RITE AID CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
March 3,
2018
(52 Weeks)
|
|
March 4,
2017
(53 Weeks)
|
|
February 27,
2016
(52 Weeks)
|
|
Revenues
|
|
$
|
21,528,968
|
|
$
|
22,927,540
|
|
$
|
20,770,237
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
16,748,863
|
|
|
17,862,833
|
|
|
15,778,258
|
|
Selling, general and administrative expenses
|
|
|
4,651,262
|
|
|
4,776,995
|
|
|
4,581,171
|
|
Lease termination and impairment charges
|
|
|
58,765
|
|
|
45,778
|
|
|
40,477
|
|
Goodwill impairment
|
|
|
261,727
|
|
|
|
|
|
|
|
Interest expense
|
|
|
202,768
|
|
|
200,065
|
|
|
186,132
|
|
Loss on debt retirements, net
|
|
|
|
|
|
|
|
|
33,205
|
|
Walgreens Boots Alliance merger termination fee
|
|
|
(325,000
|
)
|
|
|
|
|
|
|
Gain on sale of assets, net
|
|
|
(25,872
|
)
|
|
(6,649
|
)
|
|
(606
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,572,513
|
|
|
22,879,022
|
|
|
20,618,637
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income taxes
|
|
|
(43,545
|
)
|
|
48,518
|
|
|
151,600
|
|
Income tax expense
|
|
|
305,987
|
|
|
44,438
|
|
|
49,512
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing
operations
|
|
|
(349,532
|
)
|
|
4,080
|
|
|
102,088
|
|
Net income (loss) from discontinued operations, net of tax
|
|
|
1,293,002
|
|
|
(27
|
)
|
|
63,377
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
943,470
|
|
$
|
4,053
|
|
$
|
165,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computation of income attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to common stockholdersbasic and diluted
|
|
$
|
(349,532
|
)
|
$
|
4,080
|
|
$
|
102,088
|
|
Income (loss) from discontinued operations attributable to common stockholdersbasic and
diluted
|
|
|
1,293,002
|
|
|
(27
|
)
|
|
63,377
|
|
|
|
|
|
|
|
|
|
|
|
|
Income attributable to common stockholdersbasic and diluted
|
|
$
|
943,470
|
|
$
|
4,053
|
|
$
|
165,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.33
|
)
|
$
|
0.00
|
|
$
|
0.10
|
|
Discontinued operations
|
|
$
|
1.23
|
|
$
|
(0.00
|
)
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
Net basic income per share
|
|
$
|
0.90
|
|
$
|
0.00
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.33
|
)
|
$
|
0.00
|
|
$
|
0.10
|
|
Discontinued operations
|
|
$
|
1.23
|
|
$
|
(0.00
|
)
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
Net diluted income per share
|
|
$
|
0.90
|
|
$
|
0.00
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
76
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
March 3,
2018
(52 Weeks)
|
|
March 4,
2017
(53 Weeks)
|
|
February 27,
2016
(52 Weeks)
|
|
Net income
|
|
$
|
943,470
|
|
$
|
4,053
|
|
$
|
165,465
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost, net transition obligation and net actuarial losses included in net periodic pension cost, net of $4,842, $3,600, and
$(1,681) tax expense (benefit)
|
|
|
7,255
|
|
|
5,464
|
|
|
(1,931
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
|
7,255
|
|
|
5,464
|
|
|
(1,931
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
950,725
|
|
$
|
9,517
|
|
$
|
163,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
77
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended March 3, 2018, March 4, 2017 and
February 27, 2016
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
|
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Deficit
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Total
|
|
BALANCE FEBRUARY 28, 2015
|
|
|
988,558
|
|
$
|
988,558
|
|
$
|
4,521,023
|
|
$
|
(5,406,675
|
)
|
$
|
(45,850
|
)
|
$
|
57,056
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
165,465
|
|
|
|
|
|
165,465
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Defined Benefit Plans, net of $1,681 tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,931
|
)
|
|
(1,931
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163,534
|
|
Exchange of restricted shares for taxes
|
|
|
(2,045
|
)
|
|
(2,045
|
)
|
|
(15,461
|
)
|
|
|
|
|
|
|
|
(17,506
|
)
|
Issuance of restricted stock
|
|
|
2,751
|
|
|
2,751
|
|
|
(2,751
|
)
|
|
|
|
|
|
|
|
|
|
Cancellation of restricted stock
|
|
|
(420
|
)
|
|
(420
|
)
|
|
420
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted stock balance
|
|
|
|
|
|
|
|
|
28,342
|
|
|
|
|
|
|
|
|
28,342
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
11,164
|
|
|
|
|
|
|
|
|
11,164
|
|
Conversion of convertible debt instruments
|
|
|
24,762
|
|
|
24,762
|
|
|
39,327
|
|
|
|
|
|
|
|
|
64,089
|
|
Tax benefit from exercise of stock options and restricted stock vesting
|
|
|
|
|
|
|
|
|
22,466
|
|
|
|
|
|
|
|
|
22,466
|
|
Stock options exercised
|
|
|
6,394
|
|
|
6,394
|
|
|
4,982
|
|
|
|
|
|
|
|
|
11,376
|
|
Shares issued for EnvisionRx acquisition
|
|
|
27,754
|
|
|
27,754
|
|
|
213,153
|
|
|
|
|
|
|
|
|
240,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE FEBRUARY 27, 2016
|
|
|
1,047,754
|
|
$
|
1,047,754
|
|
$
|
4,822,665
|
|
$
|
(5,241,210
|
)
|
$
|
(47,781
|
)
|
$
|
581,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
4,053
|
|
|
|
|
|
4,053
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Defined Benefit Plans, net of $3,600 tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,464
|
|
|
5,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,517
|
|
Exchange of restricted shares for taxes
|
|
|
(809
|
)
|
|
(809
|
)
|
|
(5,446
|
)
|
|
|
|
|
|
|
|
(6,255
|
)
|
Issuance of restricted stock
|
|
|
3,613
|
|
|
3,613
|
|
|
(3,613
|
)
|
|
|
|
|
|
|
|
|
|
Cancellation of restricted stock
|
|
|
(424
|
)
|
|
(424
|
)
|
|
424
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted stock balance
|
|
|
|
|
|
|
|
|
12,588
|
|
|
|
|
|
|
|
|
12,588
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
9,989
|
|
|
|
|
|
|
|
|
9,989
|
|
Tax benefit from exercise of stock options and restricted stock vesting
|
|
|
|
|
|
|
|
|
(148
|
)
|
|
|
|
|
|
|
|
(148
|
)
|
Stock options exercised
|
|
|
3,556
|
|
|
3,556
|
|
|
3,395
|
|
|
|
|
|
|
|
|
6,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE MARCH 4, 2017
|
|
|
1,053,690
|
|
$
|
1,053,690
|
|
$
|
4,839,854
|
|
$
|
(5,237,157
|
)
|
$
|
(42,317
|
)
|
$
|
614,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
943,470
|
|
|
|
|
|
943,470
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Defined Benefit Plans, net of $4,842 tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,255
|
|
|
7,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
950,725
|
|
Adoption of ASU 2016-09
|
|
|
|
|
|
|
|
|
|
|
|
11,729
|
|
|
|
|
|
11,729
|
|
Adoption of ASU 2018-02
|
|
|
|
|
|
|
|
|
|
|
|
(513
|
)
|
|
513
|
|
|
|
|
Exchange of restricted shares for taxes
|
|
|
(1,454
|
)
|
|
(1,454
|
)
|
|
(2,649
|
)
|
|
|
|
|
|
|
|
(4,103
|
)
|
Issuance of restricted stock
|
|
|
13,856
|
|
|
13,856
|
|
|
(13,856
|
)
|
|
|
|
|
|
|
|
|
|
Cancellation of restricted stock
|
|
|
(3,594
|
)
|
|
(3,594
|
)
|
|
3,594
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted stock balance
|
|
|
|
|
|
|
|
|
18,365
|
|
|
|
|
|
|
|
|
18,365
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
2,761
|
|
|
|
|
|
|
|
|
2,761
|
|
Amortization of performance-based incentive plans
|
|
|
|
|
|
|
|
|
1,667
|
|
|
|
|
|
|
|
|
1,667
|
|
Stock options exercised
|
|
|
4,820
|
|
|
4,820
|
|
|
976
|
|
|
|
|
|
|
|
|
5,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE MARCH 3, 2018
|
|
|
1,067,318
|
|
$
|
1,067,318
|
|
$
|
4,850,712
|
|
$
|
(4,282,471
|
)
|
$
|
(34,549
|
)
|
$
|
1,601,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
78
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
March 3,
2018
(52 Weeks)
|
|
March 4,
2017
(53 Weeks)
|
|
February 27,
2016
(52 Weeks)
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
943,470
|
|
$
|
4,053
|
|
$
|
165,465
|
|
Net income (loss) from discontinued operations, net of tax
|
|
|
1,293,002
|
|
|
(27
|
)
|
|
63,377
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations
|
|
$
|
(349,532
|
)
|
$
|
4,080
|
|
$
|
102,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
386,057
|
|
|
407,366
|
|
|
361,134
|
|
Lease termination and impairment charges
|
|
|
58,765
|
|
|
45,778
|
|
|
40,477
|
|
Goodwill impairment
|
|
|
261,727
|
|
|
|
|
|
|
|
LIFO (credit) charge
|
|
|
(28,827
|
)
|
|
(3,721
|
)
|
|
7,892
|
|
Gain on sale of assets, net
|
|
|
(25,872
|
)
|
|
(6,649
|
)
|
|
(606
|
)
|
Stock-based compensation expense
|
|
|
25,793
|
|
|
23,482
|
|
|
37,948
|
|
Loss on debt retirements, net
|
|
|
|
|
|
|
|
|
33,205
|
|
Changes in deferred taxes
|
|
|
260,411
|
|
|
35,038
|
|
|
79,488
|
|
Excess tax benefit on stock options and restricted stock
|
|
|
|
|
|
(543
|
)
|
|
(22,884
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(349,481
|
)
|
|
(159,590
|
)
|
|
264,525
|
|
Inventories
|
|
|
18,835
|
|
|
(49,381
|
)
|
|
136,823
|
|
Accounts payable
|
|
|
211,511
|
|
|
39,542
|
|
|
(480
|
)
|
Other assets and liabilities, net
|
|
|
42,083
|
|
|
(152,375
|
)
|
|
(329,267
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities of continuing operations
|
|
|
511,470
|
|
|
183,027
|
|
|
710,343
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Payments for property, plant and equipment
|
|
|
(185,879
|
)
|
|
(254,149
|
)
|
|
(391,199
|
)
|
Intangible assets acquired
|
|
|
(28,885
|
)
|
|
(39,648
|
)
|
|
(89,874
|
)
|
Acquisition of businesses, net of cash acquired
|
|
|
|
|
|
|
|
|
(1,778,377
|
)
|
Proceeds from insured loss
|
|
|
4,239
|
|
|
|
|
|
|
|
Proceeds from sale-leaseback transactions
|
|
|
|
|
|
|
|
|
26,953
|
|
Proceeds from dispositions of assets and investments
|
|
|
27,586
|
|
|
16,852
|
|
|
9,773
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities of continuing operations
|
|
|
(182,939
|
)
|
|
(276,945
|
)
|
|
(2,222,724
|
)
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
|
|
|
|
|
|
1,800,000
|
|
Net (payments to) proceeds from revolver
|
|
|
(265,000
|
)
|
|
330,000
|
|
|
375,000
|
|
Principal payments on long-term debt
|
|
|
(9,882
|
)
|
|
(16,588
|
)
|
|
(667,494
|
)
|
Change in zero balance cash accounts
|
|
|
35,605
|
|
|
43,080
|
|
|
(62,878
|
)
|
Net proceeds from the issuance of common stock
|
|
|
5,796
|
|
|
6,951
|
|
|
11,376
|
|
Financing fees paid for early debt redemption
|
|
|
|
|
|
|
|
|
(26,003
|
)
|
Excess tax benefit on stock options and restricted stock
|
|
|
|
|
|
543
|
|
|
22,884
|
|
Deferred financing costs paid
|
|
|
|
|
|
|
|
|
(34,634
|
)
|
Payment for taxes related to net share settlement of equity awards
|
|
|
(4,103
|
)
|
|
(6,254
|
)
|
|
(17,506
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities of continuing
operations
|
|
|
(237,584
|
)
|
|
357,732
|
|
|
1,400,745
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
Operating activities of discontinued operations
|
|
|
(245,126
|
)
|
|
49,090
|
|
|
304,565
|
|
Investing activities of discontinued operations
|
|
|
3,496,222
|
|
|
(187,314
|
)
|
|
(179,134
|
)
|
Financing activities of discontinued operations
|
|
|
(3,140,119
|
)
|
|
(4,651
|
)
|
|
(5,223
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) discontinued operations
|
|
|
110,977
|
|
|
(142,875
|
)
|
|
120,208
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
201,924
|
|
|
120,939
|
|
|
8,572
|
|
Cash and cash equivalents, beginning of year
|
|
|
245,410
|
|
|
124,471
|
|
|
115,899
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
447,334
|
|
$
|
245,410
|
|
$
|
124,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
79
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended March 3, 2018, March 4, 2017 and
February 27, 2016
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies
The Company is a Delaware corporation and through its 100 percent owned subsidiaries, operates a pharmacy retail healthcare company in
the United States of America. The Company operates through its two reportable segments: the Retail Pharmacy segment and the Pharmacy Services segment. The Retail Pharmacy segment operates one of the
largest retail drugstore chains in the United States, with 2,550 stores in operation as of March 3, 2018. The Retail Pharmacy segment's drugstores' primary business is the sale of brand and
generic prescription drugs. The Retail Pharmacy segment also sells a full selection of health and beauty aids and personal care products, seasonal merchandise and a large private brand product line.
The Pharmacy Services segment, acquired by the Company in connection with the June 24, 2015 acquisition of EnvisionRx, operates both a transparent and traditional pharmacy benefit management
("PBM") business; mail-order and specialty pharmacy services through EnvisionPharmacies; access to the nation's largest cash pay infertility discount drug program via Design Rx; a claims adjudication
software platform through Laker Software; and a national Medicare Part D prescription drug plan through Envision Insurance Company ("EIC"). See Note 21 for additional details on the
Company's reportable segments.
The
discussion and presentation of the operating and financial results of our business segments have been impacted by the following event.
Pursuant
to the terms and subject to the conditions set forth in the Amended and Restated Asset Purchase Agreement, Walgreen Co. agreed to purchase from Rite Aid 1,932 stores,
three distribution centers, related inventory and other specified assets and liabilities related thereto for a purchase price of approximately $4.375 billion, on a cash-free, debt-free basis
(the "Asset Sale" or the "Sale"). As of
March 3, 2018, the Company has sold 1,651 stores and related assets to WBA in exchange for proceeds of $3,553.5 million, which were used to repay outstanding debt. Based on its magnitude
and because the Company is exiting certain markets, the Sale represents a significant strategic shift that has a material effect on the Company's operations and financial results. Accordingly, the
Company has applied discontinued operations treatment for the Asset Sale as required by Accounting Standards Codification 210-05
Discontinued
Operations
(ASC 205-20). In accordance with ASC 205-20, the Company reclassified the assets and liabilities to be sold, including 1,932 stores (the "Acquired Stores"),
three (3) distribution centers, related inventory and other specified assets and liabilities related thereto (collectively the "Assets to be Sold" or "Disposal Group") to assets and liabilities
held for sale on its consolidated balance sheets as of the periods ended March 3, 2018 and March 4, 2017, and reclassified the financial results of the Disposal Group in its consolidated
statements of operations and consolidated statements of cash flows for all periods presented. Additionally, corporate support activities related to the Disposal Group were not reclassified to
discontinued operations. Please see additional information as provided in Note 4 Asset Sale to WBA.
Prior
to the June 24, 2015 acquisition of EnvisionRx, the Company's operations consisted solely of the Retail Pharmacy segment. Following the completion of the EnvisionRx
acquisition, the Company
80
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
organized
its operations into the Retail Pharmacy segment and the Pharmacy Services segment. Revenues for the Company are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
March 3,
2018
(52 Weeks)
|
|
March 4,
2017
(53 Weeks)
|
|
February 27,
2016
(52 Weeks)
|
|
Retail Pharmacy segment:
|
|
|
|
|
|
|
|
|
|
|
Pharmacy sales
|
|
$
|
10,328,376
|
|
$
|
11,072,480
|
|
$
|
11,258,112
|
|
Front end sales
|
|
|
5,348,613
|
|
|
5,538,352
|
|
|
5,419,889
|
|
Other revenue
|
|
|
155,636
|
|
|
155,788
|
|
|
142,387
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Retail Pharmacy segment
|
|
$
|
15,832,625
|
|
$
|
16,766,620
|
|
$
|
16,820,388
|
|
Pharmacy Services segment revenue
|
|
|
5,896,669
|
|
|
6,393,884
|
|
|
4,103,513
|
|
Intersegment elimination
|
|
|
(200,326
|
)
|
|
(232,964
|
)
|
|
(153,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
21,528,968
|
|
$
|
22,927,540
|
|
$
|
20,770,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
of prescription drugs for our Retail Pharmacy segment represented approximately 65.9%, 66.0% and 66.9% of the Company's total drugstore sales in fiscal years 2018, 2017 and 2016,
respectively. The Retail Pharmacy segment's principal classes of products in fiscal 2018 were the following:
|
|
|
|
|
Product Class
|
|
Percentage
of Sales
|
|
Prescription drugs
|
|
|
65.9
|
%
|
Over-the-counter medications and personal care
|
|
|
10.9
|
%
|
Health and beauty aids
|
|
|
4.4
|
%
|
General merchandise and other
|
|
|
18.8
|
%
|
The Company's fiscal year ends on the Saturday closest to February 29 or March 1. The fiscal year ended March 3, 2018
included 52 weeks. The fiscal year ended March 4, 2017 included 53 weeks. The fiscal year ended February 27, 2016 included 52 weeks.
The consolidated financial statements include the accounts of the Company and all of its 100 percent owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
81
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
Cash and cash equivalents consist of cash on hand and highly liquid investments, which are readily convertible to known amounts of cash and
which have original maturities of three months or less when purchased.
Substantially all prescription sales are made to customers who are covered by third-party payors, such as insurance companies, government
agencies and employers. The Company recognizes receivables that represent the amount owed to the Company for sales made to customers or employees of those payors that have not yet been paid. The
Company maintains a reserve for the amount of these receivables deemed to be uncollectible. This reserve is calculated based upon historical collection activity adjusted for current conditions.
Inventories are stated at the lower of cost or market. Inventory balances include the capitalization of certain costs related to purchasing,
freight and handling costs associated with placing inventory in its location and condition for sale. The Company uses the last-in, first-out ("LIFO") cost flow assumption for substantially all of its
inventories. The Company calculates its inflation index based on internal product mix and utilizes the link-chain LIFO method.
Asset impairments are recorded when the carrying value of assets are not recoverable. For purposes of recognizing and measuring impairment of
long-lived assets, the Company categorizes assets of operating stores as "Assets to Be Held and Used" and "Assets to Be Disposed Of." The Company evaluates assets at the store level because this is
the lowest level of identifiable cash flows ascertainable to evaluate impairment. Assets being tested for recoverability at the store level include tangible long-lived assets and identifiable,
finite-lived intangibles that arose in purchase business combinations. Corporate assets to be held and used are evaluated for impairment based on excess cash flows from the stores that support those
assets.
The
Company reviews long-lived assets to be held and used for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the undiscounted expected future cash flows is less than the carrying amount of the asset, the Company recognizes an impairment loss. Impairment losses are measured as the
amount by which the carrying amount of the asset exceeds the fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows
discounted at a rate commensurate with the risks associated with the recovery of the asset.
82
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation and amortization. The Company provides for depreciation using
the straight-line method over the following useful lives: buildings30 to 45 years; equipment3 to 15 years.
Leasehold
improvements are amortized on a straight-line basis over the shorter of the estimated useful life of the asset or the term of the lease. When determining the amortization
period of a leasehold improvement, the Company considers whether discretionary exercise of a lease renewal option is reasonably assured. If it is determined that the exercise of such option is
reasonably assured, the Company will amortize the leasehold improvement asset over the minimum lease term, plus the option
period. This determination depends on the remaining life of the minimum lease term and any economic penalties that would be incurred if the lease option is not exercised.
Capitalized
lease assets are recorded at the lesser of the present value of minimum lease payments or fair market value and amortized over the estimated useful life of the related
property or term of the lease.
The
Company capitalizes direct internal and external development costs associated with internal-use software. Neither preliminary evaluation costs nor costs associated with the software
after implementation are capitalized. For fiscal years 2018, 2017 and 2016, the Company capitalized costs of approximately $13,940, $6,189 and $7,680, respectively.
The Company recognizes goodwill as the excess of the purchase price over the fair value of the assets acquired and liabilities assumed during
business combinations. The Company accounts for goodwill under ASC Topic 350, "IntangiblesGoodwill and Other", which does not permit amortization, but instead requires the Company to
perform an annual impairment review, or more frequently if events or circumstances indicate that impairment may be more likely. See Note 13 for additional information on goodwill.
The Company has certain finite-lived intangible assets that are amortized over their useful lives. The value of favorable and unfavorable leases
on stores acquired in business combinations are amortized over the terms of the leases on a straight-line basis. Prescription files acquired in business combinations are amortized over an estimated
useful life of ten years on an accelerated basis, which approximates the anticipated prescription file retention and related cash flows. Purchased prescription files acquired in other than business
combinations are amortized over their estimated useful lives of five years on a straight-line basis. The value of finite-lived trade names are amortized over 10 years on a straight-line basis.
The value of customer relationships, acquired in connection with the Company's acquisition of EnvisionRx, are amortized over a period between 10 and 20 years on a descending percentage method
which matches the pattern of expected discounted cash flows. The Pharmacy Services segment's contract with Centers for Medicare and Medicaid Services ("CMS") for Medicare
83
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
Part D
("Part D"), which is required in order to act as a national provider of the Part D benefit, is amortized over 25 years on a straight line basis.
Costs incurred to issue debt are deferred and amortized as a component of interest expense over the terms of the related debt agreements.
Amortization expense of deferred financing costs was $8,403, $4,696 and $4,691 for fiscal 2018, 2017 and 2016, respectively.
Revenue Recognition
Retail Pharmacy Segment
For front end sales, the Retail Pharmacy segment recognizes revenue from the sale of merchandise at the time the merchandise is sold. The Retail
Pharmacy segment records revenue net of an allowance for estimated future returns. Return activity is immaterial to revenues and results of operations in all periods presented. For third party payor
pharmacy sales, revenue is recognized at the time the prescription is filled, which is or approximates when the customer picks up the prescription and is recorded net of an allowance for prescriptions
that were filled but will not be picked up by the customer. For all periods presented, there is no material difference between the revenue recognized at the time the prescription is filled and that
which would be recognized when the customer picks up the prescription. For cash prescriptions and patient third party payor co-payments, the Retail Pharmacy segment recognizes revenue when the patient
picks up the prescription and tenders the cash price or patient third party payor co-payment amount at the point of sale. Prescriptions are generally not returnable.
The
Retail Pharmacy segment offers a chain-wide loyalty card program titled wellness +. Members participating in the wellness + loyalty card program earn points on a
calendar year basis for eligible front end merchandise purchases and qualifying prescriptions. One point is awarded for each dollar spent towards front end merchandise and 25 points are awarded for
each qualifying prescription.
Members
reach specific wellness + tiers based on the points accumulated during the calendar year, which entitles such customers to certain future discounts and other
benefits upon reaching that tier. For example, any customer that reaches 1,000 points in a calendar year achieves the "Gold" tier, enabling them to receive a 20% discount on qualifying purchases of
front end merchandise for the remaining portion of the calendar year and also the next calendar year. There is also a similar "Silver" level with a lower threshold and benefit level.
As
wellness + customers accumulate points, the Retail Pharmacy segment defers the value of the points earned as deferred revenue (included in other current and noncurrent
liabilities, based on the expected usage). The amount deferred is based on historic and projected customer activity (e.g., tier level, spending level). As customers receive discounted front end
merchandise, the Retail Pharmacy segment recognizes an allocable portion of the deferred revenue. The Retail Pharmacy segment deferred $63,851 as of March 3, 2018 of which $50,036 is included
in other current liabilities and $13,815 is included in noncurrent liabilities. The Retail Pharmacy segment deferred $60,255 as of
84
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
March 4,
2017 of which $46,864 is included in other current liabilities and $13,391 is included in noncurrent liabilities.
In
January 2018, the Company ended its partnership with American Express Travel Related Services Company, Inc. ("American Express") and later replaced that program with The Rite
Aid wellness+ Rewards program, which allows a customer to earn Bonus Cash based on qualifying purchases. wellness+ Rewards members have the opportunity to redeem their accumulated Bonus Cash on a
future purchase with a 60 day expiration window. All Bonus Cash is redeemed using a FIFO methodology (e.g., first Bonus Cash earned are the first to be redeemed).
For
a majority of the Bonus Cash issuances, funding is provided by our vendors through contractual arrangements. This funding is treated as deferred revenue and remains in deferred
revenue until a wellness+ Rewards member redeems their Bonus Cash. Upon redemption, the deferred revenue account is decremented with an offsetting credit to sales. For Bonus cash redemptions that are
not vendor funded, deferred revenue is recorded and not recognized until Bonus Cash is redeemed.
Prior
to ending its partnership with American Express, the Company partnered with American Express to be part of a coalition loyalty program titled Plenti. This awards program allows a
customer to earn points based on qualifying purchases at participating retailers. Each Plenti point is worth the equivalent of $0.01. The customer has the opportunity to redeem their accumulated
points on a future purchase at any of the participating retailers. All points are redeemed using a FIFO methodology (e.g., first points earned are the first to be redeemed). Points expire on
December 31st of each year for any point that has aged a minimum of two years that has not been redeemed by the customer. For a majority of the Plenti point issuances, funding is
provided by our vendors through contractual arrangements. This funding is treated as deferred revenue and remains in deferred revenue until a customer redeems their points. Upon redemption, the
deferred revenue account is decremented with an offsetting credit to sales. For Plenti point redemptions that are not vendor funded, deferred revenue is recorded and not recognized until the points
are redeemed. As of March 3, 2018, the Company had deferred revenue of $23,907 relating to the Plenti program which is included in other current liabilities. As of March 4, 2017, the
Company had deferred revenue of $35,642 relating to the Plenti program which is included in other current liabilities
The Pharmacy Services segment ("Pharmacy Services") sells prescription drugs indirectly through its retail pharmacy network and directly through
its mail service dispensing pharmacy. The Pharmacy Services segment recognizes revenue from prescription drugs sold by (i) its mail service dispensing pharmacy and (ii) under retail
pharmacy network contracts where it is the principal using the gross method at the contract prices negotiated with its clients, primarily employers, insurance companies, unions, government employee
groups, health plans, Managed Medicaid plans, Medicare plans, and other sponsors of health benefit plans, and individuals throughout the United States. Revenues include: (i) the portion of the
price the client pays directly to the Pharmacy Services segment, net of any volume-related or other discounts paid back to the client (see "Drug Discounts" below), (ii) the price paid to the
Pharmacy Services segment by client plan members for mail order prescriptions ("Mail
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
Co-Payments"),
(iii) customer copayments made directly to the retail pharmacy network, and (iv) administrative fees. Sales taxes are not included in revenue. Revenue is recognized when:
(i) persuasive evidence that the prescription drug sale has occurred or a contractual arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the
seller's price to the buyer is fixed or determinable, and (iv) collectability is reasonably assured. The following revenue recognition policies have been established for the Pharmacy Services
segment:
-
-
Revenues generated from prescription drugs sold by third party pharmacies in the Pharmacy Services segment's retail pharmacy network and
associated administrative fees are recognized at the Pharmacy Services segment's point-of-sale, which is when the claim is adjudicated by the Pharmacy Services segment's online claims processing
system.
-
-
Revenues generated from prescription drugs sold by the Pharmacy Services segment's mail service dispensing pharmacy are recognized when the
prescription is delivered. At the time of delivery, the Pharmacy Services segment has performed substantially all of its obligations under its client contracts and does not experience a significant
level of returns or reshipments.
-
-
Revenues generated from administrative fees based on membership or claims volume are recognized monthly upon active membership in the plan or
actual claims volume.
