UNITED STATES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended May 28, 2022 |
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OR |
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☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
FORM 10-Q
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 2, 2017
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-5742
RITE AID CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 23-1614034 | |
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30 Hunter Lane |
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| 17011 |
Registrant’s telephone number, including area code: (717) 761-2633.(717) 761-2633.
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report):
Not Applicable
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $1.00 par value | | RAD | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes x⌧ No o◻
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes x⌧ No o◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “Large Accelerated Filer,” “Accelerated Filer,” “Smaller Reporting Company” and “Emerging Growth Company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | Accelerated Filer ◻ |
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| Smaller reporting company Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o◻
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange act). Yes o☐ No x⌧
The registrant had 1,067,509,84455,626,790 shares of its $1.00 par value common stock outstanding as of December 28, 2017.June 22, 2022.
RITE AID CORPORATION
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Management’s Discussion and Analysis of Financial Condition and Results |
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report, as well as our other public filings or public statements, include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are often identified by terms and phrases such as “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will” and similar expressions and include references to assumptions and relate to our future prospects, developments and business strategies.
Factors that could cause actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to:
● | the impact of widespread health developments, including the continued impact of the global coronavirus (“COVID-19”) pandemic, the changing consumer behavior and preferences (including preferred shopping locations, vaccine hesitancy and the emergence of new variants), and the impact of those factors on the broader economy, financial and labor markets, wages, availability and access to credit and capital, our front-end and pharmacy operations and services, supply chain including shipping delays, container and trucker shortages, port congestion and other logistics problems, our associates and executive and administrative personnel, our third-party service providers (including suppliers, vendors and business partners), and customers. In addition, continued shortages of pharmacists, pharmacy technicians and other employee turnover as a result of the ongoing “great resignation” occurring throughout the economy, and the impact of potential vaccine mandates in the markets in which we operate, may inhibit our ability to maintain store hours at preferred levels. Any of these developments could result in a material adverse effect on our business, financial conditions and results of operations; |
● | our ability to successfully implement our RxEvolution strategy, attract and retain a sufficient number of our target consumers, integrate operations such as Elixir and any acquisitions, implement and integrate information technology and digital services, obtain permits required for store remodels, and improve the operating performance of our stores and pharmacy benefit management (“PBM”) operations; |
● | our high level of indebtedness, the ability to refinance such indebtedness on acceptable terms (including the impact of recent actions by the United States Federal Reserve), and our ability to satisfy our obligations and the other covenants contained in our debt agreements; |
● | the nature, cost and outcome of pending and future litigation, other legal or regulatory proceedings, or governmental investigations, including those related to Opioids, “usual and customary” pricing or other matters; |
● | general competitive, economic, industry, market, political (including healthcare reform) and regulatory conditions, including impacts of inflation or other pricing environment factors on our costs and our ability to pass on price increases to our customers, including as a result of inflationary and deflationary pressures, a decline in consumer spending or deterioration in consumer financial position, whether due to inflation or other factors, as well as other factors specific to the markets in which we operate; |
● | the severity and resulting impact of the cough, cold and flu season; |
● | the impact on retail pharmacy business as PBM payors incent or mandate movement away from retail pharmacies to PBM mail order pharmacies; |
● | our ability to achieve the benefits of our efforts to reduce the costs of our generic drugs; |
● | the risk that changes in federal or state laws or regulations, including to those relating to labor or wages, the Health Care Education Affordability Reconciliation Act, the repeal of all or part of the Patient Protection or the Affordable Care Act (or “ACA”), and decisions of agencies and courts including the United States Supreme Court regarding those and other matters relevant to the Company or its operations, and any regulations enacted thereunder may occur; |
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● | the impact of the loss of one or more major third party payor contracts and the risk that providers and state contract changes may occur; |
● | the risk that we may need to take further impairment charges if our future results do not meet our expectations; |
● | our ability to sell our Centers of Medicare and Medicaid Services (“CMS”) receivables, in whole or in part, which could negatively impact our liquidity and leverage ratio if we do not consummate a sale; |
● | our ability to grow prescription count, realize front-end sales growth, and improve and grow the operations of our PBM; |
● | our ability to achieve cost savings and the other benefits of our organizational restructuring within our anticipated timeframe, if at all; |
● | decisions to close additional stores and distribution centers or undertake additional refinancing activities, which could result in further charges; |
● | our ability to manage expenses and our investments in working capital; |
● | the continued impact of gross margin pressure in the PBM industry due to continued consolidation and client demand for lower prices while providing enhanced service offerings; |
● | risks related to breaches of our (or our vendors’) information or payment systems or unauthorized access to confidential or personal information of our associates or customers; |
● | our ability to maintain our current pharmacy services business and obtain new pharmacy services business, including maintaining renewals of expiring contracts, avoiding contract termination rights that may permit certain of our clients to terminate their contracts prior to their expiration, early price renegotiations prior to contract expirations and the risk that we cannot meet client guarantees; |
● | our ability to manage our Medicare Part D Plan medical loss ratio (“MLR”) and meet the financial obligations of the plan; |
● | the risk that we could experience deterioration in our current Star rating with the CMS or incur CMS penalties and/or sanctions; |
● | the expiration or termination of our Medicare or Medicaid managed care contracts by federal or state governments; |
● | changes in future exchange or interest rates (including the impact on our variable rate indebtedness) or credit ratings, changes in tax laws, regulations, rates and policies; and |
● | other risks and uncertainties described from time to time in our filings with the Securities and Exchange Commission (the “SEC”). |
· our high level of indebtedness;
· our ability to make interest and principal payments on our debt and satisfy the other covenants contained in our credit facilities and other debt agreements;
· the continued impact of private and public third party payors reduction in prescription drug reimbursement rates and their ongoing efforts to limit access to payor networks, including through mail order;
· our ability to achieve the benefits of our efforts to reduce the costs of our generic and other drugs, and our ability to achieve drug pricing efficiencies;
· the impact of the loss of one or more major third party payor contracts;
· the inability to complete the remaining subsequent closings of the Sale (as defined in Note 3 below) and recognize the corresponding expected gain due to the failure to satisfy the minimal remaining conditions applicable only to the stores being transferred at such subsequent closing and other risks related to obtaining the requisite consents to the remaining subsequent closings of the Sale;
· the impact on our business, operating results and relationships with customers, suppliers, third party payors, and employees, resulting from our efforts over the past two years to consummate a significant transaction with Walgreens Boots Alliance, Inc. (“WBA”), including the fact that we did not obtain the required antitrust regulatory approvals for the contemplated merger and the original version of the asset sale agreement that was entered into following the termination of the merger;
· the risk that our stock price may decline significantly if the remaining subsequent closings of the Sale are not completed;
· our ability to refinance our indebtedness on terms favorable to us;
· there may be changes to our strategy in the event that the remaining subsequent closings of the Sale do not close, which may include delaying or reducing capital or other expenditures, selling assets or other operations, closing underperforming stores, attempting to restructure or refinance our debt, seeking additional capital or incurring other costs associated with restructuring our business;
· our ability to improve the operating performance of our stores in accordance with our long term strategy;
· our ability to grow prescription count and realize front-end sales growth;
· our ability to hire and retain qualified personnel;
· decisions to close additional stores and distribution centers or undertake additional refinancing activities, which could result in charges to our operating statement;
· our ability to manage expenses and working capital;
· continued consolidation of the drugstore and the pharmacy benefit management (“PBM”) industries;
· the risk that changes in federal or state laws or regulations, including the Health Care Education Affordability Reconciliation Act, the repeal of all or part of the Patient Protection and the Affordable Care Act (or “Patient Care Act”) and any regulations enacted thereunder may occur;
· the risk that provider and state contract changes may occur;
· risks related to compromises of our information or payment systems or unauthorized access to confidential or personal information of our associates or customers;
· our ability to maintain our current pharmacy services business and obtain new pharmacy services business, including maintaining renewals of expiring contracts, avoiding contract termination rights that may permit certain of our clients to terminate their contracts prior to their expiration and early price renegotiations prior to contract expirations;
· the continued impact of gross margin pressure in the PBM industry due to increased market competition and client demand for lower prices while providing enhanced service offerings;
· our ability to maintain our current Medicare Part D business and obtain new Medicare Part D business, as a result of the annual Medicare Part D competitive bidding process;
· the expiration or termination of our Medicare or Medicaid managed care contracts by federal or state governments;
· risks related to other business effects, including the effects of industry, market, economic, political or regulatory conditions, future exchange or interest rates or credit ratings, changes in tax laws, regulations, rates and policies or competitive development including aggressive promotional activity from our competitors;
· the risk that we could experience deterioration in our current Star rating with the Centers of Medicare and Medicaid Services (“CMS”) or incur CMS penalties and/or sanctions;
· the nature, cost and outcome of pending and future litigation and other legal proceedings or governmental investigations, including any such proceedings related to the Merger or Sale and instituted against us and others;
· the potential reputational risk to our business during the period in which WBA is operating the Acquired Stores (as defined below) under the Rite Aid banner;
· the risk that the Tax Cuts and Jobs Act that was enacted on December 22, 2017 may have a negative impact on our financial results;
· the inability to fully realize the benefits of our tax attributes despite our entry into the Tax Benefits Preservation Plan;
· other risks and uncertainties described from time to time in our filings with the Securities and Exchange Commission (the “SEC”).
We undertake no obligation to update or revise the forward-looking statements included in this report, whether as a result of new information, future events or otherwise, after the date of this report. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences are discussed in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”Results” included herein and in our Annual Report on Form 10-K for the fiscal year ended March 4, 2017February 26, 2022 (the “Fiscal 20172022 10-K”), as well as in “Part I – Item 1A. Risk Factors” of the Fiscal 2022 10-K, which we filed with the SEC on May 3, 2017,April 25, 2022. To the extent that COVID-19 adversely affects our Quarterly Report on Form 10-Q forbusiness and
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financial results, it may also have the thirteen weeks ended June 3, 2017 (the “First Quarter 2018 10-Q”) which we filed on July 6, 2017, and our Quarterly Report on Form 10-Q for the thirteen weeks ended September 2, 2017 (the “Second Quarter 2018 10-Q”) which we filed on October 5, 2017, as well as in the “Risk Factors” sectioneffect of heightening many of the risk factors described herein and in our Fiscal 20172022 10-K. These documents are available on the SEC’s website at www.sec.gov.
5
PART I. FINANCIAL INFORMATION
RITE AID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(unaudited)
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| December 2, 2017 |
| March 4, |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
| $ | 169,800 |
| $ | 245,410 |
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Accounts receivable, net |
| 1,796,919 |
| 1,771,126 |
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Inventories, net of LIFO reserve of $627,718 and $607,326 |
| 1,853,886 |
| 1,789,541 |
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Prepaid expenses and other current assets |
| 240,712 |
| 211,541 |
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Current assets held for sale |
| 1,868,128 |
| 1,047,670 |
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Total current assets |
| 5,929,445 |
| 5,065,288 |
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Property, plant and equipment, net |
| 1,479,214 |
| 1,526,462 |
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Goodwill |
| 1,682,847 |
| 1,682,847 |
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Other intangibles, net |
| 618,274 |
| 715,406 |
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Deferred tax assets |
| 1,419,544 |
| 1,505,564 |
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Other assets |
| 211,290 |
| 215,917 |
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Noncurrent assets held for sale |
| — |
| 882,268 |
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Total assets |
| $ | 11,340,614 |
| $ | 11,593,752 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Current maturities of long-term debt and lease financing obligations |
| $ | 20,354 |
| $ | 17,709 |
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Accounts payable |
| 1,789,456 |
| 1,613,909 |
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Accrued salaries, wages and other current liabilities |
| 1,258,586 |
| 1,340,947 |
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Current liabilities held for sale |
| 3,837,519 |
| 32,683 |
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Total current liabilities |
| 6,905,915 |
| 3,005,248 |
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Long-term debt, less current maturities |
| 2,985,700 |
| 3,235,888 |
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Lease financing obligations, less current maturities |
| 31,654 |
| 37,204 |
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Other noncurrent liabilities |
| 592,201 |
| 643,950 |
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Noncurrent liabilities held for sale |
| — |
| 4,057,392 |
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Total liabilities |
| 10,515,470 |
| 10,979,682 |
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Commitments and contingencies |
| — |
| — |
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Stockholders’ equity: |
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Common stock, par value $1 per share; 1,500,000 shares authorized; shares issued and outstanding 1,067,887 and 1,053,690 |
| 1,067,887 |
| 1,053,690 |
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Additional paid-in capital |
| 4,846,213 |
| 4,839,854 |
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Accumulated deficit |
| (5,048,182 | ) | (5,237,157 | ) | ||
Accumulated other comprehensive loss |
| (40,774 | ) | (42,317 | ) | ||
Total stockholders’ equity |
| 825,144 |
| 614,070 |
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Total liabilities and stockholders’ equity |
| $ | 11,340,614 |
| $ | 11,593,752 |
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| | May 28, | | February 26, | ||
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| 2022 |
| 2022 | ||
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 56,060 | | $ | 39,721 |
Accounts receivable, net | |
| 1,449,745 | |
| 1,343,496 |
Inventories, net of LIFO reserve of $487,173 and $487,173 | |
| 1,974,759 | |
| 1,959,389 |
Prepaid expenses and other current assets | |
| 88,860 | |
| 106,749 |
Total current assets | |
| 3,569,424 | |
| 3,449,355 |
Property, plant and equipment, net | |
| 985,121 | |
| 989,167 |
Operating lease right-of-use assets | | | 2,723,405 | | | 2,813,535 |
Goodwill | | | 879,136 | | | 879,136 |
Other intangibles, net | |
| 282,950 | |
| 291,196 |
Deferred tax assets | | | 20,071 | | | 20,071 |
Other assets | |
| 89,666 | |
| 86,543 |
Total assets | | $ | 8,549,773 | | $ | 8,529,003 |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
Current liabilities: | | | | | | |
Current maturities of long-term debt and lease financing obligations | | $ | 5,016 | | $ | 5,544 |
Accounts payable | |
| 1,461,238 | |
| 1,571,261 |
Accrued salaries, wages and other current liabilities | |
| 787,591 | |
| 780,632 |
Current portion of operating lease liabilities | | | 574,392 | | | 575,651 |
Total current liabilities | |
| 2,828,237 | |
| 2,933,088 |
Long-term debt, less current maturities | |
| 3,026,456 | |
| 2,732,986 |
Long-term operating lease liabilities | | | 2,526,607 | | | 2,597,090 |
Lease financing obligations, less current maturities | |
| 14,392 | |
| 14,830 |
Other noncurrent liabilities | |
| 162,457 | |
| 151,976 |
Total liabilities | |
| 8,558,149 | |
| 8,429,970 |
Commitments and contingencies | |
| — | |
| — |
Stockholders’ equity: | | | | | | |
Common stock, par value $1 per share; 75,000 shares authorized; shares issued and outstanding 55,623 and 55,752 | |
| 55,623 | |
| 55,752 |
Additional paid-in capital | |
| 5,913,210 | |
| 5,910,299 |
Accumulated deficit | |
| (5,961,772) | |
| (5,851,581) |
Accumulated other comprehensive loss | |
| (15,437) | |
| (15,437) |
Total stockholders’ equity | |
| (8,376) | |
| 99,033 |
Total liabilities and stockholders’ equity | | $ | 8,549,773 | | $ | 8,529,003 |
See accompanying notes to condensed consolidated financial statements.
6
RITE AID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
|
| Thirteen Week Period Ended |
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| December 2, 2017 |
| November 26, 2016 |
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Revenues |
| $ | 5,353,170 |
| $ | 5,669,111 |
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Costs and expenses: |
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Cost of revenues |
| 4,166,447 |
| 4,424,259 |
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Selling, general and administrative expenses |
| 1,166,514 |
| 1,168,646 |
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Lease termination and impairment charges |
| 3,939 |
| 7,199 |
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Interest expense |
| 50,308 |
| 50,304 |
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Loss (gain) on sale of assets, net |
| 205 |
| (225 | ) | ||
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| 5,387,413 |
| 5,650,183 |
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Loss (income) from continuing operations before income taxes |
| (34,243 | ) | 18,928 |
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Income tax benefit |
| (16,061 | ) | (4,682 | ) | ||
Net (loss) income from continuing operations |
| (18,182 | ) | 23,610 |
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Net income (loss) from discontinued operations, net of tax |
| 99,213 |
| (8,600 | ) | ||
Net income |
| $ | 81,031 |
| $ | 15,010 |
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Computation of (loss) income attributable to common stockholders: |
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(Loss) income from continuing operations attributable to common stockholders—basic and diluted |
| $ | (18,182 | ) | $ | 23,610 |
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Income (loss) from discontinued operations attributable to common stockholders—basic and diluted |
| 99,213 |
| (8,600 | ) | ||
Income attributable to common stockholders—basic and diluted |
| $ | 81,031 |
| $ | 15,010 |
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Basic (loss) income per share: |
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Continuing operations |
| $ | (0.02 | ) | $ | 0.02 |
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Discontinued operations |
| $ | 0.10 |
| $ | (0.01 | ) |
Net basic income per share |
| $ | 0.08 |
| $ | 0.01 |
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Diluted (loss) income per share: |
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Continuing operations |
| $ | (0.02 | ) | $ | 0.02 |
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Discontinued operations |
| $ | 0.10 |
| $ | (0.01 | ) |
Net diluted income per share |
| $ | 0.08 |
| $ | 0.01 |
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| | | | | | |
| | Thirteen Week Period Ended | ||||
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| May 28, 2022 |
| May 29, 2021 | ||
Revenues | | $ | 6,014,583 | | $ | 6,160,985 |
Costs and expenses: | | | | | | |
Cost of revenues | |
| 4,817,854 | |
| 4,876,110 |
Selling, general and administrative expenses | |
| 1,217,929 | |
| 1,245,362 |
Facility exit and impairment charges | |
| 66,571 | |
| 8,831 |
Interest expense | |
| 48,119 | |
| 49,121 |
Loss on debt retirements, net | |
| — | |
| 396 |
Gain on sale of assets, net | |
| (29,196) | |
| (6,558) |
| |
| 6,121,277 | |
| 6,173,262 |
Loss before income taxes | |
| (106,694) | |
| (12,277) |
Income tax expense | |
| 3,497 | |
| 780 |
Net loss | | $ | (110,191) | | $ | (13,057) |
Computation of loss attributable to common stockholders: | | | | | | |
Net loss attributable to common stockholders—basic and diluted | | $ | (110,191) | | $ | (13,057) |
| | | | | | |
Basic and diluted loss per share | | $ | (2.03) | | $ | (0.24) |
See accompanying notes to condensed consolidated financial statements.
7
RITE AID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMELOSS
(In thousands)
(unaudited)
|
| Thirteen Week Period Ended |
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|
| December 2, 2017 |
| November 26, 2016 |
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Net income |
| $ | 81,031 |
| $ | 15,010 |
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Other comprehensive income: |
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Defined benefit pension plans: |
|
|
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Amortization of prior service cost, net transition obligation and net actuarial losses included in net periodic pension cost, net of $342 and $451 tax expense |
| 514 |
| 681 |
| ||
Total other comprehensive income |
| 514 |
| 681 |
| ||
Comprehensive income |
| $ | 81,545 |
| $ | 15,691 |
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| | | | | | |
| | Thirteen Week Period Ended | ||||
|
| May 28, 2022 |
| May 29, 2021 | ||
Net loss | | $ | (110,191) | | $ | (13,057) |
Other comprehensive income: | | | | | | |
Defined benefit pension plans: | | | | | | |
Amortization of net actuarial losses included in net periodic pension cost, net of $0 and $0 income tax expense | |
| — | |
| 123 |
Change in fair value of interest rate cap | | | — | | | 27 |
Total other comprehensive income | |
| — | |
| 150 |
Comprehensive loss | | $ | (110,191) | | $ | (12,907) |
See accompanying notes to condensed consolidated financial statements.
8
RITE AID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSSTOCKHOLDERS’ EQUITY
(In thousands, except per share amounts)
(unaudited)
|
| Thirty-Nine Week Period Ended |
| ||||
|
| December 2, 2017 |
| November 26, 2016 |
| ||
Revenues |
| $ | 16,134,704 |
| $ | 17,024,154 |
|
Costs and expenses: |
|
|
|
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Cost of revenues |
| 12,624,365 |
| 13,308,505 |
| ||
Selling, general and administrative expenses |
| 3,469,298 |
| 3,523,850 |
| ||
Lease termination and impairment charges |
| 11,090 |
| 20,203 |
| ||
Interest expense |
| 152,165 |
| 146,674 |
| ||
Walgreens Boots Alliance merger termination fee |
| (325,000 | ) | — |
| ||
Gain on sale of assets, net |
| (20,623 | ) | (388 | ) | ||
|
| 15,911,295 |
| 16,998,844 |
| ||
Income from continuing operations before income taxes |
| 223,409 |
| 25,310 |
| ||
Income tax expense (benefit) |
| 89,268 |
| (3,824 | ) | ||
Net income from continuing operations |
| 134,141 |
| 29,134 |
| ||
Net income (loss) from discontinued operations, net of tax |
| 42,257 |
| (3,939 | ) | ||
Net income |
| $ | 176,398 |
| $ | 25,195 |
|
Computation of income (loss) attributable to common stockholders: |
|
|
|
|
| ||
Income from continuing operations attributable to common stockholders—basic and diluted |
| $ | 134,141 |
| $ | 29,134 |
|
Income (loss) from discontinued operations attributable to common stockholders—basic and diluted |
| 42,257 |
| (3,939 | ) | ||
Income attributable to common stockholders—basic and diluted |
| $ | 176,398 |
| $ | 25,195 |
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Basic income (loss) per share: |
|
|
|
|
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Continuing operations |
| $ | 0.13 |
| $ | 0.03 |
|
Discontinued operations |
| $ | 0.04 |
| $ | (0.01 | ) |
Net basic income per share |
| $ | 0.17 |
| $ | 0.02 |
|
|
|
|
|
|
| ||
Diluted income (loss) per share: |
|
|
|
|
| ||
Continuing operations |
| $ | 0.13 |
| $ | 0.03 |
|
Discontinued operations |
| $ | 0.04 |
| $ | (0.01 | ) |
Net diluted income per share |
| $ | 0.17 |
| $ | 0.02 |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | Additional | | | | | Other | | | | ||
| | Common Stock | | Paid-In | | Accumulated | | Comprehensive | | | | ||||||
|
| Shares |
| Amount |
| Capital |
| Deficit |
| Loss |
| Total | |||||
BALANCE FEBRUARY 26, 2022 | | 55,752 | | $ | 55,752 | | $ | 5,910,299 | | $ | (5,851,581) | | $ | (15,437) | | $ | 99,033 |
Net loss | | | | | | | | | |
| (110,191) | | | | | | (110,191) |
Other comprehensive loss: | | | | | | | | | | | | | | | | | |
Comprehensive loss | | | | | | | | | | | | | | | | | (110,191) |
Issuance of restricted stock | | 61 | | | 61 | | | (61) | | | | | | | | | — |
Exchange of restricted shares for taxes | | (63) | | | (63) | | | (490) | | | | | | | | | (553) |
Cancellation of restricted stock | | (127) | | | (127) | | | 127 | | | | | | | | | — |
Amortization of restricted stock balance | | | | | | | | 3,324 | | | | | | | | | 3,324 |
Stock-based compensation expense | | | | | | | | 201 | | | | | | | | | 201 |
Amortization of performance-based incentive plans | | | | | | | | (190) | | | | | | | | | (190) |
BALANCE MAY 28, 2022 | | 55,623 | | $ | 55,623 | | $ | 5,913,210 | | $ | (5,961,772) | | $ | (15,437) | | $ | (8,376) |
See accompanying notes to condensed consolidated financial statements.
9
RITE AID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMESTOCKHOLDERS’ EQUITY
(In thousands)thousands, except per share amounts)
(unaudited)
|
| Thirty-Nine Week Period Ended |
| ||||
|
| December 2, 2017 |
| November 26, 2016 |
| ||
Net income |
| $ | 176,398 |
| $ | 25,195 |
|
Other comprehensive income: |
|
|
|
|
| ||
Defined benefit pension plans: |
|
|
|
|
| ||
Amortization of prior service cost, net transition obligation and net actuarial losses included in net periodic pension cost, net of $1,026 and $1,353 tax expense |
| 1,543 |
| 2,043 |
| ||
Total other comprehensive income |
| 1,543 |
| 2,043 |
| ||
Comprehensive income |
| $ | 177,941 |
| $ | 27,238 |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | Additional | | | | | Other | | | | ||
| | Common Stock | | Paid-In | | Accumulated | | Comprehensive | | | | ||||||
|
| Shares |
| Amount |
| Capital |
| Deficit |
| Loss |
| Total | |||||
BALANCE FEBRUARY 27, 2021 |
| 55,143 | | $ | 55,143 | | $ | 5,897,168 | | $ | (5,313,103) | | $ | (24,054) | | $ | 615,154 |
Net loss | | | | | | | | | |
| (13,057) | | | | | | (13,057) |
Other comprehensive loss: | | | | | | | | | | | | | | | | | |
Changes in Defined Benefit Plans, net of $0 tax expense | | | | | | | | | | | | | | 123 | | | 123 |
Change in fair value of interest rate cap | | | | | | | | | | | | | | 27 | | | 27 |
Comprehensive loss | | | | | | | | | | | | | | | | | (12,907) |
Exchange of restricted shares for taxes | | (2) | | | (2) | | | (33) | | | | | | | | | (35) |
Cancellation of restricted stock | | (48) | | | (48) | | | 48 | | | | | | | | | — |
Amortization of restricted stock balance | | | | | | | | 1,618 | | | | | | | | | 1,618 |
Stock-based compensation expense | | | | | | | | 150 | | | | | | | | | 150 |
BALANCE MAY 29, 2021 | | 55,093 | | $ | 55,093 | | $ | 5,898,951 | | $ | (5,326,160) | | $ | (23,904) | | $ | 603,980 |
See accompanying notes to condensed consolidated financial statements.
10
RITE AID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
|
| Thirty-Nine Week Period Ended |
| ||||
|
| December 2, 2017 |
| November 26, 2016 |
| ||
Operating activities: |
|
|
|
|
| ||
Net income |
| $ | 176,398 |
| $ | 25,195 |
|
Net income (loss) from discontinued operations, net of tax |
| 42,257 |
| (3,939 | ) | ||
Net income from continuing operations |
| $ | 134,141 |
| $ | 29,134 |
|
Adjustments to reconcile to net cash provided by operating activities of continuing operations: |
|
|
|
|
| ||
Depreciation and amortization |
| 292,448 |
| 304,460 |
| ||
Lease termination and impairment charges |
| 11,090 |
| 20,203 |
| ||
LIFO charge |
| 20,393 |
| 25,266 |
| ||
Gain on sale of assets, net |
| (20,623 | ) | (388 | ) | ||
Stock-based compensation expense |
| 22,550 |
| 36,766 |
| ||
Changes in deferred taxes |
| 98,597 |
| 6,165 |
| ||
Excess tax benefit on stock options and restricted stock |
| — |
| (3,809 | ) | ||
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Accounts receivable |
| (19,865 | ) | (81,520 | ) | ||
Inventories |
| (84,731 | ) | (128,568 | ) | ||
Accounts payable |
| 118,941 |
| 178,266 |
| ||
Other assets and liabilities, net |
| (148,491 | ) | (212,727 | ) | ||
Net cash provided by operating activities of continuing operations |
| 424,450 |
| 173,248 |
| ||
Investing activities: |
|
|
|
|
| ||
Payments for property, plant and equipment |
| (140,816 | ) | (197,723 | ) | ||
Intangible assets acquired |
| (20,201 | ) | (35,986 | ) | ||
Proceeds from insured loss |
| 3,627 |
| — |
| ||
Proceeds from dispositions of assets and investments |
| 19,254 |
| 10,217 |
| ||
Net cash used in investing activities of continuing operations |
| (138,136 | ) | (223,492 | ) | ||
Financing activities: |
|
|
|
|
| ||
Net (payments to) proceeds from revolver |
| (264,080 | ) | 280,000 |
| ||
Principal payments on long-term debt |
| (7,292 | ) | (12,728 | ) | ||
Change in zero balance cash accounts |
| 27,594 |
| 30,685 |
| ||
Net proceeds from issuance of common stock |
| 4,416 |
| 4,412 |
| ||
Excess tax benefit on stock options and restricted stock |
| — |
| 3,809 |
| ||
Payments for taxes related to net share settlement of equity awards |
| (4,103 | ) | (6,254 | ) | ||
Net cash (used in) provided by financing activities of continuing operations |
| (243,465 | ) | 299,924 |
| ||
Cash flows from discontinued operations: |
|
|
|
|
| ||
Operating activities of discontinued operations |
| (62,294 | ) | (1,541 | ) | ||
Investing activities of discontinued operations |
| 189,175 |
| (148,884 | ) | ||
Financing activities of discontinued operations |
| (245,340 | ) | (3,698 | ) | ||
Net cash used in discontinued operations |
| (118,459 | ) | (154,123 | ) | ||
(Decrease) increase in cash and cash equivalents |
| (75,610 | ) | 95,557 |
| ||
Cash and cash equivalents, beginning of period |
| 245,410 |
| 124,471 |
| ||
Cash and cash equivalents, end of period |
| $ | 169,800 |
| $ | 220,028 |
|
| | | | | | |
| | Thirteen Week Period Ended | ||||
|
| May 28, 2022 |
| May 29, 2021 | ||
Operating activities: | | | | | | |
Net loss | | $ | (110,191) | | $ | (13,057) |
Adjustments to reconcile to net cash (used in) provided by operating activities: | | | | | | |
Depreciation and amortization | |
| 70,073 | |
| 75,859 |
Facility exit and impairment charges | |
| 66,571 | |
| 8,831 |
LIFO credit | |
| — | |
| (3,993) |
Gain on sale of assets, net | |
| (29,196) | |
| (6,558) |
Change in allowances for uncollectible accounts receivable | | | 3,763 | | | — |
Stock-based compensation expense | |
| 3,334 | |
| 2,811 |
Loss on debt retirements, net | |
| — | |
| 396 |
Changes in operating assets and liabilities: | | | | | | |
Accounts receivable | |
| (104,458) | |
| (149,487) |
Inventories | |
| (15,827) | |
| 11,918 |
Accounts payable | |
| (137,572) | |
| 50,527 |
Operating lease right-of-use assets and operating lease liabilities | | | (14,812) | | | (5,909) |
Other assets | |
| 751 | |
| 7,978 |
Other liabilities | | | 15,327 | | | 34,559 |
Net cash (used in) provided by operating activities | |
| (252,237) | |
| 13,875 |
Investing activities: | | | | | | |
Payments for property, plant and equipment | |
| (73,176) | |
| (59,164) |
Intangible assets acquired | | | (12,248) | | | (5,436) |
Proceeds from dispositions of assets and investments | | | 30,839 | | | 2,448 |
Proceeds from sale-leaseback transactions | |
| — | |
| 7,456 |
Net cash used in investing activities | |
| (54,585) | |
| (54,696) |
Financing activities: | | | | | | |
Net proceeds from revolver | |
| 291,000 | |
| 39,000 |
Principal payments on long-term debt | |
| (977) | |
| (91,941) |
Change in zero balance cash accounts | |
| 33,691 | |
| 51,957 |
Financing fees paid for early debt redemption | |
| — | |
| (2) |
Payments for taxes related to net share settlement of equity awards | | | (553) | | | (35) |
Deferred financing costs paid | |
| — | |
| (580) |
Net cash provided by (used in) financing activities | |
| 323,161 | |
| (1,601) |
Increase (decrease) in cash and cash equivalents | |
| 16,339 | |
| (42,422) |
Cash and cash equivalents, beginning of period | |
| 39,721 | |
| 160,902 |
Cash and cash equivalents, end of period | | $ | 56,060 | | $ | 118,480 |
See accompanying notes to condensed consolidated financial statements.
11
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen and Thirty-Nine Week Periods Ended December 2, 2017May 28, 2022 and November 26, 2016May 29, 2021
(Dollars and share information in thousands, except per share amounts)
(unaudited)
1. Basis of Presentation and Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and therefore do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete annual financial statements. The accompanying financial information reflects all adjustments which are of a recurring nature and, in the opinion of management, are necessary for a fair presentation of the results for the interim periods. The results of operations for the thirteen and thirty-nine week periodsperiod ended December 2, 2017May 28, 2022 are not necessarily indicative of the results to be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Rite Aid Corporation (“Rite Aid”) and Subsidiaries (together with Rite Aid, the “Company”) Fiscal 20172022 10-K.
Revenue Recognition
The discussionfollowing table disaggregates the Company’s revenue by major source in each segment for the thirteen week periods ended May 28, 2022 and presentationMay 29, 2021:
| | | | | |
| May 28, |
| May 29, | ||
| 2022 | | 2021 | ||
In thousands | (13 Weeks) |
| (13 weeks) | ||
Retail Pharmacy segment: | |
|
| |
|
Pharmacy sales | $ | 3,053,449 | | $ | 2,997,044 |
Front-end sales |
| 1,261,206 | |
| 1,321,699 |
Other revenue |
| 30,701 | |
| 32,939 |
Total Retail Pharmacy segment | | 4,345,356 | | | 4,351,682 |
Pharmacy Services segment |
| 1,725,857 | |
| 1,872,282 |
Intersegment elimination |
| (56,630) | |
| (62,979) |
Total revenue | $ | 6,014,583 | | $ | 6,160,985 |
The Retail Pharmacy segment offered a chain-wide loyalty card program titled wellness+. Individual customers were able to become members of the operatingwellness+ program. Members participating in the wellness+ loyalty card program earned points on a calendar year basis for eligible front-end merchandise purchases and financial resultsqualifying prescription purchases. The wellness+ program was terminated as of our business segments have been impacted byJuly 1, 2020, with benefits earned as of that date available to be used through the following event.
On November 27, 2017,end of calendar 2020. Beginning in December 2020, the Company announcedgranted temporary extensions of benefits to certain previous members that it had completed the pilot closing and first subsequent closing under the previously announced Amended and Restated Asset Purchase Agreement (the “Amended and Restated Asset Purchase Agreement” or the “Sale”), dated as of September 18, 2017, by and among the Company, WBA and Walgreen Co., an Illinois corporation and wholly owned direct subsidiary of WBA (“Buyer”). Based on its magnitude and because the Company is exiting certain markets, the Sale representswere eligible for 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 assets and liabilities to be sold, including 1,932 stores (the “Acquired Stores”), three (3) distribution centers, related inventory and other specified assets and liabilities related thereto (collectively the “Assets to be Sold” or “Disposal Group”) to assets and liabilities held for sale on its condensed consolidated balance sheetsdiscount as of the periods endedend of each previous 6 month period such that those prior members were eligible to continue to receive that discount on purchases made through the subsequent 6 months with no additional purchase requirement. New and existing customers who were not already eligible for program benefits also had the opportunity to earn additional discounts on purchases made through each 6 month period. A final extension was granted on December 2, 201731, 2021 through February 26, 2022 at which point all discounts were terminated.
