NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies
The Company is a Delaware corporation and through its 100% 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 2,469 stores in operation as of March 2, 2019. 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 operates both transparent and traditional pharmacy benefit management ("PBM") businesses; mail-order and specialty pharmacy services through EnvisionPharmacies; a claims
adjudication software platform through Laker Software; and a national Medicare Part D prescription drug plan through Envision Insurance Company ("EIC"). See Note 20 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 (the "Amended and Restated Asset Purchase Agreement"), dated as of
September 18, 2017, by and among Rite Aid, WBA and Walgreen Co., an Illinois corporation and 100% owned subsidiary of WBA ("Buyer"), Buyer agreed to purchase from Rite Aid 1,932 stores
(the "Acquired Stores"), three distribution centers, related inventory and other specified assets and liabilities related thereto for a purchase price of approximately $4,375,000, on a cash free, debt
free basis (the
"Asset Sale" or the "Sale"). As of March 2, 2019, the Company has sold all 1,932 Acquired Stores, one distribution center, and related assets to WBA in exchange for proceeds of $4,217,937,
which were used to repay outstanding debt. Based on its magnitude and because the Company has exited 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
210-05Discontinued Operations (ASC 205-20). In accordance with ASC 205-20, the Company reclassified the assets and liabilities to be sold, including the 1,932 Acquired Stores, three
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 2, 2019 and March 3, 2018, 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. See additional information as provided in Note 3 Asset Sale to WBA.
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
Revenues
for the Company are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
March 2,
2019
(52 Weeks)
|
|
March 3,
2018
(52 Weeks)
|
|
March 4,
2017
(53 Weeks)
|
|
Retail Pharmacy segment:
|
|
|
|
|
|
|
|
|
|
|
Pharmacy sales
|
|
$
|
10,391,539
|
|
$
|
10,328,376
|
|
$
|
11,072,480
|
|
Front-end sales
|
|
|
5,215,152
|
|
|
5,348,613
|
|
|
5,538,352
|
|
Other revenue
|
|
|
150,461
|
|
|
155,636
|
|
|
155,788
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Retail Pharmacy segment
|
|
|
15,757,152
|
|
|
15,832,625
|
|
|
16,766,620
|
|
Pharmacy Services segment revenue
|
|
|
6,093,688
|
|
|
5,896,669
|
|
|
6,393,884
|
|
Intersegment elimination
|
|
|
(211,283
|
)
|
|
(200,326
|
)
|
|
(232,964
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
21,639,557
|
|
$
|
21,528,968
|
|
$
|
22,927,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
of prescription drugs for our Retail Pharmacy segment represented approximately 66.6%, 65.9% and 66.0% of the Company's total drugstore sales in fiscal years 2019, 2018 and 2017,
respectively. The Retail Pharmacy segment's principal classes of products in fiscal 2019 were the following:
|
|
|
|
|
Product Class
|
|
Percentage
of Sales
|
|
Prescription drugs
|
|
|
66.6
|
%
|
Over-the-counter medications and personal care
|
|
|
10.8
|
%
|
Health and beauty aids
|
|
|
5.0
|
%
|
General merchandise and other
|
|
|
17.6
|
%
|
The Company's fiscal year ends on the Saturday closest to February 29 or March 1. The fiscal year ended March 2, 2019
included 52 weeks. The fiscal year ended March 3, 2018 included 52 weeks. The fiscal year ended March 4, 2017 included 53 weeks.
The consolidated financial statements include the accounts of the Company and all of its 100% owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
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.
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
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.
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
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
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 2019, 2018 and 2017, the Company capitalized costs of approximately $13,716, $13,940 and $6,189, 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 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.
The Company has a single indefinite-lived intangible asset consisting of a trade name. Intangible assets that are determined to have an
indefinite life are not amortized, but are required to be evaluated at least annually for impairment. If the carrying value of an individual indefinite-lived intangible asset
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
exceeds
its fair value, such individual indefinite-lived intangible asset is impaired by the amount of the excess.
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 $10,761, $8,403 and $4,696 for fiscal 2019, 2018 and 2017, respectively.
Revenue Recognition
Retail Pharmacy Segment
For front-end sales, the Retail Pharmacy segment recognizes revenues upon the transfer of control of the goods to the customer. The Company
satisfies its performance obligation at the point of sale for front-end transactions. The Retail Pharmacy segment front-end revenue is measured based on the amount of fixed consideration that we
expect to receive, net of an allowance for estimated future returns. Return activity is immaterial to revenues and results of operations in all periods presented.
For
pharmacy sales, the Retail Pharmacy segment recognizes revenue upon the transfer of control of the goods to the customer. The Company satisfies its performance obligation, upon
pickup by the customer, which is when the customer takes title to the product. Each prescription claim represents an individual arrangement with the customer and is a performance obligation, separate
and distinct from other prescription claims. The Company's revenue is measured based on the amount of fixed consideration that we expect to receive, reduced by refunds owed to the third party payor
for pricing guarantees and performance against defined value-based service and performance metrics. The inputs to these estimates are not highly subjective or volatile. The effect of adjustments
between estimated and actual amounts have not been material to the Company's results of operations or financial position. Prescriptions are generally not returnable.
The
Retail Pharmacy segment offers a chain-wide loyalty card program titled wellness +. Individual customers are able to become members of the wellness + program. Members
participating in the wellness + loyalty card program earn points on a calendar year basis for eligible front-end merchandise purchases and qualifying prescription purchases. 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 him or her 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.
Points
earned pursuant to the wellness+ program represent a performance obligation and the Company allocates revenue between the merchandise purchased and the
wellness + points based on the relative stand-alone selling price of each performance obligation. The relative value of the
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Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
wellness + points
is initially deferred as a contract liability (included in other current and noncurrent liabilities). As members receive discounted front-end merchandise or when the
benefit period expires, the Retail Pharmacy segment recognizes an allocable portion of the deferred contract liability into revenue. The Retail Pharmacy segment had accrued contract liabilities of
$63,720 as of March 2, 2019, of which $51,042 is included in other current liabilities and $12,678 is included in noncurrent liabilities. The Retail Pharmacy segment had accrued contract
liabilities of $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
wellness + program also 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.
For
a majority of the Bonus Cash issuances, funding is provided by our vendors through contractual arrangements. This funding is treated as a contract liability and remains a contract
liability until (i) wellness + Rewards members redeem their Bonus Cash, or (ii) wellness + Rewards members allow the Bonus Cash to expire. Upon utilization or
expiration of the benefit period, the Retail Pharmacy segment recognizes an allocable portion of the accrued contract liability into revenue. For Bonus Cash issuances that are not vendor funded, the
contract liability is recorded at the time of issuance through a reduction to revenues, and not recognized until the Bonus Cash is redeemed or expires.
The Pharmacy Services segment 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 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 Co-Payments"),
(iii) client plan member copayments made directly to the retail pharmacy network and (iv) administrative fees. Revenue is recognized when the Pharmacy Services segment meets its
performance obligations relative to each transaction type. 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. At this point the Company has performed all of its performance obligations.
-
-
Revenues generated from prescription drugs sold by the Pharmacy Services segment's mail service dispensing pharmacy are recognized when the
prescription is shipped. At the time of
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Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
shipment,
the Pharmacy Services segment has performed all of its performance obligations under its client contracts, as control of and title to the product has passed to the client plan members. The
Pharmacy Services segment does not experience a significant level of returns or reshipments.
-
-
Revenues generated from administrative fees based on membership or claims volume are recognized monthly based on the terms within the
individual contracts, either a monthly member based fee, or a claims volume based fee.
In
the majority of its contracts, the Pharmacy Services segment is the principal because its client contracts give clients the right to obtain access to its pharmacy contracts under
which the Pharmacy Services segment directs its pharmacy network to provide the services (drug dispensing, consultation, etc.) and goods (prescription drugs) to the clients' members at its negotiated
pricing. The Pharmacy Services segment's obligations under its client contracts are separate and distinct from its obligations to the third party pharmacies included in its retail pharmacy network
contracts. In the majority of 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 has control over these transactions until the prescription is transferred to the member and, thus, that it is acting as a principal. As
such, the Pharmacy Services segment records the total prescription price contracted with clients in revenues.
Amounts
paid to pharmacies and amounts charged to clients are exclusive of the applicable co-payment under Pharmacy Services segment contracts. Retail pharmacy co-payments, which we
instruct retail pharmacies to collect from members, are included in our revenues and our cost of revenues.
For
contracts under which the Pharmacy Services segment acts as an agent or does not control the prescription drugs prior to transfer to the client, no revenue is recognized.
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 based on utilization levels and other factors as negotiated with the prescription drug manufacturers or suppliers. 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"). Please refer to Note 9, Medicare Part D.
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
Disaggregation of Revenue
The following tables disaggregate the Company's revenue by major source in each segment for the fiscal year ended March 2, 2019:
|
|
|
|
|
In thousands
|
|
March 2, 2019
|
|
Retail Pharmacy segment:
|
|
|
|
|
Pharmacy sales
|
|
$
|
10,391,539
|
|
Front-end sales
|
|
|
5,215,152
|
|
Other revenue
|
|
|
150,461
|
|
|
|
|
|
|
Total Retail Pharmacy segment
|
|
|
15,757,152
|
|
Pharmacy Services segment
|
|
|
6,093,688
|
|
Intersegment elimination
|
|
|
(211,283
|
)
|
|
|
|
|
|
Total revenue
|
|
$
|
21,639,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of New Revenue Recognition Standard on Financial Statement Line Items
The Company adopted the new revenue standard using the modified retrospective method. The cumulative effect of applying the new standard to all
contracts was recorded as an adjustment to accumulated deficit as of the adoption date. As a result of applying the modified retrospective method to adopt the new revenue standard, the following
adjustments were made to accounts on the consolidated balance sheet as of March 4, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of Change in Accounting Policy
|
|
In thousands
|
|
As Reported
March 3, 2018
|
|
Adjustments
|
|
Adjusted
March 4, 2018
|
|
Consolidated Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
1,869,100
|
|
$
|
(57,897
|
)
|
$
|
1,811,203
|
|
Inventories, net
|
|
|
1,799,539
|
|
|
51,121
|
|
|
1,850,660
|
|
Deferred tax assets
|
|
|
594,019
|
|
|
(1,784
|
)
|
|
592,235
|
|
Total assets
|
|
|
8,989,327
|
|
|
(8,560
|
)
|
|
8,980,767
|
|
Accumulated deficit
|
|
|
(4,282,471
|
)
|
|
(8,560
|
)
|
|
(4,291,031
|
)
|
Total shareholders' equity
|
|
|
1,601,010
|
|
|
(8,560
|
)
|
|
1,592,450
|
|
See
Note 20 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,
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Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
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 the section entitled "Vendor Rebates and 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 20 for additional information about the cost of revenues of the Company's business segments.
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
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
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 its individual and most of its group prescription drug policies for calendar 2018 and calendar 2019. EIC has quota share reinsurance
for certain group prescription drug policies for calendar 2018 and calendar 2019.
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.
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 2019, 2018 and 2017 were $147,519, $161,826 and $181,438, 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
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Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
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.
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.
85
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
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.
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 2019, the top five third party payors accounted for approximately 80.4% of the Company's pharmacy
sales. The largest third party payor, Caremark, represented 28.3% and 27.2% of pharmacy sales during fiscal 2019 and fiscal 2018, respectively. The largest third party payor during fiscal 2017,
Express Scripts, represented 26.0% of pharmacy sales. 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.
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
During
fiscal 2019, state sponsored Medicaid agencies and related managed care Medicaid payors accounted for approximately 19.1% of the Company's pharmacy sales, the largest of which was
approximately 1.8% of the Company's pharmacy sales. During fiscal 2019, approximately 35.8% 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 2019, the Company purchased brand and generic pharmaceuticals, which amounted to approximately 99.0% of the dollar volume of its prescription drugs from McKesson
Corporation ("McKesson") under its expanded agreement executed on February 17, 2014 and amended in fiscal 2019 for our pharmaceutical purchasing and distribution whereby McKesson assumed
responsibility for purchasing essentially 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.
The Pharmacy Services segment, through its EIC subsidiary, participates in the federal government's Medicare Part D program as a PDP.
During fiscal 2019, fiscal 2018 and fiscal 2017, net revenues of $391,024 (1.8% of consolidated revenues), $203,361 (1.0% of consolidated revenues) and $223,077 (1.0% 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 its individual and most of its group prescription drug policies for calendar 2018 and calendar 2019. EIC has quota share reinsurance for certain group prescription drug policies
for calendar 2018 and calendar 2019.
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 or cap 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 2, 2019 and March 3, 2018, the Company had no interest rate swap arrangements or
other derivatives. On March 15, 2019, the Company entered into an interest rate cap ("Cap"), which has been assigned to the variable interest rate payments on the first $650.0 million
notional amount of variable rate indebtedness. The Cap has an effective date of March 21, 2019 and expires on March 21, 2021. The Cap provides the Company with interest rate protection
in the event that LIBOR increases above 2.75%.
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09,
Revenue from Contracts with Customers (Topic
606)
. ASU No. 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 No. 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 No. 2016-10,
Identifying Performance Obligations and Licensing
, which amends the guidance in those areas in the new
revenue recognition standard. These ASUs, collectively the "new revenue standard", are effective for annual reporting periods (including interim reporting periods within those periods) beginning
January 1, 2018.