In
the majority of its contracts, the Pharmacy Services segment has determined it is the principal due to it: (i) being the primary obligor in the arrangement,
(ii) latitude in establishing price, (iii) performs part of the service, (iv) having discretion in supplier selection and v) having involvement in the determination of
product or service specifications. The Pharmacy Services segment's obligations under its client contracts for which revenues are reported using the gross method are separate and distinct from its
obligations to the third party pharmacies included in its retail pharmacy network contracts. Pursuant to these contracts, the Pharmacy Services segment is contractually required to pay the third party
pharmacies in its retail pharmacy network for products sold after payment is received from its clients. The Pharmacy Services segment's responsibilities under its client contracts typically include
validating eligibility and coverage levels, communicating the prescription price and the co-payments due to the third party retail pharmacy, identifying possible adverse drug interactions for the
pharmacist to address with the prescriber prior to dispensing, suggesting generic alternatives where clinically appropriate and approving the prescription for dispensing. Although the Pharmacy
Services segment does not have credit risk with respect to its pharmacy benefit manager operations and retail co-payments, management believes that all of the other applicable indicators of gross
revenue reporting are present.
Drug
DiscountsThe Pharmacy Services segment deducts from its revenues that are generated from prescription drugs sold by third party pharmacies any rebates, inclusive of
discounts and fees, earned by its clients. Rebates are paid to clients in accordance with the terms of client contracts.
Medicare
Part DThe Pharmacy Services segment, through its EIC subsidiary, participates in the federal government's Medicare Part D program as a Prescription
Drug Plan ("PDP"). Net revenues include insurance premiums earned by the PDP, which are determined based on the PDP's annual bid and related contractual arrangements with the Centers for Medicare and
Medicaid Services ("CMS").
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
The
insurance premiums include a direct premium paid by CMS and a beneficiary premium, which is the responsibility of the PDP member, but is subsidized by CMS in the case of low-income members.
Premiums collected in advance are initially deferred in accrued expenses and are then recognized in net revenues over the period in which members are entitled to receive benefits.
The
Pharmacy Services segment records estimates of various assets and liabilities arising from its participation in the Medicare Part D program based on information in its claims
management and enrollment systems. Significant estimates arising from its participation in the Medicare Part D program include: (i) estimates of low-income cost subsidy, reinsurance
amounts and coverage gap discount amounts ultimately payable to or receivable from CMS based on a detailed claims reconciliation, (ii) an estimate of amounts receivable from CMS under a
risk-sharing feature of the Medicare Part D program design, referred to as the risk corridor and (iii) estimates for claims that have been reported and are in the process of being paid
or contested. Actual amounts of Medicare Part D-related assets and liabilities could differ significantly from amounts recorded. Historically, the effect of these adjustments has not been
material to our results of operations or financial position.
See
Note 21 for additional information about the revenues of the Company's business segments.
Cost of Revenues
Retail Pharmacy Segment
Cost of revenues for the Retail Pharmacy segment includes the following: the cost of inventory sold during the period, including related vendor
rebates and allowances, LIFO credit or charges, costs incurred to return merchandise to vendors, inventory shrink, purchasing costs and warehousing costs, which include inbound freight costs from the
vendor, distribution payroll and benefit costs, distribution center occupancy costs and depreciation expense and delivery expenses to the stores.
The Pharmacy Services segment's cost of revenues includes the cost of prescription drugs sold during the reporting period indirectly through its
retail pharmacy network and directly through its mail service dispensing pharmacy. The cost of prescription drugs sold component of cost of revenues includes: (i) the cost of the prescription
drugs purchased from manufacturers or distributors and shipped to members in clients' benefit plans from the Pharmacy Services segment's mail service dispensing pharmacy, net of any volume-related or
other discounts (see "Vendor allowances and purchase discounts" below) and (ii) the cost of prescription drugs sold through the Pharmacy Services segment's retail pharmacy network under
contracts where it is the principal, net of any volume-related or other discounts.
See
Note 21 for additional information about the cost of revenues of the Company's business segments.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
The Retail Pharmacy segment rebates and allowances received from vendors relate to either buying and merchandising or promoting the product.
Buying and merchandising related rebates and allowances are recorded as a reduction of cost of revenue as product is sold. Buying and merchandising rebates and allowances include all types of vendor
programs such as cash discounts from timely payment of invoices, purchase discounts or rebates, volume purchase allowances, price reduction allowances and slotting allowances. Certain product
promotion related rebates and allowances, primarily related to advertising, are recorded as a reduction in selling, general and administrative expenses when the advertising commitment has been
satisfied.
The Pharmacy Services segment receives purchase discounts on products purchased. The Pharmacy Services segment's contractual arrangements with
vendors, including manufacturers, wholesalers and retail pharmacies, normally provide for the Pharmacy Services segment to receive purchase discounts from established list prices in one, or a
combination, of the following forms: (i) a direct discount at the time of purchase, or (ii) a discount (or rebate) paid subsequent to dispensing when products are purchased indirectly
from a manufacturer (e.g., through a wholesaler or retail pharmacy). These rebates are recognized when prescriptions are dispensed and are generally billed to manufacturers within
30 days of the end of each completed quarter. Historically, the effect of adjustments resulting from the reconciliation of rebates recognized to the amounts billed and collected has not been
material to the Pharmacy Services segment's results of operations. The Pharmacy Services segment accounts for the effect of any such differences as a change in accounting estimate in the period the
reconciliation is completed. The Pharmacy Services segment also receives additional discounts under its wholesaler contracts and fees from pharmaceutical manufacturers for administrative services.
Purchase discounts and administrative service fees are recorded as a reduction of cost of revenues.
To minimize risk and statutory capital requirements, EIC enters into quota share reinsurance agreements with unaffiliated reinsurers whereby
they assume a quota share percentage of the company's Medicare Part D program. The net revenue and net cost of revenue for EIC has been reduced by the amounts ceded to reinsurers under these
agreements. EIC does not have a reinsurance agreement in place for calender 2018.
The Company records rent expense on operating leases on a straight-line basis over the minimum lease term. The Company begins to record rent
expense at the time that the Company has the right to use the property. From time to time, the Company receives incentive payments from landlords that subsidize lease improvement construction. These
leasehold incentives are deferred and recognized on a straight-line basis over the minimum lease term.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
Selling, General and Administrative Expenses
Selling, general and administrative expenses include store and corporate administrative payroll and benefit costs, occupancy costs which include
retail store and corporate rent costs, facility and leasehold improvement depreciation and utility costs, advertising, repair and maintenance, insurance, equipment depreciation and professional fees.
Routine repairs and maintenance are charged to operations as incurred. Improvements and major repairs, which extend the useful life of an asset,
are capitalized and depreciated.
Advertising costs, net of specific vendor advertising allowances, are expensed in the period the advertisement first takes place. Advertising
expenses, net of vendor advertising allowances, for fiscal 2018, 2017 and 2016 were $161,826, $181,438 and $191,534, respectively.
The Company is self-insured for certain general liability and workers' compensation claims. For claims that are self-insured, stop-loss
insurance coverage is maintained for workers' compensation occurrences exceeding $1,000 and general liability occurrences exceeding $3,000. The Company utilizes actuarial studies as the basis for
developing reported claims and estimating claims incurred but not reported relating to the Company's self-insurance. Workers' compensation claims are discounted to present value using a risk-free
interest rate.
The Company has several defined benefit plans, under which participants earn a retirement benefit based upon a formula set forth in the plan.
The Company records expense related to these plans using actuarially determined amounts that are calculated under the provisions of ASC 715, "CompensationRetirement Benefits." Key
assumptions used in the actuarial valuations include the discount rate, the expected rate of return on plan assets and the rate of increase in future compensation levels.
The Company has several stock option plans, which are described in detail in Note 17. The Company accounts for stock-based compensation
under ASC 718, "CompensationStock Compensation." The Company recognizes option expense over the requisite service period of the award, net of an estimate for the impact of award
forfeitures.
Costs incurred prior to the opening of a new or relocated store, associated with a remodeled store or related to the opening of a distribution
facility are charged against earnings when incurred.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
The Company is involved in litigation on an ongoing basis. The Company accrues its best estimate of the probable loss related to legal claims.
Such estimates are developed in consultation with in-house counsel, and are based upon a combination of litigation and settlement strategies.
When a store or distribution center is closed, the Company records an expense for unrecoverable costs and accrues a liability equal to the
present value at current credit adjusted risk-free interest rates of the remaining lease obligations and anticipated ancillary occupancy costs, net of estimated sublease income. Other store or
distribution center closing and liquidation costs are expensed when incurred.
Deferred income taxes are determined based on the difference between the financial reporting and tax basis of assets and liabilities. Deferred
income tax expense (benefit) represents the change during the reporting period in the deferred tax assets and deferred tax liabilities, net of the effect of acquisitions and dispositions. Deferred tax
assets include tax loss and credit carryforwards and are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion of the deferred tax assets will
not be realized. Changes in valuation allowances from period to period are included in the tax provision in the period of change.
The
Company has net operating loss ("NOL") carryforwards that can be utilized to offset future income for federal and state tax purposes. These NOLs generate a significant
deferred tax asset. The Company regularly reviews the deferred tax assets for recoverability considering historical profitability, projected taxable income, the expected timing of the reversals of
existing temporary differences and tax planning strategies.
The
Company recognizes tax liabilities in accordance with ASC 740, "Income Taxes" and the Company adjusts these liabilities with changes in judgment as a result of the evaluation of new
information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of
the tax liabilities.
The
Tax Cuts and Jobs Act (the "Tax Act"), enacted on December 22, 2017, among other things, permanently lowered the statutory federal corporate tax rate from 35% to 21%,
effective for tax years including or beginning January 1, 2018. Under the guidance of ASC 740, "Income Taxes" ("ASC 740"), the Company re-measured its net deferred tax assets on the date of
enactment based on the reduction in the overall future tax benefit expected to be realized at the lower tax rate implemented by the new legislation. Although in the normal course of business the
Company is required to make estimates and assumptions for certain tax items which cannot be fully determined at period end, the Company did not identify items for which the income tax effects of the
Tax Act have not been completed as of March 3, 2018 and, therefore, considers its accounting for the tax effects of the Tax Act on its deferred tax assets and liabilities to be complete as of
March 3, 2018.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
Sales taxes collected from customers and remitted to various governmental agencies are presented on a net basis (excluded from revenues) in the
Company's statement of operations.
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
The Company's pharmacy sales were primarily to customers covered by health plan contracts, which typically contract with a third party payor
that agrees to pay for all or a portion of a customer's eligible prescription purchases. During fiscal 2018, the top five third party payors accounted for approximately 78.6% of the Company's pharmacy
sales. The largest third party payor, Caremark, represented 27.2% of pharmacy sales during fiscal 2018. The largest third party payor during fiscal 2017 and fiscal 2016, Express Scripts, represented
26.0% and 27.1% of pharmacy sales, respectively. Third party payors are entities such as an insurance company, governmental agency, health maintenance organization or other managed care provider, and
typically represent several health care contracts and customers.
During
fiscal 2018, state sponsored Medicaid agencies and related managed care Medicaid payors accounted for approximately 20.4% of the Company's pharmacy sales, the largest of which was
approximately 1.9% of the Company's pharmacy sales. During fiscal 2018, approximately 34.1% of the Company's pharmacy sales were to customers covered by Medicare Part D. Any significant loss of
third-party payor business could have a material adverse effect on the Company's business and results of operations.
During
fiscal 2018, the Company purchased brand and generic pharmaceuticals, which amounted to approximately 97.8% of the dollar volume of its prescription drugs from McKesson
Corporation "McKesson" under its expanded five-year agreement executed on February 17, 2014 for pharmaceutical purchasing and distribution (our "Purchasing and Delivery Agreement") whereby
McKesson assumed responsibility for purchasing essential all of the brand and generic medications the Company dispenses as well as providing a new direct store delivery model to all of the Company's
stores. If the Company's relationship with McKesson was disrupted, it could temporarily have difficulty filling prescriptions for brand-named and generic drugs until it executed a replacement
wholesaler agreement or developed and implemented self- distribution processes.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
The Pharmacy Services segment, through its EIC subsidiary, participates in the federal government's Medicare Part D program as a PDP.
During fiscal 2018, fiscal 2017 and fiscal 2016, net revenues of $203,361 (1.0% of consolidated revenues), $223,077 (1.0% of consolidated revenues) and $162,620 (0.8% of consolidated revenues),
respectively, include insurance premiums earned by the PDP, which are determined based on the PDP's annual bid and related contractual arrangements with CMS.
EIC
had previously entered into a quota share reinsurance agreement with Swiss Re Life & Health America Inc. ("Swiss Re") whereby they assume a quota share percentage of
the company's Medicare Part D program. Fifty percent of the net revenue and net cost of revenue for EIC has been ceded to Swiss Re under this agreement. EIC does not have a reinsurance
agreement in place for calendar 2018.
The Company may enter into interest rate swap agreements to hedge the exposure to increasing rates with respect to its variable rate debt, when
the Company deems it prudent to do so. Upon inception of interest rate swap agreements, or modifications thereto, the Company performs a comprehensive review of the interest rate swap agreements based
on the criteria as provided by ASC 815, "Derivatives and Hedging." As of March 3, 2018 and March 4, 2017, the Company had no interest rate swap arrangements or other derivatives.
In March 2016, the FASB issued ASU No. 2016-09,
CompensationStock Compensation, (Topic 718):
Improvements to Employee Share-Based Payment Accounting
, which amends the accounting for certain aspects of share-based payments to employees in ASC Topic 718,
CompensationStock
Compensation
. The new guidance eliminates the accounting for any excess tax benefits and deficiencies through equity and
requires all excess tax benefits and deficiencies related to employee share-based compensation arrangements to be recorded in the income statement. This aspect of the new guidance is required to be
applied prospectively. The new guidance also requires (i.) the presentation of excess tax benefits on the statement of cash flows as an operating activity rather than a financing activity, a
change which may be applied prospectively or retrospectively and (ii.) the presentation of employee taxes paid when an employer withholds shares for tax withholding purposes on the statement of
cash flows as a financing activity, a change which must be applied retrospectively. The new guidance further provides an accounting policy election to account for forfeitures as they occur rather than
utilizing the estimated amount of forfeitures at the time of issuance. The Company adopted this new guidance effective March 5, 2017. The primary impact of adoption was (i.) the modified
retrospective recognition of the cumulative amount of previously unrecognized excess tax benefits as an opening balance sheet adjustment and (ii.) the recognition of excess tax benefits in the
income statement on a prospective basis, rather than equity. As a result, the Company (i.) increased the deferred tax asset and reduced accumulated deficit by $11,729 as of the beginning of the
fifty-two weeks ended March 3, 2018, and (ii.) the Company recognized a discrete income tax expense of $10,590 in income tax expense for the fifty-two weeks ended March 3, 2018.
The Company also elected to adopt the cash flow presentation of
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
the
excess tax benefits prospectively commencing in the first quarter of fiscal 2018. The retrospective application of cash paid on employees' behalf related to shares withheld for tax purposes
resulted in an increase to "Net cash provided by operating activities" and a decrease to "Net cash provided by financing activities" of $6,254 and $17,506 for the fifty-three weeks ended
March 4, 2017 and the fifty two weeks ended February 27, 2016, respectively. The Company's stock-based compensation expense continues to reflect estimated forfeitures. None of the other
provisions in this new guidance had a material impact on the Company's condensed consolidated financial statements.
In
February 2018, the FASB issued ASU 2018-02
, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income
. This guidance concerns the income tax effects of items in accumulated other comprehensive income ("AOCI") that were originally
recognized in other comprehensive income, rather than in income from continuing operations. The new guidance allows for a reclassification from AOCI to retained earnings for the amount of deferred
taxes caused by the reduction in the corporate income tax rate following the U.S. tax law changes enacted in December 2017. The Company adopted this new guidance during
the fourth quarter of fiscal 2018 and applied the changes retrospectively. As a result the Company recorded a $513 increase to comprehensive income and a corresponding decrease to accumulated deficit.
In
January 2017, the FASB issued ASU No. 2017-04,
IntangiblesGoodwill and Other, (Topic 350): Simplifying the Test for Goodwill
Impairment
, which is intended to simplify the subsequent measurement and impairment of goodwill. The ASU simplifies the complexity of evaluating goodwill for impairment by
eliminating the second step of the impairment test, which compares the implied fair value of a reporting unit's goodwill to the carrying amount of that goodwill. Instead, the ASU requires entities to
compare the fair value of a reporting unit to its carrying amount in order to determine the amount of goodwill impairment recognized. ASU No. 2017-04 is effective for fiscal years and interim
periods within those years beginning after December 15, 2019 (fiscal 2020). Early adoption of all the amendments for ASU 2017-04 is permitted. Amendments must be applied prospectively. The
Company adopted ASU 2017-04 during the fourth quarter of fiscal 2018. See Note 13.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
. ASU
2014-09 outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including
industry-specific guidance. In March 2016, the FASB issued ASU 2016-08, "Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net)," which amends the principal-versus-agent
implementation guidance and in April 2016 the FASB issued ASU 2016-10, "Identifying Performance Obligations and Licensing," which amends the guidance in those areas in the new revenue recognition
standard. These ASU's were issued in response to feedback received from the FASB-International Accounting Standards Board joint revenue recognition transition resource group. The new revenue standard
is effective for annual reporting periods (including interim reporting periods within those periods) beginning January 1, 2018.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
The
Company has substantially completed the evaluation of the new revenue standard and does not expect the implementation of the standard will have a material effect on the Company's
consolidated results of operations, cash flows or financial position. The new standard will however require more extensive revenue-related disclosures. The Company has identified one difference in its
Retail Pharmacy Segment related to the timing of revenue recognition for third party prescription revenues, which is currently recognized at the time that the prescription is filled. Under the new
standard, this revenue will be recognized at the time the customer takes possession of the merchandise. The
Company also identified one difference on its Pharmacy Services Segment related to the recognition of revenues under one specific rebate administration program which is currently recognized as
revenues and cost of sales. Under the new standard, the Company is no longer determined to be acting as the principal for this contract and revenues will need to be recorded on a net basis. Total
revenues reported under this contract in Fiscal 2018 were $123,500. On March 4, 2018, the Company adopted the new revenue standard on a modified retrospective basis and recorded a transition
adjustment to increase accumulated deficit as of March 4, 2018 by approximately $8,000.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases, (Topic 842)
, which is intended to improve financial reporting around
leasing transactions. The ASU affects all companies and other organizations that engage in lease transactions (both lessee and lessor) that lease assets such as real estate and manufacturing
equipment. This ASU will require organizations that lease assetsreferred to as "leases"to recognize on the balance sheet the assets and liabilities for the rights and
obligations created by those leases. ASU No. 2016-02 is effective for fiscal years and interim periods within those years beginning January 1, 2019 (fiscal 2020). On January 5,
2018 the FASB issued an exposure draft amending certain aspects of the new leasing standard. The proposed amendments include a provision to allow entities to elect not to restate comparative periods
in the period of adoption when transitioning to the new standard and instead allow a modified retrospective approach. The Company believes that the new standard will have a material impact on its
financial position. The Company is currently evaluating the impact this standard implementation will have on its results of operations and cash flows.
2. Acquisition
On June 24, 2015, the Company acquired TPG VI Envision BL, LLC and Envision Topco Holdings, LLC ("EnvisionRx"), pursuant to the terms of an agreement ("Agreement")
dated February 10, 2015 (the "Acquisition"). EnvisionRx, which has been rebranded as EnvisionRxOptions ("EnvisionRx" or "EnvisionRxOptions"), is a full-service pharmacy services provider.
EnvisionRx provides both transparent and traditional pharmacy benefit manager ("PBM") service options through its EnvisionRx and MedTrak PBMs, respectively. EnvisionRx also offers fully integrated
mail-order and specialty pharmacy services through EnvisionPharmacies; access to the nation's largest cash pay infertility discount drug program via Design Rx; an innovative claims adjudication
software platform in Laker Software; and a national Medicare Part D prescription drug plan through Envision Insurance Company's
("EIC") EnvisionRx Plus Silver product for the low income auto-assign market and its Clear Choice product for the chooser market. EnvisionRx is headquartered in Twinsburg, Ohio and operates as a
100 percent owned subsidiary of the Company.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
2. Acquisition (Continued)
Pursuant
to the terms of the Agreement, as consideration for the Acquisition, the Company paid $1,882,211 in cash and issued 27,754 shares of Rite Aid common stock. The Company financed
the cash portion of the Acquisition with borrowings under its Amended and Restated Senior Secured Revolving Credit Facility, and the net proceeds from the April 2, 2015 issuance of $1,800,000
aggregate principal amount of 6.125% senior notes due 2023 (the "6.125% Notes"). The consideration associated with the common stock was $240,907 based on a stock price of $8.68 per share, representing
the closing price of the Company's common stock on the closing date of the Acquisition.
The
Company's consolidated financial statements for fiscal 2018 and fiscal 2017 include EnvisionRx results of operations. The Company's consolidated financial statements for fiscal 2016
includes EnvisionRx results of operations from the Acquisition date of June 24, 2015 through February 27, 2016 (please see Note 21 Segment Reporting for the Pharmacy Services
segment results included within the consolidated financial statements for the fifty-two week period ended March 3, 2018, fifty-three week period ended March 4, 2017 and the fifty-two
week period ended February 27, 2016, which reflects the results of EnvisionRx). The Company's consolidated financial statements reflect the final purchase accounting adjustments in accordance
with ASC 805 "Business Combinations", whereby the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values on the Acquisition date.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
2. Acquisition (Continued)
During
fiscal 2017, the Company finalized the valuation of the identifiable assets acquired and the liabilities assumed. The following is the allocation of the purchase price:
|
|
|
|
|
Final purchase price
|
|
|
|
|
Cash consideration
|
|
$
|
1,882,211
|
|
Stock consideration
|
|
|
240,907
|
|
|
|
|
|
|
Total
|
|
$
|
2,123,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Final purchase price allocation
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
103,834
|
|
Accounts receivable
|
|
|
892,678
|
|
Inventories
|
|
|
7,276
|
|
Prepaid expenses and other current assets
|
|
|
13,386
|
|
|
|
|
|
|
Total current assets
|
|
|
1,017,174
|
|
Property and equipment
|
|
|
13,196
|
|
Intangible assets(1)
|
|
|
646,600
|
|
Goodwill
|
|
|
1,639,355
|
|
Other assets
|
|
|
7,219
|
|
|
|
|
|
|
Total assets acquired
|
|
|
3,323,544
|
|
|
|
|
|
|
Accounts payable
|
|
|
491,672
|
|
Reinsurance funds held
|
|
|
381,225
|
|
Other current liabilities(2)
|
|
|
215,770
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,088,667
|
|
Other long term liabilities(3)
|
|
|
111,759
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
1,200,426
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
2,123,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Intangible
assets are recorded at estimated fair value, as determined by management based on available information which includes a final valuation prepared by an
independent third party. The fair values assigned to identifiable intangible assets were determined through the use of the income approach, specifically the relief from royalty and the multi-period
excess earnings methods. The major assumptions used in arriving at the estimated identifiable intangible asset values included management's estimates of future cash flows, discounted at an appropriate
rate of return which are based on the weighted average cost of capital for both the Company and other market participants, projected customer attrition rates, as well as applicable royalty rates for
comparable assets. The useful lives for intangible assets were determined based upon the remaining useful economic lives of the intangible assets that are expected to contribute directly or
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
2. Acquisition (Continued)
indirectly
to future cash flows. The estimated fair value of intangible assets and related useful lives as included in the final purchase price allocation include:
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Estimated
Fair Value
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Estimated
Useful Life
(In Years)
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Customer relationships
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$
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465,000
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17
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CMS license
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57,500
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25
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Claims adjudication and other developed software
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59,000
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7
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Trademarks
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20,100
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10
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Backlog
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11,500
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3
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Trademarks
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33,500
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Indefinite
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Total
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$
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646,600
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-
(2)
-
Other
current liabilities includes $116,057 due to TPG under the terms of the Agreement, representing the amounts due to EnvisionRx from CMS, less corresponding
amounts due to various reinsurance providers under certain reinsurance programs, for CMS activities that relate to the year ended December 31, 2014. This liability was satisfied with a payment
to TPG on November 5, 2015.
-
(3)
-
Primarily
relates to deferred tax liabilities.
The
above goodwill represents future economic benefits expected to be recognized from the Company's expansion into the pharmacy services market, as well as expected future synergies and
operating efficiencies from combining operations with EnvisionRx. Goodwill resulting from the Acquisition of $1,639,355 has been allocated to the Pharmacy Services segment of which $1,368,657 is
deductible for tax purposes.
During
fiscal 2018, 2017 and 2016, acquisition costs of $0, $6 and $27,402, respectively, were expensed as incurred. The following unaudited pro forma combined financial data gives
effect to the Acquisition as if it had occurred as of March 1, 2014.
These
unaudited pro forma combined results have been prepared by combining the historical results of the Company and historical results of EnvisionRx. The unaudited pro forma combined
financial data for all periods presented were adjusted to give effect to pro forma events that 1) are directly attributable to the aforementioned transaction, 2) factually supportable,
and 3) expected to have a
continuing impact on the consolidated results of operations. Specifically, these adjustments reflect:
-
-
Incremental interest expense relating to the $1,800,000 6.125% Notes issued on April 2, 2015, the net proceeds of which were used to
finance the cash portion of the Acquisition.
-
-
Incremental amortization resulting from increased fair value of the identifiable intangible assets as noted in the final purchase price
allocation.
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Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
2. Acquisition (Continued)
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-
Removal of costs incurred in connection with the Acquisition by both the Company and EnvisionRx, including bridge loan commitment fees of
$15,375.
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-
Removal of interest expense incurred by EnvisionRx as the underlying debt was repaid upon the acquisition date.
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Removal of debt extinguishment charges incurred by EnvisionRx.
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-
Inclusion of the 27,754 shares of Rite Aid common stock issued to fund the stock portion of the purchase price in the basic and diluted share
calculation.
The
unaudited pro forma combined information is not necessarily indicative of what the combined company's results actually would have been had the Acquisition been completed as of the
beginning of the periods as indicated. In addition, the unaudited pro forma combined information does not purport to project the future results of the combined company.
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Year Ended
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March 3,
2018
(52 weeks)
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March 4,
2017
(53 weeks)
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February 27,
2016
(52 weeks)
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Pro forma
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Pro forma
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Pro forma
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Net revenues as reported
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$
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21,528,968
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$
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22,927,540
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$
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20,770,237
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EnvisionRx revenue, prior to the acquisition
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1,735,635
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Less pre-acquisition intercompany revenue
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(103,363
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)
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Pro forma combined revenues
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$
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21,528,968
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$
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22,927,540
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$
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22,402,509
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Net income as reported
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$
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943,470
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$
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4,053
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$
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165,465
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EnvisionRx net (loss) income before income taxes, prior to the acquisition
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(45,307
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)
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Incremental interest expense on the 6.125% Notes issued on April 2, 2015
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(11,097
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)
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Incremental amortization resulting from fair value adjustments of the identifiable intangible assets
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(14,297
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)
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Transaction costs incurred by both the Company and EnvisionRx
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56,194
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Interest expense incurred by EnvisionRx
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21,984
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Debt extinguishment charges incurred by EnvisionRx
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31,601
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Income tax expense relating to pro forma adjustments
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(15,866
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)
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Pro forma net income
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$
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943,470
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$
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4,053
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$
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188,677
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Net income (loss) from discontinued operations
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1,293,002
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(27
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)
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63,377
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Pro forma net (loss) income from continuing operations
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$
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(349,532
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)
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$
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4,080
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$
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125,300
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Basic (loss) income per share:
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Continuing operations
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$
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(0.33
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)
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$
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0.00
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$
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0.12
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Discontinued operations
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1.23
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(0.00
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)
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0.06
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Net basic income per share
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$
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0.90
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$
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0.00
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$
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0.18
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Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
2. Acquisition (Continued)
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Year Ended
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March 3,
2018
(52 weeks)
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March 4,
2017
(53 weeks)
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February 27,
2016
(52 weeks)
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Pro forma
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Pro forma
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Pro forma
|
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Diluted (loss) income per share:
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Continuing operations
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$
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(0.33
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)
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$
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0.00
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$
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0.12
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Discontinued operations
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1.23
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(0.00
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0.06
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Net diluted income per share
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$
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0.90
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$
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0.00
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$
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0.18
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The
unaudited pro forma combined financial information for fiscal 2018 and fiscal 2017 is identical to the actual results reported by the Company because EnvisionRx results were included
in the consolidated operations of the Company for the entire period.