A new loyalty program, Rite Aid Rewards, was initiated on February 27, 2022. Customers that enroll in the new program earn points for each dollar spent on front of store purchases as well as for eligible pharmacy prescriptions. Points can then be converted into a “Rite Aid Rewards” coupon that can be tendered as payment in a future purchase. Each point is worth $0.002. Customers must accumulate 1,000 points and March 4, 2017,create an online account in order to convert
12
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen Week Periods Ended May 28, 2022 and reclassifiedMay 29, 2021
(Dollars and share information in thousands, except per share amounts)
(unaudited)
earned points to a “Rite Aid Rewards” coupon. Unused/unconverted points expire after 90 days. Unredeemed “Rite Aid Rewards” coupons expire 30 days after conversion from points earned.
Points earned pursuant to the financial resultsRite Aid Rewards program represent a performance obligation. The value of unredeemed Rite Aid Rewards points is deferred as a contract liability (included in other current liabilities). As members redeem points in the form of a Rite Aid Rewards coupon or when points or unredeemed Rite Aid Rewards coupons expire, the Retail Pharmacy segment recognizes the redeemed/expired portion of the Disposal Group in its condensed consolidated statementsdeferred contract liability into revenue. For the thirteen week period ended May 28, 2022, the Company recognized $713 of operationsdeferred contract liability into revenue. The Retail Pharmacy segment had accrued contract liabilities of $5,577 and condensed consolidated statements$0 as of cash flows for all periods presented. Additionally, corporate support activities related to the Disposal Group were not reclassified to discontinued operations. Please see additional information as provided in Note 3 Asset Sale to WBA.May 28, 2022 and February 26, 2022, respectively.
Recently Adopted Accounting Pronouncements
In March 2016,December 2019, the FASB issued ASU No. 2016-09,2019-12, Compensation—Stock Compensation,Simplifying the Accounting for Income Taxes (Topic 718): Improvements to Employee Share-Based Payment Accounting740), which amends. This ASU simplifies the accounting for income taxes by removing certain aspects of share-based paymentsexceptions to employeesthe general principles in ASC Topic 718, Compensation — Stock Compensation. The new guidance eliminates the accounting for any excess tax benefits and deficiencies through equity and requires all excess tax benefits and deficiencies740 related to employee share-based compensation arrangements to be recorded in the income statement. This aspect of the new guidance is required to be applied prospectively. The new guidance also requires (i.) the presentation of excessapproach for intraperiod tax benefits on the statement of cash flows as an operating activity rather than a financing activity, a change which may be applied prospectively or retrospectively and (ii.) the presentation of employee taxes paid when an employer withholds shares for tax withholding purposes on the statement of cash flows as a financing activity, a change which must be applied retrospectively. The new guidance further provides an accounting policy election to account for forfeitures as they occur rather than utilizing the estimated amount of forfeitures at the time of issuance. The Company adopted this new guidance effective March 5, 2017. The primary impact of adoption was (i.) the modified retrospective recognition of the cumulative amount of previously unrecognized excess tax benefits as an opening balance sheet adjustment and (ii.)allocation, the recognition of excessdeferred tax benefitsliabilities and the methodology for calculating income taxes in the income statement on a prospective basis, rather than equity. As a result, the Company (i.) increased the deferred tax asset and reduced accumulated deficit by $12,577 as of the beginning of the thirty-nine weeks ended December 2, 2017, and (ii.) the Company recognized a discrete income tax expense of $10,186 in income tax expense for the thirty-nine weeks ended December 2, 2017.interim period. The Companyamendments also elected to adopt the cash flow presentation of the excess tax benefits prospectively commencing in the first quarter of fiscal 2018. The retrospectiveimprove consistent application of cash paid on employees’ behalf related to shares withheldand simplify GAAP for tax purposes resulted in an increase to “Net cash providedother areas of Topic 740 by operating activities”clarifying and a decrease to “Net cash provided by financing activities” of $6,254 for the thirty-nine weeks ended November 26, 2016. The Company’s stock-based compensation expense continues to reflect estimated
forfeitures. None of the other provisions in this new guidance had a material impact on the Company’s condensed consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In May 2015, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).amending existing guidance. This ASU removes inconsistencies, complexities and allows transparency and comparability of revenue transactions across entities, industries, jurisdictions and capital markets by providing a single comprehensive principles-based model with additional disclosures regarding uncertainties. The principles-based revenue recognition model has a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchangewas effective for those goods or services. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606), an update to ASU 2014-09. This ASU amends ASU 2014-09 to defer the effective date by one year for annual reporting periodsfiscal years beginning after December 15, 20172020 (fiscal 2019)2022). Subsequently, the FASB has also issued accounting standards updates which clarify the guidance. Early adoption is permitted for annual reporting periods beginning after December 15, 2016 (fiscal 2018). In transition, the ASU may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company doesadopted ASU 2019-12 effective February 28, 2021 and the adoption of this standard did not intend to early adopt the new standard. The Company assembled a cross functional team to identify the population of contracts with customers, for both its Retail Pharmacy and Pharmacy Services segments, and evaluate them under the provisions of ASU 2014-09. The Company intends to adopt the new standard on a modified retrospective basis. Under this implementation method, the Company will recognize the cumulative effect of initially applying the new guidance as an adjustment to the opening retained earnings balance for the annual reporting period of initial application. While the Company is continuing its assessment of all of the potential impacts of the new standard, it does not expect the implementation of the standard to have a material impact on the Company’s consolidated financial position, results of operations or cash flow.
In February 2016, the FASB issued ASU No. 2016-02, Leases, (Topic 842), which is intended to improve financial reporting around leasing transactions. The ASU affects all companies and other organizations that engage in lease transactions (both lessee and lessor) that lease assets such as real estate and manufacturing equipment. This ASU will require organizations that lease assets—referred to as “leases”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. ASU No. 2016-02 is effective for fiscal years and interim periods within those years beginning January 1, 2019 (fiscal 2020). During its November 29, 2017 meeting, the FASB tentatively decided to amend certain aspects of the new leasing standard. The tentative amendments include a provision to allow entities to elect not to restate comparative periods in the period of adoption when transitioning to the new standard. The Company believes that the new standard will have a material impact on its financial position. The Company is currently evaluating the impact this standard implementation will have on its results of operations and cash flows.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other, (Topic 350): Simplifying the Test for Goodwill Impairment, which is intended to simplify the subsequent measurement and impairment of goodwill. The ASU simplifies the complexity of evaluating goodwill for impairment by eliminating the second step of the impairment test, which compares the implied fair value of a reporting unit’s goodwill to the carrying amount of that goodwill. Instead, the ASU requires entities to compare the fair value of a reporting unit to its carrying amount in order to determine the amount of goodwill impairment recognized. ASU No. 2017-04 is effective for fiscal years and interim periods within those years beginning after December 15, 2019 (fiscal 2020). Early adoption of all the amendments for ASU 2017-04 is permitted. Amendments must be applied prospectively. The Company is in process of assessing the impact of the adoption of ASU No. 2017-04 on its financial position, results of operations and cash flows.
2. Acquisition
On June 24, 2015,December 18, 2020, pursuant to that certain stock purchase agreement, dated as of October 7, 2020, by and between the Company and Bartell Drug Company (“Bartell”), the Company acquired TPG VI Envision BL, LLC and Envision Topco Holdings, LLC (“EnvisionRx”), pursuant to the terms of an agreement (“Agreement”) dated February 10, 2015Bartell (the “Acquisition”). EnvisionRx, which has been rebranded as EnvisionRxOptions (“EnvisionRx” or “EnvisionRxOptions”), is a full-service pharmacy services provider. EnvisionRx provides both transparentWashington corporation, for approximately $89,724 in cash, subject to certain customary post-closing working capital adjustments. The Company financed the Acquisition with borrowings under its Senior Secured Revolving Credit Facility together with cash on hand. Bartell operated 67 retail drug stores and traditional pharmacy benefit manager (“PBM”) service options through its EnvisionRx and MedTrak PBMs, respectively. EnvisionRx also offers fully integrated mail-order and specialty pharmacy services through EnvisionPharmacies; access to1 distribution center in the nation’s largest cash pay infertility discount drug program via Design Rx; an innovative claims adjudication software platform in Laker Software; and a national Medicare Part D prescription drug plan through Envision Insurance Company’s (“EIC”) EnvisionRx Plus Silver product for the low income auto-assign market and its Clear Choice product for the chooser market. EnvisionRx is headquartered in Twinsburg, Ohio andgreater Seattle, Washington area. Bartell operates as a 100 percent owned subsidiary of the Company.Company within its Retail Pharmacy segment.
Pursuant to the terms of the Agreement, as consideration for the Acquisition, the Company paid $1,882,211 in cash and issued 27,754 shares of Rite Aid common stock. The Company financed the cash portion of the Acquisition with borrowings under its Amended and Restated Senior Secured Revolving Credit Facility, and the net proceeds from the April 2, 2015 issuance of $1,800,000 aggregate principal amount of 6.125% senior notes due 2023 (the “6.125% Notes”). The consideration associated with the common
stock was $240,907 based on a stock price of $8.68 per share, representing the closing price of the Company’s common stock on the closing date of the Acquisition.
The Company’s condensed consolidated financial statements for the thirteen and thirty-nine week periods ended December 2, 2017May 28, 2022 and November 26, 2016May 29, 2021 include EnvisionRxBartell’s results of operations (please see Note 13 Segment Reporting for the Pharmacy Services segment results included within the condensed consolidated financial statements for the thirteen and thirty-nine week periods ended December 2, 2017 and November 26, 2016, which reflects the results of EnvisionRx).operations. The Company’s condensed consolidated financial statements reflect the final purchase accounting adjustments in accordance with ASC 805 “Business Combinations”, whereby the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values on the Acquisition date.
13
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen Week Periods Ended May 28, 2022 and May 29, 2021
(Dollars and share information in thousands, except per share amounts)
(unaudited)
During fiscal 2017, the Company finalized the valuation of the identifiable assets acquired and the liabilities assumed. The following is the allocation of the purchase price:price and the estimated transaction costs is final:
Final purchase price |
|
|
| |
Cash consideration |
| $ | 1,882,211 |
|
Stock consideration |
| 240,907 |
| |
Total |
| $ | 2,123,118 |
|
Final purchase price allocation |
|
|
| |
Cash and cash equivalents |
| $ | 103,834 |
|
Accounts receivable |
| 892,678 |
| |
Inventories |
| 7,276 |
| |
Prepaid expenses and other current assets |
| 13,386 |
| |
Total current assets |
| 1,017,174 |
| |
Property and equipment |
| 13,196 |
| |
Intangible assets(1) |
| 646,600 |
| |
Goodwill |
| 1,639,355 |
| |
Other assets |
| 7,219 |
| |
Total assets acquired |
| 3,323,544 |
| |
Accounts payable |
| 491,672 |
| |
Reinsurance funds held |
| 381,225 |
| |
Other current liabilities(2) |
| 215,770 |
| |
Total current liabilities |
| 1,088,667 |
| |
Other long term liabilities(3) |
| 111,759 |
| |
Total liabilities assumed |
| 1,200,426 |
| |
Net assets acquired |
| $ | 2,123,118 |
|
| | |
Final purchase price | | |
Cash consideration | $ | 89,724 |
Total |
| 89,724 |
Final purchase price allocation | | |
Cash and cash equivalents | $ | 3,494 |
Accounts receivable |
| 23,860 |
Inventories | | 67,745 |
Prepaid expenses and other current assets | | 1,857 |
Total current assets | | 96,956 |
Property and equipment | | 28,229 |
Operating lease right-of-use assets | | 143,651 |
Intangible assets(1) | | 68,700 |
Other assets | | 1,805 |
Total assets acquired | | 339,341 |
Accounts payable | | 24,166 |
Accrued salaries, wages and other current liabilities | | 20,335 |
Current portion of operating lease liabilities | | 24,617 |
Total current liabilities | | 69,118 |
Long-term operating lease liabilities | | 124,023 |
Other long-term liabilities | | 166 |
Total liabilities assumed | | 193,307 |
Deferred tax liabilities recorded on purchase | | 13,951 |
Net assets acquired | | 132,083 |
Bargain purchase gain | | (42,359) |
Total purchase price | $ | 89,724 |
(1) Intangible assets are recorded at estimated fair value, as determined by management based on available information which includes a final valuation prepared by an independent third party. The fair values assigned to identifiable intangible assets were determined through the use of the income approach, specifically the relief from royalty and the multi-period excess earnings methods. The major assumptions used in arriving at the estimated identifiable intangible asset values included management’s final estimates of future cash flows, discounted at an appropriate rate of return which are based on the weighted average cost of capital for both the Company and other market participants, projected customer attrition rates, as well as applicable royalty rates for comparable assets. The useful lives for intangible assets were determined based upon the remaining useful economic lives of the intangible assets that are expected to contribute directly or indirectly to future cash flows. The estimated fair value of intangible assets and related useful lives as included in the final purchase price allocation include:
14
|
| Estimated |
| Estimated |
| |
Customer relationships |
| $ | 465,000 |
| 17 |
|
CMS license |
| 57,500 |
| 25 |
| |
Claims adjudication and other developed software |
| 59,000 |
| 7 |
| |
Trademarks |
| 20,100 |
| 10 |
| |
Backlog |
| 11,500 |
| 3 |
| |
Trademarks |
| 33,500 |
| Indefinite |
| |
Total |
| $ | 646,600 |
|
|
|
RITE AID CORPORATION AND SUBSIDIARIES
(2) Other current liabilities includes $116,057 due to TPG under
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the terms of the Agreement, representing the amounts due to EnvisionRx from CMS, less corresponding amounts due to various reinsurance providers under certain reinsurance programs, for CMS activities that relate to the year ended December 31, 2014. This liability was satisfied with a payment to TPG on November 5, 2015.Thirteen Week Periods Ended May 28, 2022 and May 29, 2021
(Dollars and share information in thousands, except per share amounts)
(unaudited)
(3) Primarily relates to deferred tax liabilities.
| | | | |
| Estimated Fair Value | | Estimated Useful Life | |
Prescription files | $ | 54,300 | | 10 |
Tradename |
| 14,400 | | Indefinite |
Total | $ | 68,700 | | |
The above goodwill represents future economic benefits expected to be recognized from the Company’s expansion into the pharmacy services market, as well as expected future synergies and operating efficiencies from combining operations with EnvisionRx. Goodwill resulting from the Acquisition of $1,639,355 has been allocated to the Pharmacy Services segment of which $1,368,657 is deductible for tax purposes.
3. Asset Sale to WBA
Termination of Merger Agreement with WBA
On June 28, 2017, Rite Aid, WBA and Victoria Merger Sub, Inc. entered into a Termination Agreement (the “Merger Termination Agreement”) under which the parties agreed to terminate the Merger Agreement. The Merger Termination Agreement provides that WBA would pay to Rite Aid a termination fee in the amount of $325,000, which was received on June 30, 2017.
Entry Into Amended and Restated Asset Purchase Agreement with WBA
On September 18, 2017, the Company entered into the Amended and Restated Asset Purchase Agreement with WBA and Buyer, which amended and restated in its entirety the previously disclosed Asset Purchase Agreement (the “Original APA”), dated as of June 28, 2017, by and among the Company, WBA and Buyer. Pursuant to the terms and subject to the conditions set forth in the Amended and Restated Asset Purchase Agreement, Buyer will purchase from the Company 1,932 stores (the “Acquired Stores”), three (3) distribution centers, related inventory and other specified assets and liabilities related thereto (collectively the “Assets to be Sold” or “Disposal Group”) for a purchase price of approximately $4.375 billion, on a cash-free, debt-free basis (the “Sale”).
The Company announced on September 19, 2017 that the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), expired with respect to the Sale. On November 27, 2017, the Company announced that it had completed the pilot closing and first subsequent closings under the Amended and Restated Asset Purchase Agreement, resulting in the transfer of 97 Rite Aid stores and related assets to the Buyer. With the final significant closing condition met, and the successful completion of the of the pilot closing and the first subsequent closings, the Sale will proceed as contemplated under the Amended and Restated Asset Purchase Agreement. The Sale remains subject to minimal customary closing conditions applicable only to individual stores being transferred at such subsequent 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 Acquired Stores in the ordinary course during the period between the execution of the Amended and Restated Asset Purchase Agreement and the subsequent closings. The Company has also agreed to provide transition services to Buyer for up to three (3) years after the initial closing of the Sale. During the thirteen week period ended December 2, 2017,February 27, 2021, the amount chargedCompany recorded a gain on Bartell acquisition of $47,705 primarily due to Buyer for transition services was nominal.
Infair value adjustments related to prescription files and the eventtradename compared to book values. During the thirteen week period ended November 27, 2021, in connection with determining its final purchase price allocation, the Company recorded a loss on Bartell acquisition of $5,346 primarily due to contract termination charges, inventory valuation adjustments and changes in deferred income taxes, resulting in a net bargain purchase gain of $42,359. The Company believes that the Company enters into an agreementbargain purchase gain was primarily the result of the decision by the Bartell stockholders to sell alltheir interests as Bartell had been experiencing increasing borrowings under its credit agreements to meet its operating needs and increasing net losses. The agreed upon purchase price reflected the fact the seller would have needed to incur further significant debt to cover the operating costs of Bartell, which would have required amendments to its credit arrangements. With the remainder of Rite Aid or over 50% of its stock or assets to a third party priorCompany’s existing infrastructure, scale and expertise, the Company believes that it has access to the end of the transition period under the Transition Services Agreement (“TSA”), any potential acquirer would be obligatednecessary synergies to assume the Company’s remaining obligations under the TSA. Under the terms of the Amended and Restated Asset Purchase Agreement, the Company has the option to purchase pharmaceutical drugs through an affiliate of WBA under terms, including cost, that are substantially equivalent to Walgreen’s for a period of ten (10) years, subject to certain terms and conditions.
Divestiture of the Assetsallow necessary operational improvements to be Soldimplemented more efficiently than the seller was capable of.
During the thirteen weeksweek periods ended December 2, 2017,May 28, 2022 and May 29, 2021, acquisition costs of $0 and $3,886 were expensed as incurred.
3. Restructuring
Beginning in fiscal 2019, the Company sold 97 storesinitiated a series of restructuring plans designed to reorganize its executive management team, reduce managerial layers, and related assets to the Buyer in exchange for proceeds of $240,920, and recognized a pre-tax gain of approximately $157,010. During December 2017,consolidate roles. In March 2020, the Company sold an additional 260announced the details of its RxEvolution strategy, which includes building tools to work with regional health plans to improve patient health outcomes, rationalizing SKU’s in its front-end offering to free up working capital and update its merchandise assortment, assessing its pricing and promotional strategy, rebranding its retail pharmacy and pharmacy services business, launching its Store of the Future format and further reducing SG&A and headcount, including integrating certain back office functions in the Pharmacy Services segment both within the segment and across Rite Aid. Other strategic initiatives include the expansion of the Company’s digital business, replacing and updating the Company’s financial systems to improve efficiency, and movement to a common client platform at Elixir. In April 2022, the Company announced further strategic initiatives to reduce costs through the closure of unprofitable stores, reducing corporate administration expenses and related assetsimproving efficiencies in worked payroll and other store labor costs as well as expense reductions at the Pharmacy Services segment. These and future restructuring activities are expected to WBA for proceeds of $473,980. The Company estimatesprovide future growth and expense efficiency benefits. There can be no assurance that the total pre-tax gain onCompany’s current and future restructuring charges will achieve the Sale will be approximately $2.5 billion. The Company expects to complete the majority of the Sale by the end of its first quarter of fiscal 2019.
The Company classified the operating results of the Disposal Group as discontinued operations in its financial statements in accordance with GAAP, as the divestiture of these assets represents a significant strategic shift that has a material effect on the Company’s operationscost savings and financial results.
The carrying amount of the Assets to be Sold, which were includedremerchandising benefits in the Retail Pharmacy segment, have been reclassified from their historical balance sheet presentation to currentamounts or time anticipated.
15
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen Week Periods Ended May 28, 2022 and non-current assetsMay 29, 2021
(Dollars and liabilities held for sale as follows:share information in thousands, except per share amounts)
(unaudited)
|
| December 2, |
| March 4, |
| ||
Inventories |
| $ | 1,071,253 |
| $ | 1,047,670 |
|
Property and equipment |
| 666,118 |
| — |
| ||
Goodwill (a) |
| 30,994 |
| — |
| ||
Intangible assets |
| 96,461 |
| — |
| ||
Other assets |
| 3,302 |
| — |
| ||
Current assets held for sale |
| $ | 1,868,128 |
| $ | 1,047,670 |
|
Property and equipment |
| $ | — |
| $ | 725,230 |
|
Goodwill (a) |
| — |
| 32,632 |
| ||
Intangible assets |
| — |
| 120,389 |
| ||
Other assets |
| — |
| 4,017 |
| ||
Noncurrent assets held for sale |
| $ | — |
| $ | 882,268 |
|
Current maturities of long-term lease financing obligations |
| $ | 1,908 |
| $ | 3,626 |
|
Accrued salaries, wages and other current liabilities |
| 24,020 |
| 29,057 |
| ||
Long-term debt, less current maturities (b) |
| 3,786,480 |
| — |
| ||
Lease financing obligations, less current maturities |
| 4,164 |
| — |
| ||
Other noncurrent liabilities |
| 20,947 |
| — |
| ||
Current liabilities held for sale |
| $ | 3,837,519 |
| $ | 32,683 |
|
Long-term debt, less current maturities (b) |
| $ | — |
| $ | 4,027,400 |
|
Lease financing obligations, less current maturities |
| — |
| 6,866 |
| ||
Other noncurrent liabilities |
| — |
| 23,126 |
| ||
Noncurrent liabilities held for sale |
| $ | — |
| $ | 4,057,392 |
|
(a) The Company had $76,124 of goodwill in its Retail Pharmacy segment resulting fromFor the acquisition of Health Dialog and RediClinic, which is accounted for as Retail Pharmacy segment enterprise goodwill. The Company has allocated a portion of its Retail Pharmacy segment enterprise goodwill to the discontinued operation.
(b) In connection with the Sale,thirteen week period ended May 28, 2022, the Company is estimating that the Sale will provide excess cash proceedsincurred total restructuring-related costs of approximately $4,027,400$22,646, which will be used to repay outstanding indebtedness. As such, the $4,027,400are included as a component of estimated repayment of outstanding indebtedness has been included in liabilities held for sale as of March 4, 2017. As of December 2, 2017, the Company repaid outstanding indebtedness of $240,920 with transaction proceeds received.
The operating results of the discontinued operations that are reflected on the unaudited condensed consolidated statements of operations within net income (loss) from discontinued operationsSG&A. These costs are as follows:
|
| Thirteen Week Period |
| Thirty-Nine Week Period |
| ||||||||
|
| December 2, |
| November 26, |
| December 2, |
| November 26, |
| ||||
Revenues |
| $ | 2,386,710 |
| $ | 2,452,996 |
| $ | 7,130,653 |
| $ | 7,376,859 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
| ||||
Cost of revenues(a) |
| 1,752,664 |
| 1,802,987 |
| 5,274,187 |
| 5,386,605 |
| ||||
Selling, general and administrative expenses(a) |
| 572,809 |
| 605,216 |
| 1,765,621 |
| 1,821,506 |
| ||||
Lease termination and impairment charges |
| 11 |
| 66 |
| 74 |
| 76 |
| ||||
Interest expense (b) |
| 59,456 |
| 56,006 |
| 178,797 |
| 170,136 |
| ||||
Gain on stores sold to Walgreens Boots Alliance |
| (157,010 | ) | — |
| (157,010 | ) | — |
| ||||
(Gain) loss on sale of assets, net |
| (589 | ) | 726 |
| 23 |
| 2,119 |
| ||||
|
| 2,227,341 |
| 2,465,001 |
| 7,061,692 |
| 7,380,442 |
| ||||
Income (loss) from discontinued operations before income taxes |
| 159,369 |
| (12,005 | ) | 68,961 |
| (3,583 | ) | ||||
Income tax expense (benefit) |
| 60,155 |
| (3,405 | ) | 26,705 |
| 356 |
| ||||
Net income (loss) from discontinued operations, net of tax |
| $ | 99,213 |
| $ | (8,600 | ) | $ | 42,257 |
| $ | (3,939 | ) |
| | | | | | | | | |
| | Retail Pharmacy | | Pharmacy | | | | ||
|
| segment |
| Services segment |
| Total | |||
| | | | | | | | | |
Restructuring-related costs | | | | | | | | | |
Severance and related costs associated with ongoing reorganization efforts (a) |
| $ | 11,288 |
| $ | 616 |
| $ | 11,904 |
Professional and other fees relating to restructuring activities (b) | |
| 6,083 | |
| 4,659 | |
| 10,742 |
Total restructuring-related costs |
| $ | 17,371 |
| $ | 5,275 |
| $ | 22,646 |
(a) CostFor the thirteen week period ended May 29, 2021, the Company incurred total restructuring-related costs of revenues and selling, general and administrative expenses for the discontinued operations excludes corporate overhead.$5,932, which are included as a component of SG&A. These chargescosts are reflected in continuing operations.as follows:
(b) In accordance with ASC 205-20, the operating results
| | | | | | | | | |
| | Retail Pharmacy | | Pharmacy | | | | ||
|
| segment |
| Services segment |
| Total | |||
| | | | | | | | | |
Restructuring-related costs | | | | | | | | | |
Severance and related costs associated with ongoing reorganization efforts (a) |
| $ | — |
| $ | 506 |
| $ | 506 |
Professional and other fees relating to restructuring activities (b) | |
| 1,621 | |
| 3,805 | |
| 5,426 |
Total restructuring-related costs |
| $ | 1,621 |
| $ | 4,311 |
| $ | 5,932 |
A summary of activity for the thirteen and thirty-nine week periodsperiod ended December 2, 2017 and November 26, 2016 forMay 28, 2022 in the discontinued operations include interest expense relating to the $4,027,400 of outstanding indebtedness expected to be repaidrestructuring-related liabilities associated with the estimated excess proceeds from the Sale.programs noted above, which is included in accrued salaries, wages and other current liabilities, is as follows:
| | | | | | | | | |
| | Severance and related | | Professional and | | | | ||
|
| costs (a) |
| other fees (b) |
| Total | |||
| | | | | | | | | |
Balance at February 26, 2022 | $ | 4,257 |
| $ | 4,463 |
| $ | 8,720 | |
Additions charged to expense | | | 11,904 | | | 10,742 | | | 22,646 |
Cash payments | | | (5,231) | | | (11,727) | | | (16,958) |
Balance at May 28, 2022 |
| $ | 10,930 |
| $ | 3,478 |
| $ | 14,408 |
(a) | – Severance and related costs reflect severance accruals, executive search fees, outplacement services and other similar charges associated with ongoing reorganization efforts. |
(b) | – Professional and other fees include costs incurred in connection with the identification and implementation of initiatives associated with restructuring activities. |
The operating results reflected above do not fully representCompany anticipates incurring approximately $60,000 during fiscal 2023 in connection with its continued restructuring activities.
16
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For 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.Thirteen Week Periods Ended May 28, 2022 and May 29, 2021
The Company will continue to generate pharmacy services revenue from the Disposal Group after the Sale is completed. As such, the Company has increased revenues and cost of revenues of the continuing operations to reflect amounts that were previously eliminated in consolidation relating to intercompany sales between the Company and the Disposal Group. Accordingly, the Company has not eliminated $32,381 and $97,301 from revenues and cost of revenues for the thirteen and thirty-nine week periods ended November 26, 2016. Please refer to Note 13 Segment Reporting for the impact on the thirteen and thirty-nine week periods ended December 2, 2017.
(Dollars and share information in thousands, except per share amounts)
(unaudited)
4. Income (Loss) Income Per Share
Basic income (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 income (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.
|
| Thirteen Week Period |
| Thirty-Nine Week Period |
| ||||||||
|
| December 2, |
| November 26, |
| December 2, |
| November 26, |
| ||||
Basic and diluted (loss) income per share: |
|
|
|
|
|
|
|
|
| ||||
Numerator: |
|
|
|
|
|
|
|
|
| ||||
Net (loss) income from continuing operations |
| $ | (18,182 | ) | $ | 23,610 |
| $ | 134,141 |
| $ | 29,134 |
|
Net income (loss) from discontinued operations, net of tax |
| 99,213 |
| (8,600 | ) | 42,257 |
| (3,939 | ) | ||||
Income (loss) attributable to common stockholders basic and diluted |
| $ | 81,031 |
| $ | 15,010 |
| $ | 176,398 |
| $ | 25,195 |
|
Denominator: |
|
|
|
|
|
|
|
|
| ||||
Basic weighted average shares |
| 1,048,502 |
| 1,045,028 |
| 1,048,342 |
| 1,043,887 |
| ||||
Outstanding options and restricted shares, net |
| 7,367 |
| 15,735 |
| 18,948 |
| 17,117 |
| ||||
Diluted weighted-average shares |
| 1,055,869 |
| 1,060,763 |
| 1,067,290 |
| 1,061,004 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Basic and diluted (loss) earnings per share: |
|
|
|
|
|
|
|
|
| ||||
Continuing operations |
| $ | (0.02 | ) | $ | 0.02 |
| $ | 0.13 |
| $ | 0.03 |
|
Discontinued operations |
| 0.10 |
| (0.01 | ) | 0.04 |
| (0.01 | ) | ||||
Net earnings per share |
| $ | 0.08 |
| $ | 0.01 |
| $ | 0.17 |
| $ | 0.02 |
|
| | | | | | | |
| | Thirteen Week Period Ended | | ||||
| | May 28, | | May 29, | | ||
|
| 2022 |
| 2021 | | ||
Basic and diluted loss per share: |
| |
|
| |
|
|
Numerator: | | | | | | | |
Net loss attributable to common stockholders— basic and diluted | | $ | (110,191) | | $ | (13,057) | |
Denominator: | | | | | | | |
Basic and diluted weighted average shares | |
| 54,348 | |
| 53,852 | |
| | | | | | | |
Basic and diluted loss per share | | $ | (2.03) | | $ | (0.24) | |
Due to their antidilutive effect, 9,861700 and 3,320773 potential common shares related to stock options have been excluded from the computation of diluted income (loss) per share for the thirteen week periodperiods ended December 2, 2017May 28, 2022 and November 26, 2016,May 29, 2021, respectively. Due to their antidilutive effect, 5,195 and 3,320 potential common shares related to stock options have beenAlso, excluded
from the computation of diluted income (loss) per share for the thirty-ninethirteen week periodperiods ended December 2, 2017May 28, 2022 and November 26, 2016, respectively.May 29, 2021 are restricted shares of 1,247 and 1,240, respectively, which are included in shares outstanding.
5. Lease Termination5. Facility Exit and Impairment Charges
Lease terminationFacility exit and impairment charges consist of amounts as follows:
|
| Thirteen Week Period |
| Thirty-Nine Week Period |
| ||||||||||||||
|
| December 2, |
| November 26, |
| December 2, |
| November 26, |
| ||||||||||
| | | | | | | |||||||||||||
|
| Thirteen Week Period | |||||||||||||||||
|
| Ended | |||||||||||||||||
| | May 28, |
| May 29, | |||||||||||||||
|
| 2022 |
| 2021 | |||||||||||||||
Impairment charges |
| $ | 315 |
| $ | 890 |
| $ | 946 |
| $ | 1,578 |
| | $ | 35,036 |
| $ | 4,313 |
Lease termination charges |
| 3,624 |
| 6,309 |
| 10,144 |
| 18,625 |
| ||||||||||
|
| $ | 3,939 |
| $ | 7,199 |
| $ | 11,090 |
| $ | 20,203 |
| ||||||
Facility exit charges | |
| 31,535 | |
| 4,518 | |||||||||||||
| | $ | 66,571 |
| $ | 8,831 |
Impairment Charges
These amounts include the write-down of long-lived assets at locations that were assessed for impairment because of management’s intention to relocate or close the location or because of changes in circumstances that indicated the carrying value of an asset may not be recoverable.
17
Lease Termination ChargesRITE AID CORPORATION AND SUBSIDIARIES
As part of the Company’s ongoing business activities, the Company assesses stores and distribution centers for potential closure or relocation. Decisions to close or relocate stores or distribution centers in future periods would result in lease termination charges, lease exit costs and inventory liquidation charges, 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:
|
| Thirteen Week Period |
| Thirty-Nine Week Period |
| ||||||||
|
| December 2, |
| November 26, |
| December 2, |
| November 26, |
| ||||
Balance—beginning of period |
| $ | 144,011 |
| $ | 190,708 |
| $ | 165,138 |
| $ | 208,421 |
|
Provision for present value of noncancellable lease payments of closed stores |
| 1,138 |
| 2,725 |
| 2,051 |
| 5,877 |
| ||||
Changes in assumptions about future sublease income, terminations and changes in interest rates |
| (264 | ) | 137 |
| (612 | ) | 2,044 |
| ||||
Interest accretion |
| 2,776 |
| 3,482 |
| 8,778 |
| 10,878 |
| ||||
Cash payments, net of sublease income |
| (11,800 | ) | (17,073 | ) | (39,494 | ) | (47,241 | ) | ||||
Balance—end of period |
| $ | 135,861 |
| $ | 179,979 |
| $ | 135,861 |
| $ | 179,979 |
|
6. Fair Value MeasurementsNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen Week Periods Ended May 28, 2022 and May 29, 2021
(Dollars and share information in thousands, except per share amounts)
(unaudited)
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 1—Inputs 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 2—Inputs 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 3—Inputs 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. |
· Level 1—Inputs 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 2—Inputs 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 3—Inputs 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.
Non-Financial Assets Measured on a Non-Recurring Basis
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. During the thirty-ninethirteen week period ended December 2, 2017,May 28, 2022, long-lived assets from continuing operations with a carrying value of $1,224,$39,228, primarily storeright-of-use assets in connection with stores or leased office spaces, were written down to their fair value of $278,$4,192, resulting in an impairment charge of $946 of which $315 relates to$35,036. During the thirteen week period ended December 2, 2017. During the thirty-nine week period ended November 26, 2016,May 29, 2021, long-lived assets from continuing operations with a carrying value of $3,309,$4,313, primarily storeright-of-use assets in connection with leased office spaces, were written down to their fair value of $1,731,$0, resulting in an impairment charge of $1,578 of which $890 relates to the thirteen week period ended November 26, 2016.$4,313. If our actual future cash flows differ from our projections materially, certain stores that are either not impaired or partially impaired in the current period may be further impaired in future periods.