The
Company adopted the new revenue standard as of March 4, 2018 using the modified retrospective method and applying the new standard to all contracts with customers. Therefore,
the comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods. In connection with the adoption of the new revenue
standard, the Company identified one difference in its Retail Pharmacy segment related to the timing of revenue recognition for third party prescription revenues, which was historically recognized at
the time the prescription was filled. Upon adoption of ASU No. 2014-09, this revenue is recognized at the time the customer takes possession of the merchandise. In connection with its
March 4, 2018 adoption of the new revenue standard on a modified retrospective basis, the Company recorded a reduction to accounts receivable of $57,897, a reduction to deferred tax assets of
$1,784, an increase to inventory of $51,121, and a corresponding increase to accumulated deficit of $8,560 within its Retail Pharmacy segment.
In
addition, the Company identified revenues under one specific rebate administration program under which the Company's Pharmacy Services segment was determined to be the principal and
historically recognized revenues and cost of revenues on a gross basis of approximately $123,500 during fiscal 2018. Upon adoption of the new revenue standard, the Company is now recording revenue
from this program on a net basis.
During fiscal 2019, the Company expanded its disclosure on its Statements of Cash Flows to include changes in other assets separate from changes
in other liabilities, which had historically been combined. Prior period amounts have been reclassified to conform to the current period presentation.
As previously announced, the Company implemented a reverse stock split of the Company's common stock at a reverse stock split ratio of 1-for-20.
The Company's common stock began trading on a split-adjusted basis on the NYSE at the market open on April 22, 2019. Accordingly, all share and per-share amounts for the current period and
prior periods have been recasted to reflect the reverse stock split.
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
In August 2018, the FASB issued ASU 2018-14,
CompensationRetirement benefits (Topic
715-20)
. This ASU amends ASC 715 to add,
remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The ASU eliminates the requirement to disclose the amounts in accumulated other
comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The ASU also removes the disclosure requirements for the effects of a one-percentage-point
change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for postretirement health care benefits. This ASU is effective
for fiscal years ending after December 15, 2020 and must be applied on a retrospective basis. The Company is evaluating the effect of adopting this new accounting guidance, but does not expect
adoption will have a material impact on the Company's financial position.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases, (Topic 842)
("ASU-2016-02" or the "Lease Standard"), 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) of lease assets such as
real estate and equipment. This ASU will require organizations that lease assetsreferred to as "lessees"to recognize on the balance sheet a right of use asset ("ROU") and a
lease liability for the obligations created by those leases. ASU No. 2016-02 is effective for fiscal years and interim periods within those years beginning January 1, 2019.
During
July 2018, the FASB issued ASU 2018-11,
Leases (Topic 842
): Targeted Improvements. Among other things, ASU 2018-11 provides
administrative relief by allowing entities to implement the Lease Standard on the alternative transition method. Effectively, the alternative transition method permits adoption of the Lease Standard
through an adjustment to its opening balance sheet for the period of adoption, with the cumulative effect accounted for as an adjustment to retained earnings, without restating prior periods. The
Company will adopt this standard during the first quarter of fiscal 2020. Upon adoption, the Company currently expects to recognize ROU assets of approximately $3.1 billion and
corresponding liabilities of approximately $3.3 billion for all lease obligations that are currently classified as operating leases, the majority of which are related to leases in the Company's
retail stores. The Company does not anticipate a material impact on its consolidated results of operations and cash flows.
In
August 2018, the FASB issued ASU No. 2018-15,
Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40)
, which is
intended to provide entities with additional guidance to determine which software implementation costs to capitalize and which costs to expense. The ASU will allow entities to capitalize costs for
implementation activities during the application development stage. ASU No. 2018-15 is effective for fiscal years and interim periods within those years beginning after December 15, 2019
(fiscal 2020). Early adoption of ASU 2018-15 is permitted. The Company is in the process of assessing the impact of the adoption of ASU 2018-15, but does not expect adoption will have a material
impact on the Company's financial position, results of operations and cash flows.
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
2. Termination of the Merger Agreement with Albertsons Companies, Inc.
On February 18, 2018, Rite Aid entered into an Agreement and Plan of Merger (the "Merger Agreement") with 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"). On August 8, 2018, Rite Aid, Albertsons and the Merger Subs entered into a Termination Agreement (the "Merger Termination Agreement") under
which the parties mutually agreed to terminate the Merger Agreement. Subject to limited customary exceptions, the Merger Termination Agreement mutually releases the parties from any claims of
liability to one another relating to the contemplated merger (the "Merger"). Under the terms of the Merger Agreement, neither Rite Aid nor Albertsons is responsible for any payments to the other party
as a result of the termination of the Merger Agreement and Rite Aid is no longer subject to the interim operating covenants and restrictions contained in the Merger Agreement.
3. Asset Sale to WBA
On September 18, 2017, the Company entered into the Amended and Restated Asset Purchase
Agreement with WBA and Buyer, which amended and restated in its entirety the previously disclosed Asset Purchase Agreement, 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 agreed to purchase from the Company 1,932 Acquired Stores, three distribution
centers, related inventory and other specified assets and liabilities related thereto for a purchase price of $4,375,000, on a cash-free, debt-free basis in the Sale.
The
Company announced on September 19, 2017 that the waiting period under the HSR Act, expired with respect to the Sale. The Company completed the store transfer process in March
of 2018, which resulted in the transfer of all 1,932 stores and related assets to WBA, and the received of cash proceeds of $4,156,686.
On
September 13, 2018, the Company completed the sale of one of its distribution centers and related assets to WBA for proceeds of $61,251. The impact of the sale of the
distribution center and related assets resulted in a pre-tax gain of $14,151, which has been included in the results of operations and cash flows of discontinued operations during the fifty-two week
period ended March 2, 2019. The transfer of the remaining two distribution centers and related assets remains 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 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
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
3. Asset Sale to WBA (Continued)
administrative
activities. The initial term of the TSA continues until October 17, 2019 and may be extended for up to two additional periods of six months each upon WBA providing written notice
to Rite Aid at least 90 days prior to the expiration of the then-current term. 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 during the
fifty-two week periods ended March 2, 2019 and March 3, 2018 were $6,887,092 and $725,190, respectively, of which $293,662 and $354,321 is included in Accounts receivable, net. The
Company charged WBA TSA fees of $80,277 during the fifty-two week period ended March 2, 2019 and $8,422 in the fifty-two week period ended March 3, 2018, which are reflected as a
reduction to selling, general and administrative expenses.
Based
on its magnitude and because the Company exited certain markets, the Sale represented 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 2, 2019 and March 3, 2018, 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.
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
assets and liabilities held for sale as follows:
|
|
|
|
|
|
|
|
|
|
March 2,
2019
|
|
March 3,
2018
|
|
Inventories
|
|
$
|
68,233
|
|
$
|
264,286
|
|
Property and equipment
|
|
|
49,348
|
|
|
158,433
|
|
Goodwill(a)
|
|
|
|
|
|
4,629
|
|
Intangible assets
|
|
|
|
|
|
10,789
|
|
|
|
|
|
|
|
|
|
Current assets held for sale
|
|
$
|
117,581
|
|
$
|
438,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term lease financing obligations
|
|
$
|
|
|
$
|
270
|
|
Accrued salaries, wages and other current liabilities
|
|
|
|
|
|
6,146
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(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
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
3. Asset Sale to WBA (Continued)
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 had estimated that the Sale would generate in excess of $4.0 billion of cash proceeds, all of which was used to repay
outstanding indebtedness.
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 2,
2019
(52 weeks)
|
|
March 3,
2018
(52 weeks)
|
|
March 4,
2017
(53 weeks)
|
|
Revenues
|
|
$
|
34,889
|
|
$
|
8,686,397
|
|
$
|
10,050,049
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues(a)
|
|
|
24,271
|
|
|
6,406,067
|
|
|
7,340,691
|
|
Selling, general and administrative expenses(a)
|
|
|
20,681
|
|
|
2,134,276
|
|
|
2,465,364
|
|
Lease termination and impairment charges
|
|
|
|
|
|
77
|
|
|
9,516
|
|
Loss on debt retirements, net
|
|
|
22,646
|
|
|
8,180
|
|
|
|
|
Interest expense(b)
|
|
|
4,616
|
|
|
224,300
|
|
|
231,926
|
|
Gain on stores sold to Walgreens Boots Alliance
|
|
|
(374,619
|
)
|
|
(2,128,832
|
)
|
|
|
|
Loss (gain) on sale of assets, net
|
|
|
1,486
|
|
|
(377
|
)
|
|
2,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(300,919
|
)
|
|
6,643,691
|
|
|
10,050,122
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations before income taxes
|
|
|
335,808
|
|
|
2,042,706
|
|
|
(73
|
)
|
Income tax expense
|
|
|
91,067
|
|
|
749,704
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from discontinued operations, net of tax
|
|
$
|
244,741
|
|
$
|
1,293,002
|
|
$
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(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 2, 2019, the fifty-two week period ended March 3, 2018
and the fifty-three week period ended March 4, 2017, respectively, for the discontinued operations include interest expense relating to outstanding indebtedness repaid with the estimated excess
proceeds from the Sale.
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
3. Asset Sale to WBA (Continued)
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.
4. (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 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 2,
2019
(52 Weeks)
|
|
March 3,
2018
(52 Weeks)
|
|
March 4,
2017
(53 Weeks)
|
|
Basic and diluted (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to common stockholdersbasic and diluted
|
|
$
|
(666,954
|
)
|
$
|
(349,532
|
)
|
$
|
4,080
|
|
Income (loss) from discontinued operations attributable to common stockholdersbasic and diluted
|
|
|
244,741
|
|
|
1,293,002
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income attributable to common stockholdersbasic and diluted
|
|
$
|
(422,213
|
)
|
$
|
943,470
|
|
$
|
4,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
|
|
|
52,854
|
|
|
52,481
|
|
|
52,221
|
|
Outstanding options and restricted shares, net
|
|
|
|
|
|
|
|
|
820
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
|
|
|
52,854
|
|
|
52,481
|
|
|
53,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(12.62
|
)
|
$
|
(6.66
|
)
|
$
|
0.08
|
|
Discontinued operations
|
|
|
4.63
|
|
|
24.64
|
|
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net basic (loss) income per share
|
|
$
|
(7.99
|
)
|
$
|
17.98
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(12.62
|
)
|
$
|
(6.66
|
)
|
$
|
0.08
|
|
Discontinued operations
|
|
|
4.63
|
|
|
24.64
|
|
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net diluted (loss) income per share
|
|
$
|
(7.99
|
)
|
$
|
17.98
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
4. (Loss) Income Per Share (Continued)
Due
to their antidilutive effect, 1,036, 374 and 160 potential common shares related to stock options have been excluded from the computation of diluted income per share as of
March 2, 2019, March 3, 2018 and March 4, 2017, respectively. Also, excluded from the computation of diluted income per share as of March 2, 2019, March 3, 2018 and
March 4, 2017 are restricted shares of 1,008, 610 and 0, respectively, which are included in shares outstanding.
On
April 10, 2019, the Company's Board of Directors approved a one-for-twenty reverse stock split of the Company's outstanding shares of common stock. The reverse stock split was
effected on April 18, 2019 at 5:00 p.m. Eastern time. At the effective time, every twenty issued and outstanding shares of the
Company's common stock were converted into one share of common stock. No fractional shares were issued in connection with the reverse stock split, and in lieu thereof, each stockholder holding
fractional shares was entitled to receive a cash payment (without interest or deduction) from the Company's transfer agent in an amount equal to such stockholder's respective pro rata shares of the
total net proceeds from the Company's transfer agent sale of all fractional shares at the then-prevailing prices on the open market. In connection with the reverse stock split, the number of
authorized shares of our common stock was also reduced on a one-for-twenty basis, from 1,500,000 to 75,000. The par value of each share of common stock remained unchanged. A proportionate adjustment
was also made to the maximum number of shares issuable under the Company's 2014 Equity Incentive Plan.
5. 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 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
94
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
5. Lease Termination and Impairment Charges (Continued)
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 $63,492 in fiscal 2019, $37,873 in fiscal 2018 and $22,631 in fiscal 2017. The Company's methodology for recording impairment charges has been
consistently applied in the periods presented.
At
March 2, 2019, $1,093.0 million of the Company's long-lived assets, including intangible assets, were associated with 2,469 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. Fair value 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 two 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 its fair value which is the estimated future discounted 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 $46,419 in fiscal 2019, $34,782 in fiscal 2018 and $20,623 in fiscal 2017.
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 $2,788 in fiscal 2019, $3,091 in fiscal 2018 and
$2,008 in fiscal 2017.
95
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
5. Lease Termination and Impairment Charges (Continued)
The
following table summarizes the impairment charges and number of locations, segregated by closed facilities and active stores that have been recorded in fiscal 2019, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2, 2019
|
|
March 3, 2018
|
|
March 4, 2017
|
|
(in thousands, except number of stores)
|
|
Number
|
|
Charge
|
|
Number
|
|
Charge
|
|
Number
|
|
Charge
|
|
Active stores:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores previously impaired(1)
|
|
|
288
|
|
$
|
17,939
|
|
|
218
|
|
$
|
7,313
|
|
|
174
|
|
$
|
5,022
|
|
New, relocated and remodeled stores(2)
|
|
|
22
|
|
|
10,595
|
|
|
28
|
|
|
13,100
|
|
|
22
|
|
|
13,232
|
|
Remaining stores not meeting the recoverability test(3)
|
|
|
74
|
|
|
17,885
|
|
|
60
|
|
|
14,369
|
|
|
17
|
|
|
2,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment chargesactive stores
|
|
|
384
|
|
|
46,419
|
|
|
306
|
|
|
34,782
|
|
|
213
|
|
|
20,623
|
|
Total impairment chargesclosed facilities
|
|
|
62
|
|
|
2,788
|
|
|
67
|
|
|
3,091
|
|
|
53
|
|
|
2,008
|
|
Total impairment chargesother(4)
|
|
|
|
|
|
14,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment chargesall locations
|
|
|
446
|
|
$
|
63,492
|
|
|
373
|
|
$
|
37,873
|
|
|
266
|
|
$
|
22,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(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, 286, 215 and 173 stores for fiscal years 2019, 2018 and 2017 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 three years) and relocated stores (relocated in the last two 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 two years. Their future cash flow projections do not recover their current carrying value. Of this total, 21, 23 and 18 stores for fiscal years 2019, 2018 and 2017 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, 72, 58 and 16 stores for fiscal years 2019, 2018 and 2017 respectively have been
fully impaired.