3. Merger Agreement
Agreement and Plan of Merger
On February 18, 2018, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Albertsons
Companies, Inc. ("Albertsons"), Ranch Acquisition II LLC, a Delaware limited liability company and a wholly-owned direct subsidiary of Albertsons ("Merger Sub II"), and Ranch
Acquisition Corp., a Delaware corporation and a wholly-owned direct subsidiary of Merger Sub II ("Merger Sub" and, together with Merger Sub II, the "Merger Subs"). Pursuant to the terms
and subject to the conditions set forth in the Merger Agreement, (i) Merger Sub will merge with and into the Company (the "Merger"), with the Company surviving the Merger as a wholly-owned
direct subsidiary of Merger Sub II (the "Surviving Corporation"), and (ii) immediately following the Merger, the Surviving Corporation will merge with and into Merger Sub II (the
"Subsequent Merger" and, together with the Merger, the "Mergers"), with Merger Sub II surviving the Subsequent Merger as a wholly-owned direct subsidiary of Albertsons (the "Surviving
Company").
At
the effective time of the Merger (the "Effective Time"), each share of Rite Aid common stock issued and outstanding immediately prior to the Effective Time (other than shares of Rite
Aid common stock owned by Albertsons, Merger Sub or the Company (including treasury stock held by the Company), which will be cancelled) will be converted into the right to receive and become
exchangeable for 0.1000 (the "Base Exchange Ratio") of a fully paid and nonassessable share of Albertsons common stock, par value $0.01 per share ("Albertsons Common Stock") (the "Base
Consideration"), without interest, plus, at the election of the holder of Rite Aid common stock, either (i) an amount in cash equal to $0.1832 per share (the "Additional Cash Consideration"
and, together with the Base Consideration, the "Cash Election Consideration"), without interest, or (ii) 0.0079 (the "Additional Stock Election Exchange Ratio" and, together with the Base
Exchange Ratio, the "Stock Election Exchange Ratio") of a fully paid and nonassessable share of Albertsons Common Stock (the "Additional Stock Consideration" and, together with the Base Consideration,
the "Stock Election Consideration").
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Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
3. Merger Agreement (Continued)
Subject to the terms of the Merger Agreement, at the Effective Time, each option to purchase Rite Aid common stock granted under any Company stock plan that is outstanding and
unexercised immediately prior to the Effective Time (each, a "Rite Aid Stock Option"), whether or not then vested or exercisable, will be assumed by Albertsons and will be converted into a stock
option to acquire a number of shares of Albertsons Common Stock (an "Albertsons Stock Option"), on the same terms and conditions as were applicable to such Rite Aid Stock Option immediately prior to
the Effective Time (but taking into account any changes thereto provided for in the Merger Agreement), equal to the product of (i) the number of shares of Rite Aid common stock subject to such
Rite Aid Stock Option immediately prior to the Effective Time multiplied by (ii) the Base Exchange Ratio, with any fractional shares rounded down to the nearest whole number of shares after
aggregating each individual holder's Rite Aid Stock Options with the same exercise price. The exercise price per share of Albertsons Common Stock subject to each such Albertsons Stock Option will be
an amount (rounded up to the nearest whole cent) equal to the quotient of (A) the excess of (x) the per share exercise price of such Rite Aid Stock Option immediately prior to the
Effective Time over (y) the Additional Cash Consideration divided by (B) the Base Exchange Ratio.
Except
as described below for a current or former non-employee director, consultant, employee or other service provider of the Company who is not a continuing employee or continuing
service provider after the Effective Time (each, a "Former Service Provider"), subject to the terms of the Merger Agreement, at the Effective Time, each outstanding time- or performance-vesting
restricted stock unit granted under any Company stock plan (each, a "Rite Aid RSU"), whether or not then vested, will be assumed by Albertsons and will be converted into a restricted stock unit award
(an "Albertsons RSU"), on the same terms and conditions as were applicable to such Rite Aid RSU immediately prior to the Effective Time (including settlement in cash with respect to any Rite Aid RSU
that by its terms provides for settlement in cash and settlement in Albertsons Common Stock with respect to any Rite Aid RSU that by its terms provides for settlement in Rite Aid common stock),
relating to the number of shares of Albertsons Common Stock equal to the product of (i) the number of Rite Aid RSUs held by the holder thereof immediately prior to the Effective Time, assuming
achievement of any applicable performance metrics at the target level of achievement, multiplied by (ii) the Stock Election Exchange Ratio, with any fractional shares rounded to the nearest
whole number of shares.
Except
as described below for Former Service Providers, subject to the terms of the Merger Agreement, at the Effective Time, each outstanding restricted share award granted under any
Company stock plan (each, a "Rite Aid RSA"), whether or not then vested, will be assumed by Albertsons and will be converted into a restricted share award (each, an "Albertsons RSA") on the same terms
and conditions as were applicable to such Rite Aid RSA immediately prior to the Effective Time (but taking into account any changes thereto provided for in the Merger Agreement), relating to the
number of shares of Albertsons Common Stock equal to the product of (i) the number of shares of Rite Aid common stock subject to such Rite Aid RSA multiplied by (ii) the Base Exchange
Ratio, with any fractional shares rounded to the nearest whole number of shares, plus, a number of shares of Albertsons Common Stock or an amount in cash equal to the product of (X) the number
of shares of Rite Aid common stock subject to such Rite Aid RSA immediately prior to the Effective Time
100
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
3. Merger Agreement (Continued)
multiplied
by (Y) the Additional Stock Consideration or the Additional Cash Consideration, as elected by the holder of such Rite Aid RSA.
Subject
to the terms of the Merger Agreement, with respect to each Rite Aid RSA and Rite Aid RSU held by a Former Service Provider, (i) the vesting will be fully accelerated at
the Effective Time (and all restrictions thereupon will lapse), and (ii) subject to deduction and withholding rights, in respect of such outstanding Rite Aid RSA or Rite Aid RSU, such Former
Service Provider will be entitled to receive that number of whole shares of Albertsons Common Stock equal to the product of (A) the number of shares of Rite Aid common stock subject to such
Rite Aid RSA or Rite Aid RSU immediately prior to the Effective Time (assuming achievement of any applicable performance metrics at the target level of achievement) multiplied by (B) the Base
Exchange Ratio, with any fractional shares rounded to the nearest whole number of shares, plus, a number of shares of Albertsons Common Stock or an amount in cash equal to the product of
(X) the number of shares of Rite Aid common stock subject to such Rite Aid RSA or Rite Aid RSU immediately prior to the Effective Time (assuming achievement of any applicable performance
metrics at the target level of achievement) multiplied by (Y) the Additional Stock Consideration or the Additional Cash Consideration, as elected by the holder of such Rite Aid RSA and Rite Aid
RSU, except, with respect to any Rite Aid RSU that by its terms provides for settlement in cash, the Former Service Provider will be entitled to receive the cash value of the number of whole shares of
Albertsons Common Stock equal to the product of (A) the number of shares of Rite Aid common stock subject to such Rite Aid RSU immediately prior to the Effective Time (assuming achievement of
any applicable performance metrics at the target level of achievement) multiplied by (B) the Base Exchange Ratio, with any fractional shares rounded to the nearest whole number of shares, plus,
an amount in cash equal to the product of (X) the number of shares of Rite Aid common stock subject to such Rite Aid RSU immediately prior to the Effective Time (assuming achievement of any
applicable performance metrics at the target level of achievement) multiplied by (Y) the Additional Cash Consideration (for the avoidance of doubt, the holder will not have the right to elect
Additional Stock Consideration).
Consummation
of the Merger is subject to various closing conditions, including but not limited to (i) approval of the Merger Agreement by holders of a majority of the outstanding
shares of our
common stock entitled to vote on the Merger, (ii) the expiration or earlier termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act") (which condition was satisfied on March 28, 2018), (iii) the absence of any law or order prohibiting the Merger, (iv) the absence of a material adverse effect on the
Company and Albertsons, in each case, as defined in the Merger Agreement, (v) approval for listing, on the NYSE, of the shares of Albertsons Common Stock to be issued in the Merger and to be
reserved for issuance in connection with the Merger, (vi) Albertsons's registration statement on Form S-4 shall have become effective under the Securities Act, and shall not be the
subject of any stop order or proceedings seeking a stop order, (vii) approval of the Ohio Department of Insurance for the change of control of EIC, and (viii) Albertsons shall have
delivered the Company a Lock-Up Agreement, No Action Agreement and Standstill Agreement, in each case, in the form agreed to by the parties to the Merger Agreement.
The
parties to the Merger Agreement have each made customary representations and warranties. The parties to the Merger Agreement have each agreed to various covenants and agreements,
101
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
3. Merger Agreement (Continued)
including,
among others, (i) each party's agreement to conduct its business in the ordinary course consistent with past practice during the period between the execution of the Merger Agreement
and the closing of the Merger, (ii) the Company's agreement to not solicit proposals relating to alternative transactions to the Merger or engage in discussions or negotiations with respect
thereto, subject to certain exceptions, (iii) Albertsons's covenant to agree to the sale, divestiture or disposition of any assets of the Company that do not exceed $45 million in retail
four-wall EBITDA if necessary or advisable in order to obtain antitrust approval of the Merger, and (iv) Albertsons's agreement to use reasonable best efforts to arrange and obtain the debt
financing contemplated by the debt commitment letter executed in connection with the Merger Agreement, or such alternative financing as contemplated by the Merger Agreement.
On
February 18, 2018, in connection with the Merger Agreement, the Company entered into a standstill agreement (the "Standstill Agreement") with Albertsons and Cerberus, pursuant
to which Cerberus has agreed not to: (i) purchase shares of Albertsons Common Stock or other securities issued by Albertsons, except Cerberus may acquire beneficial ownership of Albertsons
Common Stock provided that such beneficial ownership does not result in ownership of 30% or more of the issued and outstanding shares of Albertsons Common Stock in the aggregate following such
transaction, (ii) make any public statement or public disclosure regarding any intent, purpose, plan or proposal by Cerberus or any of its controlled affiliates to the composition of the
Albertsons board of directors, any merger, consolidation or acquisition of Albertsons or its subsidiaries, (iii) engage in any solicitation of proxies or otherwise solicit the stockholders of
Albertsons or (iv) enter into any agreements to make any investment with any person that engages or offers or proposes to engage in any of (i) through (iii) during the standstill
period. The standstill period commences at the Effective Time and terminates upon the earliest to occur of (a) thirty days following the date that Cerberus does not have any of its designees on
the Albertsons board of directors, (b) the date on which Cerberus no longer has the right to appoint (and has not appointed) at least one director to the Albertsons board of directors and
(c) the date on which Albertsons materially breaches or takes any action challenging the validity or enforceability of the
provisions of the merger agreement that grant Cerberus certain rights to appoint directors to the Albertsons board of directors. In addition, pursuant to the Standstill Agreement, from
February 18, 2018 until the Effective Time, Cerberus has agreed not to acquire or agree to acquire beneficial ownership of any shares of Albertsons Common Stock, Rite Aid common stock or other
securities or debt issued by Albertsons or Rite Aid that would result in beneficial ownership of 30% or more of the issued and outstanding shares of Albertsons Common Stock at the Effective Time
(assuming for the purposes of such calculation that the Effective Time occurred immediately after such acquisition).
4. Asset Sale to WBA
Termination of Merger Agreement with WBA
On June 28, 2017, the Company, WBA and Victoria Merger Sub, Inc. entered into a Termination Agreement (the "Merger Termination
Agreement"), under which the parties agreed to terminate the Merger Agreement. The Merger Termination Agreement provides that WBA would pay to the Company a termination fee in the amount of $325,000,
which was received on June 30, 2017.
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
4. Asset Sale to WBA (Continued)
Entry Into Amended and Restated Asset Purchase Agreement with WBA
On September 18, 2017, the Company entered into the Amended and Restated Asset Purchase Agreement (the "Amended and Restated Asset
Purchase Agreement", with WBA and Walgreen Co., an Illinois corporation and wholly owned direct subsidiary of WBA ("Buyer"), which amended and restated in its entirety the previously disclosed
Asset Purchase Agreement (the "Original APA"), dated as of June 28, 2017, by and among the Company, WBA and Buyer. Pursuant to the terms and subject to the conditions set forth in the Amended
and Restated Asset Purchase Agreement, Buyer will purchase from the Company 1,932 stores (the "Acquired Stores"), three (3) distribution centers, related inventory and other specified assets
and liabilities related thereto (collectively the "Assets to be Sold" or "Disposal Group") for a purchase price of approximately $4,375,000, on a cash-free, debt-free basis (the "Sale").
The
Company announced on September 19, 2017 that the waiting period under the HSR Act, expired with respect to the Sale. On November 27, 2017, the Company announced that it
had completed the pilot closing and first subsequent closings under the Amended and Restated Asset Purchase Agreement, resulting in the transfer of 97 Rite Aid stores and related assets to the Buyer.
As of March 3, 2018, the Company has sold 1,651 stores and related assets to WBA in exchange for proceeds of $3,553,486, which were used to repay outstanding debt. As of March 27, 2018,
the Company has completed the store transfer process, and all 1,932 stores and related assets have been transferred to WBA and the Company has received cash proceeds of $4,156,686. The transfer of the
three distribution centers and related inventory is expected to begin after September 1, 2018. The majority of the closing conditions have been satisfied, and the transfer of the three
distribution centers and related assets remain subject to minimal customary closing conditions applicable only to the distribution centers being transferred at such distribution center closings, as
specified in the Amended and Restated Asset Purchase Agreement.
The
parties to the Amended and Restated Asset Purchase Agreement have each made customary representations and warranties. The Company has agreed to various covenants and agreements,
including, among others, the Company's agreement to conduct its business at the distribution centers being sold to WBA in the ordinary course during the period between the execution of the Amended and
Restated Asset Purchase Agreement and the distribution center closing. The Company has also agreed to provide transition services to Buyer for up to three (3) years after the initial closing of
the Sale. Under the terms of the TSA, the Company provides various services on behalf of WBA, including but not limited to the purchase and distribution of inventory and virtually all selling, general
and administrative activities. In connection with these services, the Company purchases the related inventory and incurs cash payments for the selling, general and administrative activities, which,
the Company bills on a cash neutral basis to WBA in accordance with terms as outlined in the TSA. Total billings for these items from the initial closing through March 3, 2018 were $725,190, of
which $354,321 is included in Accounts receivable, net. The Company has charged WBA TSA fees of $8,422 from the initial closing through March 3, 2018 which are reflected as a reduction to
selling, general and administrative expenses.
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
4. Asset Sale to WBA (Continued)
Albertsons
is obligated to assume the Company's remaining obligations under the TSA. Under the terms of the Amended and Restated Asset Purchase Agreement, the Company has the option to
purchase pharmaceutical drugs through an affiliate of WBA under terms, including cost, that are substantially equivalent to Walgreen's for a period of ten (10) years, subject to certain terms
and conditions.
Divestiture of the Assets to be Sold
Through March 3, 2018, the Company announced that it had sold 1,651 of the 1,932 stores for $3,553,486, which the Company used to reduce
its outstanding indebtedness. The Company estimates that the total pre-tax gain on the Sale will be approximately $2,500,000. As of March 27, 2018, the Company has completed the store transfer
process, and all 1,932 stores and related assets have been transferred to WBA and the Company has received cash proceeds of $4,156,686. The transfer of the three distribution centers and related
inventory is expected to begin after September 1, 2018. The majority of the closing conditions have been satisfied, and the transfer of the three distribution centers and related assets remain
subject to minimal customary closing conditions applicable only to the distribution centers being transferred at such distribution center closing, as specified in the Amended and Restated Asset
Purchase Agreement.
Based
on its magnitude and because the Company is exiting certain markets, the Sale represents a significant strategic shift that has a material effect on the Company's operations and
financial results. Accordingly, the Company has applied discontinued operations treatment for the Sale as required by Accounting Standards Codification
210-05
Discontinued Operations
(ASC 205-20). In accordance with ASC 205-20, the Company reclassified the Disposal Group to assets and
liabilities held for sale on its consolidated balance sheets as of the periods ended March 3, 2018 and March 4, 2017, and reclassified the financial results of the Disposal Group in its
consolidated statements of operations and consolidated statements of cash flows for all periods presented. The Company also revised its discussion and presentation of operating and financial results
to be reflective of its continuing operations as required by ASC 205-20.
104
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
4. Asset Sale to WBA (Continued)
The
carrying amount of the Assets to be Sold, which were included in the Retail Pharmacy segment, have been reclassified from their historical balance sheet presentation to current and
non-current assets and liabilities held for sale as follows:
|
|
|
|
|
|
|
|
|
|
March 3,
2018
|
|
March 4,
2017
|
|
Inventories
|
|
$
|
264,286
|
|
$
|
1,047,670
|
|
Property and equipment
|
|
|
158,433
|
|
|
|
|
Goodwill(a)
|
|
|
4,629
|
|
|
|
|
Intangible assets
|
|
|
10,789
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets held for sale
|
|
$
|
438,137
|
|
$
|
1,047,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
|
|
$
|
725,230
|
|
Goodwill(a)
|
|
|
|
|
|
32,632
|
|
Intangible assets
|
|
|
|
|
|
120,389
|
|
Other assets
|
|
|
|
|
|
4,017
|
|
|
|
|
|
|
|
|
|
Noncurrent assets held for sale
|
|
$
|
|
|
$
|
882,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term lease financing obligations
|
|
$
|
270
|
|
$
|
3,626
|
|
Accrued salaries, wages and other current liabilities
|
|
|
6,146
|
|
|
29,057
|
|
Long-term debt, less current maturities(b)
|
|
|
549,549
|
|
|
|
|
Lease financing obligations, less current maturities
|
|
|
838
|
|
|
|
|
Other noncurrent liabilities
|
|
|
3,402
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities held for sale
|
|
$
|
560,205
|
|
$
|
32,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current maturities(b)
|
|
$
|
|
|
$
|
4,027,400
|
|
Lease financing obligations, less current maturities
|
|
|
|
|
|
6,866
|
|
Other noncurrent liabilities
|
|
|
|
|
|
23,126
|
|
|
|
|
|
|
|
|
|
Noncurrent liabilities held for sale
|
|
$
|
|
|
$
|
4,057,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
The
Company had $76,124 of goodwill in its Retail Pharmacy segment resulting from the acquisition of Health Dialog and RediClinic, which is accounted for as Retail
Pharmacy segment enterprise goodwill. The Company has allocated a portion of its Retail Pharmacy segment enterprise goodwill to the discontinued operation.
-
(b)
-
In
connection with the Sale, the Company is estimating that the Sale will provide excess cash proceeds of approximately $4,027,400 which will be used to repay
outstanding indebtedness. As such, the $4,027,400 of estimated repayment of outstanding indebtedness has been included in liabilities held for sale as of March 4, 2017. As of March 3,
2018, the Company repaid outstanding indebtedness of $3,135,000 with transaction proceeds received.
105
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
4. Asset Sale to WBA (Continued)
The
operating results of the discontinued operations that are reflected on the consolidated statements of operations within net income (loss) from discontinued operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 3,
2018
(52 weeks)
|
|
March 4,
2017
(53 weeks)
|
|
February 27,
2016
(52 weeks)
|
|
Revenues
|
|
$
|
8,686,397
|
|
$
|
10,050,049
|
|
$
|
10,045,543
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues(a)
|
|
|
6,406,067
|
|
|
7,340,691
|
|
|
7,211,267
|
|
Selling, general and administrative expenses(a)
|
|
|
2,134,276
|
|
|
2,465,364
|
|
|
2,432,175
|
|
Lease termination and impairment charges
|
|
|
77
|
|
|
9,516
|
|
|
7,946
|
|
Loss on debt retirements, net
|
|
|
8,180
|
|
|
|
|
|
|
|
Interest expense(b)
|
|
|
224,300
|
|
|
231,926
|
|
|
263,442
|
|
Gain on stores sold to Walgreens Boots Alliance
|
|
|
(2,128,832
|
)
|
|
|
|
|
|
|
(Gain) loss on sale of assets, net
|
|
|
(377
|
)
|
|
2,625
|
|
|
3,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,643,691
|
|
|
10,050,122
|
|
|
9,918,739
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations before income taxes
|
|
|
2,042,706
|
|
|
(73
|
)
|
|
126,804
|
|
Income tax expense
|
|
|
749,704
|
|
|
46
|
|
|
63,427
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from discontinued operations, net of tax
|
|
$
|
1,293,002
|
|
$
|
(27
|
)
|
$
|
63,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
Cost
of revenues and selling, general and administrative expenses for the discontinued operations excludes corporate overhead. These charges are reflected in
continuing operations.
-
(b)
-
In
accordance with ASC 205-20, the operating results for the fifty-two week period ended March 3, 2018, the fifty-three week period ended March 4,
2017, and the fifty-two week period ended February 27, 2016 for the discontinued operations include interest expense relating to the $4,027,400 of outstanding indebtedness expected to be repaid
with the estimated excess proceeds from the Sale.
The
operating results reflected above do not fully represent the Disposal Group's historical operating results, as the results reported within net income from discontinued operations
only include expenses that are directly attributable to the Disposal Group.
5. (Loss) Income Per Share
Basic (loss) income per share is computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted
(loss) income per share reflects the potential dilution that could occur if securities or other contracts to issue
106
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
5. (Loss) Income Per Share (Continued)
common
stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the income of the Company subject to anti- dilution limitations.
|
|
|
|
|
|
|
|
|
|
|
|
|
March 3,
2018
(52 Weeks)
|
|
March 4,
2017
(53 Weeks)
|
|
February 27,
2016
(52 Weeks)
|
|
Basic and diluted (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to common stockholdersbasic and diluted
|
|
$
|
(349,532
|
)
|
$
|
4,080
|
|
$
|
102,088
|
|
Income (loss) from discontinued operations attributable to common stockholdersbasic and diluted
|
|
|
1,293,002
|
|
|
(27
|
)
|
|
63,377
|
|
|
|
|
|
|
|
|
|
|
|
|
Income attributable to common stockholdersbasic and diluted
|
|
$
|
943,470
|
|
$
|
4,053
|
|
$
|
165,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
|
|
|
1,049,628
|
|
|
1,044,427
|
|
|
1,024,377
|
|
Outstanding options and restricted shares, net
|
|
|
|
|
|
16,399
|
|
|
17,985
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
|
|
|
1,049,628
|
|
|
1,060,826
|
|
|
1,042,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.33
|
)
|
$
|
0.00
|
|
$
|
0.10
|
|
Discontinued operations
|
|
|
1.23
|
|
|
(0.00
|
)
|
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
Net basic income per share
|
|
$
|
0.90
|
|
$
|
0.00
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.33
|
)
|
$
|
0.00
|
|
$
|
0.10
|
|
Discontinued operations
|
|
|
1.23
|
|
|
(0.00
|
)
|
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
Net diluted income per share
|
|
$
|
0.90
|
|
$
|
0.00
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
to their antidilutive effect, 7,484, 3,200 and 3,464 potential common shares related to stock options have been excluded from the computation of diluted income per share as of
March 3, 2018, March 4, 2017 and February 27, 2016, respectively.
During
May 2015, $64,089 of the Company's 8.5% convertible notes due 2015 were converted into 24,762 shares of common stock, pursuant to their terms.
6. Lease Termination and Impairment Charges
The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that an asset group has a carrying
value that may not be recoverable. The individual operating store is the lowest level for which cash flows are identifiable. As such, the Company evaluates individual stores for recoverability of
assets. To determine if a store needs to be tested for recoverability, the Company considers items such as decreases in market prices, changes in
107
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
6. Lease Termination and Impairment Charges (Continued)
the
manner in which the store is being used or physical condition, changes in legal factors or business climate, an accumulation of losses significantly in excess of budget, a current period operating
or cash flow loss combined with a history of operating or cash flow losses or a projection of continuing losses, or an expectation that the store will be closed or sold.
The
Company monitors new and recently relocated stores against operational projections and other strategic factors such as regional economics, new competitive entries and other local
market considerations to determine if an impairment evaluation is required. For other stores, it performs a recoverability analysis if it has experienced current-period and historical cash flow
losses.
In
performing the recoverability test, the Company compares the expected future cash flows of a store to the carrying amount of its assets. Significant judgment is used to estimate
future cash flows. Major assumptions that contribute to its future cash flow projections include expected sales, gross profit, and distribution expenses; expected costs such as payroll, occupancy
costs and advertising expenses; and estimates for other significant selling, and general and administrative expenses. Many long-term macro-economic and industry factors are considered, both
quantitatively and qualitatively, in the future cash flow assumptions. In addition to current and expected economic conditions such as inflation, interest and unemployment rates that affect customer
shopping patterns, the Company considers that it operates in a highly competitive industry which includes the actions of other national and regional drugstore chains, independently owned drugstores,
supermarkets, mass merchandisers, dollar stores and internet pharmacies. Additionally, the Company takes into consideration that certain operating stores are executing specific improvement plans which
are monitored quarterly to recoup recent capital investments, such as an acquisition of an independent pharmacy, which it has made to respond to specific competitive or local market conditions, or
have specific programs tailored towards a specific geography or market.
The
Company recorded impairment charges of $37,873 in fiscal 2018, $22,631 in fiscal 2017 and $9,273 in fiscal 2016. The Company's methodology for recording impairment charges has been
consistently applied in the periods presented.
At
March 3, 2018, $1.171 billion of the Company's long-lived assets, including intangible assets, were associated with 2,550 active operating stores.
If
an operating store's estimated future undiscounted cash flows are not sufficient to cover its carrying value, its carrying value is reduced to fair value which is its estimated future
discounted cash flows. The discount rate is commensurate with the risks associated with the recovery of a similar asset.
An
impairment charge is recorded in the period that the store does not meet its original return on investment and/or has an operating loss for the last 2 years and its projected
cash flows do not exceed its current asset carrying value. The amount of the impairment charge is the entire difference between the current asset carrying value and the estimated fair value of the
assets using discounted future cash flows. Most stores are fully impaired in the period that the impairment charge is originally recorded.
The
Company recorded impairment charges for active stores of $34,782 in fiscal 2018, $20,623 in fiscal 2017 and $8,242 in fiscal 2016.
108
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
6. Lease Termination and Impairment Charges (Continued)
The Company reviews key performance results for active stores on a quarterly basis and approves certain stores for closure. Impairment for closed stores, if any (many stores are closed
on lease expiration), are recorded in the quarter the closure decision is approved. Closure decisions are made on an individual store or regional basis considering all of the macro-economic, industry
and other factors, in addition to, the active store's individual operating results. The Company recorded impairment charges for closed facilities of $3,091 in fiscal 2018, $2,008 in fiscal 2017 and
$1,031 in fiscal 2016.
The
following table summarizes the impairment charges and number of locations, segregated by closed facilities and active stores that have been recorded in fiscal 2018, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 3, 2018
|
|
March 4, 2017
|
|
February 27, 2016
|
|
(in thousands, except number of stores)
|
|
Number
|
|
Charge
|
|
Number
|
|
Charge
|
|
Number
|
|
Charge
|
|
Active stores:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores previously impaired(1)
|
|
|
218
|
|
$
|
7,313
|
|
|
174
|
|
$
|
5,022
|
|
|
161
|
|
$
|
4,582
|
|
New, relocated and remodeled stores(2)
|
|
|
28
|
|
|
13,100
|
|
|
22
|
|
|
13,232
|
|
|
1
|
|
|
778
|
|
Remaining stores not meeting the recoverability test(3)
|
|
|
60
|
|
|
14,369
|
|
|
17
|
|
|
2,369
|
|
|
14
|
|
|
2,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment chargesactive stores
|
|
|
306
|
|
|
34,782
|
|
|
213
|
|
|
20,623
|
|
|
176
|
|
|
8,242
|
|
Total impairment chargesclosed facilities
|
|
|
67
|
|
|
3,091
|
|
|
53
|
|
|
2,008
|
|
|
27
|
|
|
1,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment chargesall locations
|
|
|
373
|
|
$
|
37,873
|
|
|
266
|
|
$
|
22,631
|
|
|
203
|
|
$
|
9,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
These
charges are related to stores that were impaired for the first time in prior periods. Most active stores, requiring an impairment charge, are fully impaired in
the first period that they do not meet their asset recoverability test. However, we do often make capital additions to certain stores to improve their operating results or to meet geographical
competition, which if later are deemed to be unrecoverable, will be impaired in future periods. Of this total, 215, 173 and 160 stores for fiscal years 2018, 2017 and 2016 respectively have been fully
impaired. Also included in these charges are an insignificant number of stores, which were only partially impaired in prior years based on our analysis that supported a reduced net book value greater
than zero, but now require additional charges.
-
(2)
-
These
charges are related to new stores (open at least 3 years) and relocated stores (relocated in the last 2 years) and significant strategic remodels
(remodeled in the last year) that did not meet their recoverability test during the current period. These stores have not met their original return on investment projections and have a historical loss
of at least 2 years. Their future cash flow projections do not recover their current carrying value. Of this total, 23, 18 and 1 stores for fiscal years 2018, 2017 and 2016 respectively have
been fully impaired.