The following table presents fair values for those assets measured at fair value on a non-recurring basis at December 2, 2017May 28, 2022 and November 26, 2016:May 29, 2021:
| | | | | | | | | | | | | | | |
| | | | | | | | Fair Values | | Total | |||||
| | | | | | | | as of | | Charges | |||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Impairment Date |
| May 28, 2022 | |||||
Long-lived assets held for use | | $ | — | | $ | 4,192 | | $ | — | | $ | 4,192 | | $ | (35,036) |
Long-lived assets held for sale | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Total | | $ | — | | $ | 4,192 | | $ | — | | $ | 4,192 | | $ | (35,036) |
18
Fair Value Measurement UsingRITE AID CORPORATION AND SUBSIDIARIES
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total as of |
| ||||
Long-lived assets held for use |
| $ | — |
| $ | — |
| $ | 174 |
| $ | 174 |
|
Long-lived assets held for sale |
| $ | — |
| $ | 104 |
| $ | — |
| $ | 104 |
|
Total |
| $ | — |
| $ | 104 |
| $ | 174 |
| $ | 278 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total as of |
| ||||
Long-lived assets held for use |
| $ | — |
| $ | — |
| $ | 708 |
| $ | 708 |
|
Long-lived assets held for sale |
| $ | — |
| $ | 1,023 |
| $ | — |
| $ | 1,023 |
|
Total |
| $ | — |
| $ | 1,023 |
| $ | 708 |
| $ | 1,731 |
|
For the Thirteen Week Periods Ended May 28, 2022 and May 29, 2021
(Dollars and share information in thousands, except per share amounts)
(unaudited)
| | | | | | | | | | | | | | | |
| | | | | | | | Fair Values | | Total | |||||
| | | | | | | | as of | | Charges | |||||
| Level 1 | Level 2 | Level 3 | Impairment Date | May 29, 2021 | ||||||||||
Long-lived assets held for use | | $ | — | | $ | — | | $ | — | | $ | — | | $ | (4,313) |
Long-lived assets held for sale | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Total | | $ | — | | $ | — | | $ | — | | $ | — | | $ | (4,313) |
The above assets reflected in the caption Long-lived assets held for sale are separate and apart from the Assets to be Sold and dodue to their immateriality have not been reclassified to assets held for sale.
Facility Exit Charges
As part of December 2, 2017 and November 26, 2016,the Company's ongoing business activities, the Company didassesses stores and distribution centers for potential closure or relocation. Decisions to close or relocate stores or distribution centers in future periods would result in facility exit charges and inventory liquidation charges, as well as impairment of assets at these locations. 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 any anticipated executory costs which are not have any financial assets measured on a recurring basis.included within the store or distribution center's respective lease liability under Topic 842. Other store or distribution center closing and liquidation costs are expensed when incurred.
The following table reflects changes in the Company’s closed store liability relating to closed store and distribution center charges for new closures, changes in assumptions and interest accretion:
| | | | | | | |
| | Thirteen Week Period | | ||||
| | Ended | | ||||
| | May 28, | | May 29, | | ||
|
| 2022 |
| 2021 |
| ||
Balance—beginning of period | | $ | 18,688 | | $ | 3,443 | |
Provision for present value of executory costs for leases exited | |
| 26,499 | |
| 1,708 | |
Changes in assumptions and other adjustments | | | (191) | | | 1,493 | |
Interest accretion | |
| 98 | |
| 7 | |
Cash payments | |
| (1,692) | |
| (516) | |
Balance—end of period | | $ | 43,402 | | $ | 6,135 | |
Other Financial Instruments6. Fair Value Measurements
The Company utilizes the three-level valuation hierarchy as described in Note 5, Facility Exit and Impairment Charges, for the recognition and disclosure of fair value measurements.
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 December 2, 2017May 28, 2022 and February 26, 2022, the Company has $7,295$7,186 and $7,406, respectively, of investments carried at amortized cost as these investments are being held to maturity, which are included as a component of other assets. As of March 4, 2017 the Company has $6,874 of investments, carried at amortized cost as these investments are being held to maturity, which are included as a component of prepaid expenses and other current assets. The Company believes the carrying value of these investments approximates their fair value.
19
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen Week Periods Ended May 28, 2022 and May 29, 2021
(Dollars and share information in thousands, except per share amounts)
(unaudited)
The fair value for LIBOR-based borrowings under the Company’s senior secured credit facility and first and second lien term loans areis estimated based on the quoted market price of the financial instrument which is considered Level 1 of the fair value hierarchy. The fair values of substantially all of the Company’s other long-term indebtedness are estimated based on quoted market prices of the financial instruments which are considered Level 1 of the fair value hierarchy. The carrying amount and estimated fair value of the Company’s total long-term indebtedness was $6,772,270$3,026,456 and $6,588,733,$2,677,190, respectively, as of December 2, 2017. There were no outstanding derivative financial instrumentsMay 28, 2022. The carrying amount and estimated fair value of the Company's total long-term indebtedness was $2,732,986 and $2,661,122, respectively, as of December 2, 2017 and March 4, 2017.February 26, 2022.
7. Income Taxes
The Company recorded an income tax benefitexpense of $16,061$3,497 and $4,682$780 for the thirteen week periods ended December 2, 2017May 28, 2022 and November 26, 2016, respectively, and an income tax expense of $89,268 and an income tax benefit of $3,824 for the thirty-nine week periods ended December 2, 2017 and November 26, 2016,May 29, 2021, respectively. The effective tax rate for the thirteen week periods
ended December 2, 2017May 28, 2022 and November 26, 2016May 29, 2021 was 46.9%(3.3)% and (24.7)(6.4)%, respectively. The effective tax rate for the thirty-ninethirteen week periods ended December 2, 2017May 28, 2022 and November 26, 2016May 29, 2021 was 40.0% and (15.1)%, respectively. The effective tax rate for the thirteen and thirty-nine week periods ended December 2, 2017 includesnet of an adjustment of 13%(37.6)% and 1%(18.5)%, respectively, for changes to adjust the valuation allowance primarily relating to state NOLs. The effectiveagainst deferred tax rate for the thirty-nine week period ended December 2, 2017 also includes an adjustment of 55%, primarily related to the tax impact of the Walgreens Boots Alliance merger termination fee received in the second quarter of fiscal 2018. The tax benefit for the thirteen and thirty-nine week periods ended November 26, 2016 was the result of lower projected earnings for the Retail Pharmacy segment which resulted in a cumulative adjustment to the annual effective tax rate.assets.
The Company recognizes tax liabilities in accordance with the guidance for uncertain tax positions and management 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.
WhileThe Company believes that it is expectedreasonably possible that the amounta decrease of up to $25,130 in unrecognized tax benefits will changerelated to state exposures may be necessary in the next twelve months, the Companymonths; however, management does not expect the change to have a significantmaterial impact on the results of operations or the financial position of the Company.
The Company regularly evaluates valuation allowances established for deferred tax assets for which future realization is uncertain. Management will continue to monitor all available evidence related to the net deferred tax assets that may change the most recent assessment, including events that have occurred or are anticipated to occur. The Company continues to maintain a valuation allowance against net deferred tax assets of $826,798$1,862,823 and $226,726,$1,822,710, which relates primarily to federal and state deferred tax assets that may not be realized based on the Company's future projections of taxable income at December 2, 2017May 28, 2022 and March 4, 2017,February 26, 2022, respectively. The increase in valuation allowance for the period December 2, 2017 relates primarily to a Pennsylvania law change which required an increase to the state deferred tax asset for certain net operating losses with an offsetting valuation allowance adjustment.
On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act into legislation. The Company expects to record a tax expense in the fourth quarter of fiscal 2018 between $200,000 and $325,000, primarily due to the re-measurement of its net deferred tax assets.
8.Medicare Part D
The Company offers Medicare Part D benefits through EIC,Elixir Insurance (“EI”), which has contracted with Centers of Medicare and Medicaid Services (“CMS”)CMS to be a Prescription Drug Plan (“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.
EICEI is a licensed domestic insurance company under the applicable laws and regulations. Pursuant to these laws and regulations, EICEI 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
20
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen Week Periods Ended May 28, 2022 and May 29, 2021
(Dollars and share information in thousands, except per share amounts)
(unaudited)
believe these limitations on dividends and distributions materially impact its financial position. EICEI 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 $36,426$8,323 as of September 30, 2017. EICMarch 31, 2022. EI was in excess of the minimum required amounts in these states as of December 2, 2017.May 28, 2022.
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 or receivable from 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.
On August 12, 2021, the Company entered into a receivable purchase agreement (the “August 2021 Receivable Purchase Agreement”) with Bank of America, N.A. (the “Purchaser”).
Pursuant to the terms and conditions set forth in the August 2021 Receivable Purchase Agreement, the Company sold $271,829, a portion of its calendar 2021 CMS receivable, for $258,116, of which $239,360 was received on August 12, 2021. The remaining $18,756, which is included in accounts receivable, net as of May 28, 2022, is payable to the Company, subject to final CMS claim reconciliation adjustments, upon receipt of the final remittance from CMS. In connection therewith, the Company recognized a loss of $13,713, which is included as a component of loss (gain) on sale of assets, net during the thirteen week period ended August 28, 2021.
On August 12, 2021, concurrent with the August 2021 Receivable Purchase Agreement, the Company entered into an indemnity agreement (the “August 2021 Indemnity Agreement”), whereby the Company has agreed to indemnify, reimburse and hold Purchaser harmless from certain liabilities and expenses actually suffered or incurred by the Purchaser resulting from the occurrence of certain events as specified in the August 2021 Indemnity Agreement. Based on its evaluation of the August 2021 Indemnity Agreement, the Company has determined that it is highly unlikely that the events covered under the August 2021 Indemnity Agreement would occur, and consequently, the Company has not recorded any indemnification liability associated with the August 2021 Indemnity Agreement.
On January 24, 2022, the Company entered into a receivable purchase agreement (the “January 2022 Receivable Purchase Agreement”) with Purchaser.
Pursuant to the terms and conditions set forth in the January 2022 Receivable Purchase Agreement, the Company sold $400,680, a portion of its calendar 2021 CMS receivable, for $387,035, of which $359,388 was received on January 24, 2022. The remaining $27,647, which is included in accounts receivable, net as of May 28, 2022, is payable to the Company, subject to final CMS claim reconciliation adjustments, upon receipt of the final remittance from CMS. In connection therewith, the Company recognized a loss of $13,645, which is included as a component of loss (gain) on sale of assets, net during the thirteen week period ended February 26, 2022.
On January 24, 2022, concurrent with the January 2022 Receivable Purchase Agreement, the Company entered into an indemnity agreement (the “January 2022 Indemnity Agreement”), whereby the Company has agreed to
21
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen Week Periods Ended May 28, 2022 and May 29, 2021
(Dollars and share information in thousands, except per share amounts)
(unaudited)
indemnify, reimburse and hold Purchaser harmless from certain liabilities and expenses actually suffered or incurred by the Purchaser resulting from the occurrence of certain events as specified in the January 2022 Indemnity Agreement. Based on its evaluation of the January 2022 Indemnity Agreement, the Company has determined that it is highly unlikely that the events covered under the January 2022 Indemnity Agreement would occur, and consequently, the Company has not recorded any indemnification liability associated with the January 2022 Indemnity Agreement.
As of December 2, 2017,May 28, 2022 and February 26, 2022 accounts receivable, net included $279,148$36,147 and $34,898 due from the Purchaser, subject to final CMS and accrued salaries, wages and other current liabilities included $130,211claim reconciliation adjustments, upon receipt of EIC liabilities under certain reinsurance contracts. the final remittance for the respective calendar years from CMS.
As of March 4, 2017,May 28, 2022, and February 26, 2022, accounts receivable, net included $245,766$155,397 and $63,203 due from CMSCMS.
9. Manufacturer Rebates Receivables
The Pharmacy Services Segment has manufacturer rebates receivables due directly from manufacturers and accrued salaries, wagesfrom our rebate aggregator of $563,389 and other current liabilities$535,620 included $145,903in accounts receivable, net of EIC liabilities under certain reinsurance contracts. During calendar 2017, EIC limited its exposure to lossan allowance for uncollectible rebates of $15,295 and recovers a portion$18,796, as of benefits paid by utilizing quota-share reinsurance with a commercial reinsurance company.May 28, 2022 and February 26, 2022, respectively.
9.10. Goodwill and Other Intangible Assets
GoodwillAt May 28, 2022, the goodwill related to the Pharmacy Services segment is at risk of future impairment if the fair value of this segment, and indefinitely-livedits associated assets, such as certain trademarks acquireddecrease in connection with acquisition transactions,value due to further declines in its operating results or an inability to execute management’s business strategies. Future cash flow estimates are, by their nature, subjective, and actual results may differ materially from the Company's estimates. If the Company's ongoing cash flow projections are not amortized, but are instead evaluated formet or if market factors utilized in the impairment ontest deteriorate, including an annual basis atunfavorable change in the endterminal growth rate or the weighted-average cost of capital, the fiscal year, or more frequently if events or circumstances indicate that impairmentCompany may be more likely. During the thirteen and thirty-nine weeks ended December 2, 2017 and the fifty-three weeks ended March 4, 2017, nohave to record impairment charges have been taken againstin future periods. As of May 28, 2022, the Company’sPharmacy Services segment had goodwill or indefinitely-lived intangible assets. No changes were made to the carrying amount of $835,644.
There was 0 goodwill impairment charge for the thirteen week period ended May 28, 2022. At May 28, 2022 and thirty-nine week periods ended December 2, 2017.February 26, 2022, accumulated impairment losses for the Pharmacy Services segment was $803,712.
22
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen Week Periods Ended May 28, 2022 and May 29, 2021
(Dollars and share information in thousands, except per share amounts)
(unaudited)
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 December 2, 2017May 28, 2022 and March 4, 2017.February 26, 2022.
|
| December 2, 2017 |
| March 4, 2017 |
| ||||||||||||||||||
|
| Gross |
| Accumulated |
| Net |
| Remaining |
| Gross |
| Accumulated |
| Net |
| Remaining |
| ||||||
Favorable leases and other (a) |
| $ | 384,937 |
| $ | (318,634 | ) | $ | 66,303 |
| 7 years |
| $ | 386,636 |
| $ | (308,766 | ) | $ | 77,870 |
| 7 years |
|
Prescription files |
| 898,351 |
| (795,003 | ) | 103,348 |
| 3 years |
| 894,330 |
| (764,840 | ) | 129,490 |
| 3 years |
| ||||||
Customer relationships(a) |
| 465,000 |
| (157,639 | ) | 307,361 |
| 15 years |
| 465,000 |
| (110,653 | ) | 354,347 |
| 16 years |
| ||||||
CMS license |
| 57,500 |
| (5,597 | ) | 51,903 |
| 23 years |
| 57,500 |
| (3,872 | ) | 53,628 |
| 24 years |
| ||||||
Claims adjudication and other developed software |
| 58,987 |
| (20,509 | ) | 38,478 |
| 5 years |
| 58,995 |
| (14,188 | ) | 44,807 |
| 6 years |
| ||||||
Trademarks |
| 20,100 |
| (4,891 | ) | 15,209 |
| 8 years |
| 20,100 |
| (3,383 | ) | 16,717 |
| 9 years |
| ||||||
Backlog |
| 11,500 |
| (9,328 | ) | 2,172 |
| 1 year |
| 11,500 |
| (6,453 | ) | 5,047 |
| 2 years |
| ||||||
Total finite |
| $ | 1,896,375 |
| $ | (1,311,601 | ) | $ | 584,774 |
|
|
| $ | 1,894,061 |
| $ | (1,212,155 | ) | $ | 681,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Trademarks |
| 33,500 |
| — |
| 33,500 |
| Indefinite |
| 33,500 |
| — |
| 33,500 |
| Indefinite |
| ||||||
Total |
| $ | 1,929,875 |
| $ | (1,311,601 | ) | $ | 618,274 |
|
|
| $ | 1,927,561 |
| $ | (1,212,155 | ) | $ | 715,406 |
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | May 28, 2022 | | February 26, 2022 | ||||||||||||||||||||
| | | | | | | | | | | Remaining | | | | | | | | | | | Remaining | ||
| | | | | | | | | | | Weighted | | | | | | | | | | | Weighted | ||
| | Gross | | | | | | | | Average | | Gross | | | | | | | | Average | ||||
| | Carrying | | Accumulated | | | | | Amortization | | Carrying | | Accumulated | | | | | Amortization | ||||||
|
| Amount |
| Amortization |
| Net |
| Period |
| Amount |
| Amortization |
| Net |
| Period | ||||||||
Non-compete agreements and other(a) | | $ | 199,351 | | $ | (179,046) | | $ | 20,305 | | 3 | years | | $ | 197,651 | | $ | (178,958) | | $ | 18,693 | | 3 | years |
Prescription files | |
| 1,026,342 | | | (914,911) | | | 111,431 |
| 5 | years | |
| 1,030,169 | |
| (918,773) | | | 111,396 |
| 6 | years |
Customer relationships(a) | | | 388,000 | | | (291,770) | | | 96,230 | | 9 | years | | | 388,000 | | | (286,090) | | | 101,910 | | 10 | years |
CMS license | | | 57,500 | | | (17,478) | | | 40,022 | | 4 | years | | | 57,500 | | | (15,372) | | | 42,128 | | 5 | years |
Claims adjudication and other developed software | | | 58,985 | | | (58,423) | | | 562 | | 0 | years | | | 58,985 | | | (56,316) | | | 2,669 | | 1 | years |
Backlog | | | 11,500 | | | (11,500) | | | — | | 0 | years | | | 11,500 | | | (11,500) | | | — | | 0 | years |
Total finite | | $ | 1,741,678 | | $ | (1,473,128) | | | 268,550 | | | | | $ | 1,743,805 | | $ | (1,467,009) | | $ | 276,796 | | | |
Trademarks | | | 14,400 | | | — | | | 14,400 | | Indefinite | | | | 14,400 | | | — | | | 14,400 | | Indefinite | |
Total | | $ | 1,756,078 | | $ | (1,473,128) | | $ | 282,950 | | | | | $ | 1,758,205 | | $ | (1,467,009) | | $ | 291,196 | | | |
(a)
(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. |
The Company is continuing to reposition its approach to the Elixir Insurance Part D business including an expectation of a purposeful shrinkage of the business. As a result, at the end of fiscal 2022, the Company adjusted the remaining useful economic livesamortization period of the customer relationships that are expectedCMS License to contribute directly or indirectly5 years. Prior to future cash flows.
Also included in other non-current liabilities as of December 2, 2017 and March 4, 2017 are unfavorable lease intangibles with a net carrying amount of $20,740 and $23,703, respectively. These intangible liabilities are amortized over theirsuch adjustment, the remaining lease terms at the time of acquisition. Included in noncurrent liabilities held for sale as of December 2, 2017 and March 4, 2017 are unfavorable lease intangibles with a net carrying amount of $13,394 and $14,539, respectively.
life was 19 years.
Amortization expense for these intangible assets and liabilities was $35,490$20,626 and $112,772$20,460 for the thirteen and thirty-nine week periods ended December 2, 2017, respectively. Amortization expense for these intangible assetsMay 28, 2022 and liabilities was $41,654 and $124,060 for the thirteen and thirty-nine week periods ended November 26, 2016,May 29, 2021, respectively. The anticipated annual amortization expense for these intangible assets and liabilities is 2018—2023—$172,501; 2019—71,185; 2024—$120,319; 2020—57,613; 2025—$96,399; 2021—46,393; 2026—$72,51935,802 and 2022—2027—$50,715.28,815.
23
RITE AID CORPORATION AND SUBSIDIARIES
10.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen Week Periods Ended May 28, 2022 and May 29, 2021
(Dollars and share information in thousands, except per share amounts)
(unaudited)
11. Indebtedness and Credit AgreementsAgreement
Following is a summary of indebtedness and lease financing obligations at May 28, 2022 and February 26, 2022:
| | | | | | |
| | May 28, | | February 26, | ||
|
| 2022 |
| 2022 | ||
Secured Debt: | | | | | | |
Senior secured revolving credit facility due August 2026 ($1,000,000 and $709,000 face value less unamortized debt issuance costs of $16,992 and $18,010) | | | 983,008 | | | 690,990 |
FILO Term Loan due August 2026 ($350,000 face value less unamortized debt issuance costs of $2,211 and $2,344) | | | 347,789 | | | 347,656 |
| |
| 1,330,797 | |
| 1,038,646 |
Second Lien Secured Debt: | | | | | | |
7.5% senior secured notes due July 2025 ($600,000 face value less unamortized debt issuance costs of $6,311 and $6,824) | |
| 593,689 | |
| 593,176 |
8.0% senior secured notes due November 2026 ($849,918 face value less unamortized debt issuance costs of $13,628 and $14,397) | | | 836,290 | | | 835,521 |
| | | 1,429,979 | | | 1,428,697 |
Unguaranteed Unsecured Debt: | | | | | | |
7.7% notes due February 2027 ($237,386 face value less unamortized debt issuance costs of $609 and $642) | |
| 236,777 | |
| 236,744 |
6.875% fixed-rate senior notes due December 2028 ($29,001 face value less unamortized debt issuance costs of $98 and $102) | |
| 28,903 | |
| 28,899 |
| |
| 265,680 | |
| 265,643 |
Lease financing obligations | |
| 19,408 | |
| 20,374 |
Total debt | |
| 3,045,864 | |
| 2,753,360 |
Current maturities of long-term debt and lease financing obligations | |
| (5,016) | |
| (5,544) |
Long-term debt and lease financing obligations, less current maturities | | $ | 3,040,848 | | $ | 2,747,816 |
Credit Facility
On December 2, 201720, 2018, the Company entered into a senior secured credit agreement (as amended by the First Amendment to Credit Agreement, dated as of January 6, 2020, the “Credit Agreement”; and March 4, 2017:
|
| December 2, |
| March 4, |
| ||
Secured Debt: |
|
|
|
|
| ||
Senior secured revolving credit facility due January 2020 ($1,925,000 and $2,430,000 face value less unamortized debt issuance costs of $18,308 and $24,918) |
| $ | 1,906,692 |
| $ | 2,405,082 |
|
Tranche 1 Term Loan (second lien) due August 2020 ($470,000 face value less unamortized debt issuance costs of $3,249 and $4,167) |
| 466,751 |
| 465,833 |
| ||
Tranche 2 Term Loan (second lien) due June 2021 ($500,000 face value less unamortized debt issuance costs of $2,008 and $2,431) |
| 497,992 |
| 497,569 |
| ||
Other secured |
| 90 |
| 90 |
| ||
|
| 2,871,525 |
| 3,368,574 |
| ||
Guaranteed Unsecured Debt: |
|
|
|
|
| ||
9.25% senior notes due March 2020 ($902,000 face value plus unamortized premium of $1,568 and $2,071 and less unamortized debt issuance costs of $5,575 and $7,527) |
| 897,993 |
| 896,544 |
| ||
6.75% senior notes due June 2021 ($810,000 face value less unamortized debt issuance costs of $5,247 and $6,360) |
| 804,753 |
| 803,640 |
| ||
6.125% senior notes due April 2023 ($1,800,000 face value less unamortized debt issuance costs of $22,777 and $25,984) |
| 1,777,223 |
| 1,774,016 |
| ||
|
| 3,479,969 |
| 3,474,200 |
| ||
Unguaranteed Unsecured Debt: |
|
|
|
|
| ||
7.7% notes due February 2027 ($295,000 face value less unamortized debt issuance costs of $1,501 and $1,625) |
| 293,499 |
| 293,375 |
| ||
6.875% fixed-rate senior notes due December 2028 ($128,000 face value less unamortized debt issuance costs of $723 and $771) |
| 127,277 |
| 127,229 |
| ||
|
| 420,776 |
| 420,604 |
| ||
Lease financing obligations |
| 57,990 |
| 65,315 |
| ||
Total debt |
| 6,830,260 |
| 7,328,693 |
| ||
Current maturities of long-term debt and lease financing obligations |
| (22,262 | ) | (21,335 | ) | ||
Long-term debt and lease financing obligations, less current maturities |
| $ | 6,807,998 |
| $ | 7,307,358 |
|
Reconciliationthe Credit Agreement, as further amended by the Second Amendment (as defined below), the “Amended Credit Agreement”), which Credit Agreement provided for facilities consisting of indebtedness included in continuing operationsa $2,700,000 senior secured asset-based revolving credit facility (“Initial Senior Secured Revolving Credit Facility”) and discontinued operations:
|
| December 2, 2017 |
| |||||||
|
| Debt |
| Lease Financing |
| Total Debt and |
| |||
Balance, December 2, 2017 — per above table |
| $ | 6,772,270 |
| $ | 57,990 |
| $ | 6,830,260 |
|
Amounts reclassified as current and noncurrent liabilities held for sale in connection with the Sale (a) |
| (3,786,480 | ) | (6,072 | ) | (3,792,552 | ) | |||
Total debt and lease financing obligations |
| 2,985,790 |
| 51,918 |
| 3,037,708 |
| |||
Current maturities of long-term debt and lease financing obligations — continuing operations |
| (90 | ) | (20,264 | ) | (20,354 | ) | |||
Long-term debt and lease financing obligations, less current maturities — continuing operations |
| $ | 2,985,700 |
| $ | 31,654 |
| $ | 3,017,354 |
|
|
| March 4, 2017 |
| |||||||
|
| Debt |
| Lease Financing |
| Total Debt and |
| |||
Balance, March 4, 2017 — per above table |
| $ | 7,263,378 |
| $ | 65,315 |
| $ | 7,328,693 |
|
Amounts reclassified as current and noncurrent liabilities held for sale in connection with the Sale (a) |
| (4,027,400 | ) | (10,492 | ) | (4,037,892 | ) | |||
Total debt and lease financing obligations |
| 3,235,978 |
| 54,823 |
| 3,290,801 |
| |||
Current maturities of long-term debt and lease financing obligations — continuing operations |
| (90 | ) | (17,619 | ) | (17,709 | ) | |||
Long-term debt and lease financing obligations, less current maturities — continuing operations |
| $ | 3,235,888 |
| $ | 37,204 |
| $ | 3,273,092 |
|
(a) In connectiona $450,000 “first-in, last out” senior secured term loan facility (“Initial Senior Secured Term Loan,” and together with the Sale,Initial Senior Secured Revolving Credit Facility, collectively, the “Initial Facilities”). In December 2018, the Company is estimating thatused proceeds from the Sale will provide total excess cash proceeds of approximately $4,027,400 which will be usedInitial Facilities to repay outstanding indebtedness. As such,refinance its prior $2,700,000 existing credit agreement.
On August 20, 2021, the Company included $3,786,480 (total estimated excess cash proceeds of $4,027,400 less proceeds received throughentered in to the quarter ended December 2, 2017 of $240,900) and $4,027,400 of estimated proceeds as of March 4, 2017 as repayment of outstanding indebtedness that has been included in liabilities heldSecond Amendment to Credit Agreement (the “Second Amendment”), which, among other things, amended the Credit Agreement to provide for sale. Additionally, as part of the Sale, the Company will be relieved of approximately $6,072 and $10,492, respectively, of capital lease obligations as of December 2, 2017 and March 4, 2017. These amounts are also reflected as liabilities held for sale. Please see Note 3 for additional details.
Credit Facility
The Company’s Amended and Restated a $2,800,000 senior secured asset-based revolving credit facility (“Senior Secured Revolving Credit Facility” or “revolver”) and a $350,000 “first-in,
24
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen Week Periods Ended May 28, 2022 and May 29, 2021
(Dollars and share information in thousands, except per share amounts)
(unaudited)
last out” senior secured term loan facility (“Senior Secured Term Loan” or “Term Loan” and together with the Senior Secured Revolving Credit Facility, has a borrowing capacity of $3,700,000collectively, the “Amended Facilities”) and matures in January 2020.incorporate customary “hardwired” LIBOR transition provisions. The Amended Facilities extend the Company’s debt maturity profile and provide additional liquidity. Borrowings under the revolverSenior Secured Revolving Credit Facility bear interest at a rate per annum between (i) LIBOR plus 1.50% and LIBOR plus 2.00% with respectequal to, Eurodollar borrowings and (ii)at the alternateCompany’s option, a base rate (determined in a customary manner) plus 0.50%a margin of between 0.25% to 0.75% or (y) an adjusted LIBOR rate (determined in a customary manner) plus a margin of between 1.25% and the alternate base rate plus 1.00% with respect to ABR borrowings,1.75%, in each case based upon the Average RevolverABL Availability (as defined in the Amended and RestatedCredit Agreement). Borrowings under the Senior Secured Credit Facility)Term Loan bear interest at a rate per annum equal to, at the Company’s option, (x) a base rate (determined in a customary manner) plus a margin of 1.75% or (y) an adjusted LIBOR rate (determined in a customary manner) plus a margin of 2.75%. The Company is required to pay fees between 0.250% and 0.375% per annum on the daily unused amount of the revolver,commitments under the Senior Secured Revolving Credit Facility, depending on the Average RevolverABL Availability (as defined in the Amended and Restated Senior Secured Credit Facility)Agreement). Amounts drawn underThe Amended Facilities are scheduled to mature on August 20, 2026 (subject to a springing maturity if certain of the revolver become due and payable on January 13, 2020.Company’s existing secured notes are not refinanced or repaid prior to the date that is 91 days prior to the stated maturity thereof).
The Company’s ability to borrowborrowing capacity under the revolverSenior Secured Revolving Credit Facility is based upon a specified borrowing base consisting of accounts receivable, inventory and prescription files. At December 2, 2017,May 28, 2022, the Company had $1,925,000$1,350,000 of borrowings outstanding under the revolverAmended Facilities and had letters of credit outstanding againstunder the revolverSenior Secured Revolving Credit Facility in a face amount of $59,343$127,696, which resulted in additionalremaining borrowing capacity under the Senior Secured Revolving Credit Facility of $1,715,657.
$1,672,304. If at any time the total credit exposure outstanding under the Senior Secured Revolving Credit Facility exceeds the borrowing base, the Company will be required to repay amounts outstanding to eliminate such shortfall.
The Amended and Restated Senior Secured Credit FacilityAgreement restricts the Company and all of its subsidiaries that guarantee its obligations under the Subsidiary Guarantors (as defined herein)Amended Facilities, the secured guaranteed notes and unsecured guaranteed notes (collectively, the “Subsidiary Guarantors”) from accumulating cash on hand in excess of $200,000 at any time when revolving loans are outstanding (not including cash located in store and lockbox deposit accounts and cash necessary to cover current liabilities). The Amended Credit Agreement also states that if at any time (other than following the exercise of remedies or acceleration of any senior obligations or second priority debt and receipt of a triggering notice by the senior collateral agent from a representative of the senior obligations or the second priority debt) either (i) an event of default exists under the Amended Facilities or (ii) the sum of the Company’s borrowing capacity under the Senior Secured Revolving Credit Facility and certain circumstances, requiresamounts held on deposit with the senior collateral agent in a concentration account is less than $275,000 for three consecutive business days or less than or equal to $200,000 on any day (a “cash sweep period”), the funds in the Company’s deposit accounts will be swept to a concentration account with the senior collateral agent and will be applied first to the repayment ofrepay outstanding revolving loans under the Amended and Restated Senior Secured Credit FacilityFacilities, and then to be held as collateral for the senior obligations.obligations until such cash sweep period is rescinded pursuant to the terms of the Amended Facilities.
With the exception of EI, substantially all of Rite Aid Corporation’s 100% owned subsidiaries guarantee the obligations under the Amended Facilities, the secured guaranteed notes and unsecured guaranteed notes. The Company’s obligations under the Amended Facilities and the Subsidiary Guarantors’ obligations under the related guarantees are secured by (i) a first-priority lien on all of the Subsidiary Guarantors’ cash and cash equivalents, accounts receivable, inventory, prescription files (including eligible script lists), intellectual property (prior to the repayment of the Senior Secured Term Loan) and certain other assets arising therefrom or related thereto (including substantially all of their deposit accounts, collectively, the “ABL priority collateral”) and (ii) a second-priority lien on all of the Subsidiary
25
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen Week Periods Ended May 28, 2022 and May 29, 2021
(Dollars and share information in thousands, except per share amounts)
(unaudited)
Guarantors’ equipment, fixtures, investment property (other than equity interests in subsidiaries), intellectual property (following the repayment of the Senior Secured Term Loan) and all other assets that do not constitute ABL priority collateral, in each case, subject to customary exceptions and limitations. The subsidiary guarantees related to the Company’s Amended Facilities, the secured guaranteed notes and, on an unsecured basis, the unsecured guaranteed notes, are full and unconditional and joint and several. The Company has no independent assets or operations. Other than EI, the subsidiaries, including joint ventures, that do not guarantee the Amended Facilities and applicable notes, are minor.
The Amended and Restated Senior Secured Credit FacilityAgreement allows the Company to have outstanding, at any time, up to an aggregate principal amount of $1,500,000 in secured second priority debt, split-priority term loan debt, unsecured debt and disqualified preferred stock in addition to borrowings under the Amended and Restated Senior Secured Credit FacilityFacilities and existing indebtedness, provided that not in excess of $750,000 of such secured second priority debt, split-priority term loan debt, unsecured debt and disqualified preferred stock shall mature or require scheduled payments of principal prior to 90 days after the latest of (a) the fifth anniversary of the effectiveness of the Amended and Restated Senior Secured Credit Facility and (b) the latest maturity date of any Term Loan or Other Revolving LoanCommitment (each as defined in the Amended and Restated Senior Secured Credit Facility)Agreement) (excluding bridge facilities allowing extensions on customary terms to at least the date that is 90 days after such date and, with respect to any escrow notes issued by Rite Aid, excluding any special mandatory redemption of the type described in clause (iii) of the definition of “Escrow Notes” in the Amended and Restated Senior Secured Credit Facility)date). Subject to the limitations described in clauses (a) and (b) of the immediately preceding sentence, the Amended and Restated Senior Secured Credit FacilityAgreement additionally allows the Company to issue or incur an unlimited amount of unsecured debt and disqualified preferred stock so long as a Financial Covenant Effectiveness Period (as defined in the Amended and Restated Senior Secured Credit Facility)Agreement) is not in effect; provided, however, that certain of the Company’s other outstanding indebtedness limits the amount of unsecured debt that can be incurred if certain interest coverage levels are not met at the time of incurrence or other exemptions are not available. The Amended and Restated Senior Secured Credit FacilityAgreement also contains certain restrictions on the amount of secured first priority debt the Company is able to incur. The Amended and Restated Senior Secured Credit FacilityAgreement also allows for the voluntary repurchase of any debt or other convertible debt, so long as the Amended and Restated Senior Secured Credit Facility isFacilities are not in default and the Company maintains availability under its revolver of more than $365,000.
The Amended and Restated Senior Secured Credit FacilityAgreement has a financial covenant that requires the Company to maintain a minimum fixed charge coverage ratio of 1.00 to 1.00 (a)(i) on any date on which availability under the revolverSenior Secured Revolving Credit Facility is less than $200,000 or (b)(ii) on the third consecutive business day on which availability under the revolverSenior Secured Revolving Credit Facility is less than $250,000 and, in each case, ending on and excluding the first day thereafter, if any, which is the 30th consecutive calendar day on which availability under the revolver is equal to or greater than $250,000. As of December 2, 2017,May 28, 2022, the Company had availability under its revolver of $1,715,657, itsCompany’s fixed charge coverage ratio was greater than 1.00 to 1.00, and the Company was in compliance with the senior secured credit facility’sAmended Credit Agreement’s financial covenant. The Amended and Restated Senior Secured Credit FacilityAgreement also contains covenants which place restrictions on the incurrence of debt, the payments of dividends, the making of investments, sale of assets, mergers and acquisitions and the granting of liens.
The Amended and Restated Senior Secured Credit Facility alsoAgreement provides for customary events of default.
The Companydefault including nonpayment, misrepresentation, breach of covenants and bankruptcy. It is also has two second priority secured term loan facilities, the Tranche 1 Term Loan and the Tranche 2 Term Loan. The Tranche 1 Term Loan matures on August 21, 2020 and currently bears interest at a rate per annum equal to LIBOR plus 4.75% with a LIBOR flooran event of 1.00%,default if the Company choosesfails to make LIBOR borrowings,any required payment on debt having a principal amount in excess of $50,000 or at Citibank’s base rate plus 3.75%. The Tranche 2 Term Loan matures on June 21,any event occurs that enables, or which with the giving of notice or the lapse of time would enable, the holder of such debt to accelerate the maturity or require the repayment, repurchase, redemption or defeasance of such debt.