-
(4)
-
These
charges are due to the impairment of assets related to the termination of a project to replace the point of sale software used in the Company's stores.
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
96
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
5. Lease Termination and Impairment Charges (Continued)
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 2, 2019 and March 3, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2,
2019
|
|
Long-lived assets held and used
|
|
$
|
|
|
$
|
|
|
$
|
8,116
|
|
$
|
8,116
|
|
$
|
(62,115
|
)
|
Long-lived assets held for sale
|
|
|
|
|
|
1,545
|
|
|
|
|
|
1,545
|
|
|
(1,377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
$
|
1,545
|
|
$
|
8,116
|
|
$
|
9,661
|
|
$
|
(63,492
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
5. Lease Termination and Impairment Charges (Continued)
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 2019, 2018 and 2017, the Company recorded lease termination charges of $44,502, $20,892 and $23,147, respectively. These charges related to changes in future assumptions,
interest accretion and provisions for 61 stores in fiscal 2019, 11 stores in fiscal 2018 and 17 stores in fiscal 2017.
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 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 2,
2019
(52 Weeks)
|
|
March 3,
2018
(52 Weeks)
|
|
March 4,
2017
(53 Weeks)
|
|
Balancebeginning of year
|
|
$
|
133,290
|
|
$
|
165,138
|
|
$
|
208,421
|
|
Provision for present value of noncancellable lease payments of closed stores
|
|
|
35,190
|
|
|
8,871
|
|
|
6,503
|
|
Changes in assumptions about future sublease income, terminations and change in interest rates
|
|
|
737
|
|
|
1,082
|
|
|
2,633
|
|
Interest accretion
|
|
|
9,741
|
|
|
11,439
|
|
|
14,186
|
|
Cash payments, net of sublease income
|
|
|
(54,912
|
)
|
|
(53,240
|
)
|
|
(66,605
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balanceend of year
|
|
$
|
124,046
|
|
$
|
133,290
|
|
$
|
165,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company's revenues and income before income taxes for fiscal 2019, 2018 and 2017 included results from stores that have been closed or are approved for closure as of March 2,
2019. The
98
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
5. Lease Termination and Impairment Charges (Continued)
revenue,
operating expenses and income before income taxes of these stores for the periods are presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
March 2,
2019
|
|
March 3,
2018
|
|
March 4,
2017
|
|
Revenues
|
|
$
|
165,598
|
|
$
|
308,005
|
|
$
|
433,709
|
|
Operating expenses
|
|
|
182,201
|
|
|
342,103
|
|
|
471,971
|
|
Gain from sale of assets
|
|
|
(38,113
|
)
|
|
(18,222
|
)
|
|
(1,036
|
)
|
Other expenses
|
|
|
2,183
|
|
|
2,417
|
|
|
4,590
|
|
Income (loss) before income taxes
|
|
|
19,327
|
|
|
(18,293
|
)
|
|
(41,816
|
)
|
Included in these stores' loss before income taxes are:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
621
|
|
|
1,742
|
|
|
3,560
|
|
Inventory liquidation charges
|
|
|
(5,523
|
)
|
|
(2,828
|
)
|
|
(187
|
)
|
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.
6. Fair Value Measurements
The Company utilizes the three-level valuation hierarchy as described in Note 5 for the recognition and disclosure of fair value measurements.
As
of March 2, 2019 and March 3, 2018, the Company did not have any financial assets measured on a recurring basis. Please see Note 5 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 2, 2019 and March 3, 2018, the Company has
$7,191 and $7,282, respectively, of investments carried at amortized cost as these investments are being held to maturity. These investments are
included as a component of prepaid expenses and other current assets as of March 2, 2019 and as a component of other assets as of March 3, 2018. 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
99
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
6. Fair Value Measurements (Continued)
considered
Level 1 of the fair value hierarchy. The carrying amount and estimated fair value of the Company's total long-term indebtedness was $ 3,454,585 and $3,120,335, respectively, as of
March 2, 2019. 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. There were no
outstanding derivative financial instruments as of March 2, 2019 and March 3, 2018.
7. 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 are 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 applies to the fiscal year ending March 2, 2019 and each year thereafter.
The
provision for income tax expense (benefit) from continuing operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
March 2,
2019
(52 Weeks)
|
|
March 3,
2018
(52 Weeks)
|
|
March 4,
2017
(53 Weeks)
|
|
Current tax:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(22,187
|
)
|
$
|
(210
|
)
|
$
|
|
|
State
|
|
|
9,866
|
|
|
51,279
|
|
|
14,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,321
|
)
|
|
51,069
|
|
|
14,600
|
|
Deferred tax and other:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
50,151
|
|
|
316,451
|
|
|
10,355
|
|
State
|
|
|
39,647
|
|
|
(61,533
|
)
|
|
19,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,798
|
|
|
254,918
|
|
|
29,838
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
77,477
|
|
$
|
305,987
|
|
$
|
44,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
7. Income Taxes (Continued)
A
reconciliation of the expected statutory federal tax and the total income tax expense (benefit) from continuing operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
March 2,
2019
(52 Weeks)
|
|
March 3,
2018
(52 Weeks)
|
|
March 4,
2017
(53 Weeks)
|
|
Federal statutory rate*
|
|
$
|
(123,790
|
)
|
$
|
(14,202
|
)
|
$
|
16,982
|
|
Federal tax rate change
|
|
|
|
|
|
324,765
|
|
|
|
|
Nondeductible expenses
|
|
|
2,890
|
|
|
1,213
|
|
|
2,479
|
|
State income taxes, net
|
|
|
(12,605
|
)
|
|
(22,836
|
)
|
|
8,225
|
|
Increase (decrease) of previously recorded liabilities
|
|
|
(3,105
|
)
|
|
27,295
|
|
|
(955
|
)
|
Nondeductible compensation
|
|
|
1,798
|
|
|
654
|
|
|
1,157
|
|
Acquisition costs
|
|
|
|
|
|
696
|
|
|
4,023
|
|
Stock based compensation
|
|
|
3,478
|
|
|
8,363
|
|
|
|
|
Valuation allowance
|
|
|
212,252
|
|
|
(8,853
|
)
|
|
14,718
|
|
Other
|
|
|
(3,441
|
)
|
|
(11,108
|
)
|
|
(2,191
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
77,477
|
|
$
|
305,987
|
|
$
|
44,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
*
-
Federal
statutory rate included in the above table is 21.0%, 32.6% and 35.0%, respectively, for the fiscal years ended March 2, 2019, March 3, 2018 and
March 4, 2017.
Net
income for fiscal 2019 from continuing operations included income tax expense of $77,477, of which $212,252 relates to the increase in valuation allowance for federal and state net
deferred tax assets that may not be realized based on the Company's future projections of taxable income.
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 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.
The
Company recognized tax expense of $91,067, $749,704 and $46 within Net loss (income) from discontinued operations, net of tax, in the Statement of Operations in fiscal 2019, fiscal
2018 and fiscal 2017, respectively. The Company's effective income tax rate from discontinued operations included
adjustments to the valuation allowance of $(2,417), $(32,870) and $15 for fiscal 2019, fiscal 2018 and fiscal 2017, respectively.
101
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
7. Income Taxes (Continued)
The
tax effect of temporary differences that gave rise to significant components of deferred tax assets and liabilities consisted of the following at March 2, 2019 and
March 3, 2018:
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
36,607
|
|
$
|
39,182
|
|
Accrued expenses
|
|
|
107,356
|
|
|
113,493
|
|
Liability for lease exit costs
|
|
|
37,333
|
|
|
40,662
|
|
Pension, retirement and other benefits
|
|
|
87,397
|
|
|
104,494
|
|
Long-lived assets
|
|
|
320,561
|
|
|
246,793
|
|
Credits
|
|
|
48,884
|
|
|
85,555
|
|
Net operating losses
|
|
|
1,084,139
|
|
|
1,089,084
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
1,722,277
|
|
|
1,719,263
|
|
Valuation allowance
|
|
|
(1,091,416
|
)
|
|
(896,800
|
)
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
630,861
|
|
|
822,463
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Outside basis difference
|
|
|
5,392
|
|
|
5,420
|
|
Inventory
|
|
|
215,588
|
|
|
223,024
|
|
Other
|
|
|
797
|
|
|
0
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities
|
|
|
221,777
|
|
|
228,444
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
409,084
|
|
$
|
594,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
reconciliation of the beginning and ending amount of unrecognized tax benefits from continuing operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Unrecognized tax benefits
|
|
$
|
230,210
|
|
$
|
8,939
|
|
$
|
10,676
|
|
Increases to prior year tax positions
|
|
|
155
|
|
|
|
|
|
16
|
|
Decreases to tax positions in prior periods
|
|
|
(111
|
)
|
|
(1,015
|
)
|
|
(626
|
)
|
Increases to current year tax positions
|
|
|
|
|
|
224,408
|
|
|
26
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
|
Divestitures
|
|
|
(543
|
)
|
|
(1,607
|
)
|
|
|
|
Lapse of statute of limitations
|
|
|
(9,872
|
)
|
|
(515
|
)
|
|
(1,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits balance
|
|
$
|
219,839
|
|
$
|
230,210
|
|
$
|
8,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
amount of the above unrecognized tax benefits at March 2, 2019, March 3, 2018 and March 4, 2017 which would impact the Company's effective tax rate, if
recognized, was $28,482, $31,377 and $892 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.
102
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
7. Income Taxes (Continued)
The
Company believes that it is reasonably possible that a decrease of up to $12,736 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 $(769), $7,058 and $(276) for fiscal years 2019, 2018 and 2017, respectively. As of March 2, 2019 and March 3, 2018 the total amount of accrued income
tax-related interest and penalties was $6,553 and $7,322, 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 2015. 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 2, 2019, the Company had federal net operating loss carryforwards of approximately $1,063,382. Of these, $884,627 will expire,
if not utilized, between fiscal 2029 and 2031. An additional $178,246 will expire, if not utilized, between fiscal 2032 and 2037.
At
March 2, 2019, the Company had state net operating loss carryforwards of approximately $12,048,528, the majority of which will expire ratably through fiscal 2030; the net tax
effect of these carryforwards is $1,089,656 and are reflected in the table above.
At
March 2, 2019, the Company had federal business tax credit carryforwards of $28,478 the majority of which will expire between 2020 and 2021. In addition to these credits, the
Company had alternative minimum tax credit carryforwards of $13,497 which will be refunded to the Company between fiscal
2020 - 2022. The Company recorded a receivable for refundable AMT tax credits of $13,497 for fiscal 2019.
The valuation allowances as of March 2, 2019 and March 3, 2018 apply to the net deferred tax assets of the Company. The Company
maintained a valuation allowance of $1,091,416 and $896,800 at March 2, 2019 and March 3, 2018, respectively. The primary driver of the increase for fiscal 2019 is to reduce federal and
state net deferred tax assets that may not be realized based on the Company's future projections of taxable income. 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.
103
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
8. 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 2, 2019 and March 3, 2018 was $13,106 and $25,134 respectively. The Company's accounts receivable are due primarily from third-party payors (e.g., PBM 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.
9. 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 $15,076 as of December 31, 2018. EIC was in excess of the minimum required amounts in these states as of
March 2, 2019.
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 2, 2019, accounts receivable, net included $392,400 due from CMS relating to the calendar 2019 and 2018 plan years, respectively. Accrued salaries, wages and other
current liabilities included $0 due to the Company's reinsurance carrier, relating to the 2019 and 2018 plan years, respectively. 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. During calendar 2017, EIC limited its exposure to loss
and recovered a portion of benefits paid by utilizing quota-share reinsurance with a commercial reinsurance company. EIC does not have a reinsurance agreement in place for its individual and most of
its group prescription drug
104
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
9. Medicare Part D (Continued)
policies
for calendar 2018 and calendar 2019. EIC has quota share reinsurance for certain group prescription drug policies for calendar 2018 and calendar 2019.
10. Manufacturer Rebates Receivables
The Pharmacy Services Segment has manufacturer rebates receivables of $445,200 and $370,861 included in Accounts receivable, net, as of March 2, 2019 and March 3, 2018,
respectively.
11. Inventory
At March 2, 2019 and March 3, 2018, inventories were $604,444 and $581,090, 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 charge for fiscal year 2019 of $23,354, compared to a LIFO credit of $28,827 for fiscal year 2018 and a LIFO credit of $3,721 for fiscal year 2017. During fiscal 2019, 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. This LIFO liquidation resulted in a $5,884, $2,707 and
$2,375 cost of revenues decrease, with a corresponding reduction to the adjustment to LIFO for fiscal 2019, fiscal 2018 and fiscal 2017, respectively.