-
(3)
-
These
charges are related to the remaining active stores that did not meet the recoverability test during the current period. These stores have a historical loss of
at least 2 years. Their future cash flow projections do not recover their current carrying value. Of this total, 58, 16 and 13 stores for fiscal years 2018, 2017 and 2016 respectively have been
fully impaired.
109
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
6. Lease Termination and Impairment Charges (Continued)
The
primary drivers of its impairment charges are each store's current and historical operating performance and the assumptions that the Company makes about each store's operating
performance in future periods. Projected cash flows are updated based on the next year's operating budget which includes the qualitative factors noted above. The Company utilizes the three-level
valuation hierarchy for the recognition and disclosure of fair value measurements. The categorization of assets and liabilities within this hierarchy is based upon the lowest level of input that is
significant to the measurement of fair value. The three levels of the hierarchy consist of the following:
-
-
Level 1Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or
liabilities that the Company has the ability to access at the measurement date.
-
-
Level 2Inputs to the valuation methodology are quoted prices for similar assets and liabilities in active markets, quoted
prices in markets that are not active or inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument.
-
-
Level 3Inputs to the valuation methodology are unobservable inputs based upon management's best estimate of inputs market
participants could use in pricing the asset or liability at the measurement date, including assumptions about risk.
Long-lived
non-financial assets are measured at fair value on a nonrecurring basis for purposes of calculating impairment using Level 2 and Level 3 inputs as defined in the
fair value hierarchy. The fair value of long-lived assets using Level 2 inputs is determined by evaluating the current economic conditions in the geographic area for similar use assets. The
fair value of long-lived assets using Level 3 inputs is determined by estimating the amount and timing of net future cash flows (which are unobservable inputs) and discounting them using a
risk-adjusted rate of interest (which is Level 1). The Company estimates future cash flows based on its experience and knowledge of the market in which the store is located. Significant
increases or decreases in actual cash flows may result in valuation changes.
The
table below sets forth by level within the fair value hierarchy the long-lived assets as of the impairment measurement date for which an impairment assessment was performed and total
losses as of March 3, 2018 and March 4, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Fair Values
as of
Impairment
Date
|
|
Total
Charges
March 3,
2018
|
|
Long-lived assets held and used
|
|
$
|
|
|
$
|
2,893
|
|
$
|
14,581
|
|
$
|
17,474
|
|
$
|
(36,752
|
)
|
Long-lived assets held for sale
|
|
|
|
|
|
1,029
|
|
|
|
|
|
1,029
|
|
|
(1,121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
$
|
3,922
|
|
$
|
14,581
|
|
$
|
18,503
|
|
$
|
(37,873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
6. Lease Termination and Impairment Charges (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Fair Values
as of
Impairment
Date
|
|
Total
Charges
March 4,
2017
|
|
Long-lived assets held and used
|
|
$
|
|
|
$
|
511
|
|
$
|
8,866
|
|
$
|
9,377
|
|
$
|
(22,560
|
)
|
Long-lived assets held for sale
|
|
|
|
|
|
1,260
|
|
|
|
|
|
1,260
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
$
|
1,771
|
|
$
|
8,866
|
|
$
|
10,637
|
|
$
|
(22,631
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
above assets reflected in the caption Long-lived assets held for sale are separate and apart from the Assets to be Sold and due to their immateriality, have not been reclassified to
assets held for sale.
Charges to close a store, which principally consist of continuing lease obligations, are recorded at the time the store is closed and all
inventory is liquidated, pursuant to the guidance set forth in ASC 420, "Exit or Disposal Cost Obligations." The Company calculates the liability for closed stores on a store-by-store basis.
The calculation includes the discounted effect of future minimum lease payments and related ancillary costs, from the date of closure to the end of the remaining lease term, net of estimated cost
recoveries that may be achieved through subletting or favorable lease terminations. The Company evaluates these assumptions each quarter and adjusts the liability accordingly.
In
fiscal 2018, 2017 and 2016, the Company recorded lease termination charges of $20,892, $23,147 and $31,204, respectively. These charges related to changes in future assumptions,
interest accretion and provisions for 11 stores in fiscal 2018, 17 stores in fiscal 2017, and 23 stores in fiscal 2016.
As
part of its ongoing business activities, the Company assesses stores and distribution centers for potential closure. Decisions to close or relocate stores or distribution centers in
future periods would result in lease termination charges for lease exit costs and liquidation of inventory, as well as
111
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
6. Lease Termination and Impairment Charges (Continued)
impairment
of assets at these locations. The following table reflects the closed store and distribution center charges that relate to new closures, changes in assumptions and interest accretion:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
March 3,
2018
(52 Weeks)
|
|
March 4,
2017
(53 Weeks)
|
|
February 27,
2016
(52 Weeks)
|
|
Balancebeginning of year
|
|
$
|
165,138
|
|
$
|
208,421
|
|
$
|
241,047
|
|
Provision for present value of noncancellable lease payments of closed stores
|
|
|
8,871
|
|
|
6,503
|
|
|
9,709
|
|
Changes in assumptions about future sublease income, terminations and change in interest rates
|
|
|
1,082
|
|
|
2,633
|
|
|
5,655
|
|
Interest accretion
|
|
|
11,439
|
|
|
14,186
|
|
|
16,463
|
|
Cash payments, net of sublease income
|
|
|
(53,240
|
)
|
|
(66,605
|
)
|
|
(64,453
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balanceend of year
|
|
$
|
133,290
|
|
$
|
165,138
|
|
$
|
208,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company's revenues and income before income taxes for fiscal 2018, 2017, and 2016 included results from stores that have been closed or are approved for closure as of March 3,
2018. The revenue, operating expenses and income before income taxes of these stores for the periods are presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
March 3,
2018
|
|
March 4,
2017
|
|
February 27,
2016
|
|
Revenues
|
|
$
|
69,336
|
|
$
|
174,668
|
|
$
|
204,869
|
|
Operating expenses
|
|
|
82,541
|
|
|
193,771
|
|
|
223,774
|
|
Gain from sale of assets
|
|
|
(18,231
|
)
|
|
(1,036
|
)
|
|
(5,605
|
)
|
Other expenses
|
|
|
830
|
|
|
2,182
|
|
|
1,725
|
|
Income (loss) before income taxes
|
|
|
4,196
|
|
|
(20,249
|
)
|
|
(15,025
|
)
|
Included in these stores' loss before income taxes are:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
365
|
|
|
1,440
|
|
|
1,498
|
|
Inventory liquidation charges
|
|
|
(2,828
|
)
|
|
(187
|
)
|
|
(295
|
)
|
The
above results are not necessarily indicative of the impact that these closures will have on revenues and operating results of the Company in the future, as the Company often
transfers the business of a closed store to another Company store, thereby retaining a portion of these revenues and operating expenses.
7. Fair Value Measurements
The Company utilizes the three-level valuation hierarchy as described in Note 6,
Lease Termination and Impairment Charges
, for the
recognition and disclosure of fair value measurements.
112
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
7. Fair Value Measurements (Continued)
As
of March 3, 2018 and March 4, 2017, the Company did not have any financial assets measured on a recurring basis. Please see Note 6 for fair value measurements of
non-financial assets measured on a non-recurring basis.
Financial instruments other than long-term indebtedness include cash and cash equivalents, accounts receivable and accounts payable. These
instruments are recorded at book value, which we believe approximate their fair values due to their short term nature. In addition, as of March 3, 2018 and March 4, 2017, the Company has
$7,282 and $6,874, respectively, of investments carried at amortized cost as these investments are being held to maturity. These investments are included as a component of other assets as of
March 3, 2018 and as a component of prepaid expenses and other current assets as of March 4, 2017. The Company believes the carrying value of these investments approximates their fair
value.
The
fair value for LIBOR-based borrowings under the Company's senior secured credit facility is estimated based on the quoted market price of the financial instrument which is considered
Level 1 of the fair value hierarchy. The fair values of substantially all of the Company's other long-term indebtedness are estimated based on quoted market prices of the financial instruments
which are considered Level 1 of the fair value hierarchy. The carrying amount and estimated fair value of the Company's total long-term indebtedness was $3,889,738 and $3,927,411, respectively,
as of March 3, 2018. The carrying amount and estimated fair value of the Company's total long-term indebtedness was $7,263,378 and $7,556,599, respectively, as of March 4, 2017. There
were no outstanding derivative financial instruments as of March 3, 2018 and March 4, 2017.
8. Income Taxes
On December 22, 2017 (the "Enactment Date"), H.R. 1, originally known as the Tax Cuts and Jobs Act, was enacted. The new law (Public Law No.115-97 hereinafter referred to as the
"Tax Act") includes significant changes to the U.S. corporate income tax system including, but not limited to, lowering the statutory corporate tax rate from 35% to 21%, limiting or eliminating
certain deductions and the repeal of Corporate AMT tax regime. The majority of the provisions will be applicable to the Company for
fiscal 2019. For fiscal 2018, the Company computed its income tax expense using a blended federal tax rate of 32.6%. The 21% federal tax rate will apply to the fiscal year ending March 2, 2019
and each year thereafter.
113
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
8. Income Taxes (Continued)
The
provision for income tax expense (benefit) from continuing operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
March 3,
2018
(52 Weeks)
|
|
March 4,
2017
(53 Weeks)
|
|
February 27,
2016
(52 Weeks)
|
|
Current tax:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(210
|
)
|
$
|
|
|
$
|
(52
|
)
|
State
|
|
|
51,279
|
|
|
14,600
|
|
|
6,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,069
|
|
|
14,600
|
|
|
6,538
|
|
Deferred tax and other:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
316,451
|
|
|
10,355
|
|
|
83,074
|
|
State
|
|
|
(61,533
|
)
|
|
19,483
|
|
|
(40,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
254,918
|
|
|
29,838
|
|
|
42,974
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
305,987
|
|
$
|
44,438
|
|
$
|
49,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
reconciliation of the expected statutory federal tax and the total income tax expense (benefit) from continuing operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
March 3,
2018
(52 Weeks)
|
|
March 4,
2017
(53 Weeks)
|
|
February 27,
2016
(52 Weeks)
|
|
Federal statutory rate*
|
|
$
|
(14,202
|
)
|
$
|
16,982
|
|
$
|
53,060
|
|
Federal tax rate change
|
|
|
324,765
|
|
|
|
|
|
|
|
Nondeductible expenses
|
|
|
1,213
|
|
|
2,479
|
|
|
6,518
|
|
State income taxes, net
|
|
|
(22,836
|
)
|
|
8,225
|
|
|
16,482
|
|
Increase/(decrease) of previously recorded liabilities
|
|
|
27,295
|
|
|
(955
|
)
|
|
|
|
Nondeductible compensation
|
|
|
654
|
|
|
1,157
|
|
|
6,057
|
|
Acquisition costs
|
|
|
696
|
|
|
4,023
|
|
|
6,782
|
|
Stock based compensation
|
|
|
8,363
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(8,853
|
)
|
|
14,718
|
|
|
(38,058
|
)
|
Other
|
|
|
(11,108
|
)
|
|
(2,191
|
)
|
|
(1,329
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$
|
305,987
|
|
$
|
44,438
|
|
$
|
49,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
*
-
Federal
statutory rate included in the above table is 32.6%, 35.0% and 35.0%, respectively, for the fiscal years ended March 3, 2018, March 4, 2017 and
February 27, 2016.
Net
income for fiscal 2018 from continuing operations included income tax expense of $305,987, of which $324,765 relates to the federal income tax rate change on the re-measurement of
net deferred
114
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
8. Income Taxes (Continued)
tax
assets pursuant to the Tax Act. Additionally, the Company recorded within state income taxes the net impact of the Pennsylvania tax law change which resulted in a substantial increase to the state
net operating loss carryforwards and a corresponding increase to the valuation allowance.
Net
income from continuing operations for fiscal 2017 included income tax expense of $44,438, which included an increase in valuation allowance of $14,718 primarily related to a
reduction in estimated utilization of state NOLs and for expiring carryforwards.
Net
income from continuing operations for fiscal 2016 included income tax expense of $49,512 based on the effective tax rate above, which included a benefit of $38,058 related to a
reduction in valuation allowance primarily for an increase in estimated utilization of state NOLs and for expiring carryforwards.
The
Company recognized tax expense of $749,704, $46 and $63,427 within Net loss (income) from discontinued operations, net of tax, in the Statement of Operations in fiscal 2018, fiscal
2017 and fiscal 2016, respectively. The Company's effective income tax rate from discontinued operations included adjustments to the valuation allowance of $(32,870), $15 and $11,700 for fiscal 2018,
fiscal 2017 and fiscal 2016, respectively.
The
tax effect of temporary differences that gave rise to significant components of deferred tax assets and liabilities consisted of the following at March 3, 2018 and
March 4, 2017:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
39,182
|
|
$
|
68,320
|
|
Accrued expenses
|
|
|
113,493
|
|
|
194,884
|
|
Liability for lease exit costs
|
|
|
40,662
|
|
|
68,411
|
|
Pension, retirement and other benefits
|
|
|
104,494
|
|
|
168,274
|
|
Long-lived assets
|
|
|
246,793
|
|
|
509,283
|
|
Other
|
|
|
|
|
|
1,630
|
|
Credits
|
|
|
85,555
|
|
|
65,971
|
|
Net operating losses
|
|
|
1,089,084
|
|
|
1,207,650
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
1,719,263
|
|
|
2,284,423
|
|
Valuation allowance
|
|
|
(896,800
|
)
|
|
(226,726
|
)
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
822,463
|
|
|
2,057,697
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Outside basis difference
|
|
|
5,420
|
|
|
112,509
|
|
Inventory
|
|
|
223,024
|
|
|
439,624
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities
|
|
|
228,444
|
|
|
552,133
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
594,019
|
|
$
|
1,505,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
8. Income Taxes (Continued)
A
reconciliation of the beginning and ending amount of unrecognized tax benefits from continuing operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Unrecognized tax benefits
|
|
$
|
8,939
|
|
$
|
10,676
|
|
$
|
9,514
|
|
Increases to prior year tax positions
|
|
|
|
|
|
16
|
|
|
1,667
|
|
Decreases to tax positions in prior periods
|
|
|
(1,015
|
)
|
|
(626
|
)
|
|
(577
|
)
|
Increases to current year tax positions
|
|
|
224,408
|
|
|
26
|
|
|
72
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
|
Divestitures
|
|
|
(1,607
|
)
|
|
|
|
|
|
|
Lapse of statute of limitations
|
|
|
(515
|
)
|
|
(1,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits balance
|
|
$
|
230,210
|
|
$
|
8,939
|
|
$
|
10,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
amount of the above unrecognized tax benefits at March 3, 2018, March 4, 2017 and February 27, 2016 which would impact the Company's effective tax rate, if
recognized, was $31,377, $892 and $2,084 respectively. Additionally, any impact on the effective rate may be mitigated by the valuation allowance that is remaining against the Company's net deferred
tax assets.
The
Company believes that it is reasonably possible that a decrease of up to $13,498 in unrecognized tax benefits related to state exposures may be necessary in the next twelve months
however
management does not expect the change to have a significant impact on the results of operations or the financial position of the Company.
The
Company recognizes interest and penalties related to tax contingencies as income tax expense. The Company recognized an expense/(benefit) for interest and penalties in connection
with tax matters of $7,058, $(276) and $60 for fiscal years 2018, 2017 and 2016, respectively. As of March 3, 2018 and March 4, 2017 the total amount of accrued income tax-related
interest and penalties was $7,322 and $263, respectively.
The
Company files U.S. federal income tax returns as well as income tax returns in those states where it does business. The consolidated federal income tax returns are closed for
examination through fiscal year 2014. However, any net operating losses that were generated in these prior closed years may be subject to examination by the IRS upon utilization. Tax examinations by
various state taxing authorities could generally be conducted for a period of three to five years after filing of the respective return.
At March 3, 2018, the Company had federal net operating loss carryforwards of approximately $1,021,264 of these, $813,238 will expire, if
not utilized, between fiscal 2029 and 2031. An additional $208,026 will expire, if not utilized, between fiscal 2032 and 2037.
At
March 3, 2018, the Company had state net operating loss carryforwards of approximately $12,602,741, the majority of which will expire ratably through fiscal 2030; the net tax
effect of these
116
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
8. Income Taxes (Continued)
carryforwards
are $1,106,710 and are reflected in the table above. The Pennsylvania tax law change removing the net operating loss utilization limitation resulted in a substantial increase to the
state net operating loss carryforwards in fiscal 2018.
At
March 3, 2018, the Company had federal business tax credit carryforwards of $45,676 the majority of which will expire between 2019 and 2021. In addition to these credits, the
Company had alternative
minimum tax credit carryforwards of $33,410 which will be refunded to the Company between fiscal 2019 - 2022.
The valuation allowances as of March 3, 2018 and March 4, 2017 apply to the net deferred tax assets of the Company. The Company
maintained a valuation allowance of $896,800 and $226,726, which relates primarily to state deferred tax assets at March 3, 2018 and March 4, 2017, respectively. The primary driver of
the increase for fiscal 2018 resulted from the Pennsylvania tax law change which caused a substantial increase to the state net operating loss carryforwards, which required an offsetting increase in
valuation allowance.
9. Accounts Receivable
The Company maintains an allowance for doubtful accounts receivable based upon the expected collectability of accounts receivable. The allowance for uncollectible accounts at
March 3, 2018 and March 4, 2017 was $25,134 and $30,891 respectively. The Company's accounts receivable are due primarily from third-party payors (e.g., pharmacy benefit
management companies, insurance companies or governmental agencies) and are recorded net of any allowances provided for under the respective plans. Since payments due from third-party payors are
sensitive to payment criteria changes and legislative actions, the allowance is reviewed continually and adjusted for accounts deemed uncollectible by management.
10. Medicare Part D
The Company offers Medicare Part D benefits through EIC, which has contracted with CMS to be a PDP and, pursuant to the Medicare Prescription Drug, Improvement and Modernization
Act of 2003, must be a risk-bearing entity regulated under state insurance laws or similar statutes.
EIC
is a licensed domestic insurance company under the applicable laws and regulations. Pursuant to these laws and regulations, EIC must file quarterly and annual reports with the
National Association of Insurance Commissioners ("NAIC") and certain state regulators, must maintain certain minimum amounts of capital and surplus under formulas established by certain states and
must, in certain circumstances, request and receive the approval of certain state regulators before making dividend payments or other capital distributions to the Company. The Company does not believe
these limitations on dividends and distributions materially impact its financial position. EIC is subject to minimum capital and surplus requirements in certain states. The minimum amount of capital
and surplus required to satisfy regulatory requirements in these states is $26,676 as of December 31, 2017. EIC was in excess of the minimum required amounts in these states as of
March 3, 2018.
117
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
10. Medicare Part D (Continued)
The
Company has recorded estimates of various assets and liabilities arising from its participation in the Medicare Part D program based on information in its claims management
and enrollment systems. Significant estimates arising from its participation in this program include: (i) estimates of low-income cost subsidies, reinsurance amounts, and coverage gap discount
amounts ultimately payable to CMS based on a detailed claims reconciliation that will occur in the following year; (ii) an estimate of amounts receivable from CMS under a risk-sharing feature
of the Medicare Part D program design, referred to as the risk corridor and (iii) estimates for claims that have been reported and are in the process of being paid or contested and for
our estimate of claims that have been incurred but have not yet been reported.
As
of March 3, 2018, accounts receivable, net included $350,563 due from CMS and accrued salaries, wages and other current liabilities included $183,318 of EIC liabilities under
certain reinsurance contracts. As of March 4, 2017, accounts receivable, net included $245,766 due from CMS and accrued salaries, wages and other current liabilities included $145,903 of EIC
liabilities under certain reinsurance contracts. EIC limits its exposure to loss and recovers a portion of benefits paid by utilizing quota-share reinsurance with a commercial reinsurance company.
Beginning calendar 2018, EIC does not currently have a reinsurance agreement in place.
11. Inventory
At March 3, 2018 and March 4, 2017, inventories were $581,090 and $607,326, respectively, lower than the amounts that would have been reported using the first-in, first-out
("FIFO") cost flow assumption. The Company calculates its FIFO inventory valuation using the retail method for store inventories and the cost method for distribution facility inventories. The Company
recorded a LIFO credit for fiscal year 2018 of $28,827, compared to a LIFO credit of $3,721 for fiscal year 2017 and a LIFO charge of $7,892 for fiscal year 2016. During fiscal 2018 and 2017, a
reduction in non-pharmacy inventories resulted in the liquidation of applicable LIFO inventory quantities carried at lower costs in prior years. During fiscal 2016, a reduction in inventories related
to working capital initiatives resulted in LIFO liquidation. This LIFO liquidation resulted in a $2,707, $2,375 and $42,880 cost of revenues decrease, with a corresponding reduction to the adjustment
to LIFO for fiscal 2018, fiscal 2017 and fiscal 2016, respectively.
118
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
12. Property, Plant and Equipment
Following is a summary of property, plant and equipment, including capital lease assets, at March 3, 2018 and March 4, 2017:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Land
|
|
$
|
138,768
|
|
$
|
141,453
|
|
Buildings
|
|
|
528,026
|
|
|
528,076
|
|
Leasehold improvements
|
|
|
1,567,635
|
|
|
1,566,666
|
|
Equipment
|
|
|
1,795,337
|
|
|
1,810,405
|
|
Software
|
|
|
25,944
|
|
|
16,316
|
|
Construction in progress
|
|
|
59,635
|
|
|
62,537
|
|
|
|
|
|
|
|
|
|
|
|
|
4,115,345
|
|
|
4,125,453
|
|
Accumulated depreciation
|
|
|
(2,684,099
|
)
|
|
(2,598,991
|
)
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
1,431,246
|
|
$
|
1,526,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense, which included the depreciation of assets recorded under capital leases, was $238,318, $241,787 and $229,760 in fiscal 2018, 2017 and 2016, respectively.
Included
in property, plant and equipment was the carrying amount, which approximates fair value, of assets to be disposed of totaling $972 and $1,057 at March 3, 2018 and
March 4, 2017, respectively.
13. Goodwill and Other Intangibles
Goodwill and indefinitely-lived assets, such as certain trademarks acquired in connection with acquisition transactions, are not amortized, but are instead evaluated for impairment on an
annual basis at the end of the fiscal year, or more frequently if events or circumstances indicate that impairment may be more likely. When evaluating goodwill for possible impairment, the Company
typically performs a qualitative assessment in the fourth quarter of the fiscal year to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value.
However, as part of this qualitative assessment, the Company performs a quantitative assessment at least once every three years to re-establish a baseline fair value that can be used in its current
and future qualitative assessments. During the qualitative assessment the Company makes significant estimates, assumptions, and judgments, including, but not limited to, the overall economy, industry
and market conditions, financial performance of the Company, changes in its share price, and forecasts of revenue, profit, working capital requirements, and cash flows. The Company considers each
reporting unit's historical results and operating trends when determining these assumptions; however, the estimates and projections can be affected by a number of factors and it is possible that
actual results could differ from the assumptions used in the impairment assessment. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its
carrying amount, including goodwill, the Company performs a quantitative goodwill impairment test. Fair value estimates used in the quantitative impairment test are calculated using an average of the
income and market approaches. The income approach is based on the present value of future cash flows of each reporting unit, while the market approach is based on certain multiples of selected
guideline public companies or selected guideline transactions. The approaches incorporate a number of market participant assumptions
119
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
13. Goodwill and Other Intangibles (Continued)
including
future growth rates, discount rates, income tax rates and market activity in assessing fair value and are reporting unit specific. If the carrying amount exceeds the reporting unit's fair
value, the Company recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. In addition, the Company considers the income tax effect of any
tax deductible goodwill when measuring a goodwill impairment loss.
In
the fiscal fourth quarter the Company completed a qualitative goodwill impairment assessment, at which time it was determined after evaluating results, events and circumstances that a
quantitative assessment was necessary for the Pharmacy Services segment. The quantitative assessment concluded that the carrying amount of the Pharmacy Services segment exceeded its fair value
principally due to the impact of a change in the composition of the Medicare Part D membership and a decline in the commercial business. This resulted in a goodwill impairment charge of
$261,727 ($191,000 net of the related income tax benefit) for the fiscal year ended March 3, 2018. There was no impairment charge for the fiscal year ended March 4, 2017 as the Company
determined that the fair value of the reporting units exceeded their carrying amounts.
Below
is a summary of the changes in the carrying amount of goodwill by segment for the fiscal years ended March 3, 2018 and March 4, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
Pharmacy
|
|
Pharmacy
Services
|
|
Total
|
|
Balance, February 27, 2016
|
|
$
|
43,492
|
|
$
|
1,637,351
|
|
$
|
1,680,843
|
|
Acquisition (see Note 2. Acquisition)
|
|
|
|
|
|
|
|
|
|
|
Change in goodwill resulting from changes to the final purchase price allocation
|
|
|
|
|
|
2,004
|
|
|
2,004
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 4, 2017
|
|
|
43,492
|
|
|
1,639,355
|
|
|
1,682,847
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment
|
|
|
|
|
|
(261,727
|
)
|
|
(261,727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 3, 2018
|
|
$
|
43,492
|
|
$
|
1,377,628
|
|
$
|
1,421,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
13. Goodwill and Other Intangibles (Continued)
The Company's intangible assets are primarily finite-lived and amortized over their useful lives. Following is a summary of the Company's finite-lived and indefinite-lived intangible
assets as of March 3, 2018 and March 4, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Remaining
Weighted
Average
Amortization
Period
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Remaining
Weighted
Average
Amortization
Period
|
Favorable leases and other(a)
|
|
$
|
379,355
|
|
$
|
(316,798
|
)
|
$
|
62,557
|
|
7 years
|
|
$
|
386,636
|
|
$
|
(308,766
|
)
|
$
|
77,870
|
|
7 years
|
Prescription files
|
|
|
900,111
|
|
|
(801,706
|
)
|
|
98,405
|
|
3 years
|
|
|
894,330
|
|
|
(764,840
|
)
|
|
129,490
|
|
3 years
|
Customer relationships(a)
|
|
|
465,000
|
|
|
(172,635
|
)
|
|
292,365
|
|
15 years
|
|
|
465,000
|
|
|
(110,653
|
)
|
|
354,347
|
|
16 years
|
CMS license
|
|
|
57,500
|
|
|
(6,172
|
)
|
|
51,328
|
|
23 years
|
|
|
57,500
|
|
|
(3,872
|
)
|
|
53,628
|
|
24 years
|
Claims adjudication and other developed software
|
|
|
58,985
|
|
|
(22,617
|
)
|
|
36,368
|
|
5 years
|
|
|
58,995
|
|
|
(14,188
|
)
|
|
44,807
|
|
6 years
|
Trademarks
|
|
|
20,100
|
|
|
(5,394
|
)
|
|
14,706
|
|
8 years
|
|
|
20,100
|
|
|
(3,383
|
)
|
|
16,717
|
|
9 years
|
Backlog
|
|
|
11,500
|
|
|
(10,286
|
)
|
|
1,214
|
|
1 year
|
|
|
11,500
|
|
|
(6,453
|
)
|
|
5,047
|
|
2 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finite
|
|
$
|
1,892,551
|
|
$
|
(1,335,608
|
)
|
$
|
556,943
|
|
|
|
$
|
1,894,061
|
|
$
|
(1,212,155
|
)
|
$
|
681,906
|
|
|
Trademarks
|
|
|
33,500
|
|
|
|
|
|
33,500
|
|
Indefinite
|
|
|
33,500
|
|
|
|
|
|
33,500
|
|
Indefinite
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,926,051
|
|
$
|
(1,335,608
|
)
|
$
|
590,443
|
|
|
|
$
|
1,927,561
|
|
$
|
(1,212,155
|
)
|
$
|
715,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
Amortized
on an accelerated basis which is determined based on the remaining useful economic lives of the customer relationships that are expected to contribute
directly or indirectly to future cash flows.
Also
included in other non-current liabilities as of March 3, 2018 and March 4, 2017 are unfavorable lease intangibles with a net carrying amount of $18,888 and $23,703,
respectively. These intangible liabilities are amortized over their remaining lease terms at time of acquisition.
Amortization
expense for these intangible assets and liabilities was $147,739, $165,579 and $131,374 for fiscal 2018, 2017 and 2016, respectively. The anticipated annual amortization
expense for these intangible assets and liabilities is 2019$122,024; 2020$98,113; 2021$74,205; 2022$52,416 and 2023$36,175.
