Item
2.02.
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Results of Operations and Financial Condition.
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On April 12, 2018, Rite Aid Corporation
(the “Company”) reported its financial position and results of operations as of and for the thirteen and fifty-two
week fiscal year ended March 3, 2018. The press release includes the non-GAAP financial measures, “Adjusted EBITDA,”
“Adjusted Net Income (Loss),” “Adjusted Net Income (Loss) per Diluted Share” and “Pro-Forma Adjusted
EBITDA.” The Company uses these non-GAAP measures in assessing its performance in addition to net income, the most directly
comparable GAAP financial measure. A reconciliation of Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss)
per Diluted Share and Pro-Forma Adjusted EBITDA to net income is included in the press release, which is furnished as Exhibit 99.1
hereto.
The Company believes Adjusted EBITDA serves
as an appropriate measure in evaluating the performance of its business and helps its investors better compare the Company’s
operating performance with its competitors. The Company defines Adjusted EBITDA 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, the previously received Walgreens Boots Alliance merger termination
fee, 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 the Company’s customer loyalty
program). The Company references this non-GAAP financial measure frequently in its decision-making because it provides supplemental
information that facilitates internal comparisons to historical periods and external comparisons to competitors. In addition, incentive
compensation is based in part on Adjusted EBITDA and the Company bases certain of its forward-looking estimates and budgets on
Adjusted EBITDA.
The Company defines Adjusted Net Income
(Loss) as net income (loss) excluding the impact of amortization of EnvisionRx intangible assets, merger and acquisition-related
costs, loss on debt retirements, LIFO adjustments, and the previously received Walgreens Boots Alliance merger termination fee.
The Company calculates Adjusted Net Income (Loss) per Diluted Share using the Company’s above-referenced definition of Adjusted
Net Income (Loss). The Company believes Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share serve as appropriate
measures to be used in evaluating the performance of its business and help its investors better compare the Company’s operating
performance over multiple periods.
In addition, the Company’s management
team routinely evaluates how it measures the company’s financial performance. In connection with such review, the Company
determined that it would be beneficial to investors to reflect what the Company’s financial results would have been had it
received all of the fees that it would have earned pursuant to the Transaction Services Agreement (the “TSA”) with
Walgreens Boots Alliance, Inc. (“WBA”) for the relevant period. As a result, the company hereby introduces the non-GAAP
financial measure Pro Forma Adjusted EBITDA which is defined as Adjusted EBITDA plus the fees that would have been earned under
the TSA, and in order to improve comparability, Pro Forma Adjusted EBITDA further adjusts results so that periods contain the same
number of weeks.
Adjusted EBITDA, Adjusted Net Income (Loss),
Adjusted Net Income (Loss) per Diluted Share and Pro Forma Adjusted EBITDA should not be considered in isolation from, and are
not intended to represent alternative measures of, operating results or of cash flows from operating activities, as determined
in accordance with GAAP. The Company’s definitions of Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss)
per Diluted Share and Pro Forma Adjusted EBITDA may not be comparable to similarly titled measurements reported by other companies
or similar terms in the Company’s debt facilities.
In addition, a copy of the Company’s
Earnings Release Supplement for the fourth quarter and fiscal year 2018 is being furnished as Exhibit 99.2 to this Form 8-K.
The information (including Exhibits 99.1
and 99.2) being furnished pursuant to this “Item 2.02. Results of Operations and Financial Condition” shall not be
deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange
Act, or otherwise subject to the liabilities of that section and shall not be deemed to be incorporated by reference into any filing
under the Securities Act of 1933, as amended, or the Securities Act, or the Exchange Act regardless of any general incorporation
language in such filing.