 5.55
% Adjusted EBITDA 48,599 41,175 Adjusted EBITDA as a
percentage of revenues 3.21 % 2.57 %
(a) -
Revenues and cost of revenues include
$81,996 and $93,726 of inter-segment activity for the thirteen
weeks ended June 3, 2017 and May 28, 2016, respectively, that is
eliminated in consolidation.
RITE AID CORPORATION AND SUBSIDIARIES SUPPLEMENTAL
INFORMATION RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA (In
thousands) (unaudited)
Thirteen weeks endedJune 3, 2017
Thirteen weeks endedMay 28, 2016
Reconciliation of net loss to adjusted EBITDA: Net loss $
(75,349 ) $ (4,588 ) Adjustments: Interest expense 109,937 105,113
Income tax benefit (35,209 ) (6,309 ) Depreciation and amortization
142,092 138,788 LIFO charge 16,874 13,751 Lease termination and
impairment charges 4,086 5,781 Other 30,133
33,466 Adjusted EBITDA $ 192,564 $ 286,002
Percent of revenues 2.47 % 3.49 % RITE AID
CORPORATION AND SUBSIDIARIES SUPPLEMENTAL INFORMATION ADJUSTED NET
(LOSS) INCOME (Dollars in thousands, except per share amounts)
(unaudited)
Thirteen weeks endedJune 3, 2017
Thirteen weeks endedMay 28, 2016
Net loss $ (75,349 ) $ (4,588 ) Add back - Income tax
benefit (35,209 ) (6,309 ) Loss before income taxes
(110,558 ) (10,897 ) Adjustments: Amortization of EnvisionRx
intangible assets 20,716 20,315 LIFO charge 16,874 13,751 Merger
and Acquisition-related costs 7,239 2,756
Adjusted (loss) income before income taxes (65,729 )
25,925 Adjusted income tax (benefit) expense (a)
(13,292 ) 9,590 Adjusted net (loss) income $ (52,437
) $ 16,335 Adjusted net (loss) income per diluted
share: Numerator for adjusted net (loss) income per diluted
share: Adjusted net (loss) income $ (52,437 ) $ 16,335
Denominator: Basic weighted average shares
1,046,826 1,042,437 Outstanding options and restricted shares, net
- 17,187 Diluted weighted
average shares 1,046,826 1,059,624
Net loss per diluted share $ (0.07 ) $ (0.00 )
Adjusted net (loss) income per diluted share $ (0.05 ) $ 0.02
(a)
The fiscal year 2018 and 2017 annual
effective tax rates, adjusted to exclude amortization of EnvisionRx
intangible assets, LIFO charges and Merger and Acquisition-related
costs from book income, are used for the thirteen weeks ended June
3, 2017 and May 28, 2016, respectively.
RITE AID CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
(unaudited)
Thirteen weeks endedJune 3, 2017
Thirteen weeks endedMay 28, 2016 (a)
OPERATING ACTIVITIES: Net loss $ (75,349 ) $ (4,588 )
Adjustments to reconcile to net cash provided by operating
activities: Depreciation and amortization 142,092 138,788 Lease
termination and impairment charges 4,086 5,781 LIFO charge 16,874
13,751 (Gain) loss on sale of assets, net (5,721 ) 1,056
Stock-based compensation expense 9,038 11,144 Changes in deferred
taxes (38,160 ) (5,749 ) Excess tax benefit on stock options and
restricted stock - (883 ) Changes in operating assets and
liabilities: Accounts receivable (13,757 ) (74,530 ) Inventories
31,172 59,440 Accounts payable 4,372 115,646 Other assets and
liabilities, net 18,087 (99,856 ) Net cash
provided by operating activities 92,734 160,000 INVESTING
ACTIVITIES: Payments for property, plant and equipment (60,738 )
(106,077 ) Intangible assets acquired (8,234 ) (16,381 ) Proceeds
from dispositions of assets and investments 8,639 3,088 Proceeds
from insured loss 2,137 - Net cash used
in investing activities (58,196 ) (119,370 ) FINANCING ACTIVITIES:
Net payments to revolver (90,000 ) (20,000 ) Principal payments on
long-term debt (4,267 ) (5,721 ) Change in zero balance cash
accounts 28,768 2,262 Net proceeds from the issuance of common
stock 147 2,371 Excess tax benefit on stock options and restricted
stock - 883 Payments for taxes related to net share settlement of
equity awards (147 ) (56 ) Net cash used in financing
activities (65,499 ) (20,261 ) (Decrease) increase in
cash and cash equivalents (30,961 ) 20,369 Cash and cash
equivalents, beginning of period 245,410
124,471 Cash and cash equivalents, end of period $ 214,449
$ 144,840
SUPPLEMENTAL CASH FLOW
INFORMATION Payments for property, plant and equipment $
60,738 $ 106,077 Intangible assets acquired 8,234
16,381 Total cash capital expenditures 68,972 122,458
Equipment received for noncash consideration 1,295 632 Equipment
financed under capital leases 3,857 1,553
Gross capital expenditures $ 74,124 $ 124,643
(a)
During the thirteen weeks ended June 3,
2017, the Company adopted ASU 2016-09, Improvements to Employee
Share-Based Payment Accounting, which resulted in a retrospective
reclassification of $56 thousand for payments for taxes related to
net share settlement of equity awards from operating activities to
financing activities which increased net cash provided by operating
activities and increased cash used in financing activities for the
thirteen weeks ended May 28, 2016.
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version on businesswire.com: http://www.businesswire.com/news/home/20170629005563/en/
Rite Aid CorporationINVESTORS:Matt Schroeder,
717-214-8867investor@riteaid.comorMEDIA:Susan Henderson,
717-730-7766
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