12. Property, Plant and Equipment
Following is a summary of property, plant and equipment, including capital lease assets, at March 2, 2019 and March 3, 2018:
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Land
|
|
$
|
139,406
|
|
$
|
138,768
|
|
Buildings
|
|
|
533,580
|
|
|
528,026
|
|
Leasehold improvements
|
|
|
1,527,371
|
|
|
1,567,635
|
|
Equipment
|
|
|
1,765,575
|
|
|
1,795,337
|
|
Software
|
|
|
38,680
|
|
|
25,944
|
|
Construction in progress
|
|
|
49,344
|
|
|
59,635
|
|
|
|
|
|
|
|
|
|
|
|
|
4,053,956
|
|
|
4,115,345
|
|
Accumulated depreciation
|
|
|
(2,745,442
|
)
|
|
(2,684,099
|
)
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
1,308,514
|
|
$
|
1,431,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense, which included the depreciation of assets recorded under capital leases, was $232,242, $238,318 and $241,787 in fiscal 2019, 2018 and 2017, respectively.
Included
in property, plant and equipment was the carrying amount, which approximates fair value, of assets to be disposed of totaling $452 and $972 at March 2, 2019 and
March 3, 2018, respectively.
105
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
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 it may be more likely than not that the fair value of a reporting unit is less than its carrying
amount. 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. The 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, which qualify as Level 3 within the fair value hierarchy, incorporate a number of market participant assumptions 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 second quarter of fiscal 2019 and the fourth quarter of fiscal 2018, 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 a decrease in Adjusted EBITDA that was driven by commercial business compression and an increase in SG&A expenses. This resulted in
goodwill impairment charges of $312,985 ($235,698 net of the related income tax benefit) and $261,727 ($191,000 net of the related income tax benefit) for the fiscal years ended March 2, 2019
and March 3, 2018, respectively. As of March 2, 2019 and March 3, 2018, the accumulated impairment losses for the Pharmacy Services segment was $574,712 and $261,727,
respectively. 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 2, 2019 and March 3, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
Pharmacy
|
|
Pharmacy
Services
|
|
Total
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment
|
|
|
|
|
|
(312,984
|
)
|
|
(312,984
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 2, 2019
|
|
$
|
43,492
|
|
$
|
1,064,644
|
|
$
|
1,108,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(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 2, 2019 and March 3, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
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)
|
|
$
|
370,855
|
|
$
|
(318,503
|
)
|
$
|
52,352
|
|
7 years
|
|
$
|
379,355
|
|
$
|
(316,798
|
)
|
$
|
62,557
|
|
7 years
|
Prescription files
|
|
|
919,749
|
|
|
(827,222
|
)
|
|
92,527
|
|
3 years
|
|
|
900,111
|
|
|
(801,706
|
)
|
|
98,405
|
|
3 years
|
Customer relationships(a)
|
|
|
388,000
|
|
|
(193,352
|
)
|
|
194,648
|
|
13 years
|
|
|
465,000
|
|
|
(172,635
|
)
|
|
292,365
|
|
15 years
|
CMS license
|
|
|
57,500
|
|
|
(8,472
|
)
|
|
49,028
|
|
22 years
|
|
|
57,500
|
|
|
(6,172
|
)
|
|
51,328
|
|
23 years
|
Claims adjudication and other developed software
|
|
|
58,985
|
|
|
(31,030
|
)
|
|
27,955
|
|
4 years
|
|
|
58,985
|
|
|
(22,617
|
)
|
|
36,368
|
|
5 years
|
Trademarks
|
|
|
20,100
|
|
|
(7,404
|
)
|
|
12,696
|
|
7 years
|
|
|
20,100
|
|
|
(5,394
|
)
|
|
14,706
|
|
8 years
|
Backlog
|
|
|
11,500
|
|
|
(11,500
|
)
|
|
|
|
0 years
|
|
|
11,500
|
|
|
(10,286
|
)
|
|
1,214
|
|
1 year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finite
|
|
$
|
1,826,689
|
|
$
|
(1,397,483
|
)
|
$
|
429,206
|
|
|
|
$
|
1,892,551
|
|
$
|
(1,335,608
|
)
|
$
|
556,943
|
|
|
Trademarks
|
|
|
19,500
|
|
|
|
|
|
19,500
|
|
Indefinite
|
|
|
33,500
|
|
|
|
|
|
33,500
|
|
Indefinite
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,846,189
|
|
$
|
(1,397,483
|
)
|
$
|
448,706
|
|
|
|
$
|
1,926,051
|
|
$
|
(1,335,608
|
)
|
$
|
590,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(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.
During
fiscal 2019, the Company has recorded an impairment charge to reduce the book value of customer relationships by $48,205 (gross carrying amount of $77,000 less accumulated
amortization of $28,795), and indefinite lived trademarks by $14,000, both of which charges are included within goodwill and intangible asset impairment charges within the consolidated statement of
operations.
Also
included in other non-current liabilities as of March 2, 2019 and March 3, 2018 are unfavorable lease intangibles with a net carrying amount of $14,763 and $18,888,
respectively. These intangible liabilities are amortized over their remaining lease terms at time of acquisition.
Amortization
expense for these intangible assets and liabilities was $125,640, $147,739 and $165,579 for fiscal 2019, 2018 and 2017, respectively. The anticipated annual amortization
expense for these intangible assets and liabilities is 2020$100,892; 2021$77,824; 2022$56,890; 2023$41,344 and 2024$28,905.
107
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
14. Accrued Salaries, Wages and Other Current Liabilities
Accrued salaries, wages and other current liabilities consisted of the following at March 2, 2019 and March 3, 2018:
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Accrued wages, benefits and other personnel costs
|
|
$
|
302,025
|
|
$
|
360,179
|
|
Accrued interest
|
|
|
13,991
|
|
|
65,210
|
|
Accrued sales and other taxes payable
|
|
|
80,708
|
|
|
125,289
|
|
Accrued store expense
|
|
|
143,053
|
|
|
155,354
|
|
Accrued reinsurance
|
|
|
|
|
|
183,418
|
|
Other
|
|
|
268,662
|
|
|
342,286
|
|
|
|
|
|
|
|
|
|
|
|
$
|
808,439
|
|
$
|
1,231,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15. Indebtedness and Credit Agreement
Following is a summary of indebtedness and lease financing obligations at March 2, 2019 and March 3, 2018:
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Secured Debt:
|
|
|
|
|
|
|
|
Senior secured revolving credit facility due January 2020 ($0 face value less unamortized debt issuance costs of $0 and $13,076)
|
|
$
|
|
|
$
|
(13,076
|
)
|
Senior secured revolving credit facility due December 2023 ($875,000 and $0 face value less unamortized debt issuance costs of $24,069 and $0)
|
|
|
850,931
|
|
|
|
|
FILO term loan due December 2023 ($450,000 and $0 face value less unamortized debt issuance costs of $3,918 and $0)
|
|
|
446,082
|
|
|
|
|
Other secured
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
1,297,013
|
|
|
(12,986
|
)
|
Guaranteed Unsecured Debt:
|
|
|
|
|
|
|
|
9.25% senior notes due March 2020 ($0 and $902,000 face value plus unamortized premium of $0 and $1,400 and less unamortized debt issuance costs of $0 and
$4,924)
|
|
|
|
|
|
898,476
|
|
6.75% senior notes due June 2021 ($0 and $810,000 face value less unamortized debt issuance costs of $0 and $4,877)
|
|
|
|
|
|
805,123
|
|
6.125% senior notes due April 2023 ($1,753,490 and $1,800,000 face value less unamortized debt issuance costs of $16,982 and $21,708)
|
|
|
1,736,508
|
|
|
1,778,292
|
|
|
|
|
|
|
|
|
|
|
|
|
1,736,508
|
|
|
3,481,891
|
|
108
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
15. Indebtedness and Credit Agreement (Continued)
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Unguaranteed Unsecured Debt:
|
|
|
|
|
|
|
|
7.7% notes due February 2027 ($295,000 face value less unamortized debt issuance costs of $1,295 and $1,460)
|
|
|
293,705
|
|
|
293,540
|
|
6.875% fixed-rate senior notes due December 2028 ($128,000 face value less unamortized debt issuance costs of $642 and $707)
|
|
|
127,358
|
|
|
127,293
|
|
|
|
|
|
|
|
|
|
|
|
|
421,063
|
|
|
420,833
|
|
Lease financing obligations
|
|
|
40,176
|
|
|
52,554
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
3,494,760
|
|
|
3,942,292
|
|
Current maturities of long-term debt and lease financing obligations
|
|
|
(16,111
|
)
|
|
(21,031
|
)
|
|
|
|
|
|
|
|
|
Long-term debt and lease financing obligations, less current maturities
|
|
$
|
3,478,649
|
|
$
|
3,921,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
In
connection with the Sale, the Company had estimated that the Sale would generate in excess of $4.0 billion of cash proceeds, all of which was used to repay
outstanding indebtedness. Please see Note 3 for additional details.
On December 20, 2018, the Company entered into a new senior secured credit agreement, consisting of a new $2,700,000 senior secured
asset-based revolving credit facility ("Senior Secured Revolving Credit Facility") and a new $450,000 "first-in, last out" senior secured term loan facility ("Senior Secured Term Loan") (collectively
the "New Facilities").
109
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
15. Indebtedness and Credit Agreement (Continued)
Proceeds
from the New Facilities were used to refinance the Company's prior $2,700,000 Amended and Restated Senior Secured Credit Facility due January 2020 (the "Old Facility" the New
Facilities and the Old Facility are collectively referred to herein as the "Facilities"). The New Facilities extend the Company's debt maturity profile and provide additional liquidity. The New
Facilities mature in December 2023, subject to an earlier maturity on December 31, 2022 if the Company has not repaid or refinanced its existing 6.125% Senior Notes due 2023 prior to such date.
The Company's new Senior Secured Revolving Credit Facility will bear interest at a rate of LIBOR plus 125 to 175 basis points (or an alternate base rate plus 25 to 75 basis points), depending on
availability under the revolving facility. The Company's new Senior Secured Term Loan will bear interest at a rate of LIBOR plus 300 basis points (or an alternate base rate plus 200 basis points).
The
Company's ability to borrow under the New Facilities is based upon a specified borrowing base consisting of accounts receivable, inventory and prescription files. At March 2,
2019, the Company had $1,325,000 of borrowings outstanding under the New Facilities and had letters of credit outstanding against the New Facilities of $83,205 which resulted in additional borrowing
capacity of $1,741,795.
The
New Facilities restrict the Company and the Subsidiary Guarantors (as defined herein) from accumulating cash on hand in excess of $200,000 at any time revolving loans are outstanding
(not including cash located in its stores and lockbox deposit account and cash necessary to cover current liabilities.)
The
New Facilities allow 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 New Facilities 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 (i) the fifth anniversary of the
effectiveness of the New Facilities and (ii) the latest maturity date of any Term Loan or Other Revolving Commitment (each as defined in the New Facilities). Subject to the limitations
described in clauses (i) and (ii) of the immediately preceding sentence, the New Facilities additionally allow 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 New Facilities) 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
New Facilities also contain certain restrictions on the amount of secured first priority debt the Company is able to incur. The New Facilities also allow for the voluntary repurchase of any debt or
other convertible debt, so long as the New Facilities are not in default and the Company maintains availability under its revolver of more than $365,000.
The
New Facilities have a financial covenant that requires the Company to maintain a minimum fixed charge coverage ratio of 1.00 to 1.00 (i) on any date on which availability
under the revolver is less than $200,000 or (ii) 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 New Facilities is equal to or greater
110
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
15. Indebtedness and Credit Agreement (Continued)
than
$250,000. As of March 2, 2019, the Company had availability under its New Facilities of $1,741,795, its fixed charge coverage ratio was greater than 1.00 to 1.00, and the Company was in
compliance with the New Facilities' financial covenant. The New Facilities also contain 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
New Facilities also provide for customary events of default.
With
the exception of EIC, substantially all of Rite Aid Corporation's 100% owned subsidiaries guarantee the obligations under the New Facilities and unsecured guaranteed notes. The New
Facilities are secured, on a senior priority basis, 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 New 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 of EnvisionRx, the subsidiaries, including joint ventures, that did not guarantee the Old
Facility 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
of EnvisionRx, other than EIC, the subsidiaries, including joint ventures, that do not guarantee the New 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 of EnvisionRx. See Note 24 "Guarantor
and Non-Guarantor Condensed Consolidating Financial Information" for additional disclosure.
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 Old
Facility from $3,700,000 to $3,000,000 (which was subsequently further reduced as described below). In 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. In connection therewith, the Company recorded a loss on debt retirement of $49
111
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
15. Indebtedness and Credit Agreement (Continued)
which
included unamortized debt issuance costs, partially offset by unamortized discount. The debt repayment and related loss on debt retirement is included in the results of operations and cash flows
of discontinued operations. The debt repayment and related loss on debt retirement of $498 for the 6.125% Notes is included in the results of operations and cash flows of continuing operations.
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. In connection therewith, the Company recorded a loss on debt retirement of $3,422 which
included unamortized debt issuance costs, partially offset by unamortized discount. The debt repayment and related loss on debt retirement is included in the results of operations and cash flows of
discontinued operations.
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 asset sale
provisions of such indentures. On May 21, 2018, the Company accepted for payment, pursuant to its offer to purchase, $1,360 aggregate principal amount of the 6.75% Notes and $4,759 aggregate
principal amount of the 6.125% Notes. The debt repayment and related loss on debt retirement of $8 for the 6.75% Notes is included in the results of operations and cash flows of discontinued
operations. The debt repayment and related loss on debt retirement of $56 for the 6.125% Notes is included in the results of operations and cash flows of continuing operations.