26
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen Week Periods Ended May 28, 2022 and May 29, 2021
(Dollars and currently bears interest at a rateshare information in thousands, except per annum equal to LIBOR plus 3.875% with a LIBOR floor of 1.00%, ifshare amounts)
(unaudited)
Fiscal 2022 and 2023 Transactions
On April 28, 2021, the Company chooses to make LIBOR borrowings, or at Citibank’s base rate plus 2.875%.
With the exceptionissued a notice of EIC, substantiallyredemption for all of Rite Aid Corporation’s 100 percent owned subsidiaries guarantee the obligations under6.125% Notes that were outstanding on May 28, 2021, pursuant to the Amendedterms of the indenture of the 6.125% Notes. On May 28, 2021, the Company redeemed 100% of the remaining outstanding 6.125% Notes at par. In connection therewith, the Company recorded a loss on debt retirement of $396 which included unamortized debt issuance costs. The debt repayment and Restated Senior Secured Credit Facility, second priority secured term loan facilities,related loss on debt retirement is included in the results of operations and unsecured guaranteed notes. The Amended and Restated Senior Secured Credit Facility and second priority secured term loancash flows.
facilities are secured, on a senior or second priority basis, as applicable, by a lien on,
On August 20, 2021, the Company entered into the Second Amendment in order to, among other things, accounts receivable, inventoryincrease the aggregate principal amount of commitments under the Senior Secured Revolving Credit Facility from $2,700,000 to $2,800,000 and prescription filesdecrease the aggregate principal amount of loans outstanding under the Senior Secured Term Loan from $450,000 to $350,000. In connection therewith, the Company recorded a loss on debt modification and retirement of $2,839 which included unamortized debt issuance costs. The debt repayment and related loss on debt modification and retirement is included in the results of operations and cash flows.
On June 13, 2022, the Company announced the commencement of a series of cash tender offers to purchase up to $150,000 aggregate principal amount of the Subsidiary Guarantors. The subsidiary guarantees relatedCompany’s 7.50% Senior Secured Notes due 2025 (the “2025 Notes”), 8.0% Senior Secured Notes due 2026, 7.70% Notes due 2027 (the “2027 Notes”) and 6.875% Notes due 2028 (the “2028 Notes”), subject to prioritized acceptance levels, a subcap of $100,000 with respect to the Company’s Amended2025 Notes and Restated Senior Secured Credit Facility and second priority secured term loan facilities and, onproration. On June 29, 2022, pursuant to an unsecured basis, the unsecured guaranteed notes, are full and unconditional and joint and several, and there are no restrictions on the ability ofearly settlement, the Company to obtain funds frompurchased an aggregate principal amount of $114,942 of its subsidiaries.2025 Notes, $51,695 aggregate principal amount of its 2027 Notes and $26,955 aggregate principal amount of its 2028 Notes. The Company has no independent assets or operations. Additionally, prior toanticipates that the Acquisition,purchase will be considered a debt retirement and accordingly, anticipates a gain on debt retirement during the subsidiaries, including joint ventures, that did not guarantee the Amended and Restated Senior Secured Credit Facility, the credit facility, second priority secured term loan facilities and applicable notes, were minor. Accordingly, condensed consolidating financial information for the Company and subsidiaries is not presented for those periods. Subsequent to the Acquisition, other than EIC, the subsidiaries, including joint ventures, that do not guarantee the credit facility, second priority secured term loan facilities and applicable notes, are minor. As such, condensed consolidating financial information for the Company, its guaranteeing subsidiaries and non-guaranteeing subsidiaries is presented for those periods subsequent to the Acquisition. See Note 15 “Guarantor and Non-Guarantor Condensed Consolidating Financial Information” for additional disclosure.quarter of fiscal 2023.
Maturities
The aggregate annual principal payments of long-term debt for the remainder of fiscal 20182023 and thereafter are as follows: 2018—$90; 2019—2023—$0; 2020—2024—$1,925,000; 2021—0; 2025—$1,372,000; 2022—0; 2026—$1,310,000600,000; 2027—$2,437,304 and $2,223,000$29,001 thereafter.
12. Leases
The proceeding amounts doCompany leases most of its retail stores and certain distribution facilities under noncancelableoperating and finance 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 noncancelable 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.
27
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen Week Periods Ended May 28, 2022 and May 29, 2021
(Dollars and share information in thousands, except per share amounts)
(unaudited)
The following table is a summary of the Company’s components of net lease cost for the thirteen week periods ended May 28, 2022 and May 29, 2021:
| | | | | | |
| | Thirteen Week Period Ended | ||||
| | May 28, 2022 |
| May 29, 2021 | ||
Operating lease cost |
| $ | 159,845 | | $ | 169,494 |
Financing lease cost: | | | | | | |
Amortization of right-of-use asset | |
| 809 | | | 1,011 |
Interest on long-term finance lease liabilities | |
| 501 | | | 568 |
Total finance lease costs |
| $ | 1,310 | | $ | 1,579 |
Short-term lease costs | |
| 457 | | | 1,099 |
Variable lease costs | |
| 42,645 | | | 46,038 |
Less: sublease income | |
| (3,223) | | | (3,343) |
Net lease cost |
| $ | 201,034 | | $ | 214,867 |
Supplemental cash flow information related to leases for the thirteen week periods ended May 28, 2022 and May 29, 2021:
| | | | | | | |
| | Thirteen Week Period Ended | |||||
|
| May 28, 2022 |
| May 29, 2021 |
| ||
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | |
Operating cash flows paid for operating leases |
| $ | 175,414 |
| $ | 176,591 | |
Operating cash flows paid for interest portion of finance leases | |
| 501 | |
| 568 | |
Financing cash flows paid for principal portion of finance leases | |
| 945 | |
| 1,111 | |
Right-of-use assets obtained in exchange for lease obligations: | | | | | | | |
Operating leases | |
| 57,986 | |
| 76,314 | |
Finance leases | |
| 0 | |
| 0 | |
28
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen Week Periods Ended May 28, 2022 and May 29, 2021
(Dollars and share information in thousands, except per share amounts)
(unaudited)
Supplemental balance sheet information related to leases as of May 28, 2022 and February 26, 2022 (in thousands, except lease term and discount rate):
| | | | | | | |
| | May 28, |
| February 26, |
| ||
|
| 2022 |
| 2022 |
| ||
Operating leases: | | | | | | | |
Operating lease right-of-use asset |
| $ | 2,723,405 | | $ | 2,813,535 | |
| | | | | | | |
Short-term operating lease liabilities |
| $ | 574,392 | | $ | 575,651 | |
Long-term operating lease liabilities | |
| 2,526,607 | |
| 2,597,090 | |
Total operating lease liabilities |
| $ | 3,100,999 | | $ | 3,172,741 | |
| | | | | | | |
Finance leases: | | | | | | | |
Property, plant and equipment, net |
| $ | 13,151 | | $ | 13,950 | |
| | | | | | | |
Current maturities of long-term debt and lease financing obligations |
| $ | 5,016 | | $ | 5,544 | |
Lease financing obligations, less current maturities | |
| 14,392 | |
| 14,830 | |
Total finance lease liabilities |
| $ | 19,408 | | $ | 20,374 | |
Weighted average remaining lease term | | | | | | | |
Operating leases | |
| 7.5 | |
| 7.7 | |
Finance leases | |
| 8.7 | |
| 8.7 | |
| | | | | | | |
Weighted average discount rate | | | | | | | |
Operating leases | |
| 6.0 | % |
| 6.0 | % |
Finance leases | |
| 9.8 | % |
| 10.0 | % |
The following table summarizes the maturity of lease liabilities under finance and operating leases as of May 28, 2022:
| | | | | | | | | |
| | May 28, 2022 | |||||||
| | Finance | | Operating | | | |||
Fiscal year |
| Leases |
| Leases (1) |
| Total | |||
2023 (remaining forty weeks) |
| $ | 6,065 |
| $ | 519,021 |
| $ | 525,086 |
2024 | |
| 4,234 | |
| 647,443 | |
| 651,677 |
2025 | |
| 3,149 | |
| 554,618 | |
| 557,767 |
2026 | |
| 2,367 | |
| 465,409 | |
| 467,776 |
2027 | |
| 1,500 | |
| 383,097 | |
| 384,597 |
Thereafter | |
| 12,048 | |
| 1,302,201 | |
| 1,314,249 |
Total lease payments | |
| 29,363 | |
| 3,871,789 | |
| 3,901,152 |
Less: imputed interest | |
| (9,955) | |
| (770,790) | |
| (780,745) |
Total lease liabilities |
| $ | 19,408 |
| $ | 3,100,999 |
| $ | 3,120,407 |
(1) | – Future operating lease payments have not been reduced by minimum sublease rentals of $34 million due in the future under noncancelable leases. |
29
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen Week Periods Ended May 28, 2022 and May 29, 2021
(Dollars and share information in thousands, except per share amounts)
(unaudited)
During the thirteen week period ended May 28, 2022, the Company did not reflect repayments associated with excessenter into any sale-leaseback transactions. During the thirteen week period ended May 29, 2021, the Company sold 2 owned and operating stores to independent third parties. Net proceeds from the Sale.sales were $7,456 for the thirteen week period ended May 29, 2021. Concurrent with these sales, the Company entered into agreements to lease the properties back from the purchasers over a minimum lease term of 15 years. The Company accounted for these leases as operating lease right-of-use assets and corresponding operating lease liabilities in accordance with the Lease Standard. The transaction resulted in a gain of $3,688 which is included in the gain on sale of assets, net for the thirteen week period ended May 29, 2021.
11. Stock Options and Stock Awards
The Company recognizes share-based compensation expense over the requisite service period of the award, net of an estimate for the impact of forfeitures. Operating results for the thirty-nine week periods ended December 2, 2017 and November 26, 2016 include $22,549 and $36,766, respectively, of compensation costs relatedhas additional capacity under its outstanding debt agreements to the Company’s stock-based compensation arrangements.enter into additional sale-leaseback transactions.
Beginning in fiscal 2015, the Company provided certain of its associates with performance based incentive plans under which the associates will receive a certain number of shares of the Company’s common stock based on the Company meeting certain financial and performance goals. During fiscal 2018, the Company issued performance units to certain of its associates. The performance units will be settled in cash based on the actual performance of the Company relative to certain financial performance goals and the stock price upon vesting. During the thirty-nine week periods ended December 2, 2017 and November 26, 2016, the Company incurred $3,482 and $14,448 related to these performance based incentive plans, respectively, which is recorded as a component of stock-based compensation expense.
The total number and type of newly awarded grants and the related weighted average fair value for the thirty-nine week periods ended December 2, 2017 and November 26, 2016 are as follows:
|
| December 2, 2017 |
| November 26, 2016 |
| ||||||
|
| Shares |
| Weighted |
| Shares |
| Weighted |
| ||
Stock options granted |
| 1,000 |
| $ | 1.08 |
| — |
| $ | N/A |
|
Restricted stock awards granted |
| 13,856 |
| $ | 2.82 |
| 3,613 |
| $ | 7.73 |
|
Total awards |
| 14,856 |
|
|
| 3,613 |
|
|
|
Typically, stock options granted vest, and are subsequently exercisable in equal annual installments over a four-year period for employees. Restricted stock awards typically vest in equal annual installments over a three-year period.
The Company calculates the fair value of stock options using the Black- Scholes-Merton option pricing model. The following assumptions were used in the Black-Scholes-Merton option pricing model:
| |||||
|
| ||||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
As of December 2, 2017, the total unrecognized pre-tax compensation costs related to unvested stock options and restricted stock awards granted, net of estimated forfeitures and the weighted average period of cost amortization are as follows:
|
| December 2, 2017 |
| |||||||
|
| Unvested |
| Unvested |
| Unvested |
| |||
Unrecognized pre-tax costs |
| $ | 7,057 |
| $ | 38,971 |
| $ | 12,253 |
|
Weighted average amortization period |
| 1.62 years |
| 2.1 years |
| 2.3 years |
| |||
12.13. Retirement Plans
Net periodic pension expense recorded infor the thirteen and thirty-nine week periods ended December 2, 2017May 28, 2022 and November 26, 2016,May 29, 2021, for the Company’s defined benefit plan includes the following components:
|
| Defined Benefit |
| Defined Benefit |
| |||||||||||||||
|
| Thirteen Week Period Ended |
| Thirty-Nine Week Period Ended |
| |||||||||||||||
|
| December 2, |
| November 26, |
| December 2, |
| November 26, |
| |||||||||||
| | | | | | | | |||||||||||||
| | Defined Benefit | | |||||||||||||||||
| | Pension Plan | | |||||||||||||||||
| | Thirteen Week Period Ended | | |||||||||||||||||
| | May 28, | | May 29, | | |||||||||||||||
|
| 2022 |
| 2021 |
| |||||||||||||||
Service cost |
| $ | 346 |
| $ | 292 |
| $ | 1,038 |
| $ | 876 |
| | $ | 107 | | $ | 128 | |
Interest cost |
| 1,603 |
| 1,621 |
| 4,809 |
| 4,863 |
| |
| 1,264 | |
| 1,232 | | ||||
Expected return on plan assets |
| (1,147 | ) | (1,142 | ) | (3,441 | ) | (3,426 | ) | |
| (1,402) | |
| (1,313) | | ||||
Amortization of unrecognized prior service cost |
| — |
| — |
| — |
| — |
| |||||||||||
Amortization of unrecognized net loss |
| 856 |
| 1,132 |
| 2,569 |
| 3,396 |
| |
| — | |
| 123 | | ||||
Net periodic pension expense |
| $ | 1,658 |
| $ | 1,903 |
| $ | 4,975 |
| $ | 5,709 |
| | $ | (31) | | $ | 170 | |
During the thirteen and thirty-nine week period ended December 2, 2017May 28, 2022 the Company contributed $8,210$0 to the Defined Benefit Pension Plan. During the remainder of fiscal 2018,2023, the Company expects to contribute $813$0 to the Defined Benefit Pension Plan.
13.14. Segment Reporting
Prior to June 24, 2015, the Company’s operations were within one reportable segment. As a result of the completion of the Acquisition, theThe Company has realigned its internal management reporting to reflect two2 reportable segments, its retail drug stores (“Retail Pharmacy”), and its pharmacy services (“Pharmacy Services”) segments, collectively the “Parent Company”.segments.
The Retail Pharmacy segment’s primary business is the sale of prescription drugs and related consultation to its customers. Additionally, the Retail Pharmacy segment sells a full selection of health and beauty aids and personal care products, seasonal merchandise and a large private brand product line. The Pharmacy Services segment offers a full range of pharmacy benefit management services including plan design and administration, on both a transparent pass-through model and traditional model, formulary management and claims processing. Additionally, the Pharmacy Services segment offers specialty and mail order services, infertility treatment, and drug benefits to eligible beneficiaries under the federal government’s Medicare Part D program.
30
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen Week Periods Ended May 28, 2022 and May 29, 2021
(Dollars and share information in thousands, except per share amounts)
(unaudited)
The Parent Company’s chief operating decision makers are its Parent Company Chief Executive Officer, Chief Operating Officer, Chief Financial Officer Chief Operating Officer-Retail Pharmacy, and several other members of the Chief Executive Officer—Pharmacy Services,Leadership Team, (collectively the “CODM”). The CODM has ultimate responsibility for enterprise decisions. The CODM determines, in particular, resource allocation for, and monitors performance of, the consolidated enterprise, the Retail Pharmacy segment and the Pharmacy Services segment. The Retail Pharmacy and Pharmacy Services segment managers have responsibility for operating decisions, allocating resources and assessing performance within their respective segments. The CODM relies on internal management reporting that analyzes enterprise results on certain key performance indicators, namely, revenues, gross profit, and Adjusted EBITDA.
The following is balance sheet information for the Company’s reportable segments:
| | | | | | | | | | | | |
|
| Retail |
| Pharmacy |
| |
| | | |||
| | Pharmacy | | Services | | Eliminations(1) | | Consolidated | ||||
May 28, 2022: | | | | | | | | | | | | |
Total Assets | | $ | 6,101,168 | | $ | 2,464,224 | | $ | (15,619) | | $ | 8,549,773 |
Goodwill | |
| 43,492 | | | 835,644 | |
| — | |
| 879,136 |
February 26, 2022: | | | | | | | | | | | | |
Total Assets | | $ | 6,068,594 | | $ | 2,482,232 | | $ | (21,823) | | $ | 8,529,003 |
Goodwill | |
| 43,492 | | | 835,644 | |
| — | |
| 879,136 |
(1) | As of May 28, 2022 and February 26, 2022, intersegment eliminations include netting of the Pharmacy Services segment long-term deferred tax liability of $0 against the Retail Pharmacy segment long-term deferred tax asset for consolidation purposes in accordance with ASC 740, and intersegment accounts receivable of $15,619 and $21,823, 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 condensed consolidated financial statements for the thirteen and thirty-nine week periods ended December 2, 2017May 28, 2022 and November 26, 2016:May 29, 2021:
| | | | | | | | | | | | |
| | Retail | | Pharmacy | | Intersegment | | | | |||
|
| Pharmacy |
| Services |
| Eliminations(1) |
| Consolidated | ||||
Thirteen Week Period Ended | | | | | | | | | | | | |
May 28, 2022: | | | | | | | | | | | | |
Revenues | | $ | 4,345,356 | | $ | 1,725,857 | | $ | (56,630) | | $ | 6,014,583 |
Gross Profit | | | 1,097,357 | | | 99,372 | | | — | | | 1,196,729 |
Adjusted EBITDA(2) | | | 73,682 | | | 26,448 | | | — | | | 100,130 |
Additions to property and equipment and intangible assets | | | 78,551 | | | 6,873 | | | — | | | 85,424 |
May 29, 2021: | | | | | | | | | | | | |
Revenues | | $ | 4,351,682 | | $ | 1,872,282 | | $ | (62,979) | | $ | 6,160,985 |
Gross Profit | | | 1,169,934 | | | 114,941 | | | — | | | 1,284,875 |
Adjusted EBITDA(2) | | | 94,914 | | | 43,963 | | | — | | | 138,877 |
Additions to property and equipment and intangible assets | | | 60,893 | | | 3,707 | | | — | | | 64,600 |
31
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen Week Periods Ended May 28, 2022 and May 29, 2021
(Dollars and share information in thousands, except per share amounts)
(unaudited)
|
| Retail |
| Pharmacy |
| Intersegment |
| Consolidated |
| ||||
Thirteen Week Period Ended |
|
|
|
|
|
|
|
|
| ||||
December 2, 2017: |
|
|
|
|
|
|
|
|
| ||||
Revenues |
| $ | 3,959,002 |
| $ | 1,445,140 |
| $ | (50,972 | ) | $ | 5,353,170 |
|
Gross Profit |
| 1,087,888 |
| 98,835 |
| — |
| 1,186,723 |
| ||||
Adjusted EBITDA (2) |
| 88,886 |
| 40,363 |
| — |
| 129,249 |
| ||||
November 26, 2016: |
|
|
|
|
|
|
|
|
| ||||
Revenues |
| $ | 4,082,278 |
| $ | 1,645,835 |
| $ | (59,002 | ) | $ | 5,669,111 |
|
Gross Profit |
| 1,141,794 |
| 103,057 |
| — |
| 1,244,852 |
| ||||
Adjusted EBITDA (2) |
| 138,903 |
| 52,431 |
| — |
| 191,334 |
| ||||
Thirty-Nine Week Period Ended |
|
|
|
|
|
|
|
|
| ||||
December 2, 2017: |
|
|
|
|
|
|
|
|
| ||||
Revenues |
| $ | 11,833,195 |
| $ | 4,451,212 |
| $ | (149,703 | ) | $ | 16,134,704 |
|
Gross Profit |
| 3,203,270 |
| 307,069 |
| — |
| 3,510,339 |
| ||||
Adjusted EBITDA (2) |
| 264,253 |
| 138,237 |
| — |
| 402,490 |
| ||||
November 26, 2016: |
|
|
|
|
|
|
|
|
| ||||
Revenues |
| $ | 12,319,445 |
| $ | 4,883,070 |
| $ | (178,361 | ) | $ | 17,024,154 |
|
Gross Profit |
| 3,426,265 |
| 289,384 |
| — |
| 3,715,649 |
| ||||
Adjusted EBITDA (2) |
| 428,864 |
| 143,616 |
| — |
| 572,480 |
|
(1) | Intersegment eliminations include intersegment revenues and corresponding cost of revenues that occur when Pharmacy Services segment customers use Retail Pharmacy segment stores to purchase covered products. When this occurs, both the Retail Pharmacy and Pharmacy Services segments record the revenue on a stand-alone basis. |
(2) | See “Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures” in MD&A for additional details. |
(1) Intersegment eliminations include intersegment revenues and corresponding cost of revenues that occur when Pharmacy Services segment customers use Retail Pharmacy segment stores to purchase covered products. When this occurs, both the Retail Pharmacy and Pharmacy Services segments record the revenue on a stand-alone basis. In accordance with ASC 205-20, the Company reduced its intersegment eliminations to reflect the ongoing cash flows which are expected to continue between the Company and the Disposal Group of $32,438 and $97,560 for the thirteen and thirty-nine week periods ended December 2, 2017 and $32,381 and $97,301 for the thirteen and thirty-nine week periods ended November 26, 2016. Please see Note 3 for additional information.
(2) See “Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures” in MD&A for additional details.
The following is a reconciliation of net income (loss) to Adjusted EBITDA for the thirteen and thirty-nine week periods ended December 2, 2017May 28, 2022 and November 26, 2016:May 29, 2021:
|
| Thirteen Week |
| Thirty-Nine Week |
| ||||||||
|
| December 2, |
| November 26, |
| December 2, |
| November 26, |
| ||||
|
| (dollars in thousands) |
| ||||||||||
Net (loss) income — continuing operations |
| $ | (18,182 | ) | $ | 23,610 |
| $ | 134,141 |
| $ | 29,134 |
|
Interest expense |
| 50,308 |
| 50,304 |
| 152,165 |
| 146,674 |
| ||||
Income tax (benefit) expense |
| (16,061 | ) | (4,682 | ) | 89,268 |
| (3,824 | ) | ||||
Depreciation and amortization expense |
| 95,764 |
| 101,953 |
| 292,448 |
| 304,460 |
| ||||
LIFO charge |
| 6,784 |
| 8,373 |
| 20,393 |
| 25,266 |
| ||||
Lease termination and impairment charges |
| 3,939 |
| 7,199 |
| 11,090 |
| 20,203 |
| ||||
Walgreens Boots Alliance merger termination fee |
| — |
| — |
| (325,000 | ) | — |
| ||||
Other |
| 6,697 |
| 4,577 |
| 27,985 |
| 50,567 |
| ||||
Adjusted EBITDA |
| $ | 129,249 |
| $ | 191,334 |
| $ | 402,490 |
| $ | 572,480 |
|
| | | | | | | |
|
| May 28, |
| May 29, |
| ||
| | 2022 |
| 2021 | | ||
| | (13 weeks) | | (13 weeks) | | ||
Net loss | | $ | (110,191) | | $ | (13,057) | |
Interest expense | |
| 48,119 | |
| 49,121 | |
Income tax expense | |
| 3,497 | |
| 780 | |
Depreciation and amortization | | | 70,073 | | | 75,859 | |
LIFO credit | |
| — | |
| (3,993) | |
Facility exit and impairment charges | |
| 66,571 | |
| 8,831 | |
Loss on debt retirements, net | | | — | | | 396 | |
Merger and Acquisition-related costs | |
| — | |
| 3,886 | |
Stock-based compensation expense | | | 3,334 | | | 2,811 | |
Restructuring-related costs | | | 22,646 | | | 5,932 | |
Inventory write-downs related to store closings | | | 7,955 | | | 472 | |
Litigation and other contractual settlements | | | 18,271 | | | 14,000 | |
Gain on sale of assets, net | | | (29,196) | | | (6,558) | |
Other | |
| (949) | |
| 397 | |
Adjusted EBITDA | | $ | 100,130 | | $ | 138,877 | |
The following is balance sheet information for the Company’s reportable segments:
|
| Retail |
| Pharmacy |
| Eliminations (2) |
| Consolidated |
| ||||
December 2, 2017: |
|
|
|
|
|
|
|
|
| ||||
Total Assets |
| $ | 8,361,424 |
| $ | 3,146,288 |
| $ | (167,098 | ) | $ | 11,340,614 |
|
Goodwill |
| 43,492 |
| 1,639,355 |
| — |
| 1,682,847 |
| ||||
Additions to property and equipment and intangible assets |
| 150,043 |
| 10,974 |
| — |
| 161,017 |
| ||||
March 4, 2017: |
|
|
|
|
|
|
|
|
| ||||
Total Assets |
| $ | 8,664,216 |
| $ | 3,087,143 |
| $ | (157,607 | ) | $ | 11,593,752 |
|
Goodwill |
| 43,492 |
| 1,639,355 |
| — |
| 1,682,847 |
| ||||
Additions to property and equipment and intangible assets(1) |
| 281,072 |
| 12,725 |
| — |
| 293,797 |
|
(1) Includes additions to property and equipment and intangible assets for the fifty-three week period ended March 4, 2017.
(2) As of December 2, 2017 and March 4, 2017, intersegment eliminations include netting of the Pharmacy Services segment long-term deferred tax liability of $154,119 and $140,865, respectively, against the Retail Pharmacy segment long-term deferred tax asset for consolidation purposes in accordance with ASC 740, and intersegment accounts receivable of $12,979 and $16,742, respectively, that represents amounts owed from the Pharmacy Services segment to the Retail Pharmacy segment that are created when Pharmacy Services segment customers use Retail Pharmacy segment stores to purchase covered products.
14.15. Commitments, Contingencies and ContingenciesGuarantees
Legal Matters and Regulatory Proceedings
The Company is regularly involved in a variety of legal proceedingsmatters including arbitration, litigation (and related settlement discussions), audits by counter parties under our contracts, and other claims, and is subject to investigations,regulatory proceedings including audits, inspections, claims, audits, inquiries, investigations, and similar actions by health care, insurance, pharmacy, tax and other governmental authorities arising in the ordinary course of its business, including, without limitation, the matters described below. Substantial damages are sought from the Company in virtually all of these matters. The Company records accruals for outstanding legal matters and applicable regulatory proceedings when it believes it is probable that a loss will behas 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 developmentsor that would make a loss contingency both probable and reasonably estimable, and as a result, warrant an account.accrual. If a loss contingency is not both probable and estimable, the Company typically does not establish an accrued liability. With respect to the litigation and other legal proceedings described
32
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen Week Periods Ended May 28, 2022 and May 29, 2021
(Dollars and share information in thousands, except per share amounts)
(unaudited)
below, the Company is unable to estimate the amount or range of reasonably possible loss due to the inherent difficulty of predicting the outcome of and uncertainties regarding such litigation and legal proceedings.
None of the Company’s accruals for outstanding legal matters or regulatory proceedings are currently material, individually or in the aggregate, to the Company’s consolidated financial position. However, during the course of any proceeding, developments may result in the creation or an increase of an accrual that could be material. Additionally, unfavorable or unexpected outcomes in outstanding legal matters or regulatory proceedings could exceed any accrual and impact the Company’s financial position. Further, even if the Company is successful in its legal proceedings, the Company may incur significant costs and expenses defending itself or others that it is required to indemnify, and such costs and expenses may not be subject to or exceed reimbursement pursuant to any applicable insurance.
The Company’s contingencies are subject to significant uncertainties, many of which are beyond the Company’s control, including, among other factors: (i) proceedings arethe stage of any proceeding and delays in early stages;scheduling; (ii) whether class or collective action status is sought and the likelihood of a class being certified; (iii) the outcome of pending or potential appeals, or motions;motions and settlement discussions; (iv) the extentrange and magnitude 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;issue or advanced; (vii) whether there are significant factual issues to be resolved; and/orresolved including findings made by juries; (viii) the exercise of discretion in enforcement actions including in the case of certain government agency investigations, whether a sealed qui tam lawsuit (“whistleblower” action) has been filed and whether the government agency makes a decision to intervene in the lawsuit following investigation.
After the announcement of the proposed Merger between the Company and Walgreens Boots Alliance, Inc. (WBA), a putative class action lawsuit was filed in Pennsylvania in the Court of Common Pleas of Cumberland County (Wilson v. Rite Aid Corp., et al.) by purported Company stockholders against the Company, its directors (the Individual Defendants, together with the Company, the Rite Aid Defendants), WBA and Victoria Merger Sub Inc. (Victoria) challenging the transactions contemplated by the Merger agreement. The complaint alleged primarily that the Individual Defendants breached their fiduciary duties by, among other things, agreeing to an allegedly unfair and inadequate price, agreeing to deal protection devices that allegedly prevented the directors from obtaining higher offers from other interested buyers for the Company and allegedly failing to protect against certain purported conflicts of interest in connection with the Merger. The complaint further alleged that the Company, WBAinvestigation; and/or Victoria aided and abetted these alleged breaches of fiduciary duty. The complaint sought, among other things, to enjoin the closing of the Merger as well as money damages and attorneys’ and experts’ fees.
Also(ix) changes in connection with the proposed Merger, an action was filedpriorities following any change 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 and 16, 2016, respectively, the plaintiff in the Hering action filed a motion for preliminary injunction and a motion for expedited discovery. On January 21, 2016, the Rite Aid Defendants filed a motion to dismiss the Hering complaint. At a hearing held on January 25, 2016, the Pennsylvania District Court orally denied the plaintiff’s motion for expedited discovery and subsequently denied the plaintiff’s motion for preliminary injunction on January 28, 2016. On March 14, 2016, the Pennsylvania District Court appointed Jerry Hering, Don Michael Hussey and Joanna Pauli Hussey as lead plaintiffs for the putative class and approved their selection of Robbins Geller Rudman & Dowd LLP as lead counsel. On April 14, 2016, the Pennsylvania District Court granted the lead plaintiffs’ unopposed motion to stay the Hering action for all purposes pending consummation of the Merger.
On March 17, 2017, the Hering plaintiffs filed a motion to lift the stay for the purpose of filing a proposed amended complaint. Defendants opposed the motion, and briefing concluded on April 17, 2017. The proposed amended complaint asserted state law breach of fiduciary duty claims against the Individual Defendants, a claim of aiding and abetting the alleged breaches of fiduciary duty against Rite Aid, WBA and Victoria, as well as claims for violations of Section 14(a) of the Exchange Act and SEC
Rule 14a-9 against the Rite Aid Defendants, WBA and Victoria, claims for violations of Section 10(b) of the Exchange Act and SEC Rule 10b-5 against the Rite Aid Defendants, WBA, Victoria and certain WBA executives, and a claim for violations of Section 20(a) of the Exchange Act against the Individual Defendants, WBA and Victoria. August 4, 2017, the Pennsylvania District Court entered an order lifting the stay, noting that the original claims in this matter are now moot, and directed the plaintiffs to file a motion for leave to amend the complaint, with brief in support thereof, on or before September 15, 2017 which deadline was subsequently extended to September 22, 2017. On September 22, 2017, the lead plaintiffs gave notice that plaintiffs Don Michael Hussey and Joanna Pauli Hussey were withdrawing as lead plaintiffs, and that plaintiff Jerry Hering (the Lead Plaintiff) would continue to represent the proposed class in the Hering action going forward. That same day, Lead Plaintiff filed a motion for leave to file an amended complaint, which the Pennsylvania District Court granted on November 27, 2017. On December 11, 2017, Lead Plaintiff filed the amended complaint (the Amended Complaint), which alleges a claim for violations of Section 10(b) of the Exchange Act and SEC Rule 10b-5 and a claim for violations of Section 20(a) of the Exchange Act against the Rite Aid Defendants, WBA, and certain WBA executives. The Rite Aid Defendants intend to move to dismiss the Amended Complaint.
The Company has been named in a collective and class action lawsuit, Indergit v. Rite Aid Corporation, et al., pending in the United States District Court for the Southern District of New York, filed purportedly on behalf of current and former store managers working in the Company’s storespolitical administration at various locations around the country. The lawsuit alleges that the Company failed to pay overtime to store managers as required under the FLSA and under certain New York state statutes. The lawsuit also seeks other relief, including liquidated damages, attorneys’ fees, costs and injunctive relief arising out of state and federal claims for overtime pay. On April 2, 2010, the Court conditionally certified a nationwide collective group of individuals who worked for the Company as store managers since March 31, 2007. The Court ordered that Notice of the Indergit action be sent to the purported members of the collective group (approximately 7,000 current and former store managers) and approximately 1,550 joined the Indergit action. Discovery as to certification issues has been completed. On September 26, 2013, the Court granted Rule 23 class certification of the New York store manager claims as to liability only, but denied it as to damages, and denied the Company’s motion for decertification of the nationwide collective action claims. The Company filed a motion seeking reconsideration of the Court’s September 26, 2013 decision which motion was denied in June 2014. The Company subsequently filed a petition for an interlocutory appeal of the Court’s September 26, 2013 ruling with the U. S. Court of Appeals for the Second Circuit which petition was denied in September 2014. Notice of the Rule 23 class certification as to liability only has been sent to approximately 1,750 current and former store managers in the state of New York. Discovery related to the merits of the claims is ongoing. On January 12, 2017, the parties reached a settlement in principle of this matter, for an immaterial amount of money, which is subject to preliminary and final approval by the court. On August 3, 2017, the court entered an order granting plaintiff’s unopposed motion for preliminary approval of the settlement and notice of the settlement was issued to putative class members on September 7, 2017. A final approval hearing is scheduled to be heard on January 11, 2018. In the event the settlement does not receive final approval by the court, the litigation may resume. If such occurs, the Company presently is not able to either predict the outcome of this lawsuit or estimate a potential range of loss with respect to the lawsuit. The Company’s management believes, however, that this lawsuit is without merit and is vigorously defending this lawsuit.federal level.
Employment Litigation.
The Company is currently a defendant in several lawsuits filed in courts in California allegingthat contain allegations regarding violations of the California Business and Professions Code, various California employment laws and regulations, industry wage orders, wage-and-hour laws, rules and regulations pertaining primarily to failure to pay overtime, failure to pay premiums for missed meals and rest periods, failure to reimburse business expensesprovide accurate wage statements, and failure to provide employee seatingreimburse business expenses (the “California Cases”). The Company also is defending a putative employment collective and class action filed in federal court in New York, which raises similar allegations in addition to others about the payment frequency for certain employees (the “New York Case”). Substantial damages are sought from the Company in virtually all of these matters. From time to time, one or more of these matters may be settled.
Some of the California Cases purport or may be determined to be class actions or representative actions under the California Private Attorneys General Act and seek substantial damages and penalties. The single-plaintiff and multi-plaintiff California Cases regarding violationsIn June 2021, the Company agreed to settle 2 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 asin which the plaintiffs brought class-based claims alleging that they and all other legal proceedings, have merit.similarly situated associates were not paid for time waiting for their bags to be checked. NaN set of cases involving store associates was settled for $9 million and has concluded, while the other involving distribution center associates was settled for $1.75 million and remains subject to court approval. On October 1, 2021, the Company agreed to settle for $12 million allegations made by a purported class of California store associates that it required such associates to purchase uniforms, and the matter has concluded. The Company has aggressively defended itself and challenged the merits of the lawsuits and, where applicable, the allegations that the caseslawsuits should be certified as class or representative actions. Additionally, at this time
33
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen Week Periods Ended May 28, 2022 and May 29, 2021
(Dollars and share information in thousands, except per share amounts)
(unaudited)
Usual and Customary Litigation.