14. Accrued Salaries, Wages and Other Current Liabilities
Accrued salaries, wages and other current liabilities consisted of the following at March 3, 2018 and March 4, 2017:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Accrued wages, benefits and other personnel costs
|
|
$
|
360,179
|
|
$
|
426,097
|
|
Accrued interest
|
|
|
65,210
|
|
|
66,352
|
|
Accrued sales and other taxes payable
|
|
|
125,289
|
|
|
141,420
|
|
Accrued store expense
|
|
|
155,354
|
|
|
173,630
|
|
Accrued reinsurance
|
|
|
183,418
|
|
|
145,904
|
|
Other
|
|
|
342,286
|
|
|
387,544
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,231,736
|
|
$
|
1,340,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
15. Indebtedness and Credit Agreement
Following is a summary of indebtedness and lease financing obligations at March 3, 2018 and March 4, 2017:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Secured Debt:
|
|
|
|
|
|
|
|
Senior secured revolving credit facility due January 2020 ($0 and $2,430,000 face value less unamortized debt issuance costs of $13,076 and
$24,918)
|
|
$
|
(13,076
|
)
|
$
|
2,405,082
|
|
Tranche 1 Term Loan (second lien) due August 2020 ($0 and $470,000 face value less unamortized debt issuance costs of $0 and $4,167)
|
|
|
|
|
|
465,833
|
|
Tranche 2 Term Loan (second lien) due June 2021 ($0 and $500,000 face value less unamortized debt issuance costs of $0 and $2,431)
|
|
|
|
|
|
497,569
|
|
Other secured
|
|
|
90
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,986
|
)
|
|
3,368,574
|
|
Guaranteed Unsecured Debt:
|
|
|
|
|
|
|
|
9.25% senior notes due March 2020 ($902,000 face value plus unamortized premium of $1,400 and $2,071 and less unamortized debt issuance costs of $4,924
and $7,527)
|
|
|
898,476
|
|
|
896,544
|
|
6.75% senior notes due June 2021 ($810,000 face value less unamortized debt issuance costs of $4,877 and $6,360)
|
|
|
805,123
|
|
|
803,640
|
|
6.125% senior notes due April 2023 ($1,800,000 face value less unamortized debt issuance costs of $21,708 and $25,984)
|
|
|
1,778,292
|
|
|
1,774,016
|
|
|
|
|
|
|
|
|
|
|
|
|
3,481,891
|
|
|
3,474,200
|
|
Unguaranteed Unsecured Debt:
|
|
|
|
|
|
|
|
7.7% notes due February 2027 ($295,000 face value less unamortized debt issuance costs of $1,460 and $1,625)
|
|
|
293,540
|
|
|
293,375
|
|
6.875% fixed-rate senior notes due December 2028 ($128,000 face value less unamortized debt issuance costs of $707 and $771)
|
|
|
127,293
|
|
|
127,229
|
|
|
|
|
|
|
|
|
|
|
|
|
420,833
|
|
|
420,604
|
|
Lease financing obligations
|
|
|
52,554
|
|
|
65,315
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
3,942,292
|
|
|
7,328,693
|
|
Current maturities of long-term debt and lease financing obligations
|
|
|
(21,031
|
)
|
|
(21,335
|
)
|
|
|
|
|
|
|
|
|
Long-term debt and lease financing obligations, less current maturities
|
|
$
|
3,921,261
|
|
$
|
7,307,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
15. Indebtedness and Credit Agreement (Continued)
Reconciliation
of indebtedness included in continuing operations and discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 3, 2018
|
|
|
|
Debt
|
|
Lease Financing
Obligations
|
|
Total Debt and
Lease Financing
Obligations
|
|
Balance, March 3, 2018per above table
|
|
$
|
3,889,738
|
|
$
|
52,554
|
|
$
|
3,942,292
|
|
Amounts reclassified as current and noncurrent liabilities held for sale in connection with the Sale(a)
|
|
|
(549,549
|
)
|
|
(1,108
|
)
|
|
(550,657
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total debt and lease financing obligations
|
|
|
3,340,189
|
|
|
51,446
|
|
|
3,391,635
|
|
Current maturities of long-term debt and lease financing obligationscontinuing operations
|
|
|
(90
|
)
|
|
(20,671
|
)
|
|
(20,761
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and lease financing obligations, less current maturitiescontinuing operations
|
|
$
|
3,340,099
|
|
$
|
30,775
|
|
$
|
3,370,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 4, 2017
|
|
|
|
Debt
|
|
Lease Financing
Obligations
|
|
Total Debt and
Lease Financing
Obligations
|
|
Balance, March 4, 2017per above table
|
|
$
|
7,263,378
|
|
$
|
65,315
|
|
$
|
7,328,693
|
|
Amounts reclassified as current and noncurrent liabilities held for sale in connection with the Sale(a)
|
|
|
(4,027,400
|
)
|
|
(10,492
|
)
|
|
(4,037,892
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total debt and lease financing obligations
|
|
|
3,235,978
|
|
|
54,823
|
|
|
3,290,801
|
|
Current maturities of long-term debt and lease financing obligationscontinuing operations
|
|
|
(90
|
)
|
|
(17,619
|
)
|
|
(17,709
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and lease financing obligations, less current maturitiescontinuing operations
|
|
$
|
3,235,888
|
|
$
|
37,204
|
|
$
|
3,273,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
In
connection with the Sale, the Company is estimating that the Sale will provide total excess cash proceeds of approximately $549,549 and 4,027,400 which will be
used to repay outstanding indebtedness as of March 3, 2018 and March 4, 2017, respectively. As such, the Company included estimated excess cash proceeds $549,549 and $4,027,400 as
repayment of outstanding indebtedness that has been included in liabilities held for sale as of March 3, 2018 and March 4, 2017. Additionally, as part of the Sale, the Company will be
relieved of approximately $1,108 and $10,492, respectively, of capital lease obligations as of March 3, 2018 and March 4, 2017. These amounts are also reflected as liabilities held for
sale. Please see Note 4 for additional details.
The Company's Amended and Restated Senior Secured Credit Facility has a borrowing capacity of $3,000,000 and matures in January 2020. Borrowings
under the revolver bear interest at a rate per annum between (i) LIBOR plus 1.50% and LIBOR plus 2.00% with respect to Eurodollar borrowings
123
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
15. Indebtedness and Credit Agreement (Continued)
and
(ii) the alternate base rate plus 0.50% and the alternate base rate plus 1.00% with respect to ABR borrowings, in each case, based upon the Average Revolver Availability (as defined in the
Amended and Restated Senior Secured Credit Facility). The Company is required to pay fees between 0.250% and 0.375% per annum on the daily unused amount of the revolver, depending on the Average
Revolver Availability (as defined in the Amended and Restated Senior Secured Credit Facility). Amounts drawn under the revolver become due and payable on January 13, 2020.
The
Company's ability to borrow under the revolver is based upon a specified borrowing base consisting of accounts receivable, inventory and prescription files. At March 3, 2018,
the Company had $0 of borrowings outstanding under the revolver and had letters of credit outstanding against the revolver of $58,043 which resulted in additional borrowing capacity of $2,941,957.
The
Amended and Restated Senior Secured Credit Facility restricts the Company and the Subsidiary Guarantors (as defined herein) from accumulating cash on hand, and under certain
circumstances, requires the funds in the Company's deposit accounts to be applied first to the repayment of outstanding revolving loans under the Amended and Restated Senior Secured Credit Facility
and then to be held as collateral for the senior obligations.
The
Amended and Restated Senior Secured Credit Facility allows the Company to have outstanding, at any time, up to $1,500,000 in secured second priority debt, split-priority term loan
debt, unsecured debt and disqualified preferred stock in addition to borrowings under the Amended and Restated Senior Secured Credit Facility and existing indebtedness, provided that not in excess of
$750,000 of such secured second priority debt, split-priority term loan debt, unsecured debt and disqualified preferred stock shall mature or require scheduled payments of principal prior to
90 days after the latest of (a) the fifth anniversary of the effectiveness of the Amended and Restated Senior Secured Credit Facility and (b) the latest maturity date of any Term
Loan or Other Revolving Loan (each as defined in the Amended and Restated Senior Secured Credit Facility) (excluding bridge facilities allowing extensions on customary terms to at least the date that
is 90 days after such date and, with respect to any escrow notes issued by Rite Aid, excluding any special mandatory redemption of the type described in clause (iii) of the definition of
"Escrow Notes" in the Amended and Restated Senior Secured Credit Facility). Subject to the limitations described in clauses (a) and (b) of the immediately preceding sentence, the Amended
and Restated Senior Secured Credit Facility additionally allows the Company to issue or incur an unlimited amount of unsecured debt and disqualified preferred stock so long as a Financial Covenant
Effectiveness Period (as defined in the Amended and Restated Senior Secured Credit Facility) is not in effect; provided, however, that certain of the Company's other outstanding indebtedness limits
the amount of unsecured debt that can be incurred if certain interest coverage levels are not met at the time of incurrence or other exemptions are not available. The Amended and Restated Senior
Secured Credit Facility also contains certain restrictions on the amount of secured first priority debt the Company is able to incur. The Amended and Restated Senior Secured Credit Facility also
allows for the voluntary repurchase of any debt or other convertible debt, so long as the Amended and Restated Senior Secured Credit Facility is not in default and the Company maintains availability
under its revolver of more than $365,000.
124
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
15. Indebtedness and Credit Agreement (Continued)
The
Amended and Restated Senior Secured Credit Facility has a financial covenant that requires the Company to maintain a minimum fixed charge coverage ratio of 1.00 to 1.00 (a) on
any date on which availability under the revolver is less than $200,000 or (b) on the third consecutive business day on which availability under the revolver is less than $250,000 and, in each
case, ending on and excluding the first day thereafter, if any, which is the 30th consecutive calendar day on which availability under the revolver is equal to or greater than $250,000. As of
March 3, 2018, the Company had availability under its revolver of $2,941,957, its fixed charge coverage ratio was greater than 1.00 to 1.00, and the Company was in compliance with the senior
secured credit facility's financial covenant. The Amended and Restated Senior Secured Credit Facility also contains covenants which place restrictions on the incurrence of debt, the payments of
dividends, sale of assets, mergers and acquisitions and the granting of liens.
The
Amended and Restated Senior Secured Credit Facility also provides for customary events of default.
With
the exception of EIC, substantially all of Rite Aid Corporation's 100 percent owned subsidiaries guarantee the obligations under the Amended and Restated Senior Secured
Credit Facility, second priority secured term loan facilities, and unsecured guaranteed notes. The Amended and Restated Senior Secured Credit Facility and second priority secured term loan facilities
are secured, on a senior or second priority basis, as applicable, by a lien on, among other things, accounts receivable, inventory and prescription files of the Subsidiary Guarantors. The subsidiary
guarantees related to the Company's Amended and Restated Senior Secured Credit Facility and second priority secured term loan facilities and, on an unsecured basis, the unsecured guaranteed notes, are
full and unconditional and joint and several, and there are no restrictions on the ability of the Company to obtain funds from its subsidiaries. The Company has no independent assets or operations.
Additionally, prior to the Acquisition, the subsidiaries, including joint ventures, that did not guarantee the Amended and Restated Senior Secured Credit Facility, the credit facility, second priority
secured term loan facilities and applicable notes, were minor. Accordingly, condensed consolidating financial information for the Company and subsidiaries is not presented for those periods.
Subsequent to the Acquisition, other than EIC, the subsidiaries, including joint ventures, that do not guarantee the credit facility, second priority secured term loan facilities and applicable notes,
are minor. As such, condensed consolidating financial information for the Company, its guaranteeing subsidiaries and non-guaranteeing subsidiaries is presented for those periods subsequent to the
Acquisition. See Note 25 "Guarantor and Non-Guarantor Condensed Consolidating Financial Information" for additional disclosure.
2018 Transactions
During fiscal 2018, the Company did not have any debt transactions related to continuing operations.
During
January 2018, the Company used proceeds from the Asset Sale to repay and retire all of its outstanding second lien $470,000 tranche 1 term loan and $500,000
tranche 2 term loan principal (the "Second Lien Term Loan Prepayment"). During February 2018, the Company reduced the borrowing capacity on its Amended and Restated Senior Secured Credit
Facility from $3,700,000 to $3,000,000. In
125
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
15. Indebtedness and Credit Agreement (Continued)
connection
with the transactions, the Company recorded a loss on debt retirement of $8,180, which included interest and unamortized debt issuance costs. The debt repayment and related loss on debt
retirement is included in the results of operations and cash flows of discontinued operations.
On
February 27, 2018, the Company announced that it had commenced an offer to purchase up to $900,000 of the outstanding 9.25% senior notes due 2020 (the "9.25% Notes"), the 6.75%
senior notes due 2021 (the "6.75% Notes") and the 6.125% Senior Notes due 2023 (the "6.125% Notes"), pursuant to the asset sale provisions of the indentures of such notes. On March 29, 2018,
the Company accepted for payment, pursuant to its offer to purchase, $3,454 principal amount of the 9.25% Notes, representing 0.38% of the outstanding principal amount of the 9.25% Notes, $3,471
principal amount of the 6.75% Notes, representing 0.43% of the outstanding principal amount of the 6.75% Notes, and $41,751 principal amount of the 6.125% Notes, representing 2.32% of the outstanding
principal amount of the 6.125% Notes.
On
March 13, 2018, the Company issued a notice of redemption for all of the 9.25%. Notes that were outstanding on April 12, 2018, pursuant to the terms of the indenture of
the 9.25% Notes. On April 12, 2018, the Company redeemed 100% of the remaining outstanding 9.25% Notes.
On
April 19, 2018, the Company announced that it had commenced an offer to purchase up to $700,000 of its outstanding 6.75% Notes and its 6.125% Notes pursuant to the terms of
such indentures. Such offer to purchase will expire at 5:00 P.M., Eastern Time, on May 21, 2018, unless extended or earlier terminated.
2016 Transactions
On April 2, 2015, the Company issued $1,800,000 aggregate principal amount of its 6.125% Notes, the net proceeds of which, along with
other available cash and borrowings under its Amended and Restated Senior Secured Credit Facility, were used to finance the cash portion of the Acquisition, which closed on June 24, 2015. The
Company's obligations under the notes are fully and unconditionally guaranteed, jointly and severally, on an unsubordinated basis, by all of its subsidiaries that guarantee the Company's obligations
under the Amended and Restated Senior Secured Credit Facility, the 9.25% Notes and the 6.75% Notes (the "Rite Aid Subsidiary Guarantors"), including EnvisionRx and certain of its domestic subsidiaries
other than, among others, EIC (the "EnvisionRx Subsidiary Guarantors" and, together with the Rite Aid Subsidiary Guarantors, the "Subsidiary Guarantors"). The guarantees are unsecured. The 6.125%
Notes are unsecured, unsubordinated obligations of Rite Aid Corporation and rank equally in right of payment with all of its other unsecured, unsubordinated indebtedness.
During
May 2015, $64,089 of the Company's 8.5% convertible notes due 2015 were converted into 24,762 shares of common stock, pursuant to their terms. The remaining $79 of the Company's
8.5% convertible notes due 2015 were repaid by the Company upon maturity.
On
August 15, 2015, the Company completed the redemption of all of its outstanding $650,000 aggregate principal amount of its 8.00% Notes. In connection with the redemption, the
Company
126
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
15. Indebtedness and Credit Agreement (Continued)
recorded
a loss on debt retirement, including call premium and unamortized debt issue costs, of $33,205 during the second quarter of fiscal 2016.
The annual weighted average interest rate on the Company's indebtedness was 7.1%, 5.4%, and 5.4% for fiscal 2018, 2017, and 2016, respectively.
The
aggregate annual principal payments of long-term debt for the five succeeding fiscal years are as follows: 2019$90; 2020$0; 2021$902,000;
2022$810,000 and $2,223,000 in 2023 and thereafter.
16. Leases
The Company leases most of its retail stores and certain distribution facilities under noncancellable
operating and capital leases, most of which have initial lease terms ranging from 5 to 22 years. The Company also leases certain of its equipment and other assets under noncancellable operating
leases with initial terms ranging from 3 to 10 years. In addition to minimum rental payments, certain store leases require additional payments based on sales volume, as well as reimbursements
for taxes, maintenance and insurance. Most leases contain renewal options, certain of which involve rent increases. Total rental expense, net of sublease income of $4,682, 4,813, and $6,397, was
$628,511, $634,539, and $607,490 in fiscal 2018, 2017, and 2016, respectively. These amounts include contingent rentals of $8,339, $10,229 and $11,574 in fiscal 2018, 2017, and 2016, respectively.
During
fiscal 2018 and 2017, the Company did not enter into any sale-leaseback transactions whereby the Company sold owned operating stores to independent third parties and concurrent
with the sale, entered into an agreement to lease the store back from the purchasers.
During
fiscal 2016, the Company sold seven owned operating stores to independent third parties. Net proceeds from the sale were $26,953. Concurrent with these sales, the Company entered
into agreements to lease the stores back from the purchasers over minimum lease terms of 20 years. Eight leases were accounted for as operating leases and the remaining two were accounted for
as capital leases. The transactions resulted in a gain for certain stores of $670 which is deferred over the life of the leases. In addition, the transaction resulted in a loss for certain stores of
$546 which is included in the loss on sale of assets, net for the fifty-two weeks ended February 27, 2016.
As
a result of the Sale to WBA and the related Amended and Restated Asset Purchase Agreement, the Company has lease guarantee obligations related to 1,886 former stores. The majority of
the lease guarantee obligations have a term of less than 10 years; however, 210 former stores have guarantees that exceed 10 years. The Company is only obligated to pay for the lease
guarantees in the event that WBA fails to perform under the lease agreements, as WBA is the primary obligor. If WBA fails to perform under the lease agreements, the maximum lease guarantee obligations
the Company would be liable for would be approximately $2,300,000 as of March 3, 2018. During fiscal 2018, WBA has performed under the lease agreements. The Company has assessed that it is
highly unlikely that WBA will not perform under the leases as of March 3, 2018.
127
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
16. Leases (Continued)
The
net book values of assets under capital leases and sale-leasebacks accounted for under the financing method at March 3, 2018 and March 4, 2017 are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Land
|
|
$
|
3,458
|
|
$
|
3,760
|
|
Buildings
|
|
|
86,012
|
|
|
84,796
|
|
Leasehold improvements
|
|
|
|
|
|
1,258
|
|
Equipment
|
|
|
25,225
|
|
|
30,653
|
|
Accumulated depreciation
|
|
|
(78,637
|
)
|
|
(84,333
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
36,058
|
|
$
|
36,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Following
is a summary of lease finance obligations at March 3, 2018 and March 4, 2017:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Obligations under financing leases
|
|
$
|
51,446
|
|
$
|
52,418
|
|
Sale-leaseback obligations
|
|
|
|
|
|
2,405
|
|
Less current obligation
|
|
|
(20,671
|
)
|
|
(17,619
|
)
|
|
|
|
|
|
|
|
|
Long-term lease finance obligations
|
|
$
|
30,775
|
|
$
|
37,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Following
are the minimum lease payments for all properties under a lease agreement that will have to be made in each of the years indicated based on non-cancelable leases in effect as
of March 3, 2018:
|
|
|
|
|
|
|
|
Fiscal year
|
|
Lease
Financing
Obligations
|
|
Operating
Leases
|
|
2019
|
|
$
|
24,571
|
|
$
|
674,739
|
|
2020
|
|
|
9,732
|
|
|
609,830
|
|
2021
|
|
|
4,642
|
|
|
528,370
|
|
2022
|
|
|
4,420
|
|
|
462,222
|
|
2023
|
|
|
4,214
|
|
|
407,226
|
|
Later years
|
|
|
21,992
|
|
|
1,782,987
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
69,571
|
|
$
|
4,465,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount representing interest
|
|
|
(18,125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
$
|
51,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17. Stock Option and Stock Award Plans
The Company recognizes share-based compensation expense in accordance with ASC 718, "CompensationStock Compensation." Expense is recognized over the requisite service period
of the award, net of an estimate for the impact of forfeitures. Operating results for fiscal 2018, 2017 and 2016
128
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
17. Stock Option and Stock Award Plans (Continued)
include
$25,793, $23,482 and $37,948 of compensation costs related to the Company's stock-based compensation arrangements.
In
December 2000, the Company adopted the 2000 Omnibus Equity Plan (the 2000 Plan) under which 22,000 shares of common stock are reserved for granting of restricted stock, stock options,
phantom stock, stock bonus awards and other stock awards at the discretion of the Board of Directors.
In
February 2001, the Company adopted the 2001 Stock Option Plan (the 2001 Plan) which was approved by the shareholders under which 20,000 shares of common stock are authorized for
granting of stock options at the discretion of the Board of Directors.
In
April 2004, the Board of Directors adopted the 2004 Omnibus Equity Plan, which was approved by the shareholders. Under the plan, 20,000 shares of common stock are authorized for
granting of restricted stock, stock options, phantom stock, stock bonus awards and other equity based awards at the discretion of the Board of Directors.
In
January 2007, the stockholders of Rite Aid Corporation approved the adoption of the Rite Aid Corporation 2006 Omnibus Equity Plan. Under the plan, 50,000 shares of Rite Aid common
stock are available for granting of restricted stock, stock options, phantom stock, stock bonus awards and other equity based awards at the discretion of the Board of Directors.
In
June 2010, the stockholders of Rite Aid Corporation approved the adoption of the Rite Aid Corporation 2010 Omnibus Equity Plan. Under the plan, 35,000 shares of Rite Aid common stock
are available for granting of restricted stock, stock options, phantom stock, stock bonus awards and other equity based awards at the discretion of the Board of Directors. The adoption of the 2010
Omnibus Equity Plan became effective on June 23, 2010.
In
June 2012, the stockholders of Rite Aid Corporation approved the adoption of the Rite Aid Corporation 2012 Omnibus Equity Plan. Under the plan, 28,500 shares of Rite Aid common stock
are available for granting of restricted stock, stock options, phantom stock, stock bonus awards and other equity based awards at the discretion of the Board of Directors. The adoption of the 2012
Omnibus Equity Plan became effective on June 21, 2012.
In
June 2014, the stockholders of Rite Aid Corporation approved the adoption of the Rite Aid Corporation 2014 Omnibus Equity Plan. Under the plan, 58,000 shares of Rite Aid common stock
plus any shares of common stock remaining available for grant under the Rite Aid Corporation 2010 Omnibus Equity Plan and the Rite Aid Corporation 2012 Omnibus Equity Plan as of the effective date of
the 2014 Plan (provided that no more than 25,000 shares may be granted as incentive stock options) are available for granting of restricted stock, stock options, phantom stock, stock bonus awards and
other equity based awards at the discretion of the Board of Directors. The adoption of the 2014 Omnibus Equity Plan became effective on June 19, 2014.
All
of the plans provide for the Board of Directors (or at its election, the Compensation Committee) to determine both when and in what manner options may be exercised; however, it may
not be more than 10 years from the date of grant. All of the plans provide that stock options may be granted at prices that are not less than the fair market value of a share of common stock on
the date
129
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
17. Stock Option and Stock Award Plans (Continued)
of
grant. The aggregate number of remaining shares authorized for issuance for all plans is 53,720 as of March 3, 2018.
The Company determines the fair value of stock options issued on the date of grant using the Black-Scholes-Merton option-pricing model. The
following weighted average assumptions were used for options granted in fiscal 2018, 2017 and 2016:
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Expected stock price volatility(1)
|
|
58%
|
|
N/A
|
|
56%
|
Expected dividend yield(2)
|
|
0.0%
|
|
N/A
|
|
0.0%
|
Risk-free interest rate(3)
|
|
1.9%
|
|
N/A
|
|
1.7%
|
Expected option life(4)
|
|
5.5 years
|
|
N/A
|
|
5.5 years
|
-
(1)
-
The
expected volatility is based on the historical volatility of the stock price over the most recent period equal to expected life of the option.
-
(2)
-
The
dividend rate that will be paid out on the underlying shares during the expected term of the options. The Company does not currently pay dividends on its common
stock, as such, the dividend rate is assumed to be zero percent.
-
(3)
-
The
risk free interest rate is equal to the rate available on United States Treasury zero-coupon issues as of the grant date of the option with a remaining term
equal to the expected term.
-
(4)
-
The
period of time for which the option is expected to be outstanding. The Company analyzed historical exercise behavior to estimate the life.
130
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
17. Stock Option and Stock Award Plans (Continued)
The
weighted average fair value of options granted during fiscal 2018, 2017 and 2016 was $1.08, $0.00 and $4.45, respectively. Following is a summary of stock option transactions for the
fiscal years ended March 3, 2018, March 4, 2017 and February 27, 2016:
|
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|
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|
|
|
|
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|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
Per Share
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at February 28, 2015
|
|
|
41,668
|
|
$
|
2.09
|
|
|
|
|
|
|
|
Granted
|
|
|
3,579
|
|
|
8.68
|
|
|
|
|
|
|
|
Exercised
|
|
|
(6,400
|
)
|
|
1.78
|
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|
|
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|
|
|
Cancelled
|
|
|
(722
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)
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|
4.20
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at February 27, 2016
|
|
|
38,125
|
|
$
|
2.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
Exercised
|
|
|
(3,556
|
)
|
|
1.95
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(679
|
)
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|
5.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 4, 2017
|
|
|
33,890
|
|
$
|
2.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,000
|
|
|
2.05
|
|
|
|
|
|
|
|
Exercised
|
|
|
(4,820
|
)
|
|
1.20
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(3,195
|
)
|
|
6.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 3, 2018
|
|
|
26,875
|
|
$
|
2.57
|
|
|
3.44
|
|
$
|
11,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at March 3, 2018
|
|
|
26,587
|
|
$
|
2.52
|
|
|
3.42
|
|
$
|
11,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 3, 2018
|
|
|
24,436
|
|
$
|
2.26
|
|
|
2.98
|
|
$
|
11,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
As
of March 3, 2018, there was $4,891 of total unrecognized pre-tax compensation costs related to unvested stock options, net of forfeitures. These costs are expected to be
recognized over a weighted average period of 1.55 years.
Cash
received from stock option exercises for fiscal 2018, 2017 and 2016 was $5,796, $6,951 and $11,376, respectively. The income tax benefit from stock options for fiscal 2018, 2017 and
2016 was $10, $421 and $11,764, respectively. The total intrinsic value of stock options exercised for fiscal 2018, 2017 and 2016 was $3,032, $20,475 and $42,207, respectively.
Typically,
stock options granted vest, and are subsequently exercisable in equal annual installments over a four-year period for employees.
131
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
17. Stock Option and Stock Award Plans (Continued)
The Company provides restricted stock grants to associates under plans approved by the stockholders. Shares awarded under the plans typically
vest in equal annual installments over a three-year period. Unvested shares are forfeited upon termination of employment. Following is a summary of restricted stock transactions for the fiscal years
ended March 3, 2018, March 4, 2017 and February 27, 2016:
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|
|
|
|
|
|
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
|
Balance at February 28, 2015
|
|
|
7,666
|
|
$
|
3.84
|
|
Granted
|
|
|
2,752
|
|
|
8.60
|
|
Vested
|
|
|
(5,140
|
)
|
|
2.94
|
|
Cancelled
|
|
|
(420
|
)
|
|
6.89
|
|
|
|
|
|
|
|
|
|
Balance at February 27, 2016
|
|
|
4,858
|
|
$
|
7.23
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,613
|
|
|
7.73
|
|
Vested
|
|
|
(2,222
|
)
|
|
6.28
|
|
Cancelled
|
|
|
(426
|
)
|
|
7.84
|
|
|
|
|
|
|
|
|
|
Balance at March 4, 2017
|
|
|
5,823
|
|
$
|
7.87
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
13,856
|
|
|
2.82
|
|
Vested
|
|
|
(3,875
|
)
|
|
8.03
|
|
Cancelled
|
|
|
(3,594
|
)
|
|
3.70
|
|
|
|
|
|
|
|
|
|
Balance at March 3, 2018
|
|
|
12,210
|
|
$
|
3.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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At
March 3, 2018, there was $31,614 of total unrecognized pre-tax compensation costs related to unvested restricted stock grants, net of forfeitures. These costs are expected to
be recognized over a weighted average period of 1.94 years.
The
total fair value of restricted stock vested during fiscal years 2018, 2017 and 2016 was $31,125, $13,951 and $15,104, respectively.
Beginning in fiscal 2015, the Company provided certain of its associates with performance based incentive plans under which the associates will
receive a certain number of shares of the Company's common stock based on the Company meeting certain financial and performance goals. If such goals are not met, no stock-based compensation expense is
recognized and any recognized stock-based compensation expense is reversed. The Company incurred $4,122, $(6,070) and $12,634 related to these performance based incentive plans for fiscal 2018, 2017
and 2016, respectively, which is recorded as a component of stock-based compensation expense.