On
April 29, 2018, the Company further reduced the borrowing capacity on its Old Facility from $3,000,000 to $2,700,000. In connection therewith, the Company recorded a loss on
debt retirement of $1,091, which included unamortized debt issuance costs. The loss on debt retirement is included in the results of operations and cash flows of discontinued operations.
On
June 25, 2018, the Company redeemed the remaining $805,169 of its 6.75% Notes, which resulted in a loss on debt retirement of $18,075. The loss on debt retirement is included
in the results of operations and cash flows of discontinued operations.
On
March 15, 2019, the Company entered into a Cap, which has been assigned to the variable interest rate payments on the first $650,000 notional amount of variable rate
indebtedness. The Cap has an effective date of March 21, 2019 and expires on March 21, 2021. The Cap provides the Company with interest rate protection in the event that LIBOR increases
above 2.75%.
The annual weighted average interest rate on the Company's indebtedness was 5.6%, 7.1% and 5.4% for fiscal 2019, 2018 and 2017, respectively.
The
aggregate annual principal payments of long-term debt for the five succeeding fiscal years are as follows: 2020$0; 2021$0; 2022$0;
2023$0 and $3,501,490 in 2024 and thereafter. These aggregate annual principal payments of long-term debt assume that the Company has not repaid or refinanced its existing 6.125% Senior
Notes due 2023 prior to December 31, 2022.
112
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
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 $4,509, $4,682 and $4,813, was $626,166, $628,511 and $634,539 in fiscal 2019, 2018 and 2017, respectively. These amounts
include contingent rentals of $7,084, $8,339 and $10,229 in fiscal 2019, 2018 and 2017, respectively.
During
fiscal 2019, 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.
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 1,656 former stores. The majority of
the lease
guarantee obligations have a term of less than 10 years; however, 84 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 $1,800,000 as of March 2, 2019. During fiscal 2019, 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 2, 2019.
The
net book values of assets under capital leases and sale-leasebacks accounted for under the financing method at March 2, 2019 and March 3, 2018 are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Land
|
|
$
|
2,688
|
|
$
|
3,458
|
|
Buildings
|
|
|
83,624
|
|
|
86,012
|
|
Equipment
|
|
|
19,595
|
|
|
25,225
|
|
Accumulated depreciation
|
|
|
(77,892
|
)
|
|
(78,637
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
28,015
|
|
$
|
36,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Following
is a summary of lease finance obligations at March 2, 2019 and March 3, 2018:
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Obligations under financing leases
|
|
$
|
40,176
|
|
$
|
51,446
|
|
Less current obligation
|
|
|
(16,112
|
)
|
|
(20,671
|
)
|
|
|
|
|
|
|
|
|
Long-term lease finance obligations
|
|
$
|
24,064
|
|
$
|
30,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
16. Leases (Continued)
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 2, 2019:
|
|
|
|
|
|
|
|
Fiscal year
|
|
Lease
Financing
Obligations
|
|
Operating
Leases
|
|
2020
|
|
$
|
19,300
|
|
$
|
687,412
|
|
2021
|
|
|
4,811
|
|
|
610,874
|
|
2022
|
|
|
4,588
|
|
|
545,863
|
|
2023
|
|
|
4,383
|
|
|
490,864
|
|
2024
|
|
|
4,042
|
|
|
431,714
|
|
Later years
|
|
|
20,470
|
|
|
1,541,408
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
57,594
|
|
$
|
4,308,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount representing interest
|
|
|
(17,418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
$
|
40,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2019, 2018 and 2017 include $12,115, $25,793 and $23,482 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 1,100 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 1,000 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, 1,000 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, 2,500 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.
114
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
17. Stock Option and Stock Award Plans (Continued)
In
June 2010, the stockholders of Rite Aid Corporation approved the adoption of the Rite Aid Corporation 2010 Omnibus Equity Plan. Under the plan, 1,750 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, 1,425 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, 2,900 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 1,250 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 of grant. The aggregate number of remaining shares authorized for issuance for all plans is 1,251 as of March 2, 2019.
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 2019, 2018 and 2017:
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Expected stock price volatility(1)
|
|
N/A
|
|
58%
|
|
N/A
|
Expected dividend yield(2)
|
|
N/A
|
|
0.0%
|
|
N/A
|
Risk-free interest rate(3)
|
|
N/A
|
|
1.9%
|
|
N/A
|
Expected option life(4)
|
|
N/A
|
|
5.5 years
|
|
N/A
|
-
(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.
115
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
17. Stock Option and Stock Award Plans (Continued)
-
(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 0%.
-
(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.
The
weighted average fair value of options granted during fiscal 2019, 2018 and 2017 was $0.00, $21.60 and $0.00, respectively. Following is a summary of stock option transactions for
the fiscal years ended March 2, 2019, March 3, 2018 and March 4, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
Per Share
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at February 27, 2016
|
|
|
1,906
|
|
$
|
54.53
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
Exercised
|
|
|
(178
|
)
|
|
39.07
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(34
|
)
|
|
111.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 4, 2017
|
|
|
1,694
|
|
$
|
54.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
50
|
|
|
41.00
|
|
|
|
|
|
|
|
Exercised
|
|
|
(241
|
)
|
|
24.05
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(160
|
)
|
|
126.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 3, 2018
|
|
|
1,343
|
|
$
|
51.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
Exercised
|
|
|
(99
|
)
|
|
23.07
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(208
|
)
|
|
71.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 2, 2019
|
|
|
1,036
|
|
$
|
50.15
|
|
|
3.12
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at March 2, 2019
|
|
|
1,025
|
|
$
|
49.07
|
|
|
3.10
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 2, 2019
|
|
|
978
|
|
$
|
47.87
|
|
|
2.85
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of March 2, 2019, there was $1,147 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 1.57 years.
Cash
received from stock option exercises for fiscal 2019, 2018 and 2017 was $2,294, $5,796 and $6,951, respectively. The income tax benefit from stock options for fiscal 2019, 2018 and
2017 was $7,
116
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
17. Stock Option and Stock Award Plans (Continued)
$10
and $421, respectively. The total intrinsic value of stock options exercised for fiscal 2019, 2018 and 2017 was $726, $3,032 and $20,475, respectively.
Typically,
stock options granted vest, and are subsequently exercisable in equal annual installments over a four-year period for employees.
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 2, 2019, March 3, 2018 and March 4, 2017:
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Balance at February 27, 2016
|
|
|
243
|
|
$
|
144.61
|
|
Granted
|
|
|
180
|
|
|
154.60
|
|
Vested
|
|
|
(111
|
)
|
|
125.55
|
|
Cancelled
|
|
|
(21
|
)
|
|
156.85
|
|
|
|
|
|
|
|
|
|
Balance at March 4, 2017
|
|
|
291
|
|
$
|
157.35
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
693
|
|
|
56.44
|
|
Vested
|
|
|
(194
|
)
|
|
160.61
|
|
Cancelled
|
|
|
(179
|
)
|
|
73.95
|
|
|
|
|
|
|
|
|
|
Balance at March 3, 2018
|
|
|
611
|
|
$
|
66.34
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
700
|
|
|
16.05
|
|
Vested
|
|
|
(215
|
)
|
|
76.99
|
|
Cancelled
|
|
|
(88
|
)
|
|
72.87
|
|
|
|
|
|
|
|
|
|
Balance at March 2, 2019
|
|
|
1,008
|
|
$
|
28.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
March 2, 2019, there was $21,302 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 1.90 years.
The
total fair value of restricted stock vested during fiscal years 2019, 2018 and 2017 was $16,519, $31,125 and $13,951, 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 or cash based on the Company meeting certain financial and performance goals. If such
117
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
17. Stock Option and Stock Award Plans (Continued)
goals
are not met, no stock-based compensation expense is recognized and any recognized stock-based compensation expense is reversed. The Company incurred $(1,084), $4,122 and $(6,070) related to
these performance based incentive plans for fiscal 2019, 2018 and 2017, respectively, which is recorded as a component of stock-based compensation expense.
18. 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 $44,564 in fiscal 2019, $67,949 in fiscal 2018 and $68,393 in fiscal 2017.
The
Company sponsors a Supplemental Executive Retirement Plan ("SERP") for its officers, based on an account-based plan design, that is subject to a five year graduated vesting schedule.
The expense recognized for the SERP was $4,913 in fiscal 2019, $12,426 in fiscal 2018 and $16,921 in fiscal 2017.
The
Company elected on February 25, 2019 to eliminate the SERP. In conjunction with this action, all plan participants will be 100% vested in their benefits and no additional
allocations will be made to participant accounts in the future. Participant benefits under this program will be paid out in full on or after February 24, 2020 in accordance with applicable
government regulations regarding these programs.
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
$2,715 in fiscal 2019, $9,023 in fiscal 2018 and $0 in fiscal 2017.
118
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
18. Retirement Plans (Continued)
Net
periodic pension expense and other changes recognized in other comprehensive income for the defined benefit pension plans included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension Plan
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Service cost
|
|
$
|
597
|
|
$
|
1,212
|
|
$
|
1,291
|
|
Interest cost
|
|
|
6,159
|
|
|
6,340
|
|
|
6,634
|
|
Expected return on plan assets
|
|
|
(5,673
|
)
|
|
(4,525
|
)
|
|
(4,512
|
)
|
Amortization of unrecognized prior service cost
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized net loss (gain)
|
|
|
1,769
|
|
|
3,393
|
|
|
5,085
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pension expense
|
|
$
|
2,852
|
|
$
|
6,420
|
|
$
|
8,498
|
|
Other changes recognized in other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net (gain) loss arising during period
|
|
$
|
(3,486
|
)
|
$
|
(8,704
|
)
|
$
|
(3,979
|
)
|
Prior service cost arising during period
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized prior service costs
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized net (loss) gain
|
|
|
(1,769
|
)
|
|
(3,393
|
)
|
|
(5,085
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized in other comprehensive loss
|
|
|
(5,255
|
)
|
|
(12,097
|
)
|
|
(9,064
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized in pension expense and other comprehensive loss
|
|
$
|
(2,403
|
)
|
$
|
(5,677
|
)
|
$
|
(566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
18. 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 2, 2019 and March 3, 2018:
|
|
|
|
|
|
|
|
|
|
Defined Benefit
Pension Plan
|
|
|
|
2019
|
|
2018
|
|
Change in benefit obligations:
|
|
|
|
|
|
|
|
Benefit obligation at end of prior year
|
|
$
|
161,851
|
|
$
|
164,349
|
|
Service cost
|
|
|
597
|
|
|
1,212
|
|
Interest cost
|
|
|
6,159
|
|
|
6,340
|
|
Distributions
|
|
|
(8,816
|
)
|
|
(7,963
|
)
|
Change due to change in assumptions
|
|
|
|
|
|
|
|
Actuarial loss (gain)
|
|
|
(9,086
|
)
|
|
(2,087
|
)
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
150,705
|
|
$
|
161,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
130,860
|
|
$
|
118,658
|
|
Employer contributions
|
|
|
2,715
|
|
|
9,023
|
|
Actual return on plan assets
|
|
|
72
|
|
|
11,142
|
|
Distributions (including expenses paid by the plan)
|
|
|
(8,815
|
)
|
|
(7,963
|
)
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
124,832
|
|
$
|
130,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(25,873
|
)
|
$
|
(30,991
|
)
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(25,873
|
)
|
$
|
(30,991
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in consolidated balance sheets consisted of:
|
|
|
|
|
|
|
|
Prepaid pension cost
|
|
$
|
|
|
$
|
|
|
Accrued pension liability
|
|
|
(25,873
|
)
|
|
(30,991
|
)
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(25,873
|
)
|
$
|
(30,991
|
)
|
Amounts recognized in accumulated other comprehensive loss consist of:
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
(27,409
|
)
|
$
|
(32,664
|
)
|
Prior service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount recognized
|
|
$
|
(27,409
|
)
|
$
|
(32,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2020 are
$1,661 and $0, respectively.
The
accumulated benefit obligation for the defined benefit pension plan was $150,705 and $161,851 as of March 2, 2019 and March 3, 2018, respectively.
120
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
18. Retirement Plans (Continued)
The
significant actuarial assumptions used for all defined benefit plans to determine the benefit obligation as of March 2, 2019, March 3, 2018 and March 4, 2017
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit
Pension Plan
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Discount rate
|
|
|
4.25
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
Rate of increase in future compensation levels
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Expected long-term rate of return on plan assets
|
|
|
6.25
|
%
|
|
6.25
|
%
|
|
6.50
|
%
|
Weighted
average assumptions used to determine net cost for the fiscal years ended March 2, 2019, March 3, 2018 and March 4, 2017 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit
Pension Plan
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
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
|
%
|
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 2019, 2018 and 2017.
The
Company's pension plan asset allocations at March 2, 2019 and March 3, 2018 by asset category were as follows:
|
|
|
|
|
|
|
|
|
|
March 2,
2019
|
|
March 3,
2018
|
|
Equity securities
|
|
|
52
|
%
|
|
53
|
%
|
Fixed income securities
|
|
|
48
|
%
|
|
47
|
%
|
|
|
|
|
|
|
|
|
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;
121
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
18. 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 $0 to the Defined Benefit Pension Plan during fiscal 2020.
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 2, 2019.