The Company is named as a defendant in a number of lawsuits, including the cases below, that allege that the Company’s retail stores overcharged for prescription drugs by not ablesubmitting the price available to predict either the outcome of or estimate a potential range of loss with respect to the California Cases and is vigorously defending them.
In the employee seating case (Hall v. Rite Aid Corporation, San Diego County Superior Court), the Court, in October 2011, granted the plaintiff’s motion for class certification. The Company filed its motion for decertification, which motion was granted in November 2012. Plaintiff subsequently appealed the Court’s order which appeal was granted in May 2014. The Company filed a petition for reviewmembers of the appellate court’s decision with the California Supreme Court, which petition was denied in August 2014. Proceedings in the Hall case were stayed pending a decision by the California Supreme Court in two similar cases. That decision was rendered on April 4, 2016. A status conference in the case was held on November 18, 2016, at which time the court lifted the stay and scheduled the case for trial on January 26, 2018. Thereafter, the Court continued the trial to March 9, 2018, and is scheduled to hear Rite Aid’s pending motion for summary judgment on February 2, 2018.
Following service of subpoenas on the Company in 2011 and 2013 by the United States Attorney’s Office for the Eastern District of Michigan (“USAO”) and the State of Indiana’s Office of the Attorney General, respectively, the Company cooperated with inquiries regarding the relationship of Rite Aid’s Rx Savings Program toas the reporting ofpharmacy’s usual and customary charges to publicly funded health programs. In January 2017,price, and related theories. The Company is defending itself against these claims. Substantial damages are sought from the USAO, 18 states andCompany in virtually all of these matters.
The Company is a defendant in a putative consumer class action lawsuit in the United States District Court for the Southern District of Columbia declinedCalifornia captioned Byron Stafford v. Rite Aid Corp. A separate lawsuit, Robert Josten v. Rite Aid Corp., was consolidated with this lawsuit in November, 2019. The lawsuit contains allegations that (i) the Company was obligated to intervenecharge the plaintiffs’ insurance companies its usual and customary prices for their prescription drugs; and (ii) the Company failed to do so because the prices it reported were not equal to or adjusted to account for the prices that Rite Aid offered to uninsured and underinsured customers through its Rx Savings Program. Although a stay pending the Company’s unsuccessful attempt to compel arbitration has been lifted, the cases are now stayed pending mediation of these matters and another lawsuit raising usual and customary pricing allegations filed in a sealed False Claims Act (“FCA”) action filed by qui tam plaintiff Azam Rahimi (“Relator”) in the United States District Court for the Eastern District of Pennsylvania.
Michigan. On January 19, 2017,February 6, 2019, Humana, Inc., filed a claim pursuant to a binding arbitration provision of the court unsealed Relator’s Second Amended Complaint against the Company; it allegesparties’ agreement alleging that the Company failedimproperly submitted various usual and customary overcharges by failing to report its Rx Savings Program prices as its usual and customary charges under the Medicare Part D program andprices to federal and state Medicaid programsHumana. An arbitration hearing was held in 18 states and the District of Columbia; and that the Company is thus liable under the federal FCA and similar state statutes. The Company has filed a motion to dismiss the complaint, which is pending. At this stage of the proceedings, the Company is not able to either predict the outcome of this lawsuit or estimate a potential range of loss with respect to the lawsuit and is vigorously defending this lawsuit.
matter in November 2021.
On April 26, 2012,22, 2022, the arbitrator issued an Opinion and Final Award against the Company receivedfor breach of contract awarding Humana $122.6 million, which includes $40.7 million in prejudgment interest (the “Arbitration Award”). The Company believes that the Arbitration Award contains a number of significant factual and legal errors. On June 20, 2022, the Company both opposed Humana’s effort to confirm the Arbitration Award and petitioned the United States District Court for Western District of Kentucky for vacatur of the Arbitration Award, as is its right under the Federal Arbitration Act (“FAA”). As such, the Company has determined that it is not probable that a loss has occurred.
The FAA, as interpreted and applied by federal courts, permits vacatur when, among other things, an administrative subpoena fromarbitrator’s decision: (1) is irreconcilable with the U.S. Drug Enforcement Administration (“DEA”), Albany, New York District Office, requesting information regardingterms of a contract between the parties; (2) rests on a plain legal error that manifests disregard for the law; or (3) incorporates a refusal to consider pertinent, material evidence. Similarly, the FAA, as interpreted and applied by federal courts, permits modification of an arbitrator’s decision to correct an evident material miscalculation of figures. Although the Company cannot make any assurances of success in its efforts, it is the Company’s saleview that the errors in the Arbitration Award support both vacatur and modification under the FAA, the effect of products containing pseudoephedrine (“PSE”). In April 2012, it also receivedeither of which could be to set aside the Arbitration Award or reduce or eliminate the damages provided for in the Arbitration Award.
The Company is a communication fromdefendant in 2 consolidated lawsuits pending in 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 or charges have been filed. Between September 2015 and August 2017, the Company received several grand jury subpoenas from the U.S.United States District Court for the Southern District of West Virginia seeking additionalMinnesota filed in 2020 by various Blue Cross/Blue Shield plans that operate in 8 different states (North Carolina, North Dakota, Alabama, Utah, Minnesota, Oregon, Washington and New Jersey) alleging that the Company improperly submitted various usual and customary overcharges by failing to report its Rx Savings Program pricing to several Pharmacy Benefit Managers with which Rite Aid and the insurers had independent contracts. The Company is also defending a lawsuit filed in Delaware state court in 2019 by multiple Centene entities alleging that the
34
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen Week Periods Ended May 28, 2022 and May 29, 2021
(Dollars and share information in connection with the investigation of violations of the CMEA and/or the Controlled Substances Actthousands, except per share amounts)
(unaudited)
Company overcharged for prescriptions by improperly reporting usual and customary prices that did not include Rx Savings Program pricing. The Company is defending a similar lawsuit filed in 2022 by WellCare in Florida state court.
Drug Utilization Review and Code 1 Litigation
In June 2012, qui tam plaintiff, Loyd F. Schmuckley (“CSA”Relator”). Violations of the CMEA or the CSA could result in the imposition of administrative, civil and/or criminal penalties filed a complaint under seal against the Company. The Company had entered into tolling agreementsalleging that it failed to comply with the United States with respect to both the civilcertain requirements of California’s Medicaid program between 2007 and grand jury investigations, which expired on June 30, 2017 and August 3, 2016, respectively. There was no request to renew the agreements. Discussions have been held to attempt to resolve these matters with those USAOs and the Department of Justice, but whether any agreements can be reached and on what terms is uncertain. While the Company’s management cannot predict the outcome of these matters, it is possible that the Company’s results of operations or cash flows could be materially affected by an unfavorable resolution. At this stage of the investigation, Rite Aid is not able to predict the outcome of the investigations.
2014. 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. Specifically, the Relator alleged that the Company did not perform special verification and documentation for certain medications known as “Code 1” drugs. While the complaint remained under seal, the United States Department of Justice conducted an extensive investigation and ultimately declined to intervene. Although numerous states declined to intervene, in September 2017, the State of California filed a complaint in intervention. 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 relatedfiled a motion to Code 1 drugs to the USAO’s officedismiss Relator’s and the State of California Department of Justice’s Bureau of Medical Fraud and Elder Abuse (“CADOJ”). In August 2014,respective complaints in January 2018, the USAOhearing was held on March 23, 2018. On September 5, 2018, the court issued an order denying the motion to dismiss. Substantial damages are sought from the Company in this matter. No trial date has been set and 8 states’ attorneys general declined to interveneas discovery continues, the parties are participating in a California False Claim Actmediation process.
Controlled Substances Litigation, Audits and Investigations
The Company, along with various other defendants, is named in multiple opioid-related lawsuits filed by counties, cities, municipalities, Native American tribes, hospitals, third-party payers, and others across the United States. In December 2017, the U.S. Judicial Panel on Multidistrict Litigation (“FCA”JPML”) actionconsolidated and transferred more than a thousand federal opioid-related lawsuits that name the Company as a defendant to the multi-district litigation (“Action”MDL”) filed under sealpending in the EasternUnited States District Court for the Northern District of California byOhio under qui tamIn re National Prescription Opiate Litigation plaintiff Loyd F. Schmuckley (“Relator”) based on DUR(Case No. 17-MD-2804). A significant number of similar cases that are not part of the MDL and Codename the Company as a defendant are also pending in state courts. On June 1, allegations. In July 2016,2022, 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 CADOJJPML ordered that newly filed a sealed complaint-in-intervention in the Action, asserting causes under the FCA, for unjust enrichment and for payment by mistake relatedcases will no longer be transferred to the Code 1 allegations.MDL. The Action was unsealed on September 26, 2017. On September 28, 2017, Relator filed a First Amended Complaint underplaintiffs in these opioid-related lawsuits generally allege claims that include public nuisance and negligence theories of liability resulting from the FCA also concerningimpacts of widespread opioid abuse against defendants along the Code 1 allegations. The Company’s deadline to respond to the CADOJ’spharmaceutical supply chain, including manufacturers, wholesale distributors, and Relator’s complaints is currently scheduled for January 2018. retail pharmacies.At this stage of the proceedings, the Company is not able to either predict the outcome of this matterthe opioid-related lawsuits in which it remains a defendant or estimate a potential range of loss with respect to this matterregarding the lawsuits, and is vigorously defending this lawsuit.itself against all relevant claims. From time to time, some of these cases may be settled, dismissed or otherwise terminated, and additional such cases may be filed.
The Company also has received warrants, subpoenas, CIDs, and other requests for documents and information from, and is being investigated by, the federal and state governments regarding opioids and other controlled substances. The Company has been cooperating with and responding to these investigatory inquiries.
Relator, Matthew Omlansky, filedSubstantial damages are sought from the Company in virtually all of these matters.
In April 2019, the Company initiated a qui tamcoverage action State of California ex rel. Matthew Omlansky v. styled Rite Aid Corporation on behalf of the State of California against Rite Aid in the Superior Court of the State of California. In his Complaint, Relator alleges that Rite Aid violated the California False Claims Act by (i) failing to comply with California rules governing the Company’s reporting of its usual and customary prices; (ii) failing to dispense the least expensive equivalent generic drug in certain circumstances, in violation of applicable regulations; and (iii) dispensing, and seeking reimbursement for, restricted brand name drugs without prior approval. Relator filed his Second Amended Complaint on April 19, 2016. On October 5, 2016, Rite Aid’s demurrer to the Second Amended Complaint was granted, with leave for Relator to file an amended complaint. Relator filed his Third Amended Complaint to which Rite Aid filed a second demurrer, which the Court granted with leave for Relator to amend on April 20, 2017. Relator filed his Fourth Amended Complaint on May 1, 2017. On July 7, 2017, the Company’s demurrer to the Fourth Amended Complaint was sustained without leave for Relator to amend. The court entered a final judgment of dismissal of each of Relator’s claims on August 3, 2017. Relator’s deadline to appeal the judgment passed on October 9, 2017. Relator filed an untimely notice of appeal in theet al. v. ACE American Ins. Co. et al. Through this action, on October 13, 2017, and thereafter moved the California Court of Appeal for the Third District to construe an October 5, 2017 notice of appeal erroneously filed in another action brought by Relator as a timely appeal of this action. The Court of Appeal denied Relator’s motion, and the Company has moved to dismiss the attempted appeal. At this stage of the proceedings, the Company is not able to either predictseeking the outcomerecovery of this matter defense costs and settlement and/or estimate a potential rangejudgment
35
Table of loss with respect to this matterContents
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen Week Periods Ended May 28, 2022 and is vigorously defending this lawsuit.May 29, 2021
(Dollars and share information in thousands, except per share amounts)
(unaudited)
costs that may be paid for the opioid-related lawsuits. 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. These motions are pending and the action is stayed while related litigation is resolved on appeal. At this stage of the proceedings, the Company is not able to either predict the outcome of this lawsuit or estimate a potential range of lossseeks declaratory relief with respect to the lawsuit and is vigorously defending this lawsuit.
Rite Aid isobligations of the insurers under the policies at issue in the preliminary stagesaction and asserts claims for breach of litigation withcontract and statutory remedies against one of these insurers. Although the trial court determined on the Company’s motion for partial summary judgment that this insurer was obligated to reimburse the Company for its defense costs, on January 10, West Virginia counties2022, the Delaware Supreme Court reversed the trial court’s order and Shelby County, Tennessee relatedruled that the insurer had no duty to defend the first MDL suits set for trial based on the specific allegations at issue in those cases. The matter has been remanded to the alleged costs of opioid addiction by their residents. All lawsuits exceptlower court for the Shelby County action are federal lawsuits that have been consolidatedfurther proceedings.
Miscellaneous Litigation and Investigations.
The U.S. Securities and Exchange Commission (“SEC”) is investigating trading in the Northern District of Ohio before Judge Polster as part ofCompany’s securities that occurred in or around January 2017, and has subpoenaed information from the In re: National Prescription Opiate Litigation. No responsive pleadings have been filed by Rite Aid because the West Virginia lawsuits had all been stayed prior to consolidationCompany and Rite Aid has not yet been servedcertain employees in connection with that investigation. The Company is cooperating with the Shelby County complaint.SEC in this matter. The complaints allege generally that defendants, including Rite Aid, createdCompany has received a public nuisance in the plaintiff counties. Along with other distributors, these Counties accuse Rite Aid of distributing an excessive amount of opiates to licensed pharmacies, or otherwise failing to refuse suspicious orders. At this stage of these proceedings, the Company is not able to either predict the outcome of these lawsuits or estimate a potential range of lossCID and requests for information with respect to the lawsuits and is vigorously defending the lawsuits.
In addition to the above described matters, theconsumer protection laws. The Company is subject from time to time to variousalso defending a lawsuit asserting numerous claims and lawsuits and governmental investigations arisingbased on allegations surrounding the Company’s use of a certain font including in the ordinary course of business. While the Company’s management cannot predict the outcome of any of the claims, the Company’s management does not believe that the outcome of any of these legal matters will be material to the Company’s consolidated financial position. It is possible, however, that the Company’s results of operations or cash flows could be materially affected by an unfavorable resolution of pending litigation or contingencies.rebranded logo.
15. 16.Supplementary Cash Flow Data
|
| Thirty-Nine Weeks |
| |
|
|
|
| |
Cash paid for interest (net of capitalized amounts of $263) |
| $ | 285,022 |
|
Cash payments of income taxes, net of refunds |
| $ | 8,353 |
|
Equipment financed under capital leases |
| $ | 10,295 |
|
Equipment received for noncash consideration |
| $ | 2,044 |
|
Reduction in lease financing obligation |
| $ | 4,740 |
|
Gross borrowings from revolver |
| $ | 2,203,000 |
|
Gross payments to revolver |
| $ | 2,467,080 |
|
| | | | | | | |
| | Thirteen Week Period Ended | | ||||
|
| May 28, 2022 |
| May 29, 2021 | | ||
Cash paid for interest | | $ | 11,230 | | $ | 12,813 | |
Cash payments for income taxes, net | | $ | 13,290 | | $ | 556 | |
Equipment financed under capital leases | | $ | — | | $ | 1,585 | |
Gross borrowings from revolver | | $ | 860,000 | | $ | 1,546,000 | |
Gross repayments to revolver | | $ | 569,000 | | $ | 1,507,000 | |
|
| Thirty-Nine Weeks |
| |
|
|
|
| |
Cash paid for interest (net of capitalized amounts of $99) |
| $ | 273,761 |
|
Cash payments of income taxes, net of refunds |
| $ | 6,506 |
|
Equipment financed under capital leases |
| $ | 3,881 |
|
Equipment received for noncash consideration |
| $ | 746 |
|
Gross borrowings from revolver |
| $ | 2,774,000 |
|
Gross payments to revolver |
| $ | 2,494,000 |
|
16. Guarantor and Non-Guarantor Condensed Consolidating Financial Information
Rite Aid Corporation conducts the majoritySignificant components of its business through its subsidiaries. With the exceptioncash provided by Other Liabilities of EIC, substantially all of Rite Aid Corporation’s 100 percent owned subsidiaries guarantee the obligations under the Amended and Restated Senior Secured Credit Facility, second priority secured term loan facilities, secured guaranteed notes and unsecured guaranteed notes (the “Subsidiary Guarantors”). Additionally, with the exception of EIC, the subsidiaries, including joint ventures, that do not guarantee the
Amended and Restated Senior Secured Credit Facility, second priority secured term loan facilities, secured guaranteed notes and unsecured guaranteed notes, are minor.
For the purposes of preparing the information below, Rite Aid Corporation uses the equity method to account for its investment in subsidiaries. The equity method has been used by Subsidiary Guarantors with respect to investments in the non-guarantor subsidiaries. The subsidiary guarantees related to the Company’s Amended and Restated Senior Secured Credit Facility, second priority secured term loan facilities and secured guaranteed notes and, on an unsecured basis, the unsecured guaranteed notes, are full and unconditional and joint and several. Presented below is condensed consolidating financial information for Rite Aid Corporation, the Subsidiary Guarantors, and the non-guarantor subsidiaries at December 2, 2017, March 4, 2017, and$15,327 for the thirteen week period ended May 28, 2022 include cash provided from an increase in accruals relating to store closures and thirty-nine week periods ended December 2, 2017 and November 26, 2016. Separate financial statements for Subsidiary Guarantors are not presented.litigation matters.
36
|
| Rite Aid Corporation |
| |||||||||||||
|
| Condensed Consolidating Balance Sheet |
| |||||||||||||
|
| December 2, 2017 |
| |||||||||||||
|
| (unaudited) |
| |||||||||||||
|
| Rite Aid |
| Subsidiary |
| Non- |
| Eliminations |
| Consolidated |
| |||||
|
| (in thousands) |
| |||||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
| |||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| $ | — |
| $ | 163,343 |
| $ | 6,457 |
| $ | — |
| $ | 169,800 |
|
Accounts receivable, net |
| — |
| 1,503,578 |
| 293,341 |
| — |
| 1,796,919 |
| |||||
Intercompany receivable |
|
|
| 200,895 |
| — |
| (200,895 | )(a) | — |
| |||||
Inventories, net of LIFO reserve of $0, $627,718, $0, $0, and $627,718 |
| — |
| 1,853,886 |
| — |
| — |
| 1,853,886 |
| |||||
Prepaid expenses and other current assets |
| — |
| 240,093 |
| 619 |
| — |
| 240,712 |
| |||||
Current assets held for sale |
| — |
| 1,868,128 |
| — |
| — |
| 1,868,128 |
| |||||
Total current assets |
| — |
| 5,829,923 |
| 300,417 |
| (200,895 | ) | 5,929,445 |
| |||||
Property, plant and equipment, net |
| — |
| 1,479,214 |
| — |
| — |
| 1,479,214 |
| |||||
Goodwill |
| — |
| 1,682,847 |
| — |
| — |
| 1,682,847 |
| |||||
Other intangibles, net |
| — |
| 566,371 |
| 51,903 |
| — |
| 618,274 |
| |||||
Deferred tax assets |
| — |
| 1,419,544 |
| — |
| — |
| 1,419,544 |
| |||||
Investment in subsidiaries |
| 7,953,874 |
| 47,355 |
| — |
| (8,001,229 | )(b) | — |
| |||||
Intercompany receivable |
| — |
| 261,847 |
| — |
| (261,847 | )(a) | — |
| |||||
Other assets |
| — |
| 203,995 |
| 7,295 |
| — |
| 211,290 |
| |||||
Total assets |
| $ | 7,953,874 |
| $ | 11,491,096 |
| $ | 359,615 |
| $ | (8,463,971 | ) | $ | 11,340,614 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
| |||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Current maturities of long-term debt and lease financing obligations |
| $ | 90 |
| $ | 20,264 |
| $ | — |
| $ | — |
| $ | 20,354 |
|
Accounts payable |
| — |
| 1,780,226 |
| 9,230 |
| — |
| 1,789,456 |
| |||||
Intercompany payable |
| — |
| — |
| 200,895 |
| (200,895 | )(a) | — |
| |||||
Accrued salaries, wages and other current liabilities |
| 94,613 |
| 1,082,686 |
| 81,287 |
| — |
| 1,258,586 |
| |||||
Current liabilities held for sales |
| 3,786,480 |
| 51,039 |
| — |
| — |
| 3,837,519 |
| |||||
Total current liabilities |
| 3,881,183 |
| 2,934,215 |
| 291,412 |
| (200,895 | ) | 6,905,915 |
| |||||
Long-term debt, less current maturities |
| 2,985,700 |
| — |
| — |
| — |
| 2,985,700 |
| |||||
Lease financing obligations, less current maturities |
| — |
| 31,654 |
| — |
| — |
| 31,654 |
| |||||
Intercompany payable |
| 261,847 |
| — |
| — |
| (261,847 | )(a) | — |
| |||||
Other noncurrent liabilities |
| — |
| 571,353 |
| 20,848 |
| — |
| 592,201 |
| |||||
Total liabilities |
| 7,128,730 |
| 3,537,222 |
| 312,260 |
| (462,742 | ) | 10,515,470 |
| |||||
Commitments and contingencies |
| — |
| — |
| — |
| — |
| — |
| |||||
Total stockholders’ equity |
| 825,144 |
| 7,953,874 |
| 47,355 |
| (8,001,229 | )(b) | 825,144 |
| |||||
Total liabilities and stockholders’ equity |
| $ | 7,953,874 |
| $ | 11,491,096 |
| $ | 359,615 |
| $ | (8,463,971 | ) | $ | 11,340,614 |
|
(a) Elimination of intercompany accounts receivable and accounts payable amounts.
(b) Elimination of investments in consolidated subsidiaries.
|
| Rite Aid Corporation |
| |||||||||||||
|
| Condensed Consolidating Balance Sheet |
| |||||||||||||
|
| March 4, 2017 |
| |||||||||||||
|
| (unaudited) |
| |||||||||||||
|
| Rite Aid |
| Subsidiary |
| Non- |
| Eliminations |
| Consolidated |
| |||||
|
| (in thousands) |
| |||||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
| |||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| $ | — |
| $ | 213,104 |
| $ | 32,306 |
| $ | — |
| $ | 245,410 |
|
Accounts receivable, net |
| — |
| 1,506,288 |
| 264,838 |
| — |
| 1,771,126 |
| |||||
Intercompany receivable |
|
|
| 215,862 |
| — |
| (215,862 | )(a) | — |
| |||||
Inventories, net of LIFO reserve of $0, $607,326, $0, $0, and $607,326 |
| — |
| 1,789,541 |
| — |
| — |
| 1,789,541 |
| |||||
Prepaid expenses and other current assets |
| — |
| 203,033 |
| 8,508 |
| — |
| 211,541 |
| |||||
Current assets held for sale |
| — |
| 1,047,670 |
| — |
| — |
| 1,047,670 |
| |||||
Total current assets |
| — |
| 4,975,498 |
| 305,652 |
| (215,862 | ) | 5,065,288 |
| |||||
Property, plant and equipment, net |
| — |
| 1,526,462 |
| — |
| — |
| 1,526,462 |
| |||||
Goodwill |
| — |
| 1,682,847 |
| — |
| — |
| 1,682,847 |
| |||||
Other intangibles, net |
| — |
| 661,778 |
| 53,628 |
| — |
| 715,406 |
| |||||
Deferred tax assets |
| — |
| 1,505,564 |
| — |
| — |
| 1,505,564 |
| |||||
Investment in subsidiaries |
| 15,275,488 |
| 50,004 |
| — |
| (15,325,492 | )(b) | — |
| |||||
Intercompany receivable |
| — |
| 7,331,675 |
| — |
| (7,331,675 | )(a) | — |
| |||||
Other assets |
| — |
| 215,917 |
| — |
| — |
| 215,917 |
| |||||
Noncurrent assets held for sale |
| — |
| 882,268 |
| — |
| — |
| 882,268 |
| |||||
Total assets |
| $ | 15,275,488 |
| $ | 18,832,013 |
| $ | 359,280 |
| $ | (22,873,029 | ) | $ | 11,593,752 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
| |||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Current maturities of long-term debt and lease financing obligations |
| $ | 90 |
| $ | 17,619 |
| $ | — |
| $ | — |
| $ | 17,709 |
|
Accounts payable |
| — |
| 1,609,025 |
| 4,884 |
| — |
| 1,613,909 |
| |||||
Intercompany payable |
| — |
| — |
| 215,862 |
| (215,862 | )(a) | — |
| |||||
Accrued salaries, wages and other current liabilities |
| 66,365 |
| 1,207,240 |
| 67,342 |
| — |
| 1,340,947 |
| |||||
Current liabilities held for sales |
| — |
| 32,683 |
| — |
| — |
| 32,683 |
| |||||
Total current liabilities |
| 66,455 |
| 2,866,567 |
| 288,088 |
| (215,862 | ) | 3,005,248 |
| |||||
Long-term debt, less current maturities |
| 3,235,888 |
| — |
| — |
| — |
| 3,235,888 |
| |||||
Lease financing obligations, less current maturities |
| — |
| 37,204 |
| — |
| — |
| 37,204 |
| |||||
Intercompany payable |
| 7,331,675 |
| — |
| — |
| (7,331,675 | )(a) | — |
| |||||
Other noncurrent liabilities |
| — |
| 622,762 |
| 21,188 |
| — |
| 643,950 |
| |||||
Noncurrent liabilities held for sale |
| 4,027,400 |
| 29,992 |
|
|
|
|
| 4,057,392 |
| |||||
Total liabilities |
| 14,661,418 |
| 3,556,525 |
| 309,276 |
| (7,547,537 | ) | 10,979,682 |
| |||||
Commitments and contingencies |
| — |
| — |
| — |
| — |
| — |
| |||||
Total stockholders’ equity |
| 614,070 |
| 15,275,488 |
| 50,004 |
| (15,325,492 | )(b) | 614,070 |
| |||||
Total liabilities and stockholders’ equity |
| $ | 15,275,488 |
| $ | 18,832,013 |
| $ | 359,280 |
| $ | (22,873,029 | ) | $ | 11,593,752 |
|
(a) Elimination of intercompany accounts receivable and accounts payable amounts.
(b) Elimination of investments in consolidated subsidiaries.
|
| Rite Aid Corporation |
| |||||||||||||
|
| Rite Aid |
| Subsidiary |
| Non- |
| Eliminations |
| Consolidated |
| |||||
|
| (in thousands) |
| |||||||||||||
Revenues |
| $ | — |
| $ | 5,331,788 |
| $ | 47,064 |
| $ | (25,682 | )(a) | $ | 5,353,170 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cost of revenues |
| — |
| 4,146,272 |
| 45,063 |
| (24,888 | )(a) | 4,166,447 |
| |||||
Selling, general and administrative expenses |
| — |
| 1,162,416 |
| 4,892 |
| (794 | )(a) | 1,166,514 |
| |||||
Lease termination and impairment expenses |
| — |
| 3,939 |
| — |
| — |
| 3,939 |
| |||||
Interest expense |
| 45,586 |
| 5,040 |
| (318 | ) | — |
| 50,308 |
| |||||
Gain on sale of assets, net |
| — |
| 205 |
| — |
| — |
| 205 |
| |||||
Equity in earnings of subsidiaries, net of tax |
| (186,073 | ) | 1,793 |
| — |
| 184,280 | (b) | — |
| |||||
|
| (140,487 | ) | 5,319,665 |
| 49,637 |
| 158,598 |
| 5,387,413 |
| |||||
Earnings from continuing operations before income taxes |
| 140,487 |
| 12,123 |
| (2,573 | ) | (184,280 | ) | (34,243 | ) | |||||
Income tax expense (benefit) |
| — |
| (15,281 | ) | (780 | ) | — |
| (16,061 | ) | |||||
Net income (loss) from continuing operations |
| 140,487 |
| 27,404 |
| (1,793 | ) | (184,280 | ) | (18,182 | ) | |||||
Net income (loss) from discontinued operations |
| (59,456 | ) | 158,669 |
| — |
| — |
| 99,213 |
| |||||
Net income (loss) |
| $ | 81,031 |
| $ | 186,073 |
| $ | (1,793 | ) | $ | (184,280 | )(b) | $ | 81,031 |
|
Total other comprehensive income (loss) |
| 514 |
| 514 |
| — |
| (514 | ) | 514 |
| |||||
Comprehensive income (loss) |
| $ | 81,545 |
| $ | 186,587 |
| $ | (1,793 | ) | $ | (184,794 | ) | $ | 81,545 |
|
(a) Elimination of intercompany revenues and expenses.
(b) Elimination of equity in earnings of subsidiaries.
|
| Rite Aid Corporation |
| |||||||||||||
|
| Rite Aid |
| Subsidiary |
| Non- |
| Eliminations |
| Consolidated |
| |||||
|
| (in thousands) |
| |||||||||||||
Revenues |
| $ | — |
| $ | 5,641,856 |
| $ | 57,044 |
| $ | (29,789 | )(a) | $ | 5,669,111 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cost of revenues |
| — |
| 4,395,976 |
| 57,270 |
| (28,987 | )(a) | 4,424,259 |
| |||||
Selling, general and administrative expenses |
| — |
| 1,167,983 |
| 1,465 |
| (802 | )(a) | 1,168,646 |
| |||||
Lease termination and impairment expenses |
| — |
| 7,199 |
| — |
| — |
| 7,199 |
| |||||
Interest expense |
| 45,959 |
| 4,322 |
| 23 |
| — |
| 50,304 |
| |||||
Gain on sale of assets, net |
| — |
| (225 | ) | — |
| — |
| (225 | ) | |||||
Equity in earnings of subsidiaries, net of tax |
| (116,974 | ) | 3,059 |
| — |
| 113,915 | (b) | — |
| |||||
|
| (71,015 | ) | 5,578,314 |
| 58,758 |
| 84,126 |
| 5,650,183 |
| |||||
Earnings from continuing operations before income taxes |
| 71,015 |
| 63,542 |
| (1,714 | ) | (113,915 | ) | 18,928 |
| |||||
Income tax expense (benefit) |
| — |
| (6,027 | ) | 1,345 |
| — |
| (4,682 | ) | |||||
Net income (loss) from continuing operations |
| 71,015 |
| 69,569 |
| (3,059 | ) | (113,915 | ) | 23,610 |
| |||||
Net income (loss) from discontinued operations |
| (56,005 | ) | 47,405 |
| — |
| — |
| (8,600 | ) | |||||
Net income (loss) |
| $ | 15,010 |
| $ | 116,974 |
| $ | (3,059 | ) | $ | (113,915 | )(b) | $ | 15,010 |
|
Total other comprehensive income (loss) |
| 681 |
| 681 |
| — |
| (681 | ) | 681 |
| |||||
Comprehensive income (loss) |
| $ | 15,691 |
| $ | 117,655 |
| $ | (3,059 | ) | $ | (114,596 | ) | $ | 15,691 |
|
(a) Elimination of intercompany revenues and expenses.
(b) Elimination of equity in earnings of subsidiaries.
|
| Rite Aid Corporation |
| |||||||||||||
|
| Rite Aid |
| Subsidiary |
| Non- |
| Eliminations |
| Consolidated |
| |||||
|
| (in thousands) |
| |||||||||||||
Revenues |
| $ | — |
| $ | 16,070,256 |
| $ | 128,391 |
| $ | (63,943 | )(a) | $ | 16,134,704 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cost of revenues |
| — |
| 12,565,600 |
| 122,926 |
| (64,161 | )(a) | 12,624,365 |
| |||||
Selling, general and administrative expenses |
| — |
| 3,459,511 |
| 9,569 |
| 218 | (a) | 3,469,298 |
| |||||
Lease termination and impairment expenses |
| — |
| 11,090 |
| — |
| — |
| 11,090 |
| |||||
Interest expense |
| 137,562 |
| 14,896 |
| (293 | ) | — |
| 152,165 |
| |||||
Walgreens Boots Alliance, Inc. termination fee |
| (325,000 | ) | — |
| — |
| — |
| (325,000 | ) | |||||
Gain on sale of assets, net |
| — |
| (20,623 | ) | — |
| — |
| (20,623 | ) | |||||
Equity in earnings of subsidiaries, net of tax |
| (167,757 | ) | 2,649 |
| — |
| 165,108 | (b) | — |
| |||||
|
| (355,195 | ) | 16,033,123 |
| 132,202 |
| 101,165 |
| 15,911,295 |
| |||||
Earnings from continuing operations before income taxes |
| 355,195 |
| 37,133 |
| (3,811 | ) | (165,108 | ) | 223,409 |
| |||||
Income tax expense (benefit) |
| — |
| 90,430 |
| (1,162 | ) | — |
| 89,268 |
| |||||
Net income (loss) from continuing operations |
| 355,195 |
| (53,297 | ) | (2,649 | ) | (165,108 | ) | 134,141 |
| |||||
Net income (loss) from discontinued operations |
| (178,797 | ) | 221,054 |
| — |
| — |
| 42,257 |
| |||||
Net income (loss) |
| $ | 176,398 |
| $ | 167,757 |
| $ | (2,649 | ) | $ | (165,108 | )(b) | $ | 176,398 |
|
Total other comprehensive income (loss) |
| 1,543 |
| 1,543 |
| — |
| (1,543 | ) | 1,543 |
| |||||
Comprehensive income (loss) |
| $ | 177,941 |
| $ | 169,300 |
| $ | (2,649 | ) | $ | (166,651 | ) | $ | 177,941 |
|
(a) Elimination of intercompany revenues and expenses.
(b) Elimination of equity in earnings of subsidiaries.
|
| Rite Aid Corporation |
| |||||||||||||
|
| Rite Aid |
| Subsidiary |
| Non- |
| Eliminations |
| Consolidated |
| |||||
|
| (in thousands) |
| |||||||||||||
Revenues |
| $ | — |
| $ | 16,946,453 |
| $ | 176,153 |
| $ | (98,452 | )(a) | $ | 17,024,154 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cost of revenues |
| — |
| 13,233,024 |
| 170,883 |
| (95,402 | )(a) | 13,308,505 |
| |||||
Selling, general and administrative expenses |
| — |
| 3,519,465 |
| 7,435 |
| (3,050 | )(a) | 3,523,850 |
| |||||
Lease termination and impairment expenses |
| — |
| 20,203 |
| — |
| — |
| 20,203 |
| |||||
Interest expense |
| 133,208 |
| 13,436 |
| 30 |
| — |
| 146,674 |
| |||||
Gain (loss) on sale of assets, net |
| — |
| (388 | ) | — |
| — |
| (388 | ) | |||||
Equity in earnings of subsidiaries, net of tax |
| (328,539 | ) | 3,704 |
| — |
| 324,835 | (b) | — |
| |||||
|
| (195,331 | ) | 16,789,444 |
| 178,348 |
| 226,383 |
| 16,998,844 |
| |||||
Earnings from continuing operations before income taxes |
| 195,331 |
| 157,009 |
| (2,195 | ) | (324,835 | ) | 25,310 |
| |||||
Income tax expense (benefit) |
| — |
| (5,333 | ) | 1,509 |
| — |
| (3,824 | ) | |||||
Net income (loss) from continuing operations |
| 195,331 |
| 162,342 |
| (3,704 | ) | (324,835 | ) | 29,134 |
| |||||
Net income (loss) from discontinued operations |
| (170,136 | ) | 166,197 |
| — |
| — |
| (3,939 | ) | |||||
Net income (loss) |
| $ | 25,195 |
| $ | 328,539 |
| $ | (3,704 | ) | $ | (324,835 | )(b) | $ | 25,195 |
|
Total other comprehensive income (loss) |
| 2,043 |
| 2,043 |
| — |
| (2,043 | ) | 2,043 |
| |||||
Comprehensive income (loss) |
| $ | 27,238 |
| $ | 330,582 |
| $ | (3,704 | ) | $ | (326,878 | ) | $ | 27,238 |
|
(a) Elimination of intercompany revenues and expenses.