132
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
18. Tax Benefits Preservation Plan
On January 3, 2018, the Company entered into a Tax Benefits Preservation Plan (the "Plan") with Broadridge Corporate Issuer Solutions, as rights agent, and its Board of Directors
declared a dividend distribution of one right (a "Right") for each outstanding share of common stock, par value $1.00 per share, to stockholders of record at the close of business on
January 16, 2018. Each Right is governed by the terms of the Plan and entitles the registered holder to purchase from the Company a unit consisting of one one-thousandth of a share of
Series J Junior Participating Preferred Stock, par value $1.00 per share, at a purchase price of $8.00 per unit, subject to adjustment. The purpose of the Plan is to preserve our ability to use
the Company's net operating loss carryforwards and other tax attributes (collectively, "Tax Benefits") which would be substantially limited if the Company experienced an "ownership change" as defined
under Section 382 of the Internal Revenue Code. In general, an ownership change would occur if Company shareholders who are treated as owning 5 percent or more of its outstanding shares
for purposes of Section 382 ("5-percent shareholders") collectively increase their aggregate ownership in the Company's overall shares outstanding by more than 50 percentage points.
Whether this change has occurred would be measured by comparing each 5-percent shareholder's current ownership as of the measurement date to such shareholders' lowest ownership percentage during the
three year period preceding the measurement date. The adoption of the Plan is intended to ensure that the Company will be able to utilize Tax Benefits in connection with the Sale. The Board of
Directors affirmatively determined that Albertsons shall not be deemed an "Acquiring Person" (as defined in the Plan) and exempted Albertsons and the Mergers from the Plan pursuant to the terms of the
Plan.
The
Rights are not exercisable until the distribution date and will expire at the earliest of (i) 5:00 P.M. (New York City time) on January 3, 2019, or such later
date and time (but not later than 5:00 P.M. (New York City time) on January 3, 2021) as may be determined by the Board of Directors and approved by the stockholders of the Company by a
vote of the majority of the votes cast by the holders of shares entitled to vote thereon at a meeting of the stockholders of the Company prior to 5:00 P.M. (New York City time) on
January 3, 2019, (ii) the time at which the Rights are redeemed or exchanged as provided in the Plan, (iii) the time at which the Board of Directors determines that the Plan is no
longer necessary or desirable for the preservation of Tax Benefits, and (iv) the close of business on the first day of a taxable year of the Company to which the Board of Directors determines
that no Tax Benefits, once realized, as applicable, may be carried forward.
The
description and terms of the Rights are set forth in the Plan.
On
March 25, 2018, the Board of Directors of the Company approved, and on March 27, 2018, the Company and Broadridge Corporate Issuer Solutions, as rights agent, entered
into, an amendment to the Plan (the "Amendment"). The Amendment changed the final expiration date with respect to the Rights issued under the Plan from the abovementioned date and time to
5:00 P.M. (New York City time) on March 27, 2018. In accordance with the terms of the Plan, as amended by the Amendment, all of the Rights then outstanding expired at 5:00 P.M.
(New York City time) on March 27, 2018, and no Rights are to be issued from and after that time.
133
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
19. Retirement Plans
The Company and its subsidiaries sponsor several retirement plans that are primarily 401(k) defined contribution plans covering nonunion
associates and certain union associates. The Company does not contribute to all of the plans. In accordance with those plan provisions, the Company matches 100% of a participant's pretax payroll
contributions, up to a maximum of 3% of
such participant's pretax annual compensation. Thereafter, the Company will match 50% of the participant's additional pretax payroll contributions, up to a maximum of 2% of such participant's
additional pretax annual compensation. Total expense recognized for the above plans was $67,949 in fiscal 2018, $68,393 in fiscal 2017 and $65,118 in fiscal 2016.
The
Company sponsors a Supplemental Executive Retirement Plan ("SERP") for its officers, which is a defined contribution plan that is subject to a five year graduated vesting schedule.
The expense recognized for the SERP was $12,426 in fiscal 2018, $16,921 in fiscal 2017 and $1,377 in fiscal 2016.
The Company and its subsidiaries also sponsor a qualified defined benefit pension plan that requires benefits to be paid to eligible associates
based upon years of service and, in some cases, eligible compensation. The Company's funding policy for The Rite Aid Pension Plan (The "Defined Benefit Pension Plan") is to contribute the minimum
amount required by the Employee Retirement Income Security Act of 1974. However, the Company may, at its sole discretion, contribute additional funds to the plan. The Company made contributions of
$9,023 in fiscal 2018, $0 in fiscal 2017 and $0 in fiscal 2016.
Net
periodic pension expense and other changes recognized in other comprehensive income for the defined benefit pension plans included the following components:
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|
|
|
|
|
|
|
|
|
Defined Benefit Pension Plan
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Service cost
|
|
$
|
1,212
|
|
$
|
1,291
|
|
$
|
1,498
|
|
Interest cost
|
|
|
6,340
|
|
|
6,634
|
|
|
6,398
|
|
Expected return on plan assets
|
|
|
(4,525
|
)
|
|
(4,512
|
)
|
|
(6,330
|
)
|
Amortization of unrecognized prior service cost
|
|
|
|
|
|
|
|
|
67
|
|
Amortization of unrecognized net loss (gain)
|
|
|
3,393
|
|
|
5,085
|
|
|
3,690
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pension expense
|
|
$
|
6,420
|
|
$
|
8,498
|
|
$
|
5,323
|
|
Other changes recognized in other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net (gain) loss arising during period
|
|
$
|
(8,704
|
)
|
$
|
(3,979
|
)
|
$
|
7,369
|
|
Prior service cost arising during period
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized prior service costs
|
|
|
|
|
|
|
|
|
(67
|
)
|
Amortization of unrecognized net (loss) gain
|
|
|
(3,393
|
)
|
|
(5,085
|
)
|
|
(3,690
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized in other comprehensive loss
|
|
|
(12,097
|
)
|
|
(9,064
|
)
|
|
3,612
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized in pension expense and other comprehensive loss
|
|
$
|
(5,677
|
)
|
$
|
(566
|
)
|
$
|
8,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
19. Retirement Plans (Continued)
The
table below sets forth reconciliation from the beginning of the year for both the benefit obligation and plan assets of the Company's defined benefit plans, as well as the funded
status and amounts recognized in the Company's balance sheet as of March 3, 2018 and March 4, 2017:
|
|
|
|
|
|
|
|
|
|
Defined Benefit
Pension Plan
|
|
|
|
2018
|
|
2017
|
|
Change in benefit obligations:
|
|
|
|
|
|
|
|
Benefit obligation at end of prior year
|
|
$
|
164,349
|
|
$
|
156,474
|
|
Service cost
|
|
|
1,212
|
|
|
1,291
|
|
Interest cost
|
|
|
6,340
|
|
|
6,634
|
|
Distributions
|
|
|
(7,963
|
)
|
|
(7,449
|
)
|
Change due to change in assumptions
|
|
|
|
|
|
|
|
Actuarial loss (gain)
|
|
|
(2,087
|
)
|
|
7,399
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
161,851
|
|
$
|
164,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
118,658
|
|
$
|
110,217
|
|
Employer contributions
|
|
|
9,023
|
|
|
|
|
Actual return on plan assets
|
|
|
11,142
|
|
|
15,890
|
|
Distributions (including expenses paid by the plan)
|
|
|
(7,963
|
)
|
|
(7,449
|
)
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
130,860
|
|
$
|
118,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(30,991
|
)
|
$
|
(45,691
|
)
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(30,991
|
)
|
$
|
(45,691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in consolidated balance sheets consisted of:
|
|
|
|
|
|
|
|
Prepaid pension cost
|
|
$
|
|
|
$
|
|
|
Accrued pension liability
|
|
|
(30,991
|
)
|
|
(45,691
|
)
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(30,991
|
)
|
$
|
(45,691
|
)
|
Amounts recognized in accumulated other comprehensive loss consist of:
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
(32,664
|
)
|
$
|
(44,761
|
)
|
Prior service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount recognized
|
|
$
|
(32,664
|
)
|
$
|
(44,761
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
estimated net actuarial loss and prior service cost amounts that will be amortized from accumulated other comprehensive loss into net periodic pension expense in fiscal 2019 are
$2,029 and $0, respectively.
The
accumulated benefit obligation for the defined benefit pension plan was $161,851 and $164,349 as of March 3, 2018 and March 4, 2017, respectively.
135
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
19. Retirement Plans (Continued)
The
significant actuarial assumptions used for all defined benefit plans to determine the benefit obligation as of March 3, 2018, March 4, 2017 and February 27, 2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit
Pension Plan
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Discount rate
|
|
|
4.00
|
%
|
|
4.00
|
%
|
|
4.25
|
%
|
Rate of increase in future compensation levels
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Expected long-term rate of return on plan assets
|
|
|
6.25
|
%
|
|
6.50
|
%
|
|
6.50
|
%
|
Weighted
average assumptions used to determine net cost for the fiscal years ended March 3, 2018, March 4, 2017 and February 27, 2016 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit
Pension Plan
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Discount rate
|
|
|
4.00
|
%
|
|
4.25
|
%
|
|
4.00
|
%
|
Rate of increase in future compensation levels
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Expected long-term rate of return on plan assets
|
|
|
6.50
|
%
|
|
6.50
|
%
|
|
6.50
|
%
|
To
develop the expected long-term rate of return on assets assumption, the Company considered the historical returns and the future expectations for returns for each asset class, as well
as the target asset allocation of the pension portfolio. This resulted in the selection of the 6.25% long-term rate of return on plan assets assumption for fiscal 2018, 2017 and 2016.
The
Company's pension plan asset allocations at March 3, 2018 and March 4, 2017 by asset category were as follows:
|
|
|
|
|
|
|
|
|
|
March 3,
2018
|
|
March 4,
2017
|
|
Equity securities
|
|
|
53
|
%
|
|
52
|
%
|
Fixed income securities
|
|
|
47
|
%
|
|
48
|
%
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
investment objectives of the Defined Benefit Pension Plan, the only defined benefit plan with assets, are to:
-
-
Achieve a rate of return on investments that exceeds inflation over a full market cycle and is consistent with actuarial assumptions;
-
-
Balance the correlation between assets and liabilities by diversifying the portfolio among various asset classes to address return risk and
interest rate risk;
-
-
Balance the allocation of assets between the investment managers to minimize concentration risk;
136
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
19. Retirement Plans (Continued)
-
-
Maintain liquidity in the portfolio sufficient to meet plan obligations as they come due; and
-
-
Control administrative and management costs.
The
asset allocation established for the pension investment program reflects the risk tolerance of the Company, as determined by:
-
-
the current and anticipated financial strength of the Company;
-
-
the funded status of the plan; and
-
-
plan liabilities.
Investments
in both the equity and fixed income markets will be maintained, recognizing that historical results indicate that equities (primarily common stocks) have higher expected
returns than fixed income investments. It is also recognized that the correlation between assets and liabilities must be balanced to address higher volatility of equity investments (return risk) and
interest rate risk.
The
following targets are to be applied to the allocation of plan assets.
|
|
|
|
|
Category
|
|
Target Allocation
|
|
U.S. equities
|
|
|
39
|
%
|
International equities
|
|
|
13
|
%
|
U.S. fixed income
|
|
|
48
|
%
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company expects to contribute $4,700 to the Defined Benefit Pension Plan during fiscal 2019.
Common and Collective Trusts
Common collective trust funds are stated at fair value as determined by the issuer of the common collective trust funds based on the net asset
value ("NAV") of the underlying investments in accordance with ASC 820. There are generally no restrictions on redemptions from these funds and no unfunded commitments to invest. In accordance with
ASC subtopic 820-10, certain investments that were measured at NAV per shared (or its equivalent) have not been classified in the fair value hierarchy. The underlying investments mainly consist of
equity and fixed income securities funds that are valued based on the daily closing price as reported by the fund.
The
proceeding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the
Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial
instruments could result in a different fair value measurement at March 3, 2018.
137
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
19. Retirement Plans (Continued)
The following table sets forth by level within the fair value hierarchy a summary of the plan's investments measured at fair value on a recurring basis as of March 3, 2018 and
March 4, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 3, 2018
|
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
Significant
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Total
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International equity
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
18,043
|
|
Large Cap
|
|
|
|
|
|
|
|
|
|
|
|
35,491
|
|
Small-Mid Cap
|
|
|
|
|
|
|
|
|
|
|
|
15,510
|
|
Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Term Credit Bond Index
|
|
|
|
|
|
|
|
|
|
|
|
46,222
|
|
Long Term US Government Bonds
|
|
|
|
|
|
|
|
|
|
|
|
8,070
|
|
20+ Year Treasury STRIPS
|
|
|
|
|
|
|
|
|
|
|
|
1,168
|
|
Intermediate Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
5,617
|
|
Other types of investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short Term Investments
|
|
|
|
|
|
|
|
|
|
|
|
739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
130,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 4, 2017
|
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
Significant
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Total
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International equity
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
15,348
|
|
Large Cap
|
|
|
|
|
|
|
|
|
|
|
|
32,413
|
|
Small-Mid Cap
|
|
|
|
|
|
|
|
|
|
|
|
14,083
|
|
Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Term Credit Bond Index
|
|
|
|
|
|
|
|
|
|
|
|
47,694
|
|
20+ Year Treasury STRIPS
|
|
|
|
|
|
|
|
|
|
|
|
7,563
|
|
Intermediate Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
639
|
|
Other types of investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short Term Investments
|
|
|
|
|
|
|
|
|
|
|
|
918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
118,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the
valuation hierarchy.
138
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
19. Retirement Plans (Continued)
Following
are the future benefit payments expected to be paid for the Defined Benefit Pension Plan during the years indicated:
|
|
|
|
|
Fiscal Year
|
|
Defined Benefit
Pension Plan
|
|
2019
|
|
$
|
8,160
|
|
2020
|
|
|
8,383
|
|
2021
|
|
|
8,576
|
|
2022
|
|
|
8,736
|
|
2023
|
|
|
8,868
|
|
2024 - 2028
|
|
|
46,455
|
|
|
|
|
|
|
Total
|
|
$
|
89,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company participates in various multi-employer union pension plans that are not sponsored by the Company. Total expenses recognized for the
multi-employer plans were $20,979 in fiscal 2018, $21,336 in fiscal 2017 and $20,782 in fiscal 2016.
20. Multiemployer Plans that Provide Pension Benefits
The Company contributes to a number of multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that cover certain of its union-represented
employees. The risks of participating in these multiemployer plans are different from single-employer plans. Assets contributed to the multiemployer plan by one employer may be used to provide
benefits to employees of other participating employers. If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating
employers. Additionally, if the Company chooses to stop participating in some of its multiemployer plans, the Company may be required to pay those plans an amount based on the underfunded status of
the plan, referred to as a withdrawal liability.
The
Company's participation in these plans for the annual period ended March 3, 2018 is outlined in the table below. The "EIN/Pension Plan Number" column provides the Employer
Identification Number (EIN) and the three- digit plan number, if applicable. The most recent Pension Protection Act (PPA) zone status available for fiscal 2018 and fiscal 2017 is for the plan year-
ends as indicated below. The zone status is based on information that the Company received from the plan and is certified by the plan's actuary. Among other factors, plans in the red zone are
generally less than 65 percent funded, plans in the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded. The "FIP/RP Status
Pending/Implemented" column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented. In addition to regular plan
contributions, the Company may be subject to a surcharge if the plan is in the red zone. The "Surcharge Imposed" column indicates whether a surcharge has been imposed on contributions to the plan. The
last two columns list the expiration date(s) of the
139
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
20. Multiemployer Plans that Provide Pension Benefits (Continued)
collective-bargaining
agreement(s) to which the plans are subject and any minimum funding requirements. There have been no significant changes that affect the comparability of total employer
contributions of fiscal years 2018, 2017, and 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Protection
Act Zone Status
|
|
|
|
|
|
|
|
|
|
|
|
Expiration
Date of
Collective-
Bargaining
Agreement
|
|
|
|
|
|
|
FIP/ RP
Status
Pending/
Implemented
|
|
Contributions of the Company
|
|
|
|
|
|
|
EIN/Pension
Plan Number
|
|
Surcharge
Imposed
|
|
Minimum
Funding
Requirements
|
Pension
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
2016
|
1199 SEIU Health Care Employees Pension Fund
|
|
|
13-3604862-001
|
|
|
Green
12/31/2016
|
|
|
Green
12/31/2015
|
|
No
|
|
$
|
7,372
|
|
$
|
7,152
|
|
$
|
7,775
|
|
No
|
|
|
4/18/2015
|
|
Contribution rate of 10.76% of gross wages earned per associate beginning 01/01/2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution rate of 10.22% of gross wages earned per associate from 01/01/2015 through 12/31/2015.
|
Southern California United Food and Commercial Workers Unions and Drug Employers Pension Fund
|
|
|
51-6029925-001
|
|
|
Red
12/31/2017
|
|
|
Red
12/31/2016
|
|
Implemented
|
|
|
8,149
|
|
|
8,021
|
|
|
7,552
|
|
No
|
|
|
7/14/2018
|
|
Subsequent to 01/01/2018 contributions of $1.586 per hour worked. From 01/01/2017 to 12/31/2017 contributions of $1.50 per hour worked.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From 01/01/2016 to 12/31/2016 contributions of $1.41 per hour worked. From 01/01/2015 through 12/31/2015 contributions of $1.328 per hour worked for pharmacists and $0.602 per hour worked for non
pharmacists.
|
UFCW Pharmacists, Clerks and Drug Employers Pension Trust
|
|
|
94-2518312-001
|
|
|
Green
12/31/2017
|
|
|
Green
12/31/2016
|
|
No
|
|
|
2,739
|
|
|
2,970
|
|
|
3,006
|
|
No
|
|
|
7/13/2019
|
|
Effective 09/01/2014, contribution rate frozen at $0.55 per hour worked for associates.
|
United Food and Commercial Workers Union-Employer Pension Fund
|
|
|
34-6665155-001
|
|
|
Red
9/30/2017
|
|
|
Red
9/30/2016
|
|
Implemented
|
|
|
786
|
|
|
827
|
|
|
732
|
|
No
|
|
|
12/31/2017
|
|
Effective 02/05/2017 contribution rate of $1.89 per hour worked.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective 02/07/2016 through 02/04/2017 contribution rate of $1.76 per hour worked.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective 02/02/2015 through 02/06/2016 contribution rate of $1.62 per hour worked.
|
140
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
20. Multiemployer Plans that Provide Pension Benefits (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Protection
Act Zone Status
|
|
|
|
|
|
|
|
|
|
|
|
Expiration
Date of
Collective-
Bargaining
Agreement
|
|
|
|
|
|
|
FIP/ RP
Status
Pending/
Implemented
|
|
Contributions of the Company
|
|
|
|
|
|
|
EIN/Pension
Plan Number
|
|
Surcharge
Imposed
|
|
Minimum
Funding
Requirements
|
Pension
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
2016
|
United Food and Commercial Workers Union Local 880Mercantile Employers Joint Pension Fund
|
|
|
51-6031766-001
|
|
|
Yellow
9/30/2017
|
|
|
Yellow
9/30/2016
|
|
Implemented
|
|
|
495
|
|
|
504
|
|
|
454
|
|
No
|
|
|
12/31/2017
|
|
Effective 01/01/2017 contribution rate $1.88 per hour worked.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective 01/01/2016 through 12/31/2016 contribution rate of $1.79 per hour worked.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective 10/01/2015 through 12/31/2015 contribution rate of $1.70 per hour worked.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective 01/01/2015 through 09/30/2015 contribution rate of $1.61 per hour worked.
|
Other Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,438
|
|
|
1,862
|
|
|
1,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,979
|
|
$
|
21,336
|
|
$
|
20,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company was listed in these plans Forms 5500 as providing more than 5 percent of the total contributions for the following plans and plan years:
|
|
|
|
|
Pension Fund
|
|
Year Contributions to Plan
Exceeded More Than 5 Percent
of Total Contributions (as of
the Plan's Year-End)
|
|
UFCW Pharmacists, Clerks and Drug Employers Pension Trust
|
|
|
12/31/2016 and 12/31/2015
|
|
Southern California United Food and Commercial Workers Unions and Drug Employers Pension Fund
|
|
|
12/31/2016 and 12/31/2015
|
|
United Food & Commercial Workers Union- Employer Pension Fund
|
|
|
9/30/2016 and 9/30/2015
|
|
United Food & Commercial Workers Union Local 880Mercantile Employers Joint Pension Fund
|
|
|
9/30/2016 and 9/30/2015
|
|
At
the date the Company's financial statements were issued, certain Forms 5500 were not available.
During
fiscal 2018, 2017 and 2016, the Company did not withdraw from any plans or incur any additional withdrawal liabilities.
21. Segment Reporting
Prior to June 24, 2015, the Company's operations were within one reportable segment. As a result of the completion of the Acquisition, the Company has realigned its internal
management reporting to reflect two reportable segments, its retail drug stores ("Retail Pharmacy"), and its pharmacy services ("Pharmacy Services") segments, collectively the "Parent Company".
141
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
21. Segment Reporting (Continued)
The
Retail Pharmacy segment's primary business is the sale of prescription drugs and related consultation to its customers. Additionally, the Retail Pharmacy segment sells a full
selection of health and beauty aids and personal care products, seasonal merchandise and a large private brand product line. The Pharmacy Services segment offers a full range of pharmacy benefit
management services including plan design and administration, on both a transparent pass-through model and traditional model, formulary management and claims processing. Additionally, the Pharmacy
Services segment offers specialty and mail order services, infertility treatment, and drug benefits to eligible beneficiaries under the federal government's Medicare Part D program.
The
Parent Company's chief operating decision makers are its Parent Company Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Chief Operating
OfficerRetail Pharmacy, and the Chief Executive OfficerPharmacy Services, (collectively the "CODM"). The CODM has ultimate responsibility for enterprise decisions. The CODM
determines, in particular, resource allocation for, and monitors performance of, the consolidated enterprise, the Retail Pharmacy segment and the Pharmacy Services segment. The Retail Pharmacy and
Pharmacy Services segment managers have responsibility for operating decisions, allocating resources and assessing performance within their respective segments. The CODM relies on internal management
reporting that analyzes enterprise results on certain key performance indicators, namely, revenues, gross profit, and Adjusted EBITDA.
The
following table is a reconciliation of the Company's business segments to the consolidated financial statements for the fiscal years ended March 3, 2018, March 4, 2017
and February 27, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
Pharmacy
|
|
Pharmacy
Services
|
|
Intersegment
Eliminations(1)
|
|
Consolidated
|
|
March 3, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
15,832,625
|
|
$
|
5,896,669
|
|
$
|
(200,326
|
)
|
$
|
21,528,968
|
|
Gross Profit
|
|
|
4,372,373
|
|
|
407,732
|
|
|
|
|
|
4,780,105
|
|
Adjusted EBITDA(2)
|
|
|
388,360
|
|
|
171,534
|
|
|
|
|
|
559,894
|
|
March 4, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
16,766,620
|
|
$
|
6,393,884
|
|
$
|
(232,964
|
)
|
$
|
22,927,540
|
|
Gross Profit
|
|
|
4,671,975
|
|
|
392,732
|
|
|
|
|
|
5,064,707
|
|
Adjusted EBITDA(2)
|
|
|
551,816
|
|
|
188,235
|
|
|
|
|
|
740,051
|
|
February 27, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
16,820,388
|
|
$
|
4,103,513
|
|
$
|
(153,664
|
)
|
$
|
20,770,237
|
|
Gross Profit
|
|
|
4,761,153
|
|
|
230,826
|
|
|
|
|
|
4,991,979
|
|
Adjusted EBITDA(2)
|
|
|
747,910
|
|
|
101,357
|
|
|
|
|
|
849,267
|
|
-
(1)
-
Intersegment
eliminations include intersegment revenues and corresponding cost of revenues that occur when Pharmacy Services segment customers use Retail Pharmacy
segment stores to purchase covered products. When this occurs, both the Retail Pharmacy and Pharmacy Services segments record the revenue on a stand-alone basis.
-
(2)
-
See
"Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures" in MD&A for additional details.
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
21. Segment Reporting (Continued)
The
following is a reconciliation of net (loss) income to Adjusted EBITDA for fiscal 2018, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 3,
2018
(52 weeks)
|
|
March 4,
2017
(53 weeks)
|
|
February 27,
2016
(52 weeks)
|
|
Net (loss) income from continuing operations
|
|
$
|
(349,532
|
)
|
$
|
4,080
|
|
$
|
102,088
|
|
Interest expense
|
|
|
202,768
|
|
|
200,065
|
|
|
186,132
|
|
Income tax expense
|
|
|
305,987
|
|
|
44,438
|
|
|
49,512
|
|
Depreciation and amortization expense
|
|
|
386,057
|
|
|
407,366
|
|
|
361,134
|
|
LIFO (credit) charge
|
|
|
(28,827
|
)
|
|
(3,721
|
)
|
|
7,892
|
|
Lease termination and impairment charges
|
|
|
58,765
|
|
|
45,778
|
|
|
40,477
|
|
Goodwill impairment
|
|
|
261,727
|
|
|
|
|
|
|
|
Loss on debt retirements, net
|
|
|
|
|
|
|
|
|
33,205
|
|
Walgreens Boots Alliance merger termination fee
|
|
|
(325,000
|
)
|
|
|
|
|
|
|
Other
|
|
|
47,949
|
|
|
42,045
|
|
|
68,827
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA from continuing operations
|
|
$
|
559,894
|
|
$
|
740,051
|
|
$
|
849,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following is balance sheet information for the Company's reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
Pharmacy
|
|
Pharmacy
Services
|
|
Eliminations(2)
|
|
Consolidated
|
|
March 3, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
6,089,343
|
|
$
|
2,954,953
|
|
$
|
(54,969
|
)
|
$
|
8,989,327
|
|
Goodwill
|
|
|
43,492
|
|
|
1,377,628
|
|
|
|
|
|
1,421,120
|
|
Additions to property and equipment and intangible assets
|
|
|
199,437
|
|
|
15,327
|
|
|
|
|
|
214,764
|
|
March 4, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
8,664,216
|
|
$
|
3,087,143
|
|
$
|
(157,607
|
)
|
$
|
11,593,752
|
|
Goodwill
|
|
|
43,492
|
|
|
1,639,355
|
|
|
|
|
|
1,682,847
|
|
Additions to property and equipment and intangible assets
|
|
|
281,072
|
|
|
12,725
|
|
|
|
|
|
293,797
|
|
-
(2)
-
As
of March 3, 2018 and March 4, 2017, intersegment eliminations include netting of the Pharmacy Services segment long-term deferred tax liability of
$38,713 and $140,865, respectively, against the Retail Pharmacy segment long-term deferred tax asset for consolidation purposes in accordance with ASC 740, and intersegment accounts receivable of
$16,256 and $16,742, respectively, that represents amounts owed from the Pharmacy Services segment to the Retail Pharmacy segment that are created when Pharmacy Services segment customers use Retail
Pharmacy segment stores to purchase covered products.
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
22. Commitments, Contingencies and Guarantees
The Company is involved in legal proceedings and is subject to investigations, inspections, claims, audits, inquiries, and similar actions by
governmental authorities arising in the ordinary course of its business, including, without limitation, the matters described below. The Company records accruals for outstanding legal matters and
applicable regulatory proceedings when it believes it is probable that a loss will be incurred, and the amount can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in
legal matters and regulatory proceedings that could affect the amount of any existing accrual and developments that would make a loss contingency both probable and reasonably estimable, and as a
result, warrant an account. If a loss contingency is not both probable and estimable, the Company does not establish an accrued liability.
The
Company's contingencies are subject to significant uncertainties, many of which are beyond the Company's control, including, among other factors: (i) proceedings are in early
stages; (ii) whether class or collective action status is sought and the likelihood of a class being certified; (iii) the outcome of pending appeals or motions; (iv) the extent of
potential damages, fines or penalties, which are often unspecified or indeterminate; (v) the impact of discovery on the matter; (vi) whether novel or unsettled legal theories are at
issue; (vii) there are significant factual issues to be resolved; and/or (viii) in the case
of certain government agency investigations, whether a sealed qui tam lawsuit ("whistleblower" action) has been filed and whether the government agency makes a decision to intervene in the lawsuit
following investigation.
After
the announcement of the proposed Merger between the Company and Walgreens Boots Alliance, Inc. (WBA), a putative class action lawsuit was filed in Pennsylvania in the Court
of Common Pleas of Cumberland County (
Wilson v. Rite Aid Corp., et al.