122
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
18. 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 2, 2019 and
March 3, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 2, 2019
|
|
|
|
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
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
15,396
|
|
Large Cap
|
|
|
|
|
|
|
|
|
|
|
|
34,058
|
|
Small-Mid Cap
|
|
|
|
|
|
|
|
|
|
|
|
14,534
|
|
Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Term Credit Bond Index
|
|
|
|
|
|
|
|
|
|
|
|
44,103
|
|
Long Term US Government Bonds
|
|
|
|
|
|
|
|
|
|
|
|
8,383
|
|
20+ Year Treasury STRIPS
|
|
|
|
|
|
|
|
|
|
|
|
847
|
|
Intermediate Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
5,920
|
|
Other types of investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short Term Investments
|
|
|
|
|
|
|
|
|
|
|
|
1,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
124,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
18. 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
|
|
2020
|
|
$
|
8,690
|
|
2021
|
|
|
8,844
|
|
2022
|
|
|
8,999
|
|
2023
|
|
|
9,005
|
|
2024
|
|
|
9,213
|
|
2025 - 2029
|
|
|
45,903
|
|
|
|
|
|
|
Total
|
|
$
|
90,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $23,499 in fiscal 2019, $20,979 in fiscal 2018 and $21,336 in fiscal 2017.
19. 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 2, 2019 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 zone status available for fiscal 2019 and fiscal 2018 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% funded, plans in the yellow zone are less than 80% funded, and plans in the green zone are at least 80% 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 collective-bargaining agreement(s) to which the plans are subject and any minimum funding requirements. There have been no significant
124
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
19. Multiemployer Plans that Provide Pension Benefits (Continued)
changes
that affect the comparability of total employer contributions of fiscal years 2019, 2018 and 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2017
|
1199 SEIU Health Care Employees Pension Fund
|
|
13-3604862-001
|
|
Green12/31/2017
|
|
Green12/31/2016
|
|
No
|
|
$
|
9,670
|
|
$
|
7,372
|
|
$
|
7,152
|
|
No
|
|
4/18/2019
|
|
Contribution rate of 15.80% of gross wages per associate beginning 09/30/2018. Contribution rate of 10.76% of gross wages earned per associate beginning 01/01/2016.
|
Southern California United Food and Commercial Workers Unions and Drug Employers Pension Fund
|
|
51-6029925-001
|
|
Red12/31/2018
|
|
Red12/31/2017
|
|
Implemented
|
|
|
8,273
|
|
|
8,149
|
|
|
8,021
|
|
No
|
|
7/17/2021
|
|
From 01/01/2019 through 12/31/2019 contributions of $1.672 per hour for worked for pharmacists and $0.758 per hour worked for non pharmacists. From 01/01/2018 to 12/31/2018 contributions of $1.586 per
hour worked. From 01/01/2017 to 12/31/2017 contributions of $1.50 per hour worked.
|
UFCW Pharmacists, Clerks and Drug Employers Pension Trust
|
|
94-2518312-001
|
|
Green12/31/2018
|
|
Green12/31/2017
|
|
No
|
|
|
2,666
|
|
|
2,739
|
|
|
2,970
|
|
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
|
|
Red9/30/2018
|
|
Red9/30/2017
|
|
Implemented
|
|
|
772
|
|
|
786
|
|
|
827
|
|
No
|
|
2/28/2021
|
|
Effective 02/04/2018 contribution rate of $2.03 per hour worked. 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.
|
United Food and Commercial Workers Union Local 880Mercantile Employers Joint Pension Fund
|
|
51-6031766-001
|
|
Yellow9/30/2018
|
|
Yellow9/30/2017
|
|
Implemented
|
|
|
470
|
|
|
495
|
|
|
504
|
|
No
|
|
2/28/2021
|
|
Effective 10/01/2018 contribution rate of $1.97 per hour worked. 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.
|
Other Funds
|
|
|
|
|
|
|
|
|
|
|
1,648
|
|
|
1,438
|
|
|
1,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,499
|
|
$
|
20,979
|
|
$
|
21,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
19. Multiemployer Plans that Provide Pension Benefits (Continued)
The
Company was listed in these plans Forms 5500 as providing more than 5% of the total contributions for the following plans and plan years:
|
|
|
Pension Fund
|
|
Year Contributions to Plan
Exceeded More Than 5%
of Total Contributions (as of
the Plan's Year-End)
|
UFCW Pharmacists, Clerks and Drug Employers Pension Trust
|
|
12/31/2017 and 12/31/2016
|
Southern California United Food and Commercial Workers Unions and Drug Employers Pension Fund
|
|
12/31/2017 and 12/31/2016
|
United Food & Commercial Workers Union- Employer Pension Fund
|
|
9/30/2017 and 9/30/2016
|
United Food & Commercial Workers Union Local 880Mercantile Employers Joint Pension Fund
|
|
9/30/2017 and 9/30/2016
|
At
the date the Company's financial statements were issued, certain Forms 5500 were not available.
During
fiscal 2019, 2018 and 2017, the Company did not withdraw from any plans or incur any additional withdrawal liabilities.
20. Segment Reporting
The Company has two reportable segments, its retail drug stores ("Retail Pharmacy"), and its pharmacy services ("Pharmacy Services") segments, collectively the "Parent Company."
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 PBM 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, 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.
126
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
20. Segment Reporting (Continued)
The
following is balance sheet information for the Company's reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
Pharmacy
|
|
Pharmacy
Services
|
|
Eliminations(1)
|
|
Consolidated
|
|
March 2, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
5,071,055
|
|
$
|
2,534,771
|
|
$
|
(14,459
|
)
|
$
|
7,591,367
|
|
Goodwill
|
|
|
43,492
|
|
|
1,064,644
|
|
|
|
|
|
1,108,136
|
|
Additions to property and equipment and intangible assets
|
|
|
228,079
|
|
|
16,610
|
|
|
|
|
|
244,689
|
|
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
|
|
-
(1)
-
As
of March 2, 2019 and March 3, 2018, intersegment eliminations include netting of the Pharmacy Services segment long-term deferred tax liability of
$0 and $38,713, respectively, against the Retail Pharmacy segment long-term deferred tax asset for consolidation purposes in accordance with ASC 740, and intersegment accounts receivable of $14,459
and $16,256, 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.
The
following table is a reconciliation of the Company's business segments to the consolidated financial statements for the fiscal years ended March 2, 2019, March 3, 2018
and March 4, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
Pharmacy
|
|
Pharmacy
Services
|
|
Intersegment
Eliminations(1)
|
|
Consolidated
|
|
March 2, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
15,757,152
|
|
$
|
6,093,688
|
|
$
|
(211,283
|
)
|
$
|
21,639,557
|
|
Gross Profit
|
|
|
4,258,716
|
|
|
417,636
|
|
|
|
|
|
4,676,352
|
|
Adjusted EBITDA(2)
|
|
|
405,206
|
|
|
158,238
|
|
|
|
|
|
563,444
|
|
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)
|
|
|
388,320
|
|
|
171,534
|
|
|
|
|
|
559,854
|
|
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)
|
|
|
559,653
|
|
|
188,235
|
|
|
|
|
|
747,888
|
|
-
(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
127
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
20. Segment Reporting (Continued)
covered
products. When this occurs, both the Retail Pharmacy and Pharmacy Services segments record the revenue on a stand-alone basis.
-
(2)
-
See
the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Continuing OperationsAdjusted EBITDA, Adjusted Net
Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures" for additional details.
The
following is a reconciliation of net (loss) income to Adjusted EBITDA for fiscal 2019, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2,
2019
(52 weeks)
|
|
March 3,
2018
(52 weeks)(a)
|
|
March 4,
2017
(53 weeks)(a)
|
|
Net (loss) income from continuing operations
|
|
$
|
(666,954
|
)
|
$
|
(349,532
|
)
|
$
|
4,080
|
|
Interest expense
|
|
|
227,728
|
|
|
202,768
|
|
|
200,065
|
|
Income tax expense
|
|
|
77,477
|
|
|
305,987
|
|
|
44,438
|
|
Depreciation and amortization
|
|
|
357,882
|
|
|
386,057
|
|
|
407,366
|
|
LIFO charge (credit)
|
|
|
23,354
|
|
|
(28,827
|
)
|
|
(3,721
|
)
|
Lease termination and impairment charges
|
|
|
107,994
|
|
|
58,765
|
|
|
45,778
|
|
Goodwill and intangible asset impairment charges
|
|
|
375,190
|
|
|
261,727
|
|
|
|
|
Loss on debt retirements, net
|
|
|
554
|
|
|
|
|
|
|
|
Merger and Acquisition-related costs
|
|
|
37,821
|
|
|
24,283
|
|
|
14,066
|
|
Stock-based compensation expense
|
|
|
12,115
|
|
|
25,793
|
|
|
23,482
|
|
Restructuring-related costs
|
|
|
4,704
|
|
|
|
|
|
|
|
Inventory write-downs related to store closings
|
|
|
13,487
|
|
|
7,586
|
|
|
5,925
|
|
Litigation settlement
|
|
|
18,000
|
|
|
|
|
|
|
|
Gain on sale of assets, net
|
|
|
(38,012
|
)
|
|
(25,872
|
)
|
|
(6,649
|
)
|
Walgreens Boots Alliance merger termination fee
|
|
|
|
|
|
(325,000
|
)
|
|
|
|
Other
|
|
|
12,104
|
|
|
16,119
|
|
|
13,058
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA from continuing operations
|
|
$
|
563,444
|
|
$
|
559,854
|
|
$
|
747,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
During
fiscal 2019, the Company revised its definition of Adjusted EBITDA to no longer exclude the impact of revenue deferrals related to its customer loyalty
program and further revised its disclosure by presenting certain amounts previously included within Other as separate reconciling items. Consequently, the Company revised Adjusted EBITDA for fiscal
2018 and fiscal 2017 to conform with the revised definition and present separate reconciling items previously included in Other.
128
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
21. Commitments, Contingencies and Guarantees
The Company is involved in legal proceedings including litigation, arbitration, and other claims, and is subject to investigations, inspections,
audits, inquiries, and similar actions by pharmacy, health care, tax and other 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 has been 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 accrual. If a loss contingency is not both probable and estimable, the Company does not establish an
accrued liability. None of the Company's accruals for outstanding legal matters or regulatory proceedings are material individually or in the aggregate to the Company's consolidated financial
position.
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
qui
tam
lawsuit ("whistleblower" action) has been filed and whether the government agency makes a decision to intervene in the lawsuit following investigation. While the Company
cannot predict the outcome of any of the contingencies, the Company's management does not believe that the outcome of any of these legal matters or regulatory proceedings will be material to the
Company's consolidated financial position. It is possible, however, the Company's results of operations or cash flows could be materially affected by unfavorable outcomes in outstanding legal matters
or regulatory proceedings.
After
the announcement of the then 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
lawsuit was terminated on November 30, 2018.
Also
in connection with a proposed merger between the Company and WBA, a lawsuit 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 an award of money damages and attorneys' and experts' fees. On
January 14
129
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
21. Commitments, Contingencies and Guarantees (Continued)
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
August 4, 2017, the Pennsylvania District Court entered an order lifting the stay, noting that the original claims in this matter were now moot and directed the plaintiffs to
file a motion for leave to amend the complaint, with brief in support thereof, which motion was subsequently filed on September 22, 2017. Also 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. On November 27, 2017, the Pennsylvania District Court granted Lead Plaintiff's
motion to amend the complaint, and Lead Plaintiff filed the amended complaint (the "Amended Complaint") on December 11, 2017. The Amended Complaint alleged claims for violations of
Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5 against the Rite Aid Defendants, WBA, and certain WBA executives (together with WBA, the "WBA Defendants"). On
February 14, 2018, the Rite Aid Defendants moved to dismiss the Amended Complaint, which the Pennsylvania District Court granted on July 11, 2018, dismissing all claims alleged against
the Rite Aid Defendants. On August 24, 2018, the WBA Defendants filed a motion for judgment on the pleadings. On October 24, 2018, the Pennsylvania District Court issued a memorandum
opinion and order concluding that Lead Plaintiff lacked standing to pursue his claims against the WBA Defendants, granted the WBA Defendants' motion for judgment on the pleadings, and closed the file
on this case. On November 2, 2018, a new lawsuit was filed in the Pennsylvania District Court by new plaintiffs asserting substantially similar claims against the WBA Defendants only
(
Chabot, et al. v. Walgreens Boots Alliance, et al.
), and expressly adopting and incorporating allegations from the Amended Complaint previously
sustained against the WBA Defendants in the Pennsylvania District Court's July 11, 2018 memorandum opinion and order in the
Hering
action. The
lawsuit remains pending.
In
connection with the then proposed merger between the Company and Albertsons Companies, Inc. ("ACI"), on April 24, 2018, a Rite Aid stockholder filed a putative class
action lawsuit in the Court of Chancery of the State of Delaware (the "Delaware Court of Chancery") against the Company, ACI, Ranch Acquisition Corp. (Merger Sub I), Ranch Acquisition II LLC
(Merger Sub II, together with ACI and Merger Sub I, the ACI defendants) and each of the Rite Aid directors (the Director defendants, together with Rite Aid, the Rite Aid defendants), Del. C.A.