(b) Elimination of equity in earnings of subsidiaries.
|
| Rite Aid Corporation |
| |||||||||||||
|
| Rite Aid |
| Subsidiary |
| Non- |
| Eliminations |
| Consolidated |
| |||||
|
| (in thousands) |
| |||||||||||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net cash provided by operating activities |
| $ | 229,578 |
| $ | 220,721 |
| $ | (25,849 | ) | $ | — |
| $ | 424,450 |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Payments for property, plant and equipment |
| — |
| (140,816 | ) | — |
| — |
| (140,816 | ) | |||||
Intangible assets acquired |
| — |
| (20,201 | ) | — |
| — |
| (20,201 | ) | |||||
Intercompany activity |
| — |
| (449,803 | ) | — |
| 449,803 |
| — |
| |||||
Proceeds from dispositions of assets and investments |
| — |
| 19,254 |
| — |
| — |
| 19,254 |
| |||||
Proceeds from insured loss |
| — |
| 3,627 |
| — |
| — |
| 3,627 |
| |||||
Net cash (used in) provided by investing activities |
| — |
| (587,939 | ) | — |
| 449,803 |
| (138,136 | ) | |||||
Financing activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net payments to revolver |
| (264,080 | ) | — |
| — |
| — |
| (264,080 | ) | |||||
Principal payments on long-term debt |
| — |
| (7,292 | ) | — |
| — |
| (7,292 | ) | |||||
Change in zero balance cash accounts |
| — |
| 27,594 |
| — |
| — |
| 27,594 |
| |||||
Net proceeds from issuance of common stock |
| 4,416 |
| — |
| — |
| — |
| 4,416 |
| |||||
Payments for taxes related to net share settlement of equity awards |
| — |
| (4,103 | ) | — |
| — |
| (4,103 | ) | |||||
Intercompany activity |
| 449,803 |
| — |
| — |
| (449,803 | ) | — |
| |||||
Net cash provided by (used in) financing activities |
| 190,139 |
| 16,199 |
| — |
| (449,803 | ) | (243,465 | ) | |||||
Cash flows of discontinued operations: |
|
|
|
|
|
|
|
|
|
|
| |||||
Operating activities of discontinued operations |
| (178,797 | ) | 116,503 |
| — |
| — |
| (62,294 | ) | |||||
Investing activities of discontinued operations |
| — |
| 189,175 |
| — |
| — |
| 189,175 |
| |||||
Financing activities of discontinued operations |
| (240,920 | ) | (4,420 | ) | — |
| — |
| (245,340 | ) | |||||
Net cash provided by (used in) discontinued operations |
| (419,717 | ) | 301,258 |
| — |
| — |
| (118,459 | ) | |||||
(Decrease) increase in cash and cash equivalents |
| — |
| (49,761 | ) | (25,849 | ) | — |
| (75,610 | ) | |||||
Cash and cash equivalents, beginning of period |
| — |
| 213,104 |
| 32,306 |
| — |
| 245,410 |
| |||||
Cash and cash equivalents, end of period |
| $ | — |
| $ | 163,343 |
| $ | 6,457 |
| $ | — |
| $ | 169,800 |
|
|
| Rite Aid Corporation |
| |||||||||||||
|
| Rite Aid |
| Subsidiary |
| Non- |
| Eliminations |
| Consolidated |
| |||||
|
| (in thousands) |
| |||||||||||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net cash (used in) provided by operating activities |
| $ | (92,312 | ) | $ | 259,647 |
| $ | 5,913 |
| $ | — |
| $ | 173,248 |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Payments for property, plant and equipment |
| — |
| (197,723 | ) | — |
| — |
| (197,723 | ) | |||||
Intangible assets acquired |
| — |
| (35,986 | ) | — |
| — |
| (35,986 | ) | |||||
Intercompany activity |
| — |
| 21,964 |
| — |
| (21,964 | ) | — |
| |||||
Proceeds from dispositions of assets and investments |
| — |
| 10,217 |
| — |
| — |
| 10,217 |
| |||||
Net cash used in investing activities |
| — |
| (201,528 | ) | — |
| (21,964 | ) | (223,492 | ) | |||||
Financing activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net proceeds from revolver |
| 280,000 |
| — |
| — |
| — |
| 280,000 |
| |||||
Principal payments on long-term debt |
| — |
| (12,728 | ) | — |
| — |
| (12,728 | ) | |||||
Change in zero balance cash accounts |
| — |
| 30,685 |
| — |
| — |
| 30,685 |
| |||||
Net proceeds from issuance of common stock |
| 4,412 |
| — |
| — |
| — |
| 4,412 |
| |||||
Excess tax benefit on stock options and restricted stock |
| — |
| 3,809 |
| — |
| — |
| 3,809 |
| |||||
Payments for taxes related to net share settlement of equity awards |
| — |
| (6,254 | ) | — |
| — |
| (6,254 | ) | |||||
Intercompany activity |
| (21,964 | ) | — |
| — |
| 21,964 |
| — |
| |||||
Net cash provided by financing activities |
| 262,448 |
| 15,512 |
| — |
| 21,964 |
| 299,924 |
| |||||
Cash flows of discontinued operations: |
|
|
|
|
|
|
|
|
|
|
| |||||
Operating activities of discontinued operations |
| (170,136 | ) | 168,595 |
| — |
| — |
| (1,541 | ) | |||||
Investing activities of discontinued operations |
| — |
| (148,884 | ) | — |
| — |
| (148,884 | ) | |||||
Financing activities of discontinued operations |
| — |
| (3,698 | ) | — |
| — |
| (3,698 | ) | |||||
Net cash provided by (used in) discontinued operations |
| (170,136 | ) | 16,013 |
| — |
| — |
| (154,123 | ) | |||||
Increase in cash and cash equivalents |
| — |
| 89,644 |
| 5,913 |
| — |
| 95,557 |
| |||||
Cash and cash equivalents, beginning of period |
| — |
| 90,569 |
| 33,902 |
| — |
| 124,471 |
| |||||
Cash and cash equivalents, end of period |
| $ | — |
| $ | 180,213 |
| $ | 39,815 |
| $ | — |
| $ | 220,028 |
|
17. Subsequent Event
On January 3, 2018, the Company entered into a Tax Benefits Preservation Plan (the “Plan”) with Broadridge Corporate Issuer Solutions, as rights agent, and its Board of Directors declared a dividend distribution of one right (a “Right”) for each outstanding share of common stock, par value $1.00 per share, to stockholders of record at the close of business on January 16, 2018. Each Right is governed by the terms of the Plan and entitles the registered holder to purchase from the Company a unit consisting of one one-thousandth of a share of Series J Junior Participating Preferred Stock, par value $1.00 per share, at a purchase price of $8.00 per unit, subject to adjustment. The purpose of the Plan is to preserve our ability to use the Company’s net operating loss carryforwards and other tax attributes (collectively, “Tax Benefits”) which would be substantially limited if the Company experienced an “ownership change” as defined under Section 382 of the Internal Revenue Code. In general, an ownership change would occur if Company shareholders who are treated as owning 5 percent or more of its outstanding shares for purposes of Section 382 (“5-percent shareholders”) collectively increase their aggregate ownership in the Company’s overall shares outstanding by more than 50 percentage points. Whether this change has occurred would be measured by comparing each 5-percent shareholder’s current ownership as of the measurement date to such shareholders’ lowest ownership percentage during the three year period preceding the measurement date. The adoption of the Plan is intended to ensure that the Company will be able to utilize Tax Benefits in connection with the Sale.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a pharmacyhealthcare company with a retail healthcare company,footprint, providing our customers and communities with a high level of care and service through various programs we offer through our two reportable business segments, our Retail Pharmacy segment and our Pharmacy Services segment. We accomplish our goal of delivering comprehensive care to our customers through our retail drugstores RediClinic walk-in retail health clinics and transparent and traditional EnvisionRxOptions and MedTrak PBMs.our PBM, Elixir. We also offer fully integrated mail-order and specialty pharmacy services through EnvisionPharmacies.Elixir Pharmacy. Additionally, through EIC, EnvisionRxOptionsElixir Insurance (“EI”), Elixir also serves one of the fastest-growing demographics in healthcare: seniors enrolled in Medicare Part D. When combined with our retail platform, this comprehensive suite of services allows us to provide value and choice to customers, patients and payors and allows us to succeedcompete in today’stoday's evolving healthcare marketplace.
Retail Pharmacy Segment
Our Retail Pharmacy segment sells brand and generic prescription drugs and provides various other pharmacy services, as well as an assortment of front-end products including health and beauty aids, personal care products, seasonal merchandise, and a large private brand product line. Our Retail Pharmacy segment generates the majority of its revenue through the sale of prescription drugs and front-end products at our 2,569over 2,300 retail stores.pharmacy locations across 17 states and through our e-commerce platform available at www.riteaid.com. We replenish our retail stores through a combination of direct store delivery of pharmaceutical products facilitated
through our pharmacypharmaceutical Purchasing and Delivery Agreement with McKesson, Corporation, and the majority of our front endfront-end products through our network of ten distribution centers. In addition, the Retail Pharmacy segment includes 79 RediClinic walk-in retail clinics, of which 43 are located within Rite Aid retail stores in the Philadelphia, Seattle and New Jersey markets.
Pharmacy Services Segment
Our Pharmacy Services segment which was formed on June 24, 2015provides a fully integrated suite of PBM offerings including technology solutions, mail delivery services, specialty pharmacy, network and rebate administration, claims adjudication and pharmacy discount programs. Elixir also provides prescription discount programs and Medicare Part D insurance offerings for individuals and groups. Elixir provides services to various clients across its different lines of business, including major health plans, commercial employers, labor groups and state and local governments, representing approximately 2.3 million covered lives, including approximately 0.7 million covered lives through our acquisitionMedicare Part D insurance offerings. Elixir continues to focus its efforts and offerings to its target market of EnvisionRxOptions, providessmall to mid-market employers, labor unions and regional health plans, including provider-led health plans and government sponsored Medicaid and Medicare plans.
Restructuring
Beginning in Fiscal 2019, we initiated a full rangeseries of restructuring plans designed to reorganize our executive management team, reduce managerial layers, and consolidate roles. In March 2020, we announced the details of our RxEvolution strategy, which includes building tools to work with regional health plans to improve patient health outcomes, rationalizing SKU’s in our front-end offering to free up working capital and update our merchandise assortment, assessing our pricing and promotional strategy, rebranding our retail pharmacy benefit services. Theand pharmacy services business, launching our Store of the Future format and further reducing SG&A and headcount, including integrating certain back office functions in the Pharmacy Services segment provides both transparentwithin the segment and traditional pharmacy benefit management (“PBM”) optionsacross Rite Aid. Other strategic initiatives include the expansion of our digital business, replacing and updating the Company’s financial systems to improve efficiency, and movement to a common client platform at Elixir. In April 2022, we announced further strategic initiatives to reduce costs through its EnvisionRxOptionsthe closure of unprofitable stores, reducing corporate administration expenses and MedTrak PBMs, respectively. EnvisionRxOptions also offers fully integrated mail-orderimproving efficiencies in worked payroll and specialty pharmacy services through EnvisionPharmacies; accessother store labor costs as well as expense reductions at our Pharmacy Services segment. These and future restructuring activities are expected to provide future growth and expense efficiency benefits. There can be no assurance that our current and future restructuring charges will achieve the nation’s largest cash pay infertility discount drug program via Design Rx; an innovative claims adjudication software platformcost savings and remerchandising benefits in Laker Software; andthe amounts or time anticipated.
37
Impact of COVID-19
In March 2020, the outbreak of COVID-19 caused by a national Medicare Part D prescription drug plan through EIC’s EnvisionRx Plus product offering.novel strain of the coronavirus was recognized as a pandemic by the World Health Organization. The segment’s clients are primarily employers, insurance companies, unions, government employee groups, health plans, Managed Medicaid plans, Medicare plans, other sponsorsCOVID-19 pandemic has severely impacted the economies of health benefit plans and individuals throughout the United States.States and other countries around the world.
Asset Sale to WBA
TerminationSince the onset of Merger Agreement with WBA
On June 28, 2017,the COVID-19 pandemic, Rite Aid WBAhas been on the front lines of providing communities with essential care, services and Victoria Merger Sub, Inc. entered into a Termination Agreement (the “Merger Termination Agreement”) under whichproducts, including the parties agreedadministration of COVID-19 testing and vaccines. We have taken numerous steps to terminate the Merger Agreement. The Merger Termination Agreement providesensure that WBA would pay to Rite Aid a termination fee in the amountcan continue providing these vital services during this time of $325.0 million, which we received on June 30, 2017.
Entry Into Amendedgreat need, including hiring additional full and Restated Asset Purchase Agreement with WBA
On September 18, 2017, we entered into the Amended and Restated Asset Purchase Agreement with WBA and the Buyer, which amended and restated in its entirety the Original APA. Pursuantpart-time associates to the terms and subject to the conditions set forth in the Amended and Restated Asset Purchase Agreement, the Buyer will purchase from us 1,932 stores, three (3) distribution centers, related inventory and other specified assets related thereto for a purchase price of approximately $4.375 billion, on a cash-free, debt-free basis, plus the Buyer’s assumption of certain liabilities of Rite Aid and its affiliates. On September 19, 2017, we announced that the waiting period under the HSR Act expired with respect to the Sale. On November 27, 2017, we announced that we had completed the pilot closing and first subsequent closings under the Amended and Restated Asset Purchase Agreement, resulting in the transfer of 97 Rite Aid stores and related assets to the Buyer. The majority of the closing conditions to the Sale have been satisfied, and the subsequent transfers ofsupport our stores and related assets remain subjectdistribution center teams, providing our front line associates with our Hero Pay and Hero Bonus programs and instituted a Pandemic Pay policy that ensures associates are compensated if diagnosed with the virus or quarantined due to minimal customary closing conditions applicable onlyexposure. We also implemented safety protocols to the stores being transferred at such subsequent closing, as specifiedkeep our associates and customers safe, and transitioned our office-based associates to a remote work environment. Our strong local presence and scale in communities in our markets enables us to play a central role in the Amendedresponse to COVID-19, as well as provide seamless support for our customers wherever they need it; at our stores and Restated Asset Purchase Agreement.at their homes through our delivery services.
We, WBA and the Buyer have each made customary representations and warranties. We have agreed to various covenants and agreements, including, among others,The COVID-19 pandemic had a significant impact on our agreement to conduct our business at the Acquired Stores in the ordinary course during the period between the execution of the Amended and Restated Asset Purchase Agreement and the subsequent closings of the Sale. We have also agreed to provide transition services to the Buyeroperating results for up to three (3) years after the initial closing of the Sale. During the thirteen week periodperiods ended December 2, 2017,May 28, 2022 and May 29, 2021 and will continue to have an impact on several factors underlying our operating results in fiscal 2023. Those factors include the amount chargednumber of individuals that receive a COVID-19 vaccine or booster; demand for COVID-19 testing; the timing and extent to Buyerwhich elective procedures return to pre-pandemic levels; the demand for transition services was nominal.
Influ and other immunizations and the event that we enter into an agreement to sell alllength and severity of the remainder of Rite Aid or over 50% of our stock or assets to a third party prior to the end of the transition period under the TSA, any potential acquirer would be obligated to assume our remaining obligations under the TSA. Under the terms of the Amendedupcoming cough, cold and Restated Asset Purchase Agreement, we have the option to purchase pharmaceutical drugs through an affiliate of WBA under terms, including cost, that are substantially equivalent to Walgreen’s for a period of ten (10) years, subject to certain terms and conditions.flu season.
Divestiture of the Assets to be Sold
On October 17, 2017, we began the process of selling the Assets to be Sold to WBA in accordance with the terms and provisions as contained in the Amended and Restated Asset Purchase Agreement. During the thirteen weeks ended December 2, 2017, we sold 97 stores and related assets to WBA in exchange for proceeds of $240.9 million, which were used to repay outstanding debt, and recognized a pre-tax gain of $157.0 million. During December 2017, we sold an additional 260 stores and related assets to WBA for proceeds of $474.0 million. We estimate that the total pre-tax gain on the Sale will be approximately $2.5 billion. We expect to complete the majority of the Sale by the end of our first quarter of fiscal 2019.
Based on its magnitude and because we are exiting certain markets, the Sale represents a significant strategic shift that has a material effect on our operations and financial results. Accordingly, we have applied discontinued operations treatment for the Sale as required by GAAP.
Overview of Financial Results
Our net loss from continuing operations for the thirteen week period ended December 2, 2017May 28, 2022 was $18.2$110.2 million or $0.02$2.03 per basic and diluted share compared to a net incomeloss of $23.6$13.1 million or $0.02$0.24 per basic and diluted share for the thirteen week period ended November 26, 2016. OurMay 29, 2021. The increase in net income from continuing operations for the thirty-nine week period ended December 2, 2017 was $134.1 million or $0.13 per basic and diluted share compared to net income of $29.1 million or $0.03 per basic and diluted share for the thirty-nine week period ended November 26, 2016. The decline in our operating resultsloss for the thirteen week period ended December 2, 2017 was due a decrease in our Adjusted EBITDA, partially offset by a higher income tax benefit. The increase in the thirty-nine week operating resultsMay 28, 2022 was due primarily to higher facility exit and impairment charges driven by the receipt of the $325.0 million Walgreens Boots Alliance merger termination fee for the termination of the merger agreement, effective June 28, 2017, partially offset byCompany’s previously announced store closure decisions and a decrease in Adjusted EBITDA and higher income tax expense.EBITDA. These items were partially offset by an increase in gain on sale of assets resulting from script file sales of certain of the store closures.
Our Adjusted EBITDA from continuing operations for the thirteen and thirty-nine week periodsperiod ended December 2, 2017May 28, 2022 was $129.2$100.1 million or 2.4 percent1.7% of revenues and $402.5compared to $138.9 million or 2.5 percent of revenues, respectively, compared $191.3 million or 3.4 percent of revenues and $572.5 million or 3.4 percent2.3% of revenues for the thirteen and thirty-nine week periodsperiod ended November 26, 2016, respectively.May 29, 2021. The declinedecrease in Adjusted EBITDA for the thirteen week period ended December 2, 2017May 28, 2022 was due to declines in both the Retail Pharmacy segment and the Pharmacy Services segment. Adjusted EBITDA decreased $21.2 million in the Retail Pharmacy segment due primarily to a decrease of $50.0 million in the Retail Pharmacy segment. The decrease in the Retail Pharmacy segment Adjusted EBITDA was primarily driven by a decline in pharmacy reimbursement rates, which we were unable to fully offset with generic purchasing efficiencies, lower script counts and lower net favorable legal settlements of approximately $15.0 million. The decline in pharmacy gross profit, was partially offset by a reduction of SG&Adecrease in Adjusted EBITDA selling, general and administrative expenses of $8.6 million resulting from cost control initiatives in our Retail Pharmacy segment.$40.5 million. Adjusted EBITDA in the Pharmacy Services segment decreased by $12.1$17.5 million as a result of our election to participate in fewer Medicare Part D regions and a decline in commercial business.
The decline in our Adjusted EBITDA for the thirty-nine week period ended December 2, 2017 was due primarily to a decrease of $164.6 millionthe decline in revenues associated with lost clients and an increase in the Retail Pharmacy segment driven by lower reimbursement rates and a decrease in prescription count. The decline in pharmacy reimbursement rates weremedical loss ratio at EI, partially offset by generic drug purchasing efficiencies and a reduction of SG&A expenses of $76.3 million resultinghigher retained rebates from expense reduction initiatives in our Retail Pharmacy segment. Adjusted EBITDA was also impacted by a decrease of $5.4 million of Pharmacy Services segment Adjusted EBITDA driven by our election to participate in fewer Medicare Part D regions and a decline in commercial business. new rebate aggregation arrangement.
Please see the sections entitled “Segment Analysis” and “Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures” below for additional details.
38
Consolidated Results of Operations
Revenues and Other Operating Data
|
| Thirteen Week Period Ended |
| Thirty-Nine Week Period Ended |
| ||||||||
|
| December 2, |
| November 26, |
| December 2, |
| November 26, |
| ||||
|
| (dollars in thousands except per share amounts) |
| ||||||||||
Revenues(a) |
| $ | 5,353,170 |
| $ | 5,669,111 |
| $ | 16,134,704 |
| $ | 17,024,154 |
|
Revenue (decline) growth |
| (5.6 | )% | 0.3 | % | (5.2 | )% | 13.9 | % | ||||
Net (loss) income from continuing operations |
| $ | (18,182 | ) | $ | 23,610 |
| $ | 134,141 |
| $ | 29,134 |
|
Net (loss) income from continuing operations per diluted share |
| $ | (0.02 | ) | $ | 0.02 |
| $ | 0.13 |
| $ | 0.03 |
|
Adjusted EBITDA from continuing operations(b) |
| $ | 129,249 |
| $ | 191,334 |
| $ | 402,490 |
| $ | 572,480 |
|
Adjusted Net Income (Loss) from continuing operations(b) |
| $ | 1,619 |
| $ | 26,755 |
| $ | (10,082 | ) | $ | 64,727 |
|
Adjusted Net Income (Loss) per Diluted Share — continuing operations(b) |
| $ | 0.00 |
| $ | 0.03 |
| $ | (0.01 | ) | $ | 0.06 |
|
| | | | | | | | |
| | Thirteen Week Period Ended | | | ||||
|
| May 28, |
| May 29, | |
| ||
| | 2022 | | 2021 | | | ||
| (dollars in thousands except per share amounts) | |||||||
Revenues(a) | | $ | 6,014,583 | | $ | 6,160,985 | | |
Revenue (decline) growth | |
| (2.4) | % |
| 2.2 | % | |
Net loss | | $ | (110,191) | | $ | (13,057) | | |
Net loss per diluted share | | $ | (2.03) | | $ | (0.24) | | |
Adjusted EBITDA(b) | | $ | 100,130 | | $ | 138,877 | | |
Adjusted Net (Loss) Income (b) | | $ | (32,829) | | $ | 20,934 | | |
Adjusted Net (Loss) Income per Diluted Share(b) | | $ | (0.60) | | $ | 0.38 | | |
(a) | Revenues for the thirteen week periods ended May 28, 2022 and May 29, 2021 exclude $56,630 and $62,979, respectively, of inter-segment activity that is eliminated in consolidation. |
(b) | See “Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures” for additional details. |
(a)
Revenues
Revenues decreased 2.4% for the thirteen and thirty-nine weeks ended December 2, 2017 exclude $50,972 and $149,703, respectively, of inter-segment activity that is eliminated in consolidation. Revenues for the thirteen and thirty-nine weeks ended November 26, 2016 exclude $59,002 and $178,361, respectively, of inter-segment activity that is eliminated in consolidation.
(b) See “Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures” for additional details.
Revenues
Revenues decreased 5.6% and 5.2% for the thirteen and thirty-nine weeks ended December 2, 2017, respectively,May 28, 2022, compared to an increase of 0.3% and 13.9%2.2% for the thirteen and thirty-nine weeks ended November 26, 2016, respectively.May 29, 2021. Revenues for the thirteen week period ended December 2, 2017May 28, 2022 were negatively impacted by a $123.3$6.3 million decrease in Retail Pharmacy segment revenues and a $200.7$146.4 million decrease in Pharmacy Services segment revenues. Revenues for the thirty-nine week period ended December 2, 2017 were negatively impacted by a $486.3 million decrease in Retail Pharmacy segment revenues and a $431.9 million decrease in Pharmacy Services segment revenues. Same store sales trends for the thirteen and thirty-nine week periods ended December 2, 2017 and November 26, 2016 are described in the “Segment Analysis” section below.
Please see the section entitled “Segment Analysis” below for additional details regarding revenues.
Costs and Expenses
| | | | | | | | | |||||||||||||
| | Thirteen Week Period Ended | | | |||||||||||||||||
|
| May 28, |
| May 29, |
|
| |||||||||||||||
| | 2022 | | 2021 | | | |||||||||||||||
|
| Thirteen Week Period |
| Thirty-Nine Week Period |
| ||||||||||||||||
|
| December 2, |
| November 26, |
| December 2, |
| November 26, |
| ||||||||||||
|
| (dollars in thousands) |
| ||||||||||||||||||
Cost of revenues (a) |
| $ | 4,166,447 |
| $ | 4,424,259 |
| $ | 12,624,365 |
| $ | 13,308,505 |
| ||||||||
| | (dollars in thousands) | | | |||||||||||||||||
Cost of revenues(a) | | $ | 4,817,854 | | $ | 4,876,110 | | | |||||||||||||
Gross profit |
| 1,186,723 |
| 1,244,852 |
| 3,510,339 |
| 3,715,649 |
| |
| 1,196,729 | |
| 1,284,875 | | | ||||
Gross margin |
| 22.2 | % | 22.0 | % | 21.8 | % | 21.8 | % | |
| 19.9 | % |
| 20.9 | % | | ||||
Selling, general and administrative expenses |
| 1,166,514 |
| 1,168,646 |
| 3,469,298 |
| 3,523,850 |
| | $ | 1,217,929 | | $ | 1,245,362 | | | ||||
Selling, general and administrative expenses as a percentage of revenues |
| 21.8 | % | 20.6 | % | 21.5 | % | 20.7 | % | |
| 20.2 | % |
| 20.2 | % | | ||||
Lease termination and impairment charges |
| 3,939 |
| 7,199 |
| 11,090 |
| 20,203 |
| ||||||||||||
Facility exit and impairment charges | |
| 66,571 | |
| 8,831 | | | |||||||||||||
Interest expense |
| 50,308 |
| 50,304 |
| 152,165 |
| 146,674 |
| |
| 48,119 | |
| 49,121 | | | ||||
(Gain) loss on sale of assets, net |
| 205 |
| (225 | ) | (20,623 | ) | (388 | ) | ||||||||||||
Loss on debt retirements, net | |
| — | |
| 396 | | | |||||||||||||
Gain on sale of assets, net | |
| (29,196) | |
| (6,558) | | |
(a) | Cost of revenues for the thirteen week periods ended May 28, 2022 and May 29, 2021 exclude $56,630 and $62,979, respectively, of inter-segment activity that is eliminated in consolidation. |
(a) Cost of revenues for the thirteen and thirty-nine weeks ended December 2, 2017 exclude $50,972 and $149,703, respectively, of inter-segment activity that is eliminated in consolidation. Cost of revenues for the thirteen and thirty-nine weeks ended November 26, 2016 exclude $59,002 and $178,361, respectively, of inter-segment activity that is eliminated in consolidation.
Gross Profit and Cost of Revenues
Gross profit decreased by $58.1$88.1 million for the thirteen week period ended December 2, 2017May 28, 2022 compared to the thirteen week period ended November 26, 2016. Gross profit decreased by $205.3 million for the thirty-nine week period ended December 2, 2017 compared to the thirty-nine week period ended November 26, 2016.May 29, 2021. Gross profit for the thirteen week period ended December 2, 2017May 28, 2022 includes a declinedecrease of $53.9$72.5 million in our Retail Pharmacy segment and a declinedecrease of $4.2$15.6 million in our Pharmacy Services segment. Gross profit for the thirty-nine week period ended December 2, 2017 includes a decline
39
segment. Gross margin was 22.2% and 21.8%, respectively,19.9% for the thirteen and thirty-nine week periodsperiod ended December 2, 2017May 28, 2022 compared to 22.0% and 21.8%, respectively,20.9% for the thirteen and thirty-nine week periodsperiod ended November 26, 2016.May 29, 2021. Please see the section entitled “Segment Analysis” for a more detailed description of gross profit and gross margin results by segment.
Selling, General and Administrative Expenses
SG&A decreased $2.1 million and $54.6by $27.4 million for the thirteen and thirty-nine week periodsperiod ended December 2, 2017, respectively,May 28, 2022, compared to the thirteen and thirty-nine week periodsperiod ended November 26, 2016.May 29, 2021. The decrease in SG&A for the thirteen week period ended December 2, 2017May 28, 2022 includes a decrease of $8.6$38.8 million relating to our Retail Pharmacy segment, partially offset by an increase of $6.4 million relating to our Pharmacy Services segment. The decrease in SG&A for the thirty-nine week period ended December 2, 2017 includes a decrease of $76.3 million relating to our Retail Pharmacy segment, partially offset by an increase of
$21.8$11.4 million relating to our Pharmacy Services segment. Please see the section entitled “Segment Analysis” below for additional details regarding SG&A.
Lease TerminationFacility Exit and Impairment Charges
Lease terminationFacility exit and impairment charges consist of amounts as follows:
|
| Thirteen Week Period |
| Thirty-Nine Week Period |
| ||||||||||||||
|
| December 2, |
| November 26, |
| December 2, |
| November 26, |
| ||||||||||
| | | | | | | |||||||||||||
|
| Thirteen Week | |||||||||||||||||
|
| Period Ended | |||||||||||||||||
|
| May 28, |
| May 29, | |||||||||||||||
| | 2022 |
| 2021 | |||||||||||||||
Impairment charges |
| $ | 315 |
| $ | 890 |
| $ | 946 |
| $ | 1,578 |
| | $ | 35,036 |
| $ | 4,313 |
Lease termination charges |
| 3,624 |
| 6,309 |
| 10,144 |
| 18,625 |
| ||||||||||
|
| $ | 3,939 |
| $ | 7,199 |
| $ | 11,090 |
| $ | 20,203 |
| ||||||
Facility exit charges | |
| 31,535 | |
| 4,518 | |||||||||||||
| | $ | 66,571 |
| $ | 8,831 |
Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Lease TerminationResults—Facility Exit and Impairment Charges” included in our Fiscal 20172022 10-K for a detailed description of our impairment and lease termination methodology.
Interest Expense
Interest expense was $50.3$48.1 million and $152.2 million for the thirteen and thirty-nine week periods ended December 2, 2017, respectively, compared to $50.3 million and $146.7 million for the thirteen and thirty-nine week periods ended November 26, 2016, respectively. Interest expense was higher in the thirty-nine week period ended December 2, 2017 due to higher average outstanding borrowings on our Amended and Restated Senior Secured Credit Facility. The weighted average interest rates on our indebtedness for the thirty-nine week periods ended December 2, 2017 and November 26, 2016 were 5.5% and 5.3%, respectively.
Income Taxes
We recorded an income tax benefit of $16.0 million and $4.7$49.1 million for the thirteen week periods ended December 2, 2017May 28, 2022 and November 26, 2016, respectively,May 29, 2021, respectively. The weighted average interest rate on our indebtedness for the thirteen week periods ended May 28, 2022 and May 29, 2021 was 5.6% and 5.3%, respectively.
Income Taxes
We recorded an income tax expense of $89.3$3.5 million and an income tax benefit of $3.8$0.8 million for the thirty-ninethirteen week periods ended December 2, 2017May 28, 2022 and November 26, 2016,May 29, 2021, respectively. The effective tax rate for the thirteen week periods ended December 2, 2017May 28, 2022 and November 26, 2016May 29, 2021 was 46.9%(3.3)% and (24.7)(6.4)%, respectively. The effective tax rate for the thirty-ninethirteen week periods ended December 2, 2017May 28, 2022 and November 26, 2016May 29, 2021 was 40.0% and (15.1)%, respectively. The effective tax rate for the thirteen and thirty-nine week periods ended December 2, 2017 includesnet of an adjustment of 13%(37.6)% and 1%(18.5)%, respectively, for changes to adjust the valuation allowance primarily relating to state NOLs. The effectiveagainst deferred tax rate for the thirty-nine week period ended December 2, 2017 also includes an adjustment of 55%, primarily related to the tax impact of the Walgreens Boots Alliance merger termination fee received in the second quarter of fiscal 2018. The tax benefit for the thirteen and thirty-nine week periods ended November 26, 2016 was the result of lower projected earnings for the Retail Pharmacy segment which resulted in a cumulative adjustment to the annual effective tax rate.assets.
We recognize tax liabilities in accordance with the guidance for uncertain tax positions and management 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.
WhileWe believe that it is expectedreasonably possible that the amounta decrease of up to $25.1 million in unrecognized tax benefits will changerelated to state exposures may be necessary in the next twelve months,months; however, management does not expect the change to have a significantmaterial impact on the results of operations or the financial position of the Company.
We regularly evaluate valuation allowances established for deferred tax assets for which future realization is uncertain. We will continue to monitor all available evidence related to the net deferred tax assets that may change the most recent assessment, including events that have occurred or are anticipated to occur. We continue to maintain a valuation allowance against net deferred tax assets of $826.8$1,862.8 million and $226.7$1,822.7 million, which relates primarily to federal and
40
state deferred tax assets that may not be realized based on our future projections of taxable income at December 2, 2017May 28, 2022 and March 4, 2017,February 26, 2022, respectively. The increase in valuation allowance for the period December 2, 2017 relates primarily to a Pennsylvania law change which required an increase to the state deferred tax asset for certain net operating losses with an offsetting valuation allowance adjustment.
On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act into legislation. We expect to record a tax expense in the fourth quarter of fiscal 2018 between $200 million and $325 million, primarily due to the re-measurement of our net deferred tax assets. The new U.S. tax legislation is subject to a number of complex provisions, which we are currently reviewing, however we expect future earnings to be positively impacted largely due to the reduction of the U.S. federal corporate income tax rate from 35% to 21% (effective January 1, 2018).