) by a purported Company stockholder against the Company, its directors (the
Individual Defendants, together with the Company, the Rite Aid Defendants), WBA and Victoria Merger Sub Inc. (Victoria) challenging the transactions contemplated by the Merger agreement. The
complaint alleged primarily that the Individual Defendants breached their fiduciary duties by, among other things, agreeing to an allegedly unfair and inadequate price, agreeing to deal protection
devices that allegedly prevented the directors from obtaining higher offers from other interested buyers for the Company and allegedly failing to protect against certain purported conflicts of
interest in connection with the Merger. The complaint further alleged that the Company, WBA and/or Victoria aided and abetted these alleged breaches of fiduciary duty. The complaint sought, among
other things, to enjoin the closing of the Merger as well as money damages and attorneys' and experts' fees. The matter remains pending, but inactive.
Also
in connection with the proposed Merger, an action was filed in the United States District Court for the Middle District of Pennsylvania (the Pennsylvania District Court), asserting
a claim for violations of Section 14(a) of the Exchange Act and SEC Rule 14a-9 against the Rite Aid Defendants, WBA and Victoria and a claim for violations of Section 20(a) of the
Exchange Act against the Individual Defendants and WBA (
Hering v. Rite Aid Corp., et al.
). The complaint in the
Hering
action alleged, among other things,
that the Rite Aid Defendants disseminated an allegedly false and materially misleading proxy and sought to
enjoin the shareholder vote on the proposed Merger, a declaration that the proxy was materially false and misleading in violation of federal securities laws and
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
22. Commitments, Contingencies and Guarantees (Continued)
an
award of money damages and attorneys' and experts' fees. On January 14 and 16, 2016, respectively, the plaintiff in the
Hering
action filed a
motion for preliminary injunction and a motion for expedited discovery. On January 21, 2016, the Rite Aid Defendants filed a motion to dismiss the
Hering
complaint. At a hearing held on
January 25, 2016, the Pennsylvania District Court orally denied the plaintiff's motion for expedited
discovery and subsequently denied the plaintiff's motion for preliminary injunction on January 28, 2016. On March 14, 2016, the Pennsylvania District Court appointed Jerry Hering, Don
Michael Hussey and Joanna Pauli Hussey as lead plaintiffs for the putative class and approved their selection of Robbins Geller Rudman & Dowd LLP as lead counsel. On April 14,
2016, the Pennsylvania District Court granted the lead plaintiffs' unopposed motion to stay the
Hering
action for all purposes pending consummation of
the Merger.
On
March 17, 2017, the
Hering
plaintiffs filed a motion to lift the stay for the purpose of filing a proposed amended complaint.
Defendants opposed the motion, and briefing concluded on April 17,
2017. The proposed amended complaint asserted state law breach of fiduciary duty claims against the Individual Defendants, a claim of aiding and abetting the alleged breaches of fiduciary duty against
Rite Aid, WBA and Victoria, as well as claims for violations of Section 14(a) of the Exchange Act and SEC Rule 14a-9 against the Rite Aid Defendants, WBA and Victoria, claims for
violations of Section 10(b) of the Exchange Act and SEC Rule 10b-5 against the Rite Aid Defendants, WBA, Victoria and certain WBA executives, and a claim for violations of
Section 20(a) of the Exchange Act against the Individual Defendants, WBA and Victoria. On August 4, 2017, the Pennsylvania District Court entered an order lifting the stay, noting that
the original claims in this matter are now moot, and directed the plaintiffs to file a motion for leave to amend the complaint, with brief in support thereof, on or before September 15,
2017 which deadline was subsequently extended to September 22, 2017. On September 22, 2017, the lead plaintiffs gave notice that plaintiffs Don Michael Hussey and Joanna Pauli Hussey
were withdrawing as lead plaintiffs, and that plaintiff Jerry Hering (the Lead Plaintiff) would continue to represent the proposed class in the
Hering
action going forward. That same day, Lead Plaintiff filed a motion for leave to file an amended complaint, which the Pennsylvania District Court granted on November 27, 2017. On
December 11, 2017, Lead Plaintiff filed the amended complaint (the Amended Complaint), which alleges a claim for violations of Section 10(b) of the Exchange Act and SEC Rule 10b-5
and a claim for violations of Section 20(a) of the Exchange Act against the Rite Aid Defendants, WBA, and certain WBA executives. On February 14 and 16, 2018, the Rite Aid Defendants
filed a motion to dismiss the Amended Complaint, and an opening brief in support thereof. Lead Plaintiff's answering brief and the Rite Aid Defendants' reply brief are scheduled to be filed on or
before April 17 and May 17, 2018, respectively.
The
Company has been named in a collective and class action lawsuit,
Indergit v. Rite Aid Corporation, et al.
, pending in the United
States District Court for the Southern District of New York, filed purportedly on behalf of current and former store managers working in the Company's stores at various locations around the country.
The lawsuit alleges that the Company failed to pay overtime to store managers as required under the FLSA and under certain New York state statutes. The lawsuit also seeks other relief, including
liquidated damages, attorneys' fees, costs and injunctive relief arising out of state and federal claims for overtime pay. On April 2, 2010, the Court conditionally certified a nationwide
collective group of individuals who worked for the Company as store managers since
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
22. Commitments, Contingencies and Guarantees (Continued)
March 31,
2007. The Court ordered that Notice of the
Indergit
action be sent to the purported members of the collective group (approximately
7,000 current and former store managers) and approximately 1,550 joined the
Indergit
action. Discovery as to certification issues has been completed. On
September 26, 2013, the Court granted Rule 23 class certification of the New York store manager claims as to liability only, but denied it as to damages, and denied the Company's motion
for decertification of the nationwide collective action claims. The Company filed a motion seeking reconsideration of the Court's September 26, 2013 decision which motion was denied in June
2014. The Company subsequently filed a petition for an interlocutory appeal of the Court's September 26, 2013 ruling with the U. S. Court of Appeals for the Second Circuit which petition was
denied in September 2014. Notice of the Rule 23 class certification as to liability only has been sent to approximately 1,750 current and former store managers in the state of New York.
Discovery related to the merits of the claims is ongoing. On January 12, 2017, the parties reached a settlement in principle of this matter, for an immaterial amount of money, which was subject
to preliminary and final approval by the Court. On August 3, 2017, the
Court entered an order granting Plaintiff's unopposed motion for preliminary approval of the settlement and notice of the settlement was issued to putative class members on September 7, 2017.
On January 11, 2018, the Court entered an order granting Plaintiff's motion for final approval of the settlement. Pursuant to the settlement agreement and the Court's order, the Company funded
the settlement, and the settlement administrator has disbursed the settlement funds.
The
Company is currently a defendant in several lawsuits filed in courts in California alleging violations of California wage-and-hour laws, rules and regulations pertaining primarily to
failure to pay overtime, failure to pay for missed meals and rest periods, failure to reimburse business expenses and failure to provide employee seating (the "California Cases"). Some of the
California Cases purport or may be determined to be class actions and seek substantial damages and penalties. The single-plaintiff and multi-plaintiff California Cases regarding violations of
wage-and-hour laws, failure to pay overtime and failure to pay for missed meals and rest periods, in the aggregate, seek substantial damages. The Company believes that its defenses and assertions in
the California Cases, as well as other legal proceedings, have merit. The Company has aggressively challenged the merits of the lawsuits and, where applicable, the allegations that the cases should be
certified as class or representative actions. Additionally, at this time the Company is not able to predict either the outcome of or estimate a potential range of loss with respect to the California
Cases and is vigorously defending them.
In
the employee seating case (
Hall v. Rite Aid Corporation, San Diego County Superior Court
), the Court, in October 2011, granted the
plaintiff's motion for class certification. The Company filed its motion for decertification, which motion was granted in November 2012. Plaintiff subsequently appealed the Court's order which appeal
was granted in May 2014. The Company filed a petition for review of the appellate court's decision with the California Supreme Court, which petition was denied in August 2014. Proceedings in the
Hall
case were stayed pending a decision by the California Supreme Court in two similar cases. That decision was rendered on April 4, 2016. A
status conference in the case was held on November 18, 2016, at which time the court lifted the stay and scheduled the case for trial on January 26, 2018. The Court continued the trial
to June 15, 2018. On February 2, 2018, the Court denied Rite Aid's motion for summary judgment.
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
22. Commitments, Contingencies and Guarantees (Continued)
Following service of subpoenas on the Company in 2011 and 2013 by the United States Attorney's Office for the Eastern District of Michigan ("USAO") and the State of Indiana's Office of
the Attorney General, respectively, the Company cooperated with inquiries regarding the relationship of Rite Aid's Rx Savings Program to the reporting of usual and customary charges to publicly funded
health programs. In January 2017, the USAO, 18 states and the District of Columbia declined to intervene in a sealed False Claims Act ("FCA") action filed by
qui
tam
plaintiff Azam Rahimi ("Relator") in the District Court for the Eastern District of Michigan. On January 19, 2017, the court unsealed Relator's Second Amended
Complaint against the Company; it alleges that the Company failed to report Rx Savings prices as its usual and customary charges under the Medicare Part D program and to federal and state
Medicaid programs in 18 states and the District of Columbia; and that the Company is thus liable under the federal FCA and similar state statutes. The Company has filed a motion to dismiss the
complaint, which is pending. At this stage of the proceedings, the Company is not able to either predict the outcome of this lawsuit or estimate a potential range of loss with respect to the lawsuit
and is vigorously defending this lawsuit.
On
April 26, 2012, the Company received an administrative subpoena from the U.S. Drug Enforcement Administration ("DEA"), Albany, New York District Office, requesting information
regarding the Company's sale of products containing pseudoephedrine ("PSE"). In April 2012, it also received a communication from the U.S. Attorney's Office ("USAO") for the Northern District of New
York concerning an investigation of possible civil violations of the Combat Methamphetamine Epidemic Act of 2005 ("CMEA"). Additional subpoenas were issued in 2013, 2014, and 2015 seeking broader
documentation regarding PSE sales and recordkeeping requirements. Assistant U.S. Attorneys from the Northern and Eastern Districts of New York and the Southern District of West Virginia are currently
investigating, but no lawsuits have been filed. Violations of the CMEA could result in the imposition of administrative and/or civil penalties against the Company. The Company has entered into tolling
agreements with the United States, and discussions have been held to attempt to resolve these matters with those USAOs and the Department of Justice, but whether any agreements can be reached and on
what terms is uncertain. While the Company's management cannot predict the outcome of these matters, it is possible that the Company's results of operations or cash flows could be materially affected
by an unfavorable resolution. At this stage of the investigation, Rite Aid is not able to predict the outcome of the investigations.
In
December 2017, Rite Aid executed a non-prosecution agreement with the United States Attorney's Office for the Southern District of West Virginia (countersigned by the government in
January 2018), which concluded the previous criminal investigation into Rite Aid's PSE sales. Pursuant to that agreement, the government agreed not to bring any criminal charges against Rite Aid, and
Rite Aid agreed to pay an immaterial amount of money as restitution.
In
June 2013, the Company was served with a Civil Investigative Demand ("CID") by the United States Attorney's Office for the Eastern District of California (the "USAO") regarding
(1) the Company's Drug Utilization Review ("DUR") and prescription dispensing protocol; and (2) the dispensing of drugs designated as "Code 1" by the State of California. The Company
cooperated with the investigation, researched the government's allegations, and refuted the government's position. The Company produced documents including certain prescription files related to Code 1
drugs to the
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
22. Commitments, Contingencies and Guarantees (Continued)
USAO's
office and the State of California Department of Justice's Bureau of Medical Fraud and Elder Abuse ("CADOJ"). In August 2014, the USAO and 8 states' attorneys general declined to intervene in a
California False Claim Act ("FCA") action ("Action") filed under seal in the Eastern District of California by
qui tam
plaintiff Loyd F. Schmuckley
("Relator") based on DUR and Code 1 allegations. In July 2016, the Commonwealth of Massachusetts and the District of Columbia also declined to intervene in the Action. On May 15, 2017, Relator
and the CADOJ stipulated to dismiss all DUR-related claims and 18 other state-based claims. On September 21, 2017, the CADOJ filed a sealed complaint-in-intervention in the Action, asserting
causes under the FCA, for unjust enrichment and for payment by mistake related to the Code 1 allegations. The Action was unsealed on September 26, 2017. On September 28, 2017, Relator
filed a First Amended Complaint under the FCA also concerning the Code 1 allegations. The Company filed a motion to dismiss Relator's and CADOJ's respective complaints in January 2018, the hearing was
held on March 23, 2018, and the court's order remains pending. At this stage of the proceedings, the Company is not able to either predict the outcome of this matter or estimate a potential
range of loss with respect to this matter and is vigorously defending this lawsuit.
Relator,
Matthew Omlansky, filed a
qui tam
action, State of California ex rel. Matthew Omlansky v. Rite Aid Corporation, on behalf
of the State of California against Rite Aid in the Superior Court of the State of California. In his Complaint, Relator alleges that Rite Aid violated the California False Claims Act by
(i) failing to comply with California rules governing the Company's reporting of its usual and customary prices; (ii) failing to dispense the least expensive equivalent generic drug in
certain circumstances, in violation of applicable regulations; and (iii) dispensing, and seeking reimbursement for, restricted brand name drugs without prior approval. Relator filed his Second
Amended Complaint on April 19, 2016. On October 5, 2016, Rite Aid's demurrer to the Second Amended Complaint was granted, with leave for Relator to file an amended complaint. Relator
filed his Third Amended Complaint to which Rite Aid filed a second demurrer, which the Court granted with leave for Relator to amend on April 20, 2017. Relator filed his Fourth Amended
Complaint on May 1, 2017. On July 7, 2017, the Company's demurrer to the Fourth Amended Complaint was sustained without leave for
Relator to amend. The court entered a final judgment of dismissal of each of Relator's claims on August 3, 2017. Relator's deadline to appeal the judgment passed on October 9, 2017.
Relator filed an untimely notice of appeal in the action on October 13, 2017, and thereafter moved the California Court of Appeal for the Third District to construe an October 5, 2017
notice of appeal erroneously filed in another action brought by Relator as a timely appeal of this action. The Court of Appeal denied Relator's motion, and the appeal has been dismissed. At this stage
of the proceedings, the Company is not able to either predict the outcome of this matter or estimate a potential range of loss with respect to this matter and is vigorously defending this lawsuit.
The
State of Mississippi, by and through its Attorney General, filed a First Amended Complaint against the Company and various purported related entities on September 27, 2016
alleging violations of the Mississippi Medicaid Fraud Control Act, violations of the Mississippi Unfair and Deceptive Trade Practices Act, fraud and unjust enrichment. The Complaint alleges the
Company failed to accurately report usual and customary prices to Mississippi's Division of Medicaid. On November 14,
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
22. Commitments, Contingencies and Guarantees (Continued)
2016,
the Company filed motions to dismiss based on substantive and jurisdictional grounds, as well as a motion to transfer venue. These motions are pending and the action is stayed while related
litigation is resolved on appeal. At this stage of the proceedings, the Company is not able to either predict the outcome of this lawsuit or estimate a potential range of loss with respect to the
lawsuit and is vigorously defending this lawsuit.
In
December 2017, the United States Judicial Panel on multidistrict litigation ordered consolidated numerous cases filed against various defendants by plaintiffs such as counties,
cities, hospitals, and third-party payors, alleging claims generally concerning the impacts of widespread opioid abuse. The consolidated multidistrict litigation is
In re
National Prescription Opioid Litigation
(MDL No. 2804), pending in the U.S. District Court for the Northern District of Ohio. This multidistrict litigation presumptively
includes relevant federal court cases that name the Company, including actions filed by several counties in West Virginia; and actions filed by several counties and cities in Michigan. Similar cases
that name the Company in some capacity have been filed in state courts, including, among others, cases filed by Shelby County, Tennessee,
Shelby County (Tennessee) v.
Purdue Pharma, L.P. et al.;
several counties and cities in West Virginia,
Brooke County (West Virginia) et al. v. Purdue
Pharma L.P., et al.
and
City of Huntington (West Virginia) et al. v. Express Scripts Holding Company et al,
; and
counties in South Carolina,
County of Spartanburg (South Carolina) v. Rite Aid of South Carolina, Inc.
and
County
of Greenville (South Carolina) v. Rite Aid of South Carolina, Inc.
The Company is vigorously defending all such matters.
In
addition to the above described matters, the Company is subject from time to time to various claims and lawsuits and governmental investigations arising in the ordinary course of
business. While the Company's management cannot predict the outcome of any of the claims, the Company's management does not believe that the outcome of any of these legal matters will be material to
the Company's
consolidated financial position. It is possible, however, that the Company's results of operations or cash flows could be materially affected by an unfavorable resolution of pending litigation or
contingencies.
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Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
23. Supplementary Cash Flow Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
March 3,
2018
|
|
March 4,
2017
|
|
February 27,
2016
|
|
Cash paid for interest(a)
|
|
$
|
405,579
|
|
$
|
409,692
|
|
$
|
403,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments for income taxes, net(a)
|
|
$
|
87,087
|
|
$
|
17,081
|
|
$
|
4,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment financed under capital leases
|
|
$
|
13,123
|
|
$
|
7,551
|
|
$
|
9,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment received for noncash consideration
|
|
$
|
2,044
|
|
$
|
746
|
|
$
|
3,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in lease financing obligation
|
|
$
|
4,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued capital expenditures
|
|
$
|
28,869
|
|
$
|
27,232
|
|
$
|
50,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross borrowings from revolver(a)
|
|
$
|
4,221,000
|
|
$
|
3,608,000
|
|
$
|
4,729,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross repayments to revolver(a)
|
|
$
|
6,651,000
|
|
$
|
3,278,000
|
|
$
|
4,354,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)Amounts
are presented on a total company basis.
24. Related Party Transactions
There were receivables from related parties of $21 and $34 at March 3, 2018 and March 4, 2017, respectively.
As
contemplated by the terminated merger with WBA, on December 31, 2015, the Board of Directors of the Company approved the adoption of a retention and severance program upon the
recommendation of the Compensation Committee of the Board (the "Committee"), which was advised
by the Committee's independent compensation consultant, to enhance employee retention and corporate performance through the closing of the merger, and authorized the Company to enter into individual
retention award agreements with certain of its executive officers. The individual retention award agreements provide for the lump-sum payment of the retention award on the one hundred twentieth day
following the closing of the merger (the "retention date"), subject to continued employment through such retention date or upon the earlier termination of the recipient's employment by the Company
without "cause" or by the recipient for "good reason" (as such terms are defined in the Company's 2014 Omnibus Equity Plan) (each referred to as a "qualifying termination"). The Company executed
retention award agreements on December 31, 2015 with certain Company executive officers, which provided for the grant of retention awards under the terms described above and, for tax planning
purposes, provide for the accelerated payment of the executive's fiscal year 2016 bonus in 2015, the accelerated lapse of restrictions on certain time-based restricted stock awards in 2015 and, to the
extent necessary for one executive officer, the accelerated payment of the retention award in 2015, in each case subject to repayment requirements on the part of the executive if the executive would
not have otherwise become entitled to such payments. During fiscal 2016, the Company made advance payments to certain executives of $500 for retention bonuses and $1,778 of fiscal 2016 performance
bonuses for tax planning purposes.
150
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
25. Guarantor and Non-Guarantor Condensed Consolidating Financial Information
Rite Aid Corporation conducts the majority of its business through its subsidiaries. With the exception of EIC, substantially all of Rite Aid Corporation's 100 percent owned
subsidiaries guarantee the obligations under the Amended and Restated Senior Secured Credit Facility, secured guaranteed notes and unsecured guaranteed notes (the "Subsidiary Guarantors").
Additionally, with the exception of EIC, the subsidiaries, including joint ventures, that do not guarantee the Amended and Restated Senior Secured Credit Facility, secured guaranteed notes and
unsecured guaranteed notes, are minor.
For
the purposes of preparing the information below, Rite Aid Corporation uses the equity method to account for its investment in subsidiaries. The equity method has been used by
Subsidiary Guarantors with respect to investments in the non-guarantor subsidiaries. The subsidiary guarantees related to the Company's Amended and Restated Senior Secured Credit Facility and secured
guaranteed notes and, on an unsecured basis, the unsecured guaranteed notes, are full and unconditional and joint and several. Presented below is condensed consolidating financial information for Rite
Aid Corporation, the Subsidiary Guarantors, and the non-guarantor subsidiaries at March 3, 2018, March 4, 2017 and for the fiscal years ended March 3, 2018, March 4, 2017
and February 27, 2016. Separate financial statements for Subsidiary Guarantors are not presented.
151
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
25. Guarantor and Non-Guarantor Condensed Consolidating Financial Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rite Aid Corporation
Condensed Consolidating Balance Sheet
March 3, 2018
|
|
|
|
Rite Aid
Corporation
(Parent
Company Only)
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
$
|
441,244
|
|
$
|
6,090
|
|
$
|
|
|
$
|
447,334
|
|
Accounts receivable, net
|
|
|
|
|
|
1,502,507
|
|
|
366,593
|
|
|
|
|
|
1,869,100
|
|
Intercompany receivable
|
|
|
|
|
|
223,413
|
|
|
|
|
|
(223,413
|
)(a)
|
|
|
|
Inventories, net of LIFO reserve of $0, $581,090, $0, $0, and $581,090
|
|
|
|
|
|
1,799,539
|
|
|
|
|
|
|
|
|
1,799,539
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
176,678
|
|
|
4,503
|
|
|
|
|
|
181,181
|
|
Current assets held for sale
|
|
|
|
|
|
438,137
|
|
|
|
|
|
|
|
|
438,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
4,581,518
|
|
|
377,186
|
|
|
(223,413
|
)
|
|
4,735,291
|
|
Property, plant and equipment, net
|
|
|
|
|
|
1,431,246
|
|
|
|
|
|
|
|
|
1,431,246
|
|
Goodwill
|
|
|
|
|
|
1,421,120
|
|
|
|
|
|
|
|
|
1,421,120
|
|
Other intangibles, net
|
|
|
|
|
|
539,115
|
|
|
51,328
|
|
|
|
|
|
590,443
|
|
Deferred tax assets
|
|
|
|
|
|
594,019
|
|
|
|
|
|
|
|
|
594,019
|
|
Investment in subsidiaries
|
|
|
8,745,390
|
|
|
54,076
|
|
|
|
|
|
(8,799,466
|
)(b)
|
|
|
|
Intercompany receivable
|
|
|
|
|
|
3,189,419
|
|
|
|
|
|
(3,189,419
|
)(a)
|
|
|
|
Other assets
|
|
|
|
|
|
209,926
|
|
|
7,282
|
|
|
|
|
|
217,208
|
|
Noncurrent assets held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,745,390
|
|
$
|
12,020,439
|
|
$
|
435,796
|
|
$
|
(12,212,298
|
)
|
$
|
8,989,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt and lease financing obligations
|
|
$
|
90
|
|
$
|
20,671
|
|
$
|
|
|
$
|
|
|
$
|
20,761
|
|
Accounts payable
|
|
|
|
|
|
1,641,676
|
|
|
9,687
|
|
|
|
|
|
1,651,363
|
|
Intercompany payable
|
|
|
|
|
|
|
|
|
223,413
|
|
|
(223,413
|
)(a)
|
|
|
|
Accrued salaries, wages and other current liabilities
|
|
|
65,223
|
|
|
1,031,379
|
|
|
135,134
|
|
|
|
|
|
1,231,736
|
|
Current liabilities held for sales
|
|
|
549,549
|
|
|
10,656
|
|
|
|
|
|
|
|
|
560,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
614,862
|
|
|
2,704,382
|
|
|
368,234
|
|
|
(223,413
|
)
|
|
3,464,065
|
|
Long-term debt, less current maturities
|
|
|
3,340,099
|
|
|
|
|
|
|
|
|
|
|
|
3,340,099
|
|
Lease financing obligations, less current maturities
|
|
|
|
|
|
30,775
|
|
|
|
|
|
|
|
|
30,775
|
|
Intercompany payable
|
|
|
3,189,419
|
|
|
|
|
|
|
|
|
(3,189,419
|
)(a)
|
|
|
|
Other noncurrent liabilities
|
|
|
|
|
|
539,892
|
|
|
13,486
|
|
|
|
|
|
553,378
|
|
Noncurrent liabilities held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
7,144,380
|
|
|
3,275,049
|
|
|
381,720
|
|
|
(3,412,832
|
)
|
|
7,388,317
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
1,601,010
|
|
|
8,745,390
|
|
|
54,076
|
|
|
(8,799,466
|
)(b)
|
|
1,601,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
8,745,390
|
|
$
|
12,020,439
|
|
$
|
435,796
|
|
$
|
(12,212,298
|
)
|
$
|
8,989,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
Elimination
of intercompany accounts receivable and accounts payable amounts.
-
(b)
-
Elimination
of investments in consolidated subsidiaries.
152
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
25. Guarantor and Non-Guarantor Condensed Consolidating Financial Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rite Aid Corporation
Condensed Consolidating Balance Sheet
March 4, 2017
|
|
|
|
Rite Aid
Corporation
(Parent
Company Only)
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
$
|
213,104
|
|
$
|
32,306
|
|
$
|
|
|
$
|
245,410
|
|
Accounts receivable, net
|
|
|
|
|
|
1,506,288
|
|
|
264,838
|
|
|
|
|
|
1,771,126
|
|
Intercompany receivable
|
|
|
|
|
|
215,862
|
|
|
|
|
|
(215,862
|
)(a)
|
|
|
|
Inventories, net of LIFO reserve of $0, $607,326, $0, $0, and $607,326
|
|
|
|
|
|
1,789,541
|
|
|
|
|
|
|
|
|
1,789,541
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
203,033
|
|
|
8,508
|
|
|
|
|
|
211,541
|
|
Current assets held for sale
|
|
|
|
|
|
1,047,670
|
|
|
|
|
|
|
|
|
1,047,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
4,975,498
|
|
|
305,652
|
|
|
(215,862
|
)
|
|
5,065,288
|
|
Property, plant and equipment, net
|
|
|
|
|
|
1,526,462
|
|
|
|
|
|
|
|
|
1,526,462
|
|
Goodwill
|
|
|
|
|
|
1,682,847
|
|
|
|
|
|
|
|
|
1,682,847
|
|
Other intangibles, net
|
|
|
|
|
|
661,778
|
|
|
53,628
|
|
|
|
|
|
715,406
|
|
Deferred tax assets
|
|
|
|
|
|
1,505,564
|
|
|
|
|
|
|
|
|
1,505,564
|
|
Investment in subsidiaries
|
|
|
15,275,488
|
|
|
50,004
|
|
|
|
|
|
(15,325,492
|
)(b)
|
|
|
|
Intercompany receivable
|
|
|
|
|
|
7,331,675
|
|
|
|
|
|
(7,331,675
|
)(a)
|
|
|
|
Other assets
|
|
|
|
|
|
215,917
|
|
|
|
|
|
|
|
|
215,917
|
|
Noncurrent assets held for sale
|
|
|
|
|
|
882,268
|
|
|
|
|
|
|
|
|
882,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
15,275,488
|
|
$
|
18,832,013
|
|
$
|
359,280
|
|
$
|
(22,873,029
|
)
|
$
|
11,593,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt and lease financing obligations
|
|
$
|
90
|
|
$
|
17,619
|
|
$
|
|
|
$
|
|
|
$
|
17,709
|
|
Accounts payable
|
|
|
|
|
|
1,609,025
|
|
|
4,884
|
|
|
|
|
|
1,613,909
|
|
Intercompany payable
|
|
|
|
|
|
|
|
|
215,862
|
|
|
(215,862
|
)(a)
|
|
|
|
Accrued salaries, wages and other current liabilities
|
|
|
66,365
|
|
|
1,207,240
|
|
|
67,342
|
|
|
|
|
|
1,340,947
|
|
Current liabilities held for sales
|
|
|
|
|
|
32,683
|
|
|
|
|
|
|
|
|
32,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
66,455
|
|
|
2,866,567
|
|
|
288,088
|
|
|
(215,862
|
)
|
|
3,005,248
|
|
Long-term debt, less current maturities
|
|
|
3,235,888
|
|
|
|
|
|
|
|
|
|
|
|
3,235,888
|
|
Lease financing obligations, less current maturities
|
|
|
|
|
|
37,204
|
|
|
|
|
|
|
|
|
37,204
|
|
Intercompany payable
|
|
|
7,331,675
|
|
|
|
|
|
|
|
|
(7,331,675
|
)(a)
|
|
|
|
Other noncurrent liabilities
|
|
|
|
|
|
622,762
|
|
|
21,188
|
|
|
|
|
|
643,950
|
|
Noncurrent liabilities held for sale
|
|
|
4,027,400
|
|
|
29,992
|
|
|
|
|
|
|
|
|
4,057,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
14,661,418
|
|
|
3,556,525
|
|
|
309,276
|
|
|
(7,547,537
|
)
|
|
10,979,682
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
614,070
|
|
|
15,275,488
|
|
|
50,004
|
|
|
(15,325,492
|
)(b)
|
|
614,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
15,275,488
|
|
$
|
18,832,013
|
|
$
|
359,280
|
|
$
|
(22,873,029
|
)
|
$
|
11,593,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
Elimination
of intercompany accounts receivable and accounts payable amounts.