No. 2018-0305-AGB (
Akile v. Rite Aid Corp.,
et al
). Plaintiff contended that Rite Aid stockholders had appraisal rights under Section 262 of the DGCL. Plaintiff alleged breach of fiduciary duty claims against the
Director defendants for their alleged failure to provide alleged statutory appraisal rights under Delaware law and for allegedly falsely informing Rite Aid stockholders that they would not have
appraisal rights. Plaintiff further contended that the proxy statement/prospectus related to the proposed merger, and
130
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
21. Commitments, Contingencies and Guarantees (Continued)
which
was filed on April 6, 2018, was deficient under Section 262(d)(1) of the DGCL for failure to inform stockholders of their alleged appraisal rights. Plaintiff sought declarations
from the Court of Chancery that the action was a proper class action and that the Director defendants breached their fiduciary duties by failing to adequately inform class members of their appraisal
rights under Delaware law, to enjoin the then proposed transaction from closing until such time as class members were afforded the ability to seek appraisal of their shares, or otherwise permit class
members to petition the Court of Chancery for appraisal, and attorneys' fees, expenses, and costs to plaintiff. On May 9, 2018, the Court of Chancery denied plaintiff's motion to expedite and
declined to schedule a preliminary injunction hearing, ruling that plaintiff failed to state a colorable claim. On August 13, 2018, the parties filed a Stipulation and Proposed Order of
Voluntary Dismissal Pursuant to Court of Chancery Rule 41(1)(a)(ii), which the Court of Chancery entered on August 14, 2018.
On
June 29, July 27, and August 3, 2018, three purported stockholders of the Company each separately filed a Verified Complaint to Compel Inspection of Books and
Records under 8
Del. C.
§220 in the Delaware Court of Chancery against the Company, seeking to inspect books and records in order to
determine whether wrongdoing or mismanagement had taken place such that it would be appropriate to file claims for breach of fiduciary duty, and to investigate the independence and disinterestedness
of the Company's directors with respect to the then proposed merger with ACI. On August 10 and September 6, 2018, respectively, two of the purported stockholders' complaints were
voluntarily dismissed. On October 18, 2018, the remaining plaintiff filed an amended complaint, Del. C.A. No. 2018-0554-AGB (
Krol v. Rite Aid
Corp.
), which was substantially similar to his original complaint. On November 1, 2018, the Company answered the amended complaint, and on January 29, 2019, the
remaining plaintiff filed a stipulation of voluntary dismissal with prejudice.
The
Company is currently a defendant in several lawsuits filed in courts in California alleging violations of California Business and Professions Code, industry wage orders,
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 or PAGA representative 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 lawsuits, have merit. The Company has aggressively challenged the
merits of the lawsuits and, where applicable, the allegations that the lawsuits 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 lawsuit (
Hall v. Rite Aid Corporation, San Diego County Superior Court
), the parties reached a class action
settlement for $18 million plus institution of a two-year pilot seating program for front-end check stands. On September 14, 2018, the Court granted preliminary approval of the
settlement. On November 16, 2018, the court granted final approval of the settlement.
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
131
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
21. Commitments, Contingencies and Guarantees (Continued)
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") lawsuit 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. In its ruling on the Company's motion to dismiss the
complaint, the Court held that Relator's complaint was deficient, but allowed Relator the opportunity to re-plead. Relator filed a Third Amended Complaint on May 11, 2018. The Company filed a
motion to dismiss the Third Amended Complaint on May 25, 2018. On March 30, 2019, the Company's motion to dismiss the Third Amended Complaint was denied. 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. At this stage of the investigation, the Company is not able to predict the outcome of the investigation.
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. The civil investigation is ongoing.
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 USAO's office and the State of California Department of Justice's Bureau of Medical Fraud and Elder
132
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
21. Commitments, Contingencies and Guarantees (Continued)
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. On September 5, 2018, the court issued an order
denying the motion to dismiss. The case is proceeding with the first stage of discovery, which focuses on plaintiffs' proposed sampling methodology for determining liability and damages. The Company's
motion challenging plaintiffs' proposed sampling methodology will be filed in April 2019, and is scheduled to be heard in June 2019. 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, 2016, the
Company filed motions to dismiss based on substantive and jurisdictional grounds, as well as a motion to transfer venue, all of which were stayed pending the resolution of related litigation on
appeal. In September 2018, the stay of the case was lifted. On November 28, 2018, the case was transferred to the Circuit Court of Desoto County and consolidated with related cases with similar
allegations brought by Mississippi against other chain pharmacies. 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.
The
Company is a defendant in the consolidated multidistrict litigation proceeding,
In re National Prescription Opiate Litigation
(Case
No. 17-md-2804), pending in the U.S. District Court for the Northern District of Ohio. Various plaintiffs (such as counties, cities, hospitals, and third-party payors) allege claims generally
concerning the impacts of widespread opioid abuse against defendants along the pharmaceutical supply chain, including manufacturers, wholesale distributors, and retail pharmacy chains. Since December
2017, nearly all related cases pending in federal district courts have been transferred to this multi-district litigation. Two Ohio lawsuits (referred to as the "Track One" or "bellwether" cases) have
been set for trial in the multi-district litigation:
The County of Summit, Ohio v. Purdue Pharma L.P., et al.
, Case No. 18-OP-45090 (N.D.
Ohio); and
The County of Cuyahoga v. Purdue Pharma L.P., et al.
, Case No. 17-OP45004 (N.D. Ohio). On January 29, 2019, the
multi-district litigation court entered an order moving the trial date from September 3, 2019 to October 21, 2019 for the two bellwether cases.
133
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
21. Commitments, Contingencies and Guarantees (Continued)
On
May 25, 2018, the Company and other defendants filed Motions to Dismiss the Complaints in the bellwether cases. On October 5, 2018, the magistrate judge assigned to
review these Motions to Dismiss issued a report and recommendation to the district court judge on the multi-district litigation. The magistrate judge recommended granting dismissal of two claims, the
common law absolute public nuisance claim and the City of Akron's public nuisance claim. The report otherwise recommended denying all the defendants' Motions to Dismiss. The Company filed its
objections to the magistrate judge's report on November 2, 2018 (along with other defendants). In addition, the Company (as well as most of the parties in the litigation) are engaging in
intensive discovery involving the production of documents and participating in the depositions of several key individuals representing plaintiffs and defendants.
New
cases continue to be added each week to the multi-district litigation, which currently includes over 860 relevant federal court lawsuits that name the Company, including lawsuits
filed by counties and municipalities in California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New
Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Puerto Rico, Texas, Virginia, West Virginia, and Wisconsin. There are also approximately 113 similar lawsuits that
name the Company in some capacity that have been filed outside the multi-district litigation, including lawsuits filed in Georgia, Idaho, Illinois, Louisiana, Maine, Maryland, Massachusetts, New
Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Washington, and West Virginia. At this stage of the proceedings, the Company is not able to
either predict the outcome of these lawsuits or estimate a potential range of loss with respect to the lawsuits and is vigorously defending them. Additionally, the Company has received from the
Attorney Generals of several states subpoenas, civil investigative demands, and/or other requests regarding opioids.
The
Company is involved in two putative consumer class action lawsuits in the United States District Court for the Southern District of California, alleging that it overcharged
customers' insurance companies for prescription drug purchases, resulting in overpayment of co-pays. The first lawsuit,
Byron Stafford v. Rite Aid
Corp
., Case No. 17-CV-01340-AJB-JLB, was filed on June 30, 2017, and the second
case,
Robert Josten v. Rite Aid Corp
., Case No. 18-CV-00152-AJB-JLB, was filed on January 23, 2018. Each lawsuit alleges that
(1) the Company was obligated to charge the plaintiffs' insurance companies a "usual and customary" price for their prescription drugs; and (2) the Company failed to do so properly
because the prices it reported were not equal to or adjusted to account for the discount prices that Rite Aid offers to uninsured and underinsured customers through its Rx Savings Program. On
December 19, 2017, the court granted the Company's motion to dismiss Stafford's complaint with leave to amend for failure to plead compliance with the applicable statutes of limitations. After
Stafford amended the complaint on January 9, 2018, the Company filed another motion to dismiss on January 23, 2018, and a similar motion to dismiss Josten's complaint on March 16,
2018. The court granted the motion to dismiss most of Josten's claims for failure to plead compliance with the applicable statute of limitations but granted leave to amend. The Company's motion to
dismiss Josten's amended complaint on the grounds that the statute of limitations expired and he failed to exhaust Medicare administrative remedies, is scheduled to be heard on April 25, 2019.
The court denied the motion to dismiss Stafford's claims, opened discovery and set a June 19, 2019 deadline for his class
134
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
21. Commitments, Contingencies and Guarantees (Continued)
certification
motion. At this stage of the proceedings, the Company is not able to either predict the outcome of these lawsuits or estimate a potential range of loss with respect to the lawsuit and is
vigorously defending these lawsuits.
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 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.
22. Supplementary Cash Flow Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
March 2,
2019
|
|
March 3,
2018
|
|
March 4,
2017
|
|
Cash paid for interest(a)
|
|
$
|
267,760
|
|
$
|
405,579
|
|
$
|
409,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments for income taxes, net(a)
|
|
$
|
17,383
|
|
$
|
87,087
|
|
$
|
17,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment financed under capital leases
|
|
$
|
4,165
|
|
$
|
13,123
|
|
$
|
7,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment received for noncash consideration
|
|
$
|
|
|
$
|
2,044
|
|
$
|
746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in lease financing obligation
|
|
$
|
|
|
$
|
4,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued capital expenditures
|
|
$
|
15,298
|
|
$
|
28,869
|
|
$
|
27,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross borrowings from revolver(a)
|
|
$
|
4,257,000
|
|
$
|
4,221,000
|
|
$
|
3,608,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross repayments to revolver(a)
|
|
$
|
3,382,000
|
|
$
|
6,651,000
|
|
$
|
3,278,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)Amounts
are presented on a total company basis.
Significant
components of cash used by Other Liabilities of $439,906 for the fifty-two week period ended March 2, 2019 includes cash used resulting from changes in accrued
reinsurance of $185,761, changes in accrued wages, benefits and other personnel costs of $58,154, changes in accrued interest of $51,219 and changes in accrued sales and other taxes payable of
$44,581.
23. Related Party Transactions
There were receivables from related parties of $11 and $21 at March 2, 2019 and March 3, 2018, respectively.
135
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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
24. 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% owned subsidiaries
guarantee the obligations under the New Facilities and unsecured guaranteed notes (the "Subsidiary Guarantors"). Additionally,
with the exception of EIC, the subsidiaries, including joint ventures, that do not guarantee the New Facilities 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 New Facilities 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
136
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
24. Guarantor and Non-Guarantor Condensed Consolidating Financial Information (Continued)
March 2,
2019 and March 3, 2018 and for the fiscal years ended March 2, 2019, March 3, 2018 and March 4, 2017. Separate financial statements for Subsidiary
Guarantors are not presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rite Aid Corporation
Condensed Consolidating Balance Sheet
March 2, 2019
|
|
|
|
Rite Aid
Corporation
(Parent
Company
Only)
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
$
|
122,134
|
|
$
|
22,219
|
|
$
|
|
|
$
|
144,353
|
|
Accounts receivable, net
|
|
|
|
|
|
1,377,342
|
|
|
411,370
|
|
|
|
|
|
1,788,712
|
|
Intercompany receivable
|
|
|
|
|
|
400,526
|
|
|
|
|
|
(400,526
|
)(a)
|
|
|
|
Inventories, net of LIFO reserve of $0, $604,444, $0, $0, and $604,444
|
|
|
|
|
|
1,871,941
|
|
|
|
|
|
|
|
|
1,871,941
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
172,448
|
|
|
6,684
|
|
|
|
|
|
179,132
|
|
Current assets held for sale
|
|
|
|
|
|
117,581
|
|
|
|
|
|
|
|
|
117,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
4,061,972
|
|
|
440,273
|
|
|
(400,526
|
)
|
|
4,101,719
|
|
Property, plant and equipment, net
|
|
|
|
|
|
1,308,514
|
|
|
|
|
|
|
|
|
1,308,514
|
|
Goodwill
|
|
|
|
|
|
1,108,136
|
|
|
|
|
|
|
|
|
1,108,136
|
|
Other intangibles, net
|
|
|
|
|
|
399,678
|
|
|
49,028
|
|
|
|
|
|
448,706
|
|
Deferred tax assets
|
|
|
|
|
|
419,122
|
|
|
(10,038
|
)
|
|
|
|
|
409,084
|
|
Investment in subsidiaries
|
|
|
8,294,315
|
|
|
55,109
|
|
|
|
|
|
(8,349,424
|
)(b)
|
|
|
|
Intercompany receivable
|
|
|
|
|
|
3,639,035
|
|
|
|
|
|
(3,639,035
|
)(a)
|
|
|
|
Other assets
|
|
|
|
|
|
208,018
|
|
|
7,190
|
|
|
|
|
|
215,208
|
|
Noncurrent assets held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,294,315
|
|
$
|
11,199,584
|
|
$
|
486,453
|
|
$
|
(12,388,985
|
)
|
$
|
7,591,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt and lease financing obligations
|
|
$
|
|
|
$
|
16,111
|
|
$
|
|
|
$
|
|
|
$
|
16,111
|
|
Accounts payable
|
|
|
|
|
|
1,612,181
|
|
|
6,404
|
|
|
|
|
|
1,618,585
|
|
Intercompany payable
|
|
|
|
|
|
|
|
|
400,526
|
|
|
(400,526
|
)(a)
|
|
|
|
Accrued salaries, wages and other current liabilities
|
|
|
14,005
|
|
|
778,020
|
|
|
16,414
|
|
|
|
|
|
808,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
14,005
|
|
|
2,406,312
|
|
|
423,344
|
|
|
(400,526
|
)
|
|
2,443,135
|
|
Long-term debt, less current maturities
|
|
|
3,454,585
|
|
|
|
|
|
|
|
|
|
|
|
3,454,585
|
|
Lease financing obligations, less current maturities
|
|
|
|
|
|
24,064
|
|
|
|
|
|
|
|
|
24,064
|
|
Intercompany payable
|
|
|
3,639,035
|
|
|
|
|
|
|
|
|
(3,639,035
|
)(a)
|
|
|
|
Other noncurrent liabilities
|
|
|
|
|
|
474,893
|
|
|
8,000
|
|
|
|
|
|
482,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
7,107,625
|
|
|
2,905,269
|
|
|
431,344
|
|
|
(4,039,561
|
)
|
|
6,404,677
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
1,186,690
|
|
|
8,294,315
|
|
|
55,109
|
|
|
(8,349,424
|
)(b)
|
|
1,186,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
8,294,315
|
|
$
|
11,199,584
|
|
$
|
486,453
|
|
$
|
(12,388,985
|
)
|
$
|
7,591,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
Elimination
of intercompany accounts receivable and accounts payable amounts.