Segment Analysis
We evaluate the Retail Pharmacy and Pharmacy Services segments’ performance based on revenue, gross profit, and Adjusted EBITDA. The following is a reconciliation of our segments to the condensed consolidated financial statements:
|
| Retail |
| Pharmacy Services |
| Intersegment |
| Consolidated |
| ||||
Thirteen Week Period Ended |
|
|
|
|
|
|
|
|
| ||||
December 2, 2017: |
|
|
|
|
|
|
|
|
| ||||
Revenue |
| $ | 3,959,002 |
| $ | 1,445,140 |
| $ | (50,972 | ) | $ | 5,353,170 |
|
Gross Profit |
| 1,087,888 |
| 98,835 |
| — |
| 1,186,723 |
| ||||
Adjusted EBITDA (2) |
| 88,886 |
| 40,363 |
| — |
| 129,249 |
| ||||
November 26, 2016: |
|
|
|
|
|
|
|
|
| ||||
Revenue |
| $ | 4,082,278 |
| $ | 1,645,835 |
| $ | (59,002 | ) | $ | 5,669,111 |
|
Gross Profit |
| 1,141,794 |
| 103,057 |
| — |
| 1,244,851 |
| ||||
Adjusted EBITDA (2) |
| 138,903 |
| 52,431 |
| — |
| 191,334 |
| ||||
Thirty-Nine Week Period Ended |
|
|
|
|
|
|
|
|
| ||||
December 2, 2017: |
|
|
|
|
|
|
|
|
| ||||
Revenue |
| $ | 11,833,195 |
| $ | 4,451,212 |
| $ | (149,703 | ) | $ | 16,134,704 |
|
Gross Profit |
| 3,203,270 |
| 307,069 |
| — |
| 3,510,339 |
| ||||
Adjusted EBITDA (2) |
| 264,253 |
| 138,237 |
| — |
| 402,490 |
| ||||
November 26, 2016: |
|
|
|
|
|
|
|
|
| ||||
Revenue |
| $ | 12,319,445 |
| $ | 4,883,070 |
| $ | (178,361 | ) | $ | 17,024,154 |
|
Gross Profit |
| 3,426,265 |
| 289,384 |
| — |
| 3,715,649 |
| ||||
Adjusted EBITDA (2) |
| 428,864 |
| 143,616 |
| — |
| 572,480 |
|
| | | | | | | | | | | | |
|
| Retail |
| Pharmacy |
| Intersegment |
| | | |||
| | Pharmacy | | Services | | Eliminations(1) | | Consolidated | ||||
Thirteen Week Period Ended | | | | | | | | | | | | |
May 28, 2022: | | | | | | | | | | | | |
Revenues | | $ | 4,345,356 | | $ | 1,725,857 | | $ | (56,630) | | $ | 6,014,583 |
Gross Profit | |
| 1,097,357 | |
| 99,372 | |
| — | |
| 1,196,729 |
Adjusted EBITDA(*) | |
| 73,682 | |
| 26,448 | |
| — | |
| 100,130 |
May 29, 2021: | | | | | | | | | | | | |
Revenues | | $ | 4,351,682 | | $ | 1,872,282 | | $ | (62,979) | | $ | 6,160,985 |
Gross Profit | |
| 1,169,934 | |
| 114,941 | |
| — | |
| 1,284,875 |
Adjusted EBITDA(*) | |
| 94,914 | |
| 43,963 | |
| — | |
| 138,877 |
(1) | Intersegment eliminations include intersegment revenues and corresponding cost of revenues that occur when Pharmacy Services segment customers use Retail Pharmacy segment stores to purchase covered products. When this occurs, both the Retail Pharmacy and Pharmacy Services segments record the revenue on a stand-alone basis. |
(1) Intersegment eliminations include intersegment revenues and corresponding cost of revenues that occur when Pharmacy Services segment customers use Retail Pharmacy segment stores to purchase covered products. When this occurs, both the Retail Pharmacy and Pharmacy Services segments record the revenue on a stand-alone basis. In accordance with ASC 205-20, the Company reduced its intersegment eliminations to reflect the ongoing cash flows which are expected to continue between the Company and the Disposal Group of $32.4 million and $97.6 million for the thirteen and thirty-nine week periods ended December 2, 2017 and $32.4 million and $97.3 million for the thirteen and thirty-nine week periods ended November 26, 2016.
(2)(*) See “Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures” for additional details.
41
Retail Pharmacy Segment Results of Operations
Revenues and Other Operating Data
|
| Thirteen Week Period Ended |
| Thirty-Nine Week Period Ended |
| ||||||||
|
| December 2, |
| November 26, |
| December 2, |
| November 26, |
| ||||
|
| (dollars in thousands) |
| ||||||||||
Revenues |
| $ | 3,959,002 |
| $ | 4,082,278 |
| $ | 11,833,195 |
| $ | 12,319,445 |
|
Revenue decline |
| (3.0 | )% | (3.1 | )% | (3.9 | )% | (1.7 | )% | ||||
Same store sales decline |
| (2.5 | )% | (3.2 | )% | (3.3 | )% | (1.7 | )% | ||||
Pharmacy sales decline |
| (4.4 | )% | (4.6 | )% | (5.2 | )% | (2.8 | )% | ||||
Same store prescription count (decline) growth, adjusted to 30-day equivalents |
| (2.4 | )% | (0.2 | )% | (1.9 | )% | 1.2 | % | ||||
Same store pharmacy sales decline |
| (3.5 | )% | (4.6 | )% | (4.5 | )% | (2.7 | )% | ||||
Pharmacy sales as a % of total retail sales |
| 66.5 | % | 67.3 | % | 66.2 | % | 67.1 | % | ||||
Front-end sales (decline) growth |
| (1.3 | )% | (0.1 | )% | (1.5 | )% | 0.4 | % | ||||
|
| Thirteen Week Period Ended |
| Thirty-Nine Week Period Ended |
| ||||||||
|
| December 2, |
| November 26, |
| December 2, |
| November 26, |
| ||||
|
| (dollars in thousands) |
| ||||||||||
Same store front-end sales (decline) growth |
| (0.5 | )% | (0.3 | )% | (0.8 | )% | 0.4 | % | ||||
Front-end sales as a % of total retail sales |
| 33.5 | % | 32.7 | % | 33.8 | % | 32.9 | % | ||||
Adjusted EBITDA — continuing operations(*) |
| $ | 88,886 |
| $ | 138,903 |
| $ | 264,253 |
| $ | 428,864 |
|
Store data (Total): |
|
|
|
|
|
|
|
|
| ||||
Total stores (beginning of period) |
| 4,507 |
| 4,550 |
| 4,536 |
| 4,561 |
| ||||
New stores |
| 1 |
| 3 |
| 3 |
| 10 |
| ||||
Store acquisitions |
| — |
| 1 |
| — |
| 3 |
| ||||
Sold to WBA |
| (97 | ) |
|
| (97 | ) |
|
| ||||
Closed stores |
| (7 | ) | (7 | ) | (38 | ) | (27 | ) | ||||
Total stores (end of period) |
| 4,404 |
| 4,547 |
| 4,404 |
| 4,547 |
| ||||
Relocated stores |
| 9 |
| 9 |
| 14 |
| 19 |
| ||||
Remodeled and expanded stores |
| 21 |
| 95 |
| 144 |
| 259 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Store data (Discontinued Operations): |
|
|
|
|
|
|
|
|
| ||||
Total stores to be sold to WBA |
| 1,932 |
| 1,932 |
| 1,932 |
| 1,932 |
| ||||
Sold to WBA |
| (97 | ) | — |
| (97 | ) | — |
| ||||
Total stores remaining to be sold to WBA |
| 1,835 |
| 1,932 |
| 1,835 |
| 1,932 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Store data (Continuing Operations): |
|
|
|
|
|
|
|
|
| ||||
Total stores (end of period- Total) |
| 4,404 |
| 4,547 |
| 4,404 |
| 4,547 |
| ||||
Stores remaining to be sold to WBA |
| (1,835 | ) | (1,932 | ) | (1,835 | ) | (1,932 | ) | ||||
Total stores (end of period — Continuing Operations) |
| 2,569 |
| 2,615 |
| 2,569 |
| 2,615 |
| ||||
| | | | | | | | |
| | Thirteen Week Period Ended | | | ||||
|
| May 28, |
| May 29, |
|
| ||
| | 2022 | | 2021 | | | ||
| | (dollars in thousands) | | | ||||
Revenues | | $ | 4,345,356 | | $ | 4,351,682 | | |
Revenue (decline) growth | |
| (0.1) | % |
| 5.5 | % | |
Same store sales growth | |
| 4.6 | % |
| 1.4 | % | |
Pharmacy sales growth | |
| 1.9 | % |
| 14.1 | % | |
Same store prescription count growth, adjusted to 30-day equivalents | |
| 0.9 | % |
| 11.2 | % | |
Same store pharmacy sales growth | |
| 6.6 | % |
| 8.2 | % | |
Pharmacy sales as a % of total retail sales | |
| 70.8 | % |
| 68.9 | % | |
Front-end sales decline | |
| (4.6) | % |
| (9.8) | % | |
Same store front-end sales decline | |
| (0.5) | % |
| (12.0) | % | |
Front-end sales as a % of total retail sales | |
| 29.2 | % |
| 31.1 | % | |
Adjusted EBITDA(*) | | $ | 73,682 | | $ | 94,914 | | |
Store data: | |
| | |
|
| | |
Total stores (beginning of period) | |
| 2,450 | |
| 2,510 | | |
New stores | |
| — | |
| 1 | | |
Store acquisitions | |
| — | |
| — | | |
Closed stores | |
| (89) | |
| (5) | | |
Total stores (end of period) | |
| 2,361 | |
| 2,506 | | |
Relocated stores | |
| 1 | |
| — | | |
Remodeled and expanded stores | |
| 2 | |
| 6 | | |
(*) See “Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures” for additional details.
Revenues
Revenues decreased 3.0%0.1% for the thirteen weeks ended December 2, 2017May 28, 2022 compared to a decreasean increase of 3.1%5.5% for the thirteen weeks ended November 26, 2016.May 29, 2021. The decrease in revenues for the thirteen week period ended December 2, 2017May 28, 2022 was primarilydriven by a result of the decreasereduction in pharmacy sameCOVID vaccine and testing revenue as well as store sales.closures, offset by an increase in non-COVID prescriptions.
Pharmacy same store sales decreasedincreased by 3.5%6.6% for the thirteen week period ended December 2, 2017May 28, 2022 compared to the 4.6% decreasean increase of 8.2% in the thirteen week period ended November 26, 2016.May 29, 2021. The decreaseincrease in the current periodpharmacy same store sales is due primarily to the 2.4% decreaseincrease in same store prescription count compared to the prior year period driven in part by being excluded from certain pharmacy networks that we participated in last year.count. Same store prescription sales were also impactedcount, adjusted to 30-day equivalents, increased 0.9% for the thirteen week period ended May 28, 2022 driven primarily by continued lower reimbursement ratesan increase in non-COVID same store prescriptions of 3.7%, with same store maintenance prescriptions increasing 1.4% and an approximate 2.0% negative impact from generic introductions, partially offset by the impact of brand drug inflation.other same store acute prescriptions increasing 11.9%.
Front-end same store sales decreased 0.5% during the thirteen week period ended December 2, 2017May 28, 2022 compared to a decrease of 0.3%12.0% during the thirteen week period ended November 26, 2016.
Revenues decreased 3.9% for the thirty-nine weeks ended December 2, 2017 compared to a decrease of 1.7% for the thirty-nine weeks ended November 26, 2016. The decrease in revenues for the thirty-nine week period ended December 2, 2017 was primarily a result of the decrease in pharmacy same store sales.
Pharmacy same store sales decreased by 4.7% for the thirty-nine week period ended December 2, 2017 compared to the 2.7% decrease in the thirty-nine week period ended November 26, 2016. The decrease in the current period is due primarily to continued lower reimbursement rates, an approximate 2.0% negative impact from generic introductions, and a 1.9% decrease in same store prescription count, partially offset by the impact of brand drug inflation.
May 29, 2021. Front-end same store sales, decreasedexcluding cigarettes and tobacco products, were flat. Front-end same store sales were driven by 0.8% during the thirty-nine week period ended December 2, 2017 comparedincreases in over-the-counter products, offset by decreases in alcohol and seasonal sales, due to the 0.4% increase in the thirty-nine week period ended November 26, 2016.supply chain disruptions.
We include in same store sales all stores that have been open at least one year. RelocationRelocated and acquired stores are not included in same store sales until one year has lapsed.
42
Costs and Expenses
|
| Thirteen Week Period |
| Thirty-Nine Week Period |
| ||||||||
|
| December 2, |
| November 26, |
| December 2, |
| November 26, |
| ||||
|
| (dollars in thousands) |
| ||||||||||
Cost of revenues |
| $ | 2,871,114 |
| $ | 2,940,484 |
| $ | 8,629,925 |
| $ | 8,893,180 |
|
Gross profit |
| 1,087,888 |
| 1,141,794 |
| 3,203,270 |
| 3,426,265 |
| ||||
Gross margin |
| 27.5 | % | 28.0 | % | 27.1 | % | 27.8 | % | ||||
FIFO gross profit(*) |
| 1,094,672 |
| 1,150,167 |
| 3,223,663 |
| 3,451,531 |
| ||||
FIFO gross margin(*) |
| 27.7 | % | 28.2 | % | 27.2 | % | 28.0 | % | ||||
Selling, general and administrative expenses |
| 1,086,857 |
| 1,095,409 |
| 3,235,309 |
| 3,311,655 |
| ||||
Selling, general and administrative expenses as a percentage of revenues |
| 27.5 | % | 26.8 | % | 27.34 | % | 26.9 | % | ||||
| | | | | | | | |
| | Thirteen Week Period Ended | | | ||||
|
| May 28, |
| May 29, |
|
| ||
| | 2022 | | 2021 | | | ||
| | (dollars in thousands) | | | ||||
Cost of revenues | | $ | 3,247,999 |
| $ | 3,181,748 |
| |
Gross profit | |
| 1,097,357 | |
| 1,169,934 | | |
Gross margin | |
| 25.3 | % |
| 26.9 | % | |
FIFO gross profit(*) | |
| 1,097,357 | |
| 1,165,941 | | |
FIFO gross margin(*) | |
| 25.3 | % |
| 26.8 | % | |
Selling, general and administrative expenses | | | 1,117,214 | | | 1,156,039 | | |
Selling, general and administrative expenses as a percentage of revenues | |
| 25.7 | % |
| 26.6 | % | |
(*) See “Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures” for additional details.
Gross Profit and Cost of Revenues
Gross profit decreased $53.9$72.5 million for the thirteen week period ended December 2, 2017 asMay 28, 2022 compared to the thirteen week period ended November 26, 2016. GrossMay 29, 2021. The decrease in gross profit was negatively impacteddriven by lower reimbursement rates that were not fullythe decline in COVID-19 vaccinations and testing. The gross profit headwind from reduced COVID related services was partially offset by generic drug purchasing efficienciesan increase in prescriptions filled and a decrease in prescription count. Also impacting the decrease was a legal settlement of $9.0 million that benefited the prior year results.improved front end gross margin.
Gross profit decreased $223.0 million for the thirty-nine week period ended December 2, 2017 as compared to the thirty-nine week period ended November 26, 2016. Gross profit was negatively impacted by the decrease in pharmacy gross profit due to lower reimbursement rates that were not fully offset by generic drug purchasing efficiencies and a decrease in prescription count.
Gross margin was 27.4% and 27.0%25.3% of sales for the thirteen and thirty-nine week periodsperiod ended December 2, 2017, respectively,May 28, 2022 compared to 28.0% and 27.8%26.9% of sales for the thirteen and thirty-nine week periodsperiod ended November 26, 2016, respectively.May 29, 2021. The decreasedecline in gross margin for the thirteen and thirty-nine week period wasas a percentage of revenues is due primarily to lower reimbursement rates that were not fully offset by generic drug purchasing efficiencies, partially offset by a lower estimated LIFO charge.the reduction in COVID-19 vaccinations and testing.
We use the last-in, first-out (“LIFO”) method of inventory valuation, which is estimated on a quarterly basis and is finalized at year end when inflation rates and inventory levels are final. Therefore, LIFO costs for interim period financial statements are estimated. LIFO charges were $6.8 million and $20.4$0 for the thirteen week period ended May 28, 2022, compared to LIFO credits of $4.0 million for the thirteen week period ended May 29, 2021. The reduction in LIFO credits in the thirteen week period ended May 28, 2022 was mostly due to higher anticipated front-end inflation in fiscal 2023.
Selling, General and thirty-nine week periods ended December 2, 2017, respectively, compared to $8.4 million and $25.3Administrative Expenses
SG&A expenses decreased $38.8 million for the thirteen week period ended May 28, 2022 due primarily to lower payroll, occupancy and thirty-nine week periods ended November 26, 2016, respectively.
Selling, Generalother operating costs due to store closures and Administrative Expenses
cost control initiatives. SG&A expenses as a percentage of revenues were 27.5% infor the thirteen week period ended December 2, 2017May 28, 2022 was 25.7% compared to 26.8% in26.6% for the thirteen week period ended November 26, 2016.May 29, 2021. The increase in SG&A as a percentage of revenues wasdecrease is due primarily to fixed costs increasing as a percentage of revenues, as revenues declined. SG&A dollars decreased by $8.6 million due to expense efficiency initiatives that resulted in reduced payroll and operating expenses. The effect of these initatives were partially offset by higher bonus expense of $10.0 million and legal settlements of $6.0 million that benefited the prior year results.items noted above.
SG&A expenses as a percentage of revenues were 27.4% in the thirty-nine week period ended December 2, 2017 compared to 26.9% in the thirty-nine week period ended November 26, 2016. The increase in SG&A as a percentage of revenues was due primarily to fixed costs increasing as a percentage of revenues, as revenues declined. SG&A dollars decreased by $76.3 million due to expense efficiency initiatives that resulted in reduced payroll and operating expenses.
Pharmacy Services Segment Results of Operations
Acquisition of EnvisionRx
On June 24, 2015, we completed our acquisition of EnvisionRx, pursuant to the terms of the agreement (“Agreement”) dated February 10, 2015. EnvisionRx, our Pharmacy Services segment, is a full-service pharmacy benefit provider. EnvisionRx provides both transparent and traditional PBM options through its EnvisionRx and MedTrak PBMs. EnvisionRx also offers fully integrated mail-order and specialty pharmacy services through EnvisionPharmacies; access to the nation’s largest cash pay infertility discount drug program via Design Rx; an innovative claims adjudication software platform in Laker Software; and a national Medicare Part D prescription drug plan through EIC’s EnvisionRx Plus Silver product for the low income auto-assign market and its Clear Choice product for the chooser market. EnvisionRx operates as our 100 percent owned subsidiary. The acquisition of EnvisionRx enabled us to expand our retail healthcare platform and enhance our health and wellness offerings by combining EnvisionRx’s broad suite of PBM and pharmacy-related businesses with our established retail platform to provide our customers and patients with an integrated offering across retail, specialty and mail-order channels.
Revenues and Other Operating Data
|
| Thirteen Week Period Ended |
| Thirty-Nine Week Period Ended |
| ||||||||
|
| December 2, |
| November 26, |
| December 2, |
| November 26, |
| ||||
|
| (dollars and plan |
| ||||||||||
Revenues |
| $ | 1,445,140 |
| $ | 1,645,835 |
| $ | 4,451,212 |
| $ | 4,883,070 |
|
Revenue (decline) growth (1) |
| (12.2 | )% | 9.7 | % | (8.8 | )% | N/A |
| ||||
Adjusted EBITDA(*) |
| $ | 40,363 |
| $ | 52,431 |
| $ | 138,237 |
| $ | 143,616 |
|
Plan Members |
| 3,780 |
| 4,062 |
| 3,780 |
| 4,062 |
|
| | | | | | | | |
| | | | | ||||
|
| Thirteen Week Period Ended |
|
| ||||
| | May 28, |
| May 29, | | | ||
|
| 2022 |
| 2021 | | | ||
| | (dollars in thousands) | | | ||||
Revenues | | $ | 1,725,857 | | $ | 1,872,282 | | |
Revenue decline | |
| (7.8) | % |
| (5.3) | % | |
Adjusted EBITDA(*) | | $ | 26,448 | | $ | 43,963 | | |
(*) See “Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures” for additional details.
(1) The thirty-nine week period ended November 26, 2016 amount is labeled N/A as we do not have a full comparable period.43
Revenues
Pharmacy Services segment revenue for the thirteen week period ended December 2, 2017 was $1,445.1 million as compared to revenue of $1,645.8Revenues decreased $146.4 million for the thirteen week period ended November 26, 2016. Pharmacy Services segment revenue forMay 28, 2022 compared to the thirty-ninethirteen week period ended December 2, 2017 was $4,451.2 million compared to revenue of $4,883.1 million for the thirty-nine week period ended November 26, 2016.May 29, 2021. The decrease in revenues was primarily the thirteenresult of a planned decrease in EI membership and thirty-nine week revenue for the segment isa previously announced client loss due to industry consolidation, offset by higher retained rebates from our election to participate in fewer Medicare Part D regions, which caused a decrease in covered lives at EIC,new rebate aggregation arrangement and a decline in commercial business.increased utilization of higher cost drugs.
Costs and Expenses
| | | | | | | | | |||||||||||||
| | | | | |||||||||||||||||
|
| Thirteen Week Period Ended |
|
| |||||||||||||||||
|
| May 28, |
| May 29, | | | |||||||||||||||
| | 2022 | | 2021 | | | |||||||||||||||
|
| Thirteen Week Period |
| Thirty-Nine Week Period |
| ||||||||||||||||
|
| December 2, |
| November 26, |
| December 2, |
| November 26, |
| ||||||||||||
|
| (dollars in thousands) |
| ||||||||||||||||||
| | (dollars in thousands) | | | |||||||||||||||||
Cost of revenues |
| $ | 1,346,305 |
| $ | 1,542,778 |
| $ | 4,144,143 |
| $ | 4,593,686 |
| | $ | 1,626,485 | | $ | 1,757,341 | | |
Gross profit |
| 98,835 |
| 103,057 |
| 307,069 |
| 289,384 |
| |
| 99,372 | |
| 114,941 | | | ||||
Gross margin |
| 6.8 | % | 6.3 | % | 6.9 | % | 5.9 | % | |
| 5.8 | % |
| 6.1 | % | | ||||
Selling, general and administrative expenses |
| 79,657 |
| 73,237 |
| 233,989 |
| 212,195 |
| | | 100,715 | | | 89,323 | | | ||||
Selling, general and administrative expenses as a percentage of revenues |
| 5.5 | % | 4.4 | % | 5.3 | % | 4.3 | % | |
| 5.8 | % |
| 4.8 | % | |
Gross Profit and Cost of Revenues
Gross profit for the thirteen week period ended December 2, 2017 was $98.8 million as compared to gross profit of $103.1decreased $15.6 million for the thirteen week period ended November 26, 2016. Gross profit forMay 28, 2022 compared to the thirty-ninethirteen week period ended December 2, 2017 was $307.1 million as compared to gross profit of $289.4 million for the thirty-nine week period ended November 26, 2016.May 29, 2021. The decrease in the thirteen week gross profit for the segment is due primarily to reduced revenues caused by our election to participate in
fewer Medicare Part D regions and a decline in commercial business. The increase in the thirty-nine week gross profit for the segment is primarily due to improved customer mix.the decline in revenues associated with lost clients, as discussed above, and an increase in the medical loss ratio at EI, partially offset by higher retained rebates from our new rebate aggregation arrangement.
Gross margin was 6.8%5.8% of sales for the thirteen week period ended December 2, 2017May 28, 2022 compared to 6.3%6.1% of sales for the thirteen week period ended November 26, 2016. Gross margin was 6.9% of sales for the thirty-nine week period ended December 2, 2017 compared to 5.9% of sales for the thirty-nine week period ended November 26, 2016.May 29, 2021. The increasedecline in the thirteen and thirty-nine week gross margin for the segment is due primarily to improved customer mix.the items noted above.
Selling, General and Administrative Expenses
Pharmacy Services segment selling, general and administrativeSG&A expenses increased $11.4 million for the thirteen week period ended December 2, 2017 was $79.7 million or 5.5% of revenues asMay 28, 2022 compared to $73.2 million or 4.4%the thirteen week period ended May 29, 2021 due primarily to increased litigation and other contractual settlements related to manufacturer audit disputes from the former rebate aggregation business and restructuring expenses, partially offset by further consolidation of revenuesadministrative functions. SG&A expenses as a percentage of revenue was 5.8% for the thirteen week period ended November 26, 2016. Pharmacy Services segment selling, general and administrative expensesMay 28, 2022 compared to 4.8% for the thirty-ninethirteen week period ended December 2, 2017 was $234.0 million or 5.3% of revenues as compared to $212.2 million or 4.3% of revenues for the thirty-nine week period ended November 26, 2016.May 29, 2021. The increase in the thirteen and thirty-nine week period selling, general and administrative expenses as a percentage of revenues is due primarily to the resultitems noted above and the loss of increased headcount to support business infrastructure and our growing chooser Medicare Part D business.sales volume.
Liquidity and Capital Resources
General
We have two primary sources of liquidity: (i) cash provided by operating activities and (ii) borrowings under our Amended and Restated Senior Secured Credit Facility.revolving credit facility. Our principal uses of cash are to provide working capital for operations, to service our obligations to pay interest and principal on debt and to fund capital expenditures. Total liquidity as of December 2, 2017May 28, 2022 was $1,746.1$1,709.5 million, which consisted of revolver borrowing capacity of $1,715.7$1,672.3 million and invested cash of $30.4$37.2 million.
Credit Facilities
Our AmendedOn December 20, 2018, we entered into a senior secured credit agreement (as amended by the First Amendment to Credit Agreement, dated as of January 6, 2020, the “Credit Agreement”; and Restatedthe Credit Agreement, as further amended by the Second Amendment (as defined below), the “Amended Credit Agreement”), which Credit Agreement
44
provided for facilities consisting of a $2.7 billion senior secured asset-based revolving credit facility (“Initial Senior Secured Revolving Credit Facility”) and a $450.0 million “first-in, last out” senior secured term loan facility (“Initial Senior Secured Term Loan,” and together with the Initial Senior Secured Revolving Credit Facility, hascollectively, the “Initial Facilities”). In December 2018, we used proceeds from the Initial Facilities to refinance our prior $2.7 billion existing credit agreement.
On August 20, 2021, we entered in to the Second Amendment to Credit Agreement (the “Second Amendment”), which, among other things, amended the Credit Agreement to provide for a borrowing capacity of $3.7$2.8 billion senior secured asset-based revolving credit facility (“Senior Secured Revolving Credit Facility”) and matures in January 2020.a $350 million “first-in, last out” senior secured term loan facility (“Senior Secured Term Loan,” and together with the Senior Secured Revolving Credit Facility, collectively, the “Amended Facilities”) and incorporate customary “hardwired” LIBOR transition provisions. The Amended Facilities extend our debt maturity profile and provide additional liquidity. Borrowings under the revolverSenior Secured Revolving Credit Facility bear interest at a rate per annum between (i) LIBOR plus 1.50% and LIBOR plus 2.00% with respectequal to, Eurodollar borrowings and (ii) the alternateat our option, (x) a base rate (determined in a customary manner) plus 0.50%a margin of between 0.25% to 0.75% or (y) an adjusted LIBOR rate (determined in a customary manner) plus a margin of between 1.25% and the alternate base rate plus 1.00% with respect to ABR borrowings,1.75%, in each case based upon the Average RevolverABL Availability (as defined in the Amended and RestatedCredit Agreement). Borrowings under the Senior Secured Credit Facility)Term Loan bear interest at a rate per annum equal to, at our option, of (x) a base rate (determined in a customary manner) plus a margin of 1.75% or (y) an adjusted LIBOR rate (determined in a customary manner) plus a margin of 2.75%. We are required to pay fees between 0.250% and 0.375% per annum on the daily unused amount of the revolver,commitments under the Senior Secured Revolving Credit Facility, depending on Average ABL Availability. The Amended Facilities are scheduled to mature on August 20, 2026 (subject to a springing maturity if certain of our existing secured notes are not refinanced or repaid prior to the Average Revolver Availability (as defined indate that is 91 days prior to the Amended and Restatedstated maturity thereof).
Our borrowing capacity under the Senior Secured Revolving Credit Facility). Amounts drawn under the revolver become due and payable on January 13, 2020.
Our ability to borrow under the revolverFacility is based upon a specified borrowing base consisting of accounts receivable, inventory and prescription files. At December 2, 2017,May 28, 2022, we had $1,925.0approximately $1,350.0 million of borrowings outstanding under the revolverAmended Facilities and had letters of credit outstanding againstunder the revolverSenior Secured Revolving Credit Facility in a face amount of $59.3approximately $127.7 million, which resulted in additionalremaining borrowing capacity under the Senior Secured Revolving Credit Facility of $1,715.7$1,672.3 million. If at any time the total credit exposure outstanding under our Amended and Restatedthe Senior Secured Revolving Credit Facility and the principal amount of our other senior obligations exceeds the borrowing base, we will be required to make certain other mandatory prepaymentsrepay amounts outstanding to eliminate such shortfall.
The Amended and Restated Senior Secured Credit FacilityAgreement restricts us and all of our subsidiaries, including the subsidiaries that guarantee our obligations under the Amended and Restated Senior Secured Credit Facility, second priority secured term loan facilities,Facilities, the secured guaranteed notes and unsecured guaranteed notes (the(collectively, the “Subsidiary Guarantors”) from accumulating cash on hand in excess of $200.0 million at any time when revolving loans are outstanding (not including cash located in our store and lockbox deposit accounts and cash necessary to cover our current liabilities) and from accumulating cash on hand with revolver borrowings in excess of $100.0 million over three consecutive business days.. The Amended and Restated Senior Secured Credit FacilityAgreement also states that if at any time (other than following the exercise of remedies or acceleration of any senior obligations or second priority debt and receipt of a triggering notice by the senior collateral agent from a representative of the senior obligations or the second priority debt) either (a)(i) an event of default exists under ourthe Amended and Restated Senior Secured Credit FacilityFacilities or (b)(ii) the sum of revolver availabilityour borrowing capacity under our Amended and Restated Senior Secured Revolving Credit Facility and certain amounts held on deposit with the senior collateral agent in a concentration account is less than $275.0 million for three consecutive business days or less than or equal to $200.0 million on any day (a “cash sweep period”), the funds in our deposit accounts will be swept to a concentration account with the senior collateral agent and will be applied first to repay outstanding revolving loans under the Amended and Restated Senior Secured Credit Facility,Facilities, and then held as collateral for the senior obligations until such cash sweep period is rescinded pursuant to the terms of ourthe Amended Facilities.
Our obligations under the Amended Facilities and Restatedthe Subsidiary Guarantors’ obligations under the related guarantees are secured by (i) a first-priority lien on all of the Subsidiary Guarantors’ cash and cash equivalents, accounts receivable, inventory, prescription files (including eligible script lists), intellectual property (prior to the repayment of the Senior Secured Credit Facility.Term Loan) and certain other assets arising therefrom or related thereto (including substantially all of their deposit accounts, collectively, the “ABL priority collateral”) and (ii) a second-priority lien on all of the Subsidiary Guarantors’ equipment, fixtures, investment property (other than equity interests in subsidiaries), intellectual property (following the repayment of the Senior Secured Term Loan) and all other assets that do not constitute ABL priority collateral, in each case, subject to customary exceptions and limitations.
45
The Amended and Restated Senior Secured Credit FacilityAgreement allows us to have outstanding, at any time, up to an aggregate principal amount of $1.5 billion in secured second priority debt, split-priority term loan debt, unsecured debt and disqualified preferred stock in addition to borrowings under the Amended Facilities and Restated Senior Secured Credit Facility andother existing indebtedness, provided that not in excess of $750.0 million of such secured second priority debt, split-priority term loan debt, unsecured debt and disqualified preferred stock shall mature or require scheduled payments of principal prior to 90 days after the latest of (a) the fifth anniversary of the effectiveness of the Amended and Restated Senior Secured Credit Facility and (b) the latest maturity date of any Term Loan or Other Revolving LoanCommitment (each as defined in the Amended and Restated Senior Secured Credit Facility)Agreement) (excluding bridge facilities allowing extensions on customary terms to at least the date that is 90 days after such date and, with respect to any escrow notes issued by Rite Aid, excluding any special mandatory redemption of the type described in clause (iii) of the definition of “Escrow Notes” in the Amended and Restated Senior Secured Credit Facility)date). Subject to the limitations described in clauses (a) and (b) of the immediately preceding sentence, the Amended and Restated Senior Secured Credit FacilityAgreement additionally allows us to issue or incur an unlimited amount of unsecured debt and disqualified preferred stock so long as a Financial Covenant Effectiveness Period (as defined in the Amended and Restated Senior Secured Credit Facility)Agreement) is not in effect; provided, however, that certain of our other outstanding indebtedness limits the amount of unsecured debt that can be incurred if certain interest coverage levels are not met at the time of incurrence or other exemptions are not available. The Amended and Restated Senior Secured Credit FacilityAgreement also contains certain restrictions on the amount of secured first priority debt we are able to incur. The Amended and Restated Senior Secured Credit FacilityAgreement also allows for the voluntary repurchase of any debt or other convertible debt, so long as the Amended and Restated Senior Secured Credit Facility isFacilities are not in default and we maintain availability under our revolver of more than $365.0 million.
The Amended and Restated Senior Secured Credit FacilityAgreement has a financial covenant that requires us to maintain a minimum fixed charge coverage ratio of 1.00 to 1.00 (a)(i) on any date on which availability under the revolverSenior Secured Revolving Credit Facility is less than $200.0 million or (b)(ii) on the third consecutive business day on which availability under the revolverSenior Secured Revolving Credit Facility is less than $250.0 million and, in each case, ending on and excluding the first day thereafter, if any, which is the 30th consecutive calendar day on which availability under the revolver is equal to or greater than $250.0 million. As of December 2, 2017, we had availability under our revolver of $1,715.7 million,May 28, 2022, our fixed charge coverage ratio was greater than 1.00 to 1.00, and we were in compliance with the senior secured credit facility’sAmended Credit Agreement’s financial covenant. The Amended and Restated Senior Secured Credit FacilityAgreement also contains covenants which place restrictions on the incurrence of debt, the payments of dividends, the making of investments, sale of assets, mergers and acquisitions and the granting of liens.
The Amended and Restated Senior Secured Credit FacilityAgreement provides for customary events of default including nonpayment, misrepresentation, breach of covenants and bankruptcy. It is also an event of default if we fail to make any required payment on debt having a principal amount in excess of $50.0 million or any event occurs that enables, or which with the giving of notice or the lapse of time would enable, the holder of such debt to accelerate the maturity or require the repayment repurchase, redemption or defeasance of such debt.
We also have two second priority secured term loan facilities, the Tranche 1 Term Loan and the Tranche 2 Term Loan. The Tranche 1 Term Loan matures on August 21, 2020 and currently bears interest at a rate per annum equal to LIBOR plus 4.75% with a LIBOR floor of 1.00%, if we choose to make LIBOR borrowings, or at Citibank’s base rate plus 3.75%. The Tranche 2 Term Loan matures on June 21, 2021 and currently bears interest at a rate per annum equal to LIBOR plus 3.875% with a LIBOR floor of 1.00%, if we choose to make LIBOR borrowings, or at Citibank’s base rate plus 2.875%.
The second priority secured term loan facilities and the indentures that govern our securedunsecured notes and guaranteed unsecuredsecured notes contain restrictions on the amount of additional secured and unsecured debt that can be incurred by us.we may incur. As of December 2, 2017, the amount of additional secured debt that could be incurred under the most restrictive covenant of the second priority secured term loan facilities and these indentures was approximately $2.1 billion (which amount does not include the ability to enter into certain sale and leaseback transactions). Assuming a fully drawn revolver and the outstanding letters of credit, we could incur an additional $350.0 million in secured debt. The ability to issue additional unsecured debt under these indentures is generally governed by an interest coverage ratio test. As of December 2, 2017,May 28, 2022, we had the ability to issue additional secured and unsecured debt under the secondindentures governing our unguaranteed unsecured notes, including the ability to draw the full amount of our Senior Secured Revolving Credit Facility and enter into certain sale and leaseback transactions.