-
(b)
-
Elimination
of investments in consolidated subsidiaries.
153
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
25. Guarantor and Non-Guarantor Condensed Consolidating Financial Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rite Aid Corporation
Condensed Consolidating Statement of Operations
For the Year Ended March 3, 2018
|
|
|
|
Rite Aid
Corporation
(Parent
Company Only)
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Revenues
|
|
$
|
|
|
$
|
21,413,734
|
|
$
|
209,356
|
|
$
|
(94,122
|
)(a)
|
$
|
21,528,968
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
16,645,136
|
|
|
197,084
|
|
|
(93,357
|
)(a)
|
|
16,748,863
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
4,635,531
|
|
|
16,496
|
|
|
(765
|
)(a)
|
|
4,651,262
|
|
Lease termination and impairment expenses
|
|
|
|
|
|
58,765
|
|
|
|
|
|
|
|
|
58,765
|
|
Interest expense
|
|
|
183,825
|
|
|
19,261
|
|
|
(318
|
)
|
|
|
|
|
202,768
|
|
Goodwill impairment
|
|
|
|
|
|
261,727
|
|
|
|
|
|
|
|
|
261,727
|
|
Walgreens Boots Alliance, Inc. termination fee
|
|
|
(325,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(325,000
|
)
|
Gain on sale of assets, net
|
|
|
|
|
|
(25,872
|
)
|
|
|
|
|
|
|
|
(25,872
|
)
|
Equity in earnings of subsidiaries, net of tax
|
|
|
(1,034,775
|
)
|
|
(4,072
|
)
|
|
|
|
|
1,038,847
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,175,950
|
)
|
|
21,590,476
|
|
|
213,262
|
|
|
944,725
|
|
|
21,572,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
1,175,950
|
|
|
(176,742
|
)
|
|
(3,906
|
)
|
|
(1,038,847
|
)
|
|
(43,545
|
)
|
Income tax expense (benefit)
|
|
|
|
|
|
313,965
|
|
|
(7,978
|
)
|
|
|
|
|
305,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
1,175,950
|
|
|
(490,707
|
)
|
|
4,072
|
|
|
(1,038,847
|
)
|
|
(349,532
|
)
|
Net income (loss) from discontinued operations
|
|
|
(232,480
|
)
|
|
1,525,482
|
|
|
|
|
|
|
|
|
1,293,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
943,470
|
|
$
|
1,034,775
|
|
$
|
4,072
|
|
$
|
(1,038,847
|
)(b)
|
$
|
943,470
|
|
Total other comprehensive income (loss)
|
|
|
7,255
|
|
|
7,255
|
|
|
|
|
|
(7,255
|
)
|
|
7,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
950,725
|
|
$
|
1,042,030
|
|
$
|
4,072
|
|
$
|
(1,046,102
|
)
|
$
|
950,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
Elimination
of intercompany revenues and expenses.
-
(b)
-
Elimination
of equity in earnings of subsidiaries.
154
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
25. Guarantor and Non-Guarantor Condensed Consolidating Financial Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rite Aid Corporation
Condensed Consolidating Statement of Operations
For the Year Ended March 4, 2017
|
|
|
|
Rite Aid
Corporation
(Parent
Company Only)
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Revenues
|
|
$
|
|
|
$
|
22,821,940
|
|
$
|
223,077
|
|
$
|
(117,477
|
)(a)
|
$
|
22,927,540
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
17,767,363
|
|
|
213,225
|
|
|
(117,755
|
)(a)
|
|
17,862,833
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
4,763,176
|
|
|
13,541
|
|
|
278
|
(a)
|
|
4,776,995
|
|
Lease termination and impairment expenses
|
|
|
|
|
|
45,778
|
|
|
|
|
|
|
|
|
45,778
|
|
Interest expense
|
|
|
182,282
|
|
|
17,796
|
|
|
(13
|
)
|
|
|
|
|
200,065
|
|
Gain on sale of assets, net
|
|
|
|
|
|
(6,649
|
)
|
|
|
|
|
|
|
|
(6,649
|
)
|
Equity in earnings of subsidiaries, net of tax
|
|
|
(418,261
|
)
|
|
5,101
|
|
|
|
|
|
413,160
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(235,979
|
)
|
|
22,592,565
|
|
|
226,753
|
|
|
295,683
|
|
|
22,879,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
235,979
|
|
|
229,375
|
|
|
(3,676
|
)
|
|
(413,160
|
)
|
|
48,518
|
|
Income tax expense
|
|
|
|
|
|
43,013
|
|
|
1,425
|
|
|
|
|
|
44,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
235,979
|
|
|
186,362
|
|
|
(5,101
|
)
|
|
(413,160
|
)(b)
|
|
4,080
|
|
Net income (loss) from discontinued operations
|
|
|
(231,926
|
)
|
|
231,899
|
|
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,053
|
|
$
|
418,261
|
|
$
|
(5,101
|
)
|
$
|
(413,160
|
)
|
$
|
4,053
|
|
Total other comprehensive income (loss)
|
|
|
5,464
|
|
|
5,464
|
|
|
|
|
|
(5,464
|
)
|
|
5,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
9,517
|
|
$
|
423,725
|
|
$
|
(5,101
|
)
|
$
|
(418,624
|
)
|
$
|
9,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
Elimination
of intercompany revenues and expenses.
-
(b)
-
Elimination
of equity in earnings of subsidiaries.
155
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
25. Guarantor and Non-Guarantor Condensed Consolidating Financial Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rite Aid Corporation
Condensed Consolidating Statement of Operations
For the Year Ended February 27, 2016
|
|
|
|
Rite Aid
Corporation
(Parent
Company Only)
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Revenues
|
|
$
|
|
|
$
|
20,765,351
|
|
$
|
162,620
|
|
$
|
(157,734
|
)(a)
|
$
|
20,770,237
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
15,778,258
|
|
|
154,838
|
|
|
(154,838
|
)(a)
|
|
15,778,258
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
4,572,146
|
|
|
11,921
|
|
|
(2,896
|
)(a)
|
|
4,581,171
|
|
Lease termination and impairment expenses
|
|
|
|
|
|
40,477
|
|
|
|
|
|
|
|
|
40,477
|
|
Interest expense
|
|
|
151,862
|
|
|
34,268
|
|
|
2
|
|
|
|
|
|
186,132
|
|
Loss on debt retirement, net
|
|
|
33,205
|
|
|
|
|
|
|
|
|
|
|
|
33,205
|
|
Loss on sale of assets, net
|
|
|
|
|
|
(606
|
)
|
|
|
|
|
|
|
|
(606
|
)
|
Equity in earnings of subsidiaries, net of tax
|
|
|
(613,974
|
)
|
|
3,972
|
|
|
|
|
|
610,002
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(428,907
|
)
|
|
20,428,515
|
|
|
166,761
|
|
|
452,268
|
|
|
20,618,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
428,907
|
|
|
336,836
|
|
|
(4,141
|
)
|
|
(610,002
|
)
|
|
151,600
|
|
Income tax expense (benefit)
|
|
|
|
|
|
49,681
|
|
|
(169
|
)
|
|
|
|
|
49,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
428,907
|
|
|
287,155
|
|
|
(3,972
|
)
|
|
(610,002
|
)(b)
|
|
102,088
|
|
Net income (loss) from discontinued operations
|
|
|
(263,442
|
)
|
|
326,819
|
|
|
|
|
|
|
|
|
63,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
165,465
|
|
$
|
613,974
|
|
$
|
(3,972
|
)
|
$
|
(610,002
|
)
|
$
|
165,465
|
|
Total other comprehensive (loss) income
|
|
|
(1,931
|
)
|
|
(1,931
|
)
|
|
|
|
|
1,931
|
|
|
(1,931
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
163,534
|
|
$
|
612,043
|
|
$
|
(3,972
|
)
|
$
|
(608,071
|
)
|
$
|
163,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
Elimination
of intercompany revenues and expenses.
-
(b)
-
Elimination
of equity in earnings of subsidiaries.
156
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
25. Guarantor and Non-Guarantor Condensed Consolidating Financial Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rite Aid Corporation
Condensed Consolidating Statement of Cash Flows
For the Year Ended March 3, 2018
|
|
|
|
Rite Aid
Corporation
(Parent
Company Only)
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
158,247
|
|
$
|
379,439
|
|
$
|
(26,216
|
)
|
$
|
|
|
$
|
511,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property, plant and equipment
|
|
|
|
|
|
(185,879
|
)
|
|
|
|
|
|
|
|
(185,879
|
)
|
Intangible assets acquired
|
|
|
|
|
|
(28,885
|
)
|
|
|
|
|
|
|
|
(28,885
|
)
|
Intercompany activity
|
|
|
|
|
|
(3,460,291
|
)
|
|
|
|
|
3,460,291
|
|
|
|
|
Proceeds from dispositions of assets and investments
|
|
|
|
|
|
27,586
|
|
|
|
|
|
|
|
|
27,586
|
|
Proceeds from insured loss
|
|
|
|
|
|
4,239
|
|
|
|
|
|
|
|
|
4,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
|
|
|
(3,643,230
|
)
|
|
|
|
|
3,460,291
|
|
|
(182,939
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net payments to revolver
|
|
|
(265,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(265,000
|
)
|
Principal payments on long-term debt
|
|
|
|
|
|
(9,882
|
)
|
|
|
|
|
|
|
|
(9,882
|
)
|
Change in zero balance cash accounts
|
|
|
|
|
|
35,605
|
|
|
|
|
|
|
|
|
35,605
|
|
Net proceeds from issuance of common stock
|
|
|
5,796
|
|
|
|
|
|
|
|
|
|
|
|
5,796
|
|
Payments for taxes related to net share settlement of equity awards
|
|
|
|
|
|
(4,103
|
)
|
|
|
|
|
|
|
|
(4,103
|
)
|
Intercompany activity
|
|
|
3,460,291
|
|
|
|
|
|
|
|
|
(3,460,291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
3,201,087
|
|
|
21,620
|
|
|
|
|
|
(3,460,291
|
)
|
|
(237,584
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows of discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities of discontinued operations
|
|
|
(224,300
|
)
|
|
(20,826
|
)
|
|
|
|
|
|
|
|
(245,126
|
)
|
Investing activities of discontinued operations
|
|
|
|
|
|
3,496,222
|
|
|
|
|
|
|
|
|
3,496,222
|
|
Financing activities of discontinued operations
|
|
|
(3,135,034
|
)
|
|
(5,085
|
)
|
|
|
|
|
|
|
|
(3,140,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) discontinued operations
|
|
|
(3,359,334
|
)
|
|
3,470,311
|
|
|
|
|
|
|
|
|
110,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
|
|
|
228,140
|
|
|
(26,216
|
)
|
|
|
|
|
201,924
|
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
|
213,104
|
|
|
32,306
|
|
|
|
|
|
245,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
|
|
$
|
441,244
|
|
$
|
6,090
|
|
$
|
|
|
$
|
447,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
25. Guarantor and Non-Guarantor Condensed Consolidating Financial Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rite Aid Corporation
Condensed Consolidating Statement of Cash Flows
For the Year Ended March 4, 2017
|
|
|
|
Rite Aid
Corporation
(Parent
Company
Only)
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(162,842
|
)
|
$
|
347,465
|
|
$
|
(1,596
|
)
|
$
|
|
|
$
|
183,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property, plant and equipment
|
|
|
|
|
|
(254,149
|
)
|
|
|
|
|
|
|
|
(254,149
|
)
|
Intangible assets acquired
|
|
|
|
|
|
(39,648
|
)
|
|
|
|
|
|
|
|
(39,648
|
)
|
Intercompany activity
|
|
|
|
|
|
(57,817
|
)
|
|
|
|
|
57,817
|
|
|
|
|
Proceeds from dispositions of assets and investments
|
|
|
|
|
|
16,852
|
|
|
|
|
|
|
|
|
16,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
|
|
|
(334,762
|
)
|
|
|
|
|
57,817
|
|
|
(276,945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from revolver
|
|
|
330,000
|
|
|
|
|
|
|
|
|
|
|
|
330,000
|
|
Principal payments on long-term debt
|
|
|
|
|
|
(16,588
|
)
|
|
|
|
|
|
|
|
(16,588
|
)
|
Change in zero balance cash accounts
|
|
|
|
|
|
43,080
|
|
|
|
|
|
|
|
|
43,080
|
|
Net proceeds from issuance of common
stock
|
|
|
6,951
|
|
|
|
|
|
|
|
|
|
|
|
6,951
|
|
Excess tax benefit on stock options and restricted stock
|
|
|
|
|
|
543
|
|
|
|
|
|
|
|
|
543
|
|
Payments for taxes related to net share settlement of equity awards
|
|
|
|
|
|
(6,254
|
)
|
|
|
|
|
|
|
|
(6,254
|
)
|
Intercompany activity
|
|
|
57,817
|
|
|
|
|
|
|
|
|
(57,817
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
394,768
|
|
|
20,781
|
|
|
|
|
|
(57,817
|
)
|
|
357,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows of discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities of discontinued operations
|
|
|
(231,926
|
)
|
|
281,016
|
|
|
|
|
|
|
|
|
49,090
|
|
Investing activities of discontinued operations
|
|
|
|
|
|
(187,314
|
)
|
|
|
|
|
|
|
|
(187,314
|
)
|
Financing activities of discontinued operations
|
|
|
|
|
|
(4,651
|
)
|
|
|
|
|
|
|
|
(4,651
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) discontinued operations
|
|
|
(231,926
|
)
|
|
89,051
|
|
|
|
|
|
|
|
|
(142,875
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
|
|
|
122,535
|
|
|
(1,596
|
)
|
|
|
|
|
120,939
|
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
|
90,569
|
|
|
33,902
|
|
|
|
|
|
124,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
|
|
$
|
213,104
|
|
$
|
32,306
|
|
$
|
|
|
$
|
245,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
25. Guarantor and Non-Guarantor Condensed Consolidating Financial Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rite Aid Corporation
Condensed Consolidating Statement of Cash Flows
For the Year Ended February 27, 2016
|
|
|
|
Rite Aid
Corporation
(Parent
Company
Only)
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(124,429
|
)
|
$
|
841,258
|
|
$
|
(6,486
|
)
|
$
|
|
|
$
|
710,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property, plant and equipment
|
|
|
|
|
|
(391,199
|
)
|
|
|
|
|
|
|
|
(391,199
|
)
|
Intangible assets acquired
|
|
|
|
|
|
(89,874
|
)
|
|
|
|
|
|
|
|
(89,874
|
)
|
Acquisition of businesses, net of cash
acquired
|
|
|
(1,778,377
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,778,377
|
)
|
Intercompany activity
|
|
|
(103,834
|
)
|
|
(794,422
|
)
|
|
|
|
|
898,256
|
|
|
|
|
Proceeds from sale-leaseback transaction
|
|
|
|
|
|
26,953
|
|
|
|
|
|
|
|
|
26,953
|
|
Proceeds from dispositions of assets and investments
|
|
|
|
|
|
9,773
|
|
|
|
|
|
|
|
|
9,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(1,882,211
|
)
|
|
(1,238,769
|
)
|
|
|
|
|
898,256
|
|
|
(2,222,724
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
1,800,000
|
|
|
|
|
|
|
|
|
|
|
|
1,800,000
|
|
Net proceeds from revolver
|
|
|
375,000
|
|
|
|
|
|
|
|
|
|
|
|
375,000
|
|
Principal payments on long-term debt
|
|
|
(650,079
|
)
|
|
(17,415
|
)
|
|
|
|
|
|
|
|
(667,494
|
)
|
Change in zero balance cash accounts
|
|
|
|
|
|
(62,878
|
)
|
|
|
|
|
|
|
|
(62,878
|
)
|
Net proceeds from issuance of common
stock
|
|
|
11,376
|
|
|
|
|
|
|
|
|
|
|
|
11,376
|
|
Financing fees paid for early debt
redemption
|
|
|
(26,003
|
)
|
|
|
|
|
|
|
|
|
|
|
(26,003
|
)
|
Excess tax benefit on stock options and restricted stock
|
|
|
|
|
|
22,884
|
|
|
|
|
|
|
|
|
22,884
|
|
Payments for taxes related to net share settlement of equity awards
|
|
|
|
|
|
(17,506
|
)
|
|
|
|
|
|
|
|
(17,506
|
)
|
Deferred financing costs paid
|
|
|
(34,634
|
)
|
|
|
|
|
|
|
|
|
|
|
(34,634
|
)
|
Intercompany activity
|
|
|
794,422
|
|
|
63,446
|
|
|
40,388
|
|
|
(898,256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
2,270,082
|
|
|
(11,469
|
)
|
|
40,388
|
|
|
(898,256
|
)
|
|
1,400,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows of discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities of discontinued operations
|
|
|
(263,442
|
)
|
|
568,007
|
|
|
|
|
|
|
|
|
304,565
|
|
Investing activities of discontinued operations
|
|
|
|
|
|
(179,134
|
)
|
|
|
|
|
|
|
|
(179,134
|
)
|
Financing activities of discontinued operations
|
|
|
|
|
|
(5,223
|
)
|
|
|
|
|
|
|
|
(5,223
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) discontinued operations
|
|
|
(263,442
|
)
|
|
383,650
|
|
|
|
|
|
|
|
|
120,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
|
|
|
(25,330
|
)
|
|
33,902
|
|
|
|
|
|
8,572
|
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
|
115,899
|
|
|
|
|
|
|
|
|
115,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
|
|
$
|
90,569
|
|
$
|
33,902
|
|
$
|
|
|
$
|
124,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
26. Interim Financial Results (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2018
|
|
|
|
First
Quarter(a)
|
|
Second
Quarter(a)
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Year
|
|
Revenues
|
|
$
|
5,436,523
|
|
$
|
5,345,011
|
|
$
|
5,353,170
|
|
$
|
5,394,264
|
|
$
|
21,528,968
|
|
Cost of revenues
|
|
|
4,274,580
|
|
|
4,183,338
|
|
|
4,166,447
|
|
|
4,124,498
|
|
|
16,748,863
|
|
Selling, general and administrative expenses
|
|
|
1,160,940
|
|
|
1,141,844
|
|
|
1,166,514
|
|
|
1,181,964
|
|
|
4,651,262
|
|
Lease termination and impairment charges
|
|
|
4,038
|
|
|
3,113
|
|
|
3,939
|
|
|
47,675
|
|
|
58,765
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
|
261,727
|
|
|
261,727
|
|
Interest expense
|
|
|
51,000
|
|
|
50,857
|
|
|
50,308
|
|
|
50,603
|
|
|
202,768
|
|
Walgreens Boots Alliance merger termination fee
|
|
|
|
|
|
(325,000
|
)
|
|
|
|
|
|
|
|
(325,000
|
)
|
Loss (gain) on sale of assets, net
|
|
|
(5,877
|
)
|
|
(14,951
|
)
|
|
205
|
|
|
(5,249
|
)
|
|
(25,872
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,484,681
|
|
|
5,039,201
|
|
|
5,387,413
|
|
|
5,661,218
|
|
|
21,572,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income taxes
|
|
|
(48,158
|
)
|
|
305,810
|
|
|
(34,243
|
)
|
|
(266,954
|
)
|
|
(43,545
|
)
|
Income tax (benefit) expense
|
|
|
(12,121
|
)
|
|
117,450
|
|
|
(16,061
|
)
|
|
216,719
|
|
|
305,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations
|
|
|
(36,037
|
)
|
|
188,360
|
|
|
(18,182
|
)
|
|
(483,673
|
)
|
|
(349,532
|
)
|
Net (loss) income from discontinued operations, net of tax
|
|
|
(39,312
|
)
|
|
(17,644
|
)
|
|
99,213
|
|
|
1,250,745
|
|
|
1,293,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(75,349
|
)
|
$
|
170,716
|
|
$
|
81,031
|
|
$
|
767,072
|
|
$
|
943,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) income per share(b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.03
|
)
|
$
|
0.18
|
|
$
|
(0.02
|
)
|
$
|
(0.46
|
)
|
$
|
(0.33
|
)
|
Discontinued operations
|
|
$
|
(0.04
|
)
|
$
|
(0.02
|
)
|
$
|
0.10
|
|
$
|
1.19
|
|
$
|
1.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net basic (loss) income per share
|
|
$
|
(0.07
|
)
|
$
|
0.16
|
|
$
|
0.08
|
|
$
|
0.73
|
|
$
|
0.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) income per share(b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.03
|
)
|
$
|
0.18
|
|
$
|
(0.02
|
)
|
$
|
(0.46
|
)
|
$
|
(0.33
|
)
|
Discontinued operations
|
|
$
|
(0.04
|
)
|
$
|
(0.02
|
)
|
$
|
0.10
|
|
$
|
1.19
|
|
$
|
1.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net diluted (loss) income per share
|
|
$
|
(0.07
|
)
|
$
|
0.16
|
|
$
|
0.08
|
|
$
|
0.73
|
|
$
|
0.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
26. Interim Financial Results (Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2017
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter(c)
|
|
Year
|
|
Revenues
|
|
$
|
5,725,485
|
|
$
|
5,629,559
|
|
$
|
5,669,111
|
|
$
|
5,903,385
|
|
$
|
22,927,540
|
|
Cost of revenues
|
|
|
4,496,400
|
|
|
4,387,845
|
|
|
4,424,260
|
|
|
4,554,328
|
|
|
17,862,833
|
|
Selling, general and administrative expenses
|
|
|
1,179,775
|
|
|
1,175,430
|
|
|
1,168,646
|
|
|
1,253,144
|
|
|
4,776,995
|
|
Lease termination and impairment charges
|
|
|
5,778
|
|
|
7,226
|
|
|
7,199
|
|
|
25,575
|
|
|
45,778
|
|
Interest expense
|
|
|
46,668
|
|
|
49,703
|
|
|
50,303
|
|
|
53,391
|
|
|
200,065
|
|
Loss (gain) on sale of assets, net
|
|
|
397
|
|
|
(560
|
)
|
|
(225
|
)
|
|
(6,261
|
)
|
|
(6,649
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,729,018
|
|
|
5,619,644
|
|
|
5,650,183
|
|
|
5,880,177
|
|
|
22,879,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income taxes
|
|
|
(3,533
|
)
|
|
9,915
|
|
|
18,928
|
|
|
23,208
|
|
|
48,518
|
|
Income tax (benefit) expense
|
|
|
(3,021
|
)
|
|
3,879
|
|
|
(4,682
|
)
|
|
48,262
|
|
|
44,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations
|
|
|
(512
|
)
|
|
6,036
|
|
|
23,610
|
|
|
(25,054
|
)
|
|
4,080
|
|
Net (loss) income from discontinued operations, net of tax
|
|
|
(4,076
|
)
|
|
8,737
|
|
|
(8,600
|
)
|
|
3,912
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(4,588
|
)
|
$
|
14,773
|
|
$
|
15,010
|
|
$
|
(21,142
|
)
|
$
|
4,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) income per share(b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.00
|
)
|
$
|
0.01
|
|
$
|
0.02
|
|
$
|
(0.02
|
)
|
$
|
0.00
|
|
Discontinued operations
|
|
$
|
(0.00
|
)
|
$
|
0.00
|
|
$
|
(0.01
|
)
|
$
|
0.00
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net basic and diluted income per share
|
|
$
|
(0.00
|
)
|
$
|
0.01
|
|
$
|
0.01
|
|
$
|
(0.02
|
)
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
The
Company's fiscal 2018 first and second quarterly results were recasted to reflect the application of ASC 205-20 as it relates to the Asset Sale to WBA (see
Note 4. Asset Sale to WBA).
-
(b)
-
Income
per share amounts for each quarter may not necessarily total to the yearly income per share due to the weighting of shares outstanding on a quarterly and
year-to-date basis.
-
(c)
-
The
interim financial results for the fourth quarter of fiscal 2017 includes 14 weeks.
During
the fourth quarter of 2018, the Company recorded an income tax expense of $324,765 in connection with the revaluation of the Company's deferred tax assets as discussed in
Note 8, a goodwill impairment charge of $261,727 as discussed in Note 13 ($191,000 net of the related income tax benefit), and facilities impairment charges of $36,927. Also, during the
fourth quarter of fiscal 2018, the Company recorded a LIFO credit of $49,220 due to higher deflation on pharmacy generics as compared to a LIFO credit recognized at prior year end caused by lower
deflation on pharmacy generics.
During
the fourth quarter of fiscal 2017, the Company recorded facilities impairment charges of $21,068 and a LIFO credit of $28,987 due to lower deflation on pharmacy generics.
161
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 3, 2018, March 4, 2017 and February 27, 2016
(In thousands, except per share amounts)
27. Financial Instruments
The carrying amounts and fair values of financial instruments at March 3, 2018 and March 4, 2017 are listed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Variable rate indebtedness
|
|
$
|
|
|
$
|
|
|
$
|
3,368,484
|
|
$
|
3,404,225
|
|
Fixed rate indebtedness
|
|
$
|
3,905,841
|
|
$
|
3,927,411
|
|
$
|
3,894,894
|
|
$
|
4,152,374
|
|
Cash,
trade receivables and trade payables are carried at market value, which approximates their fair values due to the short-term maturity of these instruments. In addition, as of
March 3, 2018 and March 4, 2017, the Company had $7,282 and $6,874, respectively, of investments carried at amortized cost, as these investments are being held to maturity. As of
March 3, 2018, these investments are included as a component of other assets. As of March 4, 2017, these investments are included as a component of prepaid expenses and other current
assets. The Company believes the carrying value of these investments approximates their fair value.
The
following methods and assumptions were used in estimating fair value disclosures for financial instruments:
The carrying amounts for LIBOR-based borrowings under the credit facilities and term notes are estimated based on the quoted market price of the
financial instruments.
The fair values of long-term indebtedness are estimated based on the quoted market prices of the financial instruments. If quoted market prices
were not available, the Company estimated the fair value based on the quoted market price of a financial instrument with similar characteristics.
162
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS
For the Years Ended March 3, 2018, March 4, 2017, and February 27, 2016
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances deducted from accounts receivable for estimated
uncollectible amounts:
|
|
Balance at
Beginning
of Period
|
|
Additions
Charged to
Costs and
Expenses
|
|
Deductions
|
|
Balance at
End of
Period
|
|
Year ended March 3, 2018
|
|
$
|
30,891
|
|
$
|
94,006
|
|
$
|
99,763
|
|
$
|
25,134
|
|
Year ended March 4, 2017
|
|
$
|
32,820
|
|
$
|
72,876
|
|
$
|
74,805
|
|
$
|
30,891
|
|
Year ended February 27, 2016
|
|
$
|
31,247
|
|
$
|
71,984
|
|
$
|
70,411
|
|
$
|
32,820
|
|
163
Table of Contents
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.
|
|
|
|
|
|
|
RITE AID CORPORATION
|
|
|
By:
|
|
/s/ JOHN T. STANDLEY
John T. Standley
|
|
|
|
|
Chairman and Chief Executive Officer
|
|
|
Dated: April 26, 2018
|
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 their respective
capacities on April 26, 2018.
|
|
|
Signature
|
|
Title
|
|
|
|
/s/ JOHN T. STANDLEY
John T. Standley
|
|
Chairman, Chief Executive Officer and Director (principal executive officer)
|
/s/ DARREN W. KARST
Darren W. Karst
|
|
Senior Executive Vice President, Chief Financial Officer and Chief Administrative Officer (principal financial officer)
|
/s/ MATTHEW C. SCHROEDER
Matthew C. Schroeder
|
|
Senior Vice President, Chief Accounting Officer, and Treasurer (principal accounting officer)
|
/s/ JOSEPH B. ANDERSON, JR
Joseph B. Anderson, Jr
|
|
Director
|
/s/ BRUCE G. BODAKEN
Bruce G. Bodaken
|
|
Director
|
/s/ DAVID R. JESSICK
David R. Jessick
|
|
Director
|
/s/ KEVIN E. LOFTON
Kevin E. Lofton
|
|
Director
|
164
Table of Contents
|
|
|
Signature
|
|
Title
|
|
|
|
/s/ MYRTLE S. POTTER
Myrtle S. Potter
|
|
Director
|
/s/ MICHAEL N. REGAN
Michael N. Regan
|
|
Director
|
/s/ FRANK A. SAVAGE
Frank A. Savage
|
|
Director
|
/s/ MARCY SYMS
Marcy Syms
|
|
Director
|
165
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