Following is a summary of indebtedness and lease financing obligations at February 28, 2004 and March 1, 2003:
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended February 28, 2004, March 1, 2003 and March 2, 2002
(In thousands, except per share amounts)
2004 Transactions:
New Credit Facility: On May 28, 2003, the Company replaced its senior secured credit facility with a new senior secured credit facility. The new facility consists of a $1,150,000 term loan and a $700,000 revolving credit facility, and will mature on April 30, 2008. The proceeds of the loans made on the closing of the new credit facility were, among other things, used to repay the outstanding amounts under the old facility and to purchase the land and buildings at the Company's Perryman, MD and Lancaster, CA distribution centers, which had previously been leased through a synthetic lease arrangement. On August 4, 2003, the Company amended and restated the senior secured credit facility, which reduced the interest rate on term loan borrowings under the senior secured credit facility by 50 basis points.
Borrowings under the new facility currently bear interest either at LIBOR plus 3.00% for the term loan and 3.50% for the revolving credit facility, if the Company chooses to make LIBOR borrowings, or at Citibank's base rate plus 2.00% for the term of the loan and 2.50% for the revolving credit facility. The Company is required to pay fees of 0.50% per annum on the daily unused amount of the revolving facility. Amortization payments of $2,875 related to the term loan will begin on May 31, 2004, and continue on a quarterly basis until February 28, 2008, with a final payment of $1,104,000 due April 30, 2008.
Substantially all of Rite Aid Corporation's wholly-owned subsidiaries guarantee the obligations under the new senior secured credit facility. The subsidiary guarantees are secured by a first priority lien on, among other things, the inventory, accounts receivable and prescription files of the subsidiary guarantors. Rite Aid Corporation is a holding company with no direct operations and is dependent upon dividends, distributions and other payments from its subsidiaries to service payments under the new senior secured credit facility. Rite Aid Corporation's direct obligations under the new senior secured credit facility are unsecured.
The new senior secured credit facility allows for the issuance of up to $150,000 in additional term loans or additional revolver availability. The Company may request the additional loans at any time prior to the maturity of the senior secured credit facility, provided that the Company is not in default of any terms of the facility, nor is in violation of any financial covenants. The new senior secured credit facility allows the Company to have outstanding, at any time, up to $1,000,000 in secured debt in addition to the senior secured credit facility. At February 28, 2004, the remaining additional permitted secured debt under the new senior credit facility is $197,975. The Company has the ability to incur an unlimited amount of unsecured debt, if the terms of such unsecured indebtedness comply with certain terms set forth in the credit agreement and subject to the Company's compliance with certain financial covenants. If the Company issues unsecured debt that does not meet the credit agreement restrictions, it reduces the amount of available permitted secured debt. The new senior secured credit facility also allows for the repurchase of any debt with a maturity prior to April 30, 2008, and for a limited amount of debt with a maturity after April 30, 2008, based upon outstanding borrowings under the revolving credit facility and available cash at the time of the repurchase.
The new senior secured credit facility contains customary covenants, which place restrictions on incurrence of debt, the payment of dividends, mergers, liens and sale and leaseback transactions. The new senior secured credit facility also requires us to meet various financial ratios and limits capital expenditures. For the twelve months ending February 26, 2005, the covenants require us to maintain a maximum leverage ratio of 6.05:1. Subsequent to February 26, 2005, the ratio gradually decreases to 3.8:1 for the twelve months ending March 1, 2008. We must also maintain a minimum interest coverage ratio of 2.05:1 for the twelve months ending February 26, 2005. Subsequent to February 26, 2005, the ratio gradually increases to 3.25:1 for the twelve months ending March 1, 2008. In addition, we must maintain a minimum fixed charge ratio of 1.10:1 for the twelve months ending February 26,
61
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended February 28, 2004, March 1, 2003 and March 2, 2002
(In thousands, except per share amounts)
2005. Subsequent to February 26, 2005, the ratio gradually increases to 1.25:1 for the twelve months ending March 1, 2008. Capital expenditures are limited to $386,085 for the fiscal year ending February 26, 2005, with the allowable amount increasing in subsequent years.