Guarantor Summarized Financial Information
Certain of our subsidiaries, which are listed on Exhibit 22 to this Quarterly Report on Form 10-Q, have guaranteed our obligations under the 6.125% Notes, the 7.500% Notes and the 8.00% Notes (collectively, the "Guaranteed Notes"). As discussed in Note 11 to the condensed consolidated financial statements, the Guaranteed Notes were issued by us, as the parent company, and are guaranteed by substantially all of the parent company’s consolidated subsidiaries (the “guarantors” or “Subsidiary Guarantors”) except for EI (the “non-guarantor”). The parent company and guarantors are referred to as the “obligor group”. The Subsidiary Guarantors fully and unconditionally and jointly and severally guarantee the Guaranteed Notes. The 6.125% Notes and the obligations under the related guarantees are unsecured. The 7.500% Notes, the 8.00% Notes and the obligations under the related guarantees are secured by (i) a first-priority lien credit facilitieson all of the Subsidiary Guarantors’ equipment, fixtures, investment property (other than equity interests in subsidiaries), intellectual property (following the repayment of the Senior Secured Term Loan) and other indentures.collateral to the extent it does not constitute ABL priority collateral (as defined below), and (ii) a second-priority lien on all of the Subsidiary Guarantors’ cash and cash equivalents, accounts receivables, payment intangibles, inventory, prescription files (including eligible script lists) and, intellectual property (prior to the repayment of the Senior Secured Term Loan) (collectively, the “ABL priority collateral”), which, in each case, also secure the Amended Facilities.
46
Under certain circumstances, subsidiaries may be released from their guarantees without consent of the note holders. Our subsidiaries conduct substantially all of our operations and have significant liabilities, including trade payables. If the subsidiary guarantees are invalid or unenforceable or are limited by fraudulent conveyance or other laws, the registered debt will be structurally subordinated to the substantial liabilities of our subsidiaries.
Condensed Combined Financial Information
The following tables include summarized financial information of the obligor group. Investments in and the equity in the earnings of EI, which is not a member of the obligor group, have been excluded. The summarized financial information of the obligor group is presented on a combined basis with intercompany balances and transactions between entities in the obligor group eliminated. The obligor group’s amounts due to/from and transactions with EI have been presented in separate line items, if material.
| | | | | | |
| | May 28, |
| February 26, | ||
In millions | | 2022 | | 2022 | ||
Due from EI | | $ | 95.7 | | $ | 26.5 |
Other current assets | | | 3,361.0 | | | 3,314.9 |
Total current assets | | $ | 3,456.7 | | $ | 3,341.4 |
| | | | | | |
Operating lease right-of-use assets | | $ | 2,723.4 | | $ | 2,813.5 |
Goodwill | | | 879.1 | | | 879.1 |
Other noncurrent assets | | | 1,417.6 | | | 1,428.8 |
Total noncurrent assets | | $ | 5,020.1 | | $ | 5,121.4 |
| | | | | | |
Due to EI | | $ | — | | $ | — |
Other current liabilities | |
| 2,779.4 | |
| 2,891.1 |
Total current liabilities | | $ | 2,779.4 | | $ | 2,891.1 |
| | | | | | |
Long-term debt less current maturities | | $ | 3,026.5 | | $ | 2,733.0 |
Long-term operating lease liabilities | | | 2,526.6 | | | 2,597.1 |
Other noncurrent liabilities | | | 152.7 | | | 142.7 |
Total noncurrent liabilities | | $ | 5,705.8 | | $ | 5,472.8 |
| | | |
|
| Thirteen Week Period Ended | |
In millions |
| May 28, 2022 | |
Revenues (a) | | $ | 5,877.8 |
Cost of revenues (b) | |
| 4,682.1 |
Gross profit | |
| 1,195.7 |
| | | |
Net loss | | $ | (105.8) |
| | | |
Net loss attributable to Rite Aid | | $ | (110.2) |
(a) | Includes $36.1 million of revenues generated from the non-guarantor for the thirteen week period ended May 28, 2022. |
(b) | Includes $36.0 million of cost of revenues incurred in transactions with the non-guarantor for the thirteen week period ended May 28, 2022. |
Net Cash Provided by/Used in Operating, Investing and Financing Activities
Cash flowused in operating activities was $252.2 million compared to cash provided by operating activities was $424.5of $13.9 million and $173.2 million infor the thirty-ninethirteen week periods ended December 2, 2017May 28, 2022 and November 26, 2016,May 29, 2021, respectively. Operating cash flow was positively
47
negatively impacted by the $325.0 million WBA merger termination fee,build of the corresponding changeCMS receivable, increases in deferred taxes,rebates receivable and an increase in accounts payable. Accounts payable increased due to the timing of inventory purchases at our Retail Pharmacy segment and increased amountsaccounts payable to our pharmacy network in our Pharmacy Services segment. These positive working capital changes were partially offset by increases in inventory and other assets and liabilities. Front end inventory increased at our Retail Pharmacy segment due to seasonal inventory build. Cash used by other assets and liabilities resulted from reductions in accrued expenses relating to payments made under our CMS reinsurance contracts at our Pharmacy Services segment.payments.
Cash used in investing activities was $138.1$54.6 million and $223.5$54.7 million for the thirty-ninethirteen week periods ended December 2, 2017May 28, 2022 and November 26, 2016,May 29, 2021, respectively. Cash used forDuring the thirteen week period ended May 28, 2022, we spent $73.2 million on the purchase of property, plant and equipment, was lower than in the prior year primarily due to fewer Wellness$12.2 million on prescription file purchases and received proceeds of $30.8 million from prescription file sales driven by our store remodels in the current year. Included in cash provided by investing activities of discontinued operations is $240.9 million of proceeds received from stores sold to Walgreens Boots Alliance. A corresponding payment to the revolver is included in the financing activities of discontinued operations.closures.
Cash used in financing activities was $243.5 million for the thirty-nine week period ended December 2, 2017 as compared to cashflow provided by financing activities was $323.2 million compared to cash used by financing activities of $299.9$1.6 million for the thirty-ninethirteen week periodperiods ended November 26, 2016.May 28, 2022 and May 29, 2021, respectively. Cash used inprovided by financing activities for the thirty-nine week periodthirteen weeks ended December 2, 2017May 28, 2022 reflects net payments onincremental revolver borrowings and the revolver and scheduled payments onchange in our long-term debt and capital leases. As noted above, cash used in financing activitieszero balance accounts due to timing of discontinued operations includes $240.9 million of revolver payments.payments.
Capital Expenditures
During the thirteen and thirty-nine week periods ended December 2, 2017May 28, 2022 and November 26, 2016May 29, 2021 capital expenditures were as follows:
|
| Thirteen Week |
| Thirty-Nine Week |
| |||||||||||||||
|
| December 2, |
| November 26, |
| December 2, |
| November 26, |
| |||||||||||
| | | | | | | | |||||||||||||
| | | | | | | | |||||||||||||
|
| Thirteen Week Period Ended |
| |||||||||||||||||
|
| May 28, |
| May 29, | | |||||||||||||||
| | 2022 | | 2021 | | |||||||||||||||
| | | | | | | | |||||||||||||
New store construction, store relocation and store remodel projects |
| $ | 25,990 |
| $ | 36,087 |
| $ | 64,466 |
| $ | 96,660 |
| | $ | 11,775 | | $ | 33,294 | |
Technology enhancements, improvements to distribution centers and other corporate requirements |
| 35,710 |
| 18,672 |
| 76,350 |
| 101,063 |
| |
| 61,401 | |
| 25,870 | | ||||
Purchase of prescription files from other retail pharmacies |
| 10,522 |
| 13,573 |
| 20,201 |
| 35,986 |
| |
| 12,248 | |
| 5,436 | | ||||
Total capital expenditures |
| $ | 72,222 |
| $ | 68,332 |
| $ | 161,017 |
| $ | 233,709 |
| | $ | 85,424 | | $ | 64,600 | |
The Company anticipates incurring approximately $250,000 of capital expenditures during fiscal 2023.
48
Future Liquidity
We are highly leveraged. Our high level of indebtedness could: (i) limit our ability to obtain additional financing; (ii) limit our flexibility in planning for, or reacting to, changes in our business and the industry; (iii) place us at a competitive disadvantage relative to our competitors with less debt; (iv) render us more vulnerable to general adverse economic and industry conditions;conditions, including those resulting from COVID-19 or a decline in the overall economy; and (v) require us to dedicate a substantial portion of our cash flow to service our debt. Based upon our current levels of operations, we believe that cash flow from operations together with available borrowings under the revolver and other sources of liquidity will be adequate to meet our requirements for working capital, debt service, and capital expenditures and other strategic investments at least for the next twelve months. Based on our liquidity position, which we expect to remain strong, throughout the year, we do not expect to be subject to the minimum fixed charge covenant in ourthe Amended and Restated Senior Secured Credit FacilityFacilities in the next twelve months. We will continue to assess our liquidity position and potential sources of supplemental liquidity in light of our operating performance, and other relevant circumstances.circumstances, and we may evaluate alternative sources of liquidity, including further opportunities related to any receivable due to us from CMS, sale and leaseback transactions, and other transactions to optimize our asset base. From time to time, we may seek additional deleveraging or refinancing transactions, including entering into transactions to exchange debt for shares of common stock or other debt securities (including additional secured debt), issuance of equity (including preferred stock and convertible securities), repurchase or redemption of outstanding indebtedness, including our recent cash tender offers whereby we purchased $150.0 million of certain of our outstanding series of senior notes as announced on June 13, 2022, or seek to refinance our outstanding debt (including ourthe Amended and Restated Senior Secured Credit Facility)Facilities) or may otherwise seek transactions to reduce interest expense and extend debt maturities. We may also look to make additional investments in our business to further our strategic objectives, including targeted acquisitions or other transactions to optimize our asset base. Any of these transactions could impact our financial results.results, including additional changes or realization of cancellation of indebtedness-income.
Critical Accounting Policies and Estimates
For a description of the critical accounting policies that require the use of significant judgments and estimates by management, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results—Critical Accounting Policies and Estimates” included in our Fiscal 2017 10-K.2022 10-K, which we filed with the SEC on April 25, 2022.
Factors Affecting Our Future Prospects
For a discussion of risks related to our financial condition, operations and industry, refer to “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”Results” included in our Fiscal 20172022 10-K.
Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures
In addition to net income (loss) determined in accordance with GAAP, we use certain non-GAAP measures, such as “Adjusted EBITDA”, in assessing our operating performance. We believe the non-GAAP metricsmeasures serve as an appropriate measure in evaluating the performance of our business. We define Adjusted EBITDA as net income (loss) excluding the impact of income taxes, interest expense, depreciation and amortization, LIFO adjustments (which removes the entire impact of LIFO, and effectively reflects the results as if we were on a FIFO inventory basis), charges or credits for facility closing and impairment, goodwill and intangible asset impairment charges, inventory write-downs related to store closings, gains or losses on debt modifications and retirements, the Walgreens Boots Alliance merger termination fee, and other items (including stock-based compensation expense, merger and acquisition-related costs, non-recurring litigation and other contractual settlements, severance, restructuring-related costs and costs related to distribution centerfacility closures, gain or loss on sale of assets and revenue deferrals related to our customer loyalty program)the loss on Bartell acquisition). We reference this particular non-GAAP financial measure frequently in our decision-making because it provides supplemental information that facilitates internal comparisons to the historical periods and external comparisons to competitors. In addition, incentive compensation is primarily based on Adjusted EBITDA and we base certain of our forward-looking estimates on Adjusted EBITDA to facilitate quantification of planned business activities and enhance subsequent follow-up with comparisons of actual to planned Adjusted EBITDA.
49
The following is a reconciliation of our net income (loss) income to Adjusted EBITDA from continuing operations for the thirteen and thirty-nine week periods ended December 2, 2017May 28, 2022 and November 26, 2016:May 29, 2021:
|
| Thirteen Week |
| Thirty-Nine Week |
| ||||||||
|
| December 2, |
| November 26, |
| December 2, |
| November 26, |
| ||||
|
| (dollars in thousands) |
| ||||||||||
Net (loss) income — continuing operations |
| $ | (18,182 | ) | $ | 23,610 |
| $ | 134,141 |
| $ | 29,134 |
|
Interest expense |
| 50,308 |
| 50,304 |
| 152,165 |
| 146,674 |
| ||||
Income tax (benefit) expense |
| (16,061 | ) | (4,682 | ) | 89,268 |
| (3,824 | ) | ||||
Depreciation and amortization expense |
| 95,764 |
| 101,953 |
| 292,448 |
| 304,460 |
| ||||
LIFO charge |
| 6,784 |
| 8,373 |
| 20,393 |
| 25,266 |
| ||||
Lease termination and impairment charges |
| 3,939 |
| 7,199 |
| 11,090 |
| 20,203 |
| ||||
Walgreens Boots Alliance merger termination fee |
| — |
| — |
| (325,000 | ) | — |
| ||||
Other |
| 6,697 |
| 4,577 |
| 27,985 |
| 50,567 |
| ||||
Adjusted EBITDA — continuing operations |
| $ | 129,249 |
| $ | 191,334 |
| $ | 402,490 |
| $ | 572,480 |
|
Adjusted EBITDA — discontinued operations |
| 84,926 |
| 82,813 |
| 217,519 |
| 300,322 |
| ||||
Adjusted EBITDA |
| $ | 214,175 |
| $ | 274,147 |
| $ | 620,009 |
| $ | 872,802 |
|
| | | | | | | |
| | Thirteen Week Period Ended | | ||||
|
| May 28, |
| May 29, |
| ||
| | 2022 | | 2021 | | ||
| | (dollars in thousands) | | ||||
Net loss | | $ | (110,191) | | $ | (13,057) | |
Interest expense | |
| 48,119 | |
| 49,121 | |
Income tax expense | |
| 3,497 | |
| 780 | |
Depreciation and amortization | |
| 70,073 | |
| 75,859 | |
LIFO credit | |
| — | |
| (3,993) | |
Facility exit and impairment charges | |
| 66,571 | |
| 8,831 | |
Loss on debt retirements, net | |
| — | |
| 396 | |
Merger and Acquisition‑related costs | |
| — | |
| 3,886 | |
Stock-based compensation expense | |
| 3,334 | |
| 2,811 | |
Restructuring-related costs | |
| 22,646 | |
| 5,932 | |
Inventory write-downs related to store closings | |
| 7,955 | |
| 472 | |
Litigation and other contractual settlements | |
| 18,271 | |
| 14,000 | |
Gain on sale of assets, net | |
| (29,196) | |
| (6,558) | |
Other | |
| (949) | |
| 397 | |
Adjusted EBITDA | | $ | 100,130 | | $ | 138,877 | |
|
| Thirteen Week |
| Thirty-Nine Week |
| ||||||||
|
| December 2, |
| November 26, |
| December 2, |
| November 26, |
| ||||
|
| (dollars in thousands) |
| ||||||||||
Net income — discontinued operations |
| $ | 99,213 |
| $ | (8,600 | ) | $ | 42,257 |
| $ | (3,939 | ) |
Interest expense |
| 59,456 |
| 56,005 |
| 178,797 |
| 170,136 |
| ||||
Income tax expense (benefit) |
| 60,155 |
| (3,405 | ) | 26,705 |
| 356 |
| ||||
Depreciation and amortization expense |
| 21,952 |
| 41,292 |
| 99,372 |
| 119,624 |
| ||||
LIFO charge |
| 4,469 |
| 5,377 |
| 13,366 |
| 15,995 |
| ||||
Lease termination and impairment charges |
| 11 |
| 66 |
| 74 |
| 76 |
| ||||
Gain on stores sold to Walgreens Boots Alliance |
| (157,010 | ) | — |
| (157,010 | ) |
|
| ||||
Other |
| (3,320 | ) | (7,922 | ) | 13,958 |
| (1,926 | ) | ||||
Adjusted EBITDA - discontinued operations |
| $ | 84,926 |
| $ | 82,813 |
| $ | 217,519 |
| $ | 300,322 |
|
The following is a reconciliation of our net income from continuing operations(loss) to Adjusted Net Income (Loss) Income and Adjusted Net Income (Loss) Income per Diluted Share for the thirteen and thirty-nine week periods ended December 2, 2017May 28, 2022 and November 26, 2016.May 29, 2021. Adjusted Net Income (Loss) is defined as net income (loss) excluding the impact of amortization of EnvisionRx intangible assets,expense, merger and acquisition-related costs, lossnon-recurring litigation and other contractual settlements, gains or losses on debt modifications and retirements, LIFO adjustments (which removes the entire impact of LIFO, and effectively reflects the results as if we were on a FIFO inventory basis), goodwill and intangible asset impairment charges, restructuring-related costs, and the Walgreens Boots Alliance merger termination fee.loss on Bartell acquisition. We calculate Adjusted Net Income (Loss) per Diluted Share using our above-referenced definition of Adjusted Net Income (Loss). We believe Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share serve as appropriate measures to be used in evaluating the performanceare useful indicators of our business and help our investors better compare our operating performance over multiple periods.
| | | | | | | |
| | Thirteen Week Period Ended | | ||||
|
| May 28, |
| May 29, |
| ||
| | 2022 | | 2021 | | ||
| | (dollars in thousands) | | ||||
Net loss | | $ | (110,191) |
| $ | (13,057) | |
Add back - Income tax expense | |
| 3,497 | |
| 780 | |
Loss before income taxes | |
| (106,694) | |
| (12,277) | |
Adjustments: | |
|
| |
|
| |
Amortization expense | |
| 20,626 | |
| 20,460 | |
LIFO credit | |
| — | |
| (3,993) | |
Loss on debt retirements, net | |
| — | |
| 396 | |
Merger and Acquisition‑related costs | |
| — | |
| 3,886 | |
Restructuring-related costs | |
| 22,646 | |
| 5,932 | |
Litigation and other contractual settlements | |
| 18,271 | |
| 14,000 | |
Adjusted (loss) income before income taxes | |
| (45,151) | |
| 28,404 | |
Adjusted income tax (benefit) expense (a) | |
| (12,322) | |
| 7,470 | |
Adjusted net (loss) income | | $ | (32,829) | | $ | 20,934 | |
Net loss per diluted share | | $ | (2.03) | | $ | (0.24) | |
Adjusted net (loss) income per diluted share | | $ | (0.60) | | $ | 0.38 | |
50
Thirteen Week Thirty-Nine Week December 2, November 26, December 2, November 26, (dollars in thousands) Net (loss) income from continuing operations $ (18,182 ) $ 23,610 $ 134,141 $ 29,134 Add back—Income tax (benefit) expense (16,061 ) (4,682 ) 89,268 (3,824 ) (Loss) income before income taxes — continuing operations (34,243 ) 18,928 223,409 25,310 Adjustments: Amortization of EnvisionRx intangible assets 19,139 21,049 59,415 62,217 LIFO charge 6,784 8,373 20,393 25,266 Merger and Acquisition-related costs 6,550 1,964 17,274 6,117 Walgreens Boots Alliance merger termination fee — — (325,000 ) — Adjusted (loss) income before income taxes — continuing operations (1,770 ) 50,314 (4,509 ) 118,910 Adjusted income tax (benefit) expense (a) (3,389 ) 23,559 5,573 54,183 Adjusted net income (loss) from continuing operations $ 1,619 $ 26,755 $ (10,082 ) $ 64,727 Net (loss) income per diluted share — continuing operations $ (0.02 ) $ 0.02 $ 0.13 $ 0.03 Adjusted net income (loss) per diluted share — continuing operations $ 0.00 $ 0.03 $ (0.01 ) $ 0.06
Period Ended
Period Ended
2017
2016
2017
2016
(a) The fiscal year 2018 and 2017 annual effective tax rates, adjusted to exclude amortizationTable of EnvisionRx intangible assets, LIFO charges, Merger and Acquisition-related costs and the Walgreens Boots Alliance merger termination fee from book income, are used for the thirteen and thirty-nine weeks ended December 2, 2017 and November 26, 2016, respectively.Contents
(a) | The fiscal year 2023 and 2022 annual effective tax rates, calculated using a federal rate plus a net state rate that excluded the impact of state NOL’s, state credits and valuation allowance, was used for the thirteen weeks ended May 28, 2022 and May 29, 2021, respectively. |
In addition to Adjusted EBITDA, Adjusted Net (Loss) Income (Loss) and Adjusted Net (Loss) Income (Loss) per Diluted Share, we occasionally refer to several other Non-GAAP measures, on a less frequent basis, in order to describe certain components of our business and how we utilize them to describe our results. These measures include but are not limited to Adjusted EBITDA Gross Margin and Gross Profit (gross margin/gross profit excluding non-Adjusted EBITDA items), Adjusted EBITDA SG&A (SG&A expenses excluding non-Adjusted EBITDA items), FIFO Gross Margin and FIFO Gross Profit (gross margin/gross profit before LIFO charges), and Free Cash Flow (Adjusted EBITDA less cash paid for interest, rent on closed stores, capital expenditures, acquisitionrestructuring-related costs and the change in working capital).
We include these non-GAAP financial measures in our earnings announcements in order to provide transparency to our investors and enable investors to better compare our operating performance with the operating performance of our competitors including with those of our competitors having different capital structures. Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share or other non-GAAP measures should not be considered in isolation from, and are not intended to represent an alternative measure of, operating results or of cash flows from operating activities, as determined in accordance with GAAP. Our definition of these non-GAAP measures may not be comparable to similarly titled measurements reported by other companies.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Our future earnings, cash flow and fair values relevant to financial instruments are dependent upon prevalent market rates. Market risk is the risk of loss from adverse changes in market prices and interest rates. Our major market risk exposure is changing interest rates. Increases in interest rates would increase our interest expense. We enter into debt obligations to support capital expenditures, acquisitions, working capital needs and general corporate purposes. Our policy is to manage interest rates through the use of a combination of variable-rate credit facilities, fixed-rate long-term obligations and derivative transactions. We currently do not have any derivative transactions outstanding.
The table below provides information about our financial instruments that are sensitive to changes in interest rates. The table presents principal payments and the related weighted average interest rates by expected maturity dates as of December 2, 2017.May 28, 2022.
Fiscal Year |
| 2018 |
| 2019 |
| 2020 |
| 2021 |
| 2022 |
| Thereafter |
| Total |
| Fair Value |
| ||||||||
|
| (dollars in thousands) |
| ||||||||||||||||||||||
Long-term debt, including current portion, excluding capital lease obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Fixed Rate |
| $ | 90 |
| $ | — |
| $ | — |
| $ | 902,000 |
| $ | 810,000 |
| $ | 2,223,000 |
| $ | 3,935,090 |
| $ | 3,691,346 |
|
Average Interest Rate |
| 7.61 | % | 0.00 | % | 0.00 | % | 9.25 | % | 6.75 | % | 6.38 | % | 7.11 | % |
|
| ||||||||
Variable Rate |
| $ | — |
| $ | — |
| $ | 1,925,000 |
| $ | 470,000 |
| $ | 500,000 |
| $ | — |
| $ | 2,895,000 |
| $ | 2,897,387 |
|
Average Interest Rate |
| 0.00 | % | 0.00 | % | 2.97 | % | 5.96 | % | 5.09 | % | 0.00 | % | 3.82 | % |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Fair Value at | |
|
| 2023 |
| 2024 |
| 2025 |
| 2026 |
| 2027 |
| Thereafter |
| Total |
| May 28, 2022 | ||||||||
| | (Dollars in thousands) | ||||||||||||||||||||||
Long-term debt, including current portion, excluding financing lease obligations | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed Rate | | $ | — | | $ | — | | $ | — | | $ | 600,000 | | $ | 1,087,304 | | $ | 29,001 | | $ | 1,716,305 | | $ | 1,327,190 |
Average Interest Rate | |
| 0.00 | % |
| 0.00 | % |
| 0.00 | % |
| 7.50 | % |
| 7.93 | % |
| 6.88 | % |
| 7.76 | % |
|
|
Variable Rate | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 1,350,000 | | $ | — | | $ | 1,350,000 | | $ | 1,350,000 |
Average Interest Rate | |
| 0.00 | % |
| 0.00 | % |
| 0.00 | % |
| 0.00 | % |
| 2.43 | % |
| 0.00 | % |
| 2.43 | % |
|
|
Our ability to satisfy interest payment obligations on our outstanding debt will depend largely on our future performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors beyond our control. If we do not have sufficient cash flow to service our interest payment obligations on our outstanding indebtedness and if we cannot borrow or obtain equity financing to satisfy those obligations, our business and results of operations could be materially adversely affected. We cannot be assured that any replacement borrowing or equity financing could be successfully completed.
The interest rate on our variable rate borrowings, which include our revolving credit facility Tranche 1 Term Loan and our Tranche 2 Term Loan,term loan facility, are all based on LIBOR. However, the interest rate on our Tranche 1 Term Loan and Tranche 2 Term Loan have a LIBOR floor of 100 basis points. If the market rates of interest for LIBOR changed by 100 basis points as of December 2, 2017,May 28, 2022, our annual interest expense would change by approximately $31.0$13.5 million.
51
A change in interest rates does not have an impact upon our future earnings and cash flow for fixed-rate debt instruments. As fixed-rate debt matures, however, and if additional debt is acquired to fund the debt repayment, future earnings and cash flow may be affected by changes in interest rates. This effect would be realized in the periods subsequent to the periods when the debt matures. Increases in interest rates would also impact our ability to refinance existing maturities on favorable terms.
ITEM 4. Controls and Procedures
(a)Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective.
(b) Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
The information in response to this item is incorporated herein by reference to Note 14,15, Commitments, Contingencies and ContingenciesGuarantees, of the Consolidated Condensed Financial Statements of this Quarterly Report.
In addition to the information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part“Part I — Item 1A, “Risk1A. Risk Factors” in our Fiscal 20172022 10-K, which could materially affect our business, financial condition or future results.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Repurchases of Equity Securities. The table below is a listing of repurchases of common stock during the thirdfirst quarter of fiscal 2018.2023.
Fiscal period: |
| Total |
| Average |
| Total Number of Shares |
| Maximum Number of |
| |
September 3 to September 30, 2017(1) |
| 12 |
| $ | 2.64 |
| — |
| — |
|
October 1 to October 28, 2017 |
| — |
| $ | — |
| — |
| — |
|
October 29 to December 2, 2017 |
| — |
| $ | — |
| — |
| — |
|
| | | | | | | | | |
|
| Total |
| | |
| Total Number of Shares |
| Maximum Number of |
| | Number of | | Average | | Purchased as Part of | | Shares that may yet be | |
| | Shares | | Price Paid | | Publicly Announced | | Purchased under the | |
Fiscal period: | | Repurchased | | Per Share | | Plans or Programs | | Plans or Programs | |
February 27, 2022 to March 26, 2022 |
| 50 | | $ | 9.05 |
| — |
| — |
March 27 to April 23, 2022 |
| 13 | | $ | 7.46 |
| — |
| — |
April 24 to May 28, 2022 |
| — | | $ | — |
| — |
| — |
(1) Represents shares withheld by the Company, at the election of certain holders of vested restricted stock, with a market value approximating the amount of withholding taxes due.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Mine Safety Disclosures
Not applicable.
Not applicable.
(a) The following exhibits are filed as part of this report.
(a) | The following exhibits are filed as part of this report. |
| | |||||||
---|---|---|---|---|---|---|---|---|
Exhibit |
| Description |
| Incorporation By Reference To | ||||
2.1 | ** | | Exhibit 2.1 to Form 8-K, filed on September 19, 2017 | |||||
2.2 | | | Exhibit 2.1 to Form 8-K, filed on August 13, 2021 | |||||
2.3 | | | Exhibit 2.2 to Form 8-K, filed on August 13, 2021 |
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| | |||
---|---|---|---|---|
Exhibit | Description | Incorporation By Reference To | ||
2.4 | | | Exhibit 2.1 to Form 8-K, filed on January 24, 2022 | |
2.5 | | | Exhibit 2.2 to Form 8-K, filed on January 24, 2022 | |
3.1 | | Amended and Restated Certificate of Incorporation | | Exhibit 3.1 to Form |
3.2 | | | Exhibit | |
|
| |||
4.1 |
| |||
|
| |||
| | Indenture, dated as of August 1, 1993, between Rite Aid Corporation, as issuer, and Morgan Guaranty Trust Company of New York, as trustee, related to the Company’s 7.70% Notes due 2027 | | Exhibit 4A to Registration Statement on Form S-3, File No. 033-63794, filed on June 3, 1993 |
| | | Exhibit 4.1 to Form 8-K filed on February 7, 2000 | |
| | | Exhibit 4.1 to Registration Statement on Form S-4, File No. 333-74751, filed on March 19, 1999 | |
| | | Exhibit 4.4 to Form 8-K, filed on February 7, 2000 |
| | | Exhibit 4.1 to Form 8-K filed on | |
| | | Exhibit 4.9 to Form 10-K filed on April 27, 2020 | |
4.7 | | | Exhibit 4.1 to Form 8-K filed on | |
4.8 | | | Exhibit 4.12 to Form 10-Q filed on October 5, 2021 | |
4.9 | | | Exhibit 4.13 to Form 10-Q filed on October 5, 2021 |
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| | |||
---|---|---|---|---|
Exhibit | Description | Incorporation By Reference To | ||
4.10 | | | Filed herewith | |
4.11 | | | Filed herewith | |
10.1 | † | | Exhibit 10.1 to Form 8-K, filed on June 25, 2010 | |
10.2 | † | Amendment No. 1, dated September 21, 2010, to the 2010 Omnibus Equity Plan | | Exhibit 10.7 to Form 10-Q, filed on October 7, 2010 |
10.3 | † | Amendment No. 2, dated January | | Exhibit 10.8 to Form 10-K, filed on April 23, 2013 |
10.4 | † | | Exhibit 10.1 to Form 8-K, filed on June 25, 2012 | |
10.5 | † | Amendment No. 1, dated January 16, 2013, to the 2012 Omnibus Equity Plan | | Exhibit 10.10 to Form 10-K, filed on April 23, 2013 |
10.6 | † | | Exhibit 10.1 to Form 8-K, filed on June 23, 2014 | |
10.7 | † | | Exhibit 10.2 to Form 8-K, filed on May 15, 2012 | |
10.8 | † | Executive Incentive Plan for Officers of Rite Aid Corporation | | Exhibit 10.1 to Form 8-K, filed on February 24, 2012 |
10.9 | † | | Exhibit | |
10.10 | | | Exhibit 10.1 to Form 8-K, filed on December 20, 2018 | |
10.11 | | | Exhibit 10.1 to Form 8-K, filed on January | |
| | | Exhibit | |
| | | Exhibit 10.3 to Form 8-K, filed on June 11, 2009 |
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| | |||
---|---|---|---|---|
Exhibit | Description | Incorporation By Reference To | ||
10.14 | † | | Exhibit 10.32 to Form 10-Q, filed on July 11, 2019 | |
10.15 | † | | Exhibit 10.33 to Form 10-Q, filed on July 11, 2019 | |
10.16 | † | | Exhibit 10.34 to Form 10-Q, filed on July 11, 2019 | |
10.17 | † | | Exhibit 10.35 to Form 10-Q, filed on July 11, 2019 | |
10.18 | † | | Exhibit 10.36 to Form 10-Q, filed on July 11, 2019 | |
10.19 | † | | Exhibit 10.37 to Form 10-Q, filed on July 11, 2019 | |
10.20 | †* | | Exhibit 10.38 to Form 10-Q, filed on July 11, 2019 | |
10.21 | †** | Employment Agreement by and between Rite Aid Corporation and Heyward Donigan, dated August 8, 2019 | | Exhibit 10.1 to Form 8-K, filed on August 12, 2019 |
10.22 | † | | Exhibit 10.2 to Form 8-K, filed on August 12, 2019 | |
10.23 | † | Employment Agreement dated October 2, 2019 by and between Rite Aid Corporation and James Peters | | Exhibit 10.1 to Form 8-K, filed on October 2, 2019 |
10.24 | † | | Exhibit 10.43 to Form 10-K filed on April 27, 2020 | |
10.25 | † | Amendment to Employment Agreement by and between Jessica Kazmaier, dated as of November 6, 2019 | | Exhibit 10.44 to Form 10-K filed on April 27, 2020 |
10.26 | † | Employment Agreement by and between Justin Mennen, dated as of December 7, 2018 | | Exhibit 10.45 to Form 10-K filed on April 27, 2020 |
10.27 | † | Amendment to Employment Agreement by and between Justin Mennen, dated November 6, 2019 | | Exhibit 10.46 to Form 10-K filed on April 27, 2020 |
10.28 | † | | Exhibit 10.47 to Form 10-K filed on April 27, 2020 | |
10.29 | † | Employment Agreement by and between RxOptions, LLC and Dan Robson, dated as of December 12, 2019 | | Exhibit 10.48 to Form 10-K filed on April 27, 2020 |
10.30 | † | Employment Agreement by and between Rite Aid Corporation and Paul D. Gilbert, as of July 29, 2020 | | Exhibit 10.46 to Form 10-Q filed on October 6, 2020 |
10.31 | †* | Separation Agreement by and between Rite Aid Corporation and Dan Robson, as of January 27, 2021 | | Exhibit 10.32 to Form 10-K filed on April 27, 2021 |
10.32 | † | Rite Aid Corporation Amended and Restated 2020 Omnibus Equity Plan | | Appendix B-1 to Schedule 14A (Definitive Proxy Statement) filed on May 20, 2021 |
10.33 | † | Form Award Agreement (Executive) under the Rite Aid Corporation 2020 Omnibus Equity Plan | | Exhibit 10.2 to Form 8-K filed on July 8, 2020 |
10.34 | † | Form Award Agreement (Non-employee Director) under the Rite Aid Corporation 2020 Omnibus Equity Plan | | Exhibit 10.3 to Form 8-K filed on July 8, 2020 |
10.35 | | | Filed herewith |
56
| | |||
---|---|---|---|---|
Exhibit | Description | Incorporation By Reference To | ||
10.36 | | Separation Agreement by and between Rite Aid Corporation and James Peters, as of March 7, 2022 | | Filed herewith |
22 | | | Filed herewith | |
31.1 | | | Filed herewith | |
31.2 | | | Filed herewith | |
32 | | | Filed herewith | |
| |
| | Filed herewith |
101.SCH | | XBRL Taxonomy Extension Schema Document. | | Filed herewith |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. | | Filed herewith |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. | | Filed herewith |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. | | Filed herewith |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. | | Filed herewith |
104 | | Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | Filed herewith |
* Confidential portions of this Exhibit were redacted pursuant to Item 601(b)(10) of Regulation S-K and Rite Aid Corporation agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule and/or exhibit upon request.
**Certain schedules and exhibits to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K and Rite Aid Corporation agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule and/or exhibit upon request.
† Management contract or compensatory plan or arrangement.
57
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | ||||
Date: | RITE AID CORPORATION | |||||
| | | ||||
| By: |
| ||||
| ||||||
| ||||||
|
| /s/ MATTHEW C. SCHROEDER | ||||
| | Matthew C. Schroeder | ||||
| | Executive Vice President and Chief Financial Officer | ||||
| | | ||||
Date: July 6, 2022 | By: | /s/ BRIAN T. HOOVER | ||||
| | Brian T. Hoover | ||||
| | Senior Vice President and Chief Accounting Officer | ||||
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