137
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
24. Guarantor and Non-Guarantor Condensed Consolidating Financial Information (Continued)
-
(b)
-
Elimination
of investments in consolidated subsidiaries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 sale
|
|
|
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.
138
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
24. Guarantor and Non-Guarantor Condensed Consolidating Financial Information (Continued)
-
(b)
-
Elimination
of investments in consolidated subsidiaries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rite Aid Corporation
Condensed Consolidating Statement of Operations
For the Year Ended March 2, 2019
|
|
|
|
Rite Aid
Corporation
(Parent
Company
Only)
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Revenues
|
|
$
|
|
|
$
|
21,297,937
|
|
$
|
397,328
|
|
$
|
(55,708
|
)(a)
|
$
|
21,639,557
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
16,648,099
|
|
|
370,413
|
|
|
(55,307
|
)(a)
|
|
16,963,205
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
4,567,690
|
|
|
25,086
|
|
|
(401
|
)(a)
|
|
4,592,375
|
|
Lease termination and impairment expenses
|
|
|
|
|
|
107,994
|
|
|
|
|
|
|
|
|
107,994
|
|
Goodwill and intangible asset impairment charges
|
|
|
|
|
|
375,190
|
|
|
|
|
|
|
|
|
375,190
|
|
Interest expense
|
|
|
206,862
|
|
|
21,704
|
|
|
(838
|
)
|
|
|
|
|
227,728
|
|
Loss on debt retirements
|
|
|
|
|
|
554
|
|
|
|
|
|
|
|
|
554
|
|
Gain on sale of assets, net
|
|
|
|
|
|
(38,012
|
)
|
|
|
|
|
|
|
|
(38,012
|
)
|
Equity in earnings of subsidiaries, net of tax
|
|
|
210,736
|
|
|
(1,033
|
)
|
|
|
|
|
(209,703
|
)(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
417,598
|
|
|
21,682,186
|
|
|
394,661
|
|
|
(265,411
|
)
|
|
22,229,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(417,598
|
)
|
|
(384,249
|
)
|
|
2,667
|
|
|
209,703
|
|
|
(589,477
|
)
|
Income tax expense (benefit)
|
|
|
|
|
|
75,843
|
|
|
1,634
|
|
|
|
|
|
77,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
(417,598
|
)
|
|
(460,092
|
)
|
|
1,033
|
|
|
209,703
|
|
|
(666,954
|
)
|
Net income (loss) from discontinued operations
|
|
|
(4,615
|
)
|
|
249,356
|
|
|
|
|
|
|
|
|
244,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(422,213
|
)
|
$
|
(210,736
|
)
|
$
|
1,033
|
|
$
|
209,703
|
(b)
|
$
|
(422,213
|
)
|
Total other comprehensive income (loss)
|
|
|
3,490
|
|
|
3,490
|
|
|
|
|
|
(3,490
|
)
|
|
3,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(418,723
|
)
|
$
|
(207,246
|
)
|
$
|
1,033
|
|
$
|
206,213
|
|
$
|
(418,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
24. 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
|
|
Goodwill and intangible asset impairment charges
|
|
|
|
|
|
261,727
|
|
|
|
|
|
|
|
|
261,727
|
|
Interest expense
|
|
|
183,825
|
|
|
19,261
|
|
|
(318
|
)
|
|
|
|
|
202,768
|
|
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.
140
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
24. Guarantor and Non-Guarantor Condensed Consolidating Financial Information (Continued)
-
(b)
-
Elimination
of equity in earnings of subsidiaries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
141
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
24. Guarantor and Non-Guarantor Condensed Consolidating Financial Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rite Aid Corporation
Condensed Consolidating Statement of Cash Flows
For the Year Ended March 2, 2019
|
|
|
|
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
|
|
$
|
(255,962
|
)
|
$
|
74,124
|
|
$
|
16,129
|
|
$
|
|
|
$
|
(165,709
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property, plant and equipment
|
|
|
|
|
|
(196,778
|
)
|
|
|
|
|
|
|
|
(196,778
|
)
|
Intangible assets acquired
|
|
|
|
|
|
(47,911
|
)
|
|
|
|
|
|
|
|
(47,911
|
)
|
Intercompany activity
|
|
|
|
|
|
(727,221
|
)
|
|
|
|
|
727,221
|
|
|
|
|
Proceeds from sale-leaseback transactions
|
|
|
|
|
|
2,587
|
|
|
|
|
|
|
|
|
2,587
|
|
Proceeds from dispositions of assets and investments
|
|
|
|
|
|
43,550
|
|
|
|
|
|
|
|
|
43,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
|
|
|
(925,773
|
)
|
|
|
|
|
727,221
|
|
|
(198,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
450,000
|
|
|
|
|
|
|
|
|
|
|
|
450,000
|
|
Net proceeds from revolver
|
|
|
875,000
|
|
|
|
|
|
|
|
|
|
|
|
875,000
|
|
Principal payments on long-term debt
|
|
|
(427,992
|
)
|
|
(12,378
|
)
|
|
|
|
|
|
|
|
(440,370
|
)
|
Change in zero balance cash accounts
|
|
|
|
|
|
(59,481
|
)
|
|
|
|
|
|
|
|
(59,481
|
)
|
Net proceeds from issuance of common stock
|
|
|
2,294
|
|
|
|
|
|
|
|
|
|
|
|
2,294
|
|
Financing fees paid for early debt redemption
|
|
|
|
|
|
(171
|
)
|
|
|
|
|
|
|
|
(171
|
)
|
Payments for taxes related to net share settlement of equity awards
|
|
|
|
|
|
(2,419
|
)
|
|
|
|
|
|
|
|
(2,419
|
)
|
Intercompany activity
|
|
|
727,221
|
|
|
|
|
|
|
|
|
(727,221
|
)
|
|
|
|
Deferred financing costs paid
|
|
|
(21,564
|
)
|
|
|
|
|
|
|
|
|
|
|
(21,564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
1,604,959
|
|
|
(74,449
|
)
|
|
|
|
|
(727,221
|
)
|
|
803,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows of discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities of discontinued operations
|
|
|
(4,615
|
)
|
|
(58,341
|
)
|
|
|
|
|
|
|
|
(62,956
|
)
|
Investing activities of discontinued operations
|
|
|
|
|
|
664,740
|
|
|
|
|
|
|
|
|
664,740
|
|
Financing activities of discontinued operations
|
|
|
(1,344,382
|
)
|
|
589
|
|
|
|
|
|
|
|
|
(1,343,793
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) discontinued operations
|
|
|
(1,348,997
|
)
|
|
606,988
|
|
|
|
|
|
|
|
|
(742,009
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
|
|
|
(319,110
|
)
|
|
16,129
|
|
|
|
|
|
(302,981
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
|
441,244
|
|
|
6,090
|
|
|
|
|
|
447,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
|
|
$
|
122,134
|
|
$
|
22,219
|
|
$
|
|
|
$
|
144,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
24. 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 (used in) 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 insured loss
|
|
|
|
|
|
4,239
|
|
|
|
|
|
|
|
|
4,239
|
|
Proceeds from dispositions of assets and investments
|
|
|
|
|
|
27,586
|
|
|
|
|
|
|
|
|
27,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
24. 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
25. Interim Financial Results (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2019
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Year
|
|
Revenues
|
|
$
|
5,388,490
|
|
$
|
5,421,362
|
|
$
|
5,450,060
|
|
$
|
5,379,645
|
|
$
|
21,639,557
|
|
Cost of revenues
|
|
|
4,219,741
|
|
|
4,260,211
|
|
|
4,267,972
|
|
|
4,215,281
|
|
|
16,963,205
|
|
Selling, general and administrative expenses
|
|
|
1,152,627
|
|
|
1,153,991
|
|
|
1,142,555
|
|
|
1,143,202
|
|
|
4,592,375
|
|
Lease termination and impairment charges
|
|
|
9,859
|
|
|
39,609
|
|
|
2,628
|
|
|
55,898
|
|
|
107,994
|
|
Goodwill and intangible asset impairment charges
|
|
|
|
|
|
375,190
|
|
|
|
|
|
|
|
|
375,190
|
|
Interest expense
|
|
|
62,792
|
|
|
56,233
|
|
|
56,008
|
|
|
52,695
|
|
|
227,728
|
|
Loss on debt retirements, net
|
|
|
554
|
|
|
|
|
|
|
|
|
|
|
|
554
|
|
Gain on sale of assets, net
|
|
|
(5,859
|
)
|
|
(4,965
|
)
|
|
(382
|
)
|
|
(26,806
|
)
|
|
(38,012
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,439,714
|
|
|
5,880,269
|
|
|
5,468,781
|
|
|
5,440,270
|
|
|
22,229,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(51,224
|
)
|
|
(458,907
|
)
|
|
(18,721
|
)
|
|
(60,625
|
)
|
|
(589,477
|
)
|
Income tax (benefit) expense
|
|
|
(9,497
|
)
|
|
(106,559
|
)
|
|
(1,471
|
)
|
|
195,004
|
|
|
77,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(41,727
|
)
|
|
(352,348
|
)
|
|
(17,250
|
)
|
|
(255,629
|
)
|
|
(666,954
|
)
|
Net income (loss) from discontinued operations, net of tax
|
|
|
256,143
|
|
|
(6,792
|
)
|
|
12,740
|
|
|
(17,350
|
)
|
|
244,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
214,416
|
|
|
(359,140
|
)
|
|
(4,510
|
)
|
|
(272,979
|
)
|
|
(422,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per share(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.79
|
)
|
$
|
(6.67
|
)
|
$
|
(0.33
|
)
|
$
|
(4.83
|
)
|
$
|
(12.62
|
)
|
Discontinued operations
|
|
$
|
4.86
|
|
$
|
(0.13
|
)
|
$
|
0.24
|
|
$
|
(0.32
|
)
|
$
|
4.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net basic and diluted income (loss) per share
|
|
$
|
4.07
|
|
$
|
(6.80
|
)
|
$
|
(0.09
|
)
|
$
|
(5.15
|
)
|
$
|
(7.99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
25. Interim Financial Results (Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2018
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
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(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.69
|
)
|
$
|
3.59
|
|
$
|
(0.35
|
)
|
$
|
(9.18
|
)
|
$
|
(6.66
|
)
|
Discontinued operations
|
|
$
|
(0.75
|
)
|
$
|
(0.33
|
)
|
$
|
1.90
|
|
$
|
23.74
|
|
$
|
24.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net basic (loss) income per share
|
|
$
|
(1.44
|
)
|
$
|
3.26
|
|
$
|
1.55
|
|
$
|
14.56
|
|
$
|
17.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) income per share(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.69
|
)
|
$
|
3.53
|
|
$
|
(0.35
|
)
|
$
|
(9.18
|
)
|
$
|
(6.66
|
)
|
Discontinued operations
|
|
$
|
(0.75
|
)
|
$
|
(0.33
|
)
|
$
|
1.90
|
|
$
|
23.74
|
|
$
|
24.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net diluted (loss) income per share
|
|
$
|
(1.44
|
)
|
$
|
3.20
|
|
$
|
1.55
|
|
$
|
14.56
|
|
$
|
17.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
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.
During
the fourth quarter of fiscal 2019, the Company recorded an income tax expense of $212,252 in connection with the revaluation of the Company's deferred tax assets resulting from an
increase in the valuation allowance as discussed in Note 7 and facilities impairment charges of $28,920. Also, during the fourth quarter of fiscal 2019, the Company recorded a LIFO charge of
$4,043 due to higher inflation on pharmaceutical drugs as compared to a LIFO credit recognized at prior year end caused by deflation on pharmacy generics.
During
the fourth quarter of fiscal 2018, the Company recorded an income tax expense of $324,765 in connection with the revaluation of the Company's deferred tax assets as a result of
the Tax Act as discussed in Note 7, a goodwill impairment charge of $261,727 ($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 $49,220 due to higher deflation on pharmacy generics as
compared to a LIFO credit recognized at prior year end caused by lower deflation on pharmacy generics.
146
Table of Contents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2019, March 3, 2018 and March 4, 2017
(In thousands, except per share amounts)
26. Financial Instruments
The carrying amounts and fair values of financial instruments at March 2, 2019 and March 3, 2018 are listed as follows:
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2019
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2018
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Carrying
Amount
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Fair
Value
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Carrying
Amount
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Fair
Value
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Variable rate indebtedness
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$
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1,297,013
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$
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1,325,000
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$
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$
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Fixed rate indebtedness
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$
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2,157,571
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$
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1,795,335
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$
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3,905,841
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$
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3,927,411
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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 2, 2019 and March 3, 2018, the Company had $7,191 and $7,282, respectively, of investments carried at amortized cost, as these investments are being held to maturity. As of
March 2, 2019, these investments are included as a component of prepaid expenses and other current assets. As of March 3, 2018, these investments are included as a component of other
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.
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