The Company was in compliance with the covenants of the new senior secured credit facility and its other debt instruments as of February 28, 2004. With continuing improvements in operating performance, the Company anticipates that it will remain in compliance with its debt covenants. However, variations in operating performance and unanticipated developments may adversely affect the Company's ability to remain in compliance with the applicable debt covenants.
The new senior secured credit facility provides for customary events of default, including nonpayment, misrepresentation, breach of covenants and bankruptcy. It is also an event of default if any event occurs that enables, or which with the giving of notice or the lapse of time would enable, the holder of the Company's debt to accelerate the maturity of debt having a principal amount in excess of $25,000.
The Company's ability to borrow under the senior secured credit facility is based on a specified borrowing base consisting of eligible accounts receivable, inventory and prescription files. At February 28, 2004, the term loan was fully drawn and the Company had no outstanding draws on the revolving credit facility. At February 28, 2004, the Company had additional borrowing capacity of $584,804, net of outstanding letters of credit of $115,196.
As a result of the placement of the new senior secured credit facility, the Company recorded a loss on debt modification in fiscal 2004 of $43,197 (which included the write-off of previously deferred debt issue costs of $35,120).
On October 1, 2003, the Company paid, at maturity, its remaining outstanding balance on the 6.0% dealer remarketable securities.
In May 2003, the Company issued $150,000 aggregate principal amount of 9.25% senior notes due 2013. These notes are unsecured and effectively subordinate to the Company's secured debt. The indenture governing the 9.25% senior notes contains customary covenant provisions that, amount other things, include limitations on the Company's ability to pay dividends, make investments or other restricted payments, incur debt, grant liens, sell assets and enter into sale lease-back transactions.
In April 2003, the Company issued $360,000 aggregate principal amount of 8.125% senior secured notes due 2010. The notes are unsecured, unsubordinated obligations to Rite Aid Corporation and rank equally in right of payment with all other unsecured, unsubordinated indebtedness. The Company's obligations under the notes are guaranteed, subject to certain limitations, by subsidiaries that guarantee the obligations under our new senior secured credit facility. The guarantees are secured, subject to the permitted liens, by shared second priority liens, with the holders of the Company's 12.5% senior notes and the Company's 9.5% senior secured notes, granted by subsidiary guarantors on all of their assets that secure the obligations under the new senior secured credit facility, subject to certain exceptions. The indenture governing the Company's 8.125% senior secured notes contains customary covenant provisions that, among other things, include limitations on our ability to pay dividends, make investments or other restricted payments, incur debt, grant liens, sell assets and enter into sales lease-back transactions.
62
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended February 28, 2004, March 1, 2003 and March 2, 2002
(In thousands, except per share amounts)
During fiscal 2004 the Company repurchased the following securities:
| | | | | | | | | | | | | | |
| Debt Repurchased | | Principal
Amount
Repurchased | | Amount
Paid | | (Gain)/
loss |
| 6.0% fixed rate senior notes due 2005 | | $ | 37,848 | | | $ | 36,853 | | | $ | (865 | ) |
| 7.125% notes due 2007 | | | 124,926 | | | | 120,216 | | | | (4,314 | ) |
| 6.875% senior debentures due 2013 | | | 15,227 | | | | 13,144 | | | | (1,981 | ) |
| 7.7% notes due 2027 | | | 5,000 | | | | 4,219 | | | | (715 | ) |
| 6.875% fixed rate senior notes due 2028 | | | 10,000 | | | | 7,975 | | | | (1,895 | ) |
| 12.5% senior secured notes due 2006 | | | 10,000 | | | | 11,275 | | | | 1,888 | |
| Total | | $ | 203,001 | | | $ | 193,682 | | | $ | (7,882 | ) |
| | | | | | | | | | | | | |
|
2003 Transactions:
Senior Secured Notes: The Company issued $300,000 of 9.5% senior secured notes due 2011 in February 2003. The notes were unsecured, unsubordinated obligations of the Company and rank equally in right of payment with all of the Company's other unsecured, unsubordinated indebtedness. The Company's obligations under the notes are guaranteed, subject to certain limitations, by subsidiaries that guarantee the obligations under the senior secured credit facility. The guarantees are secured, subject to the permitted liens, by shared second priority liens with the holders of the 12.5% senior notes and the 8.125% senior secured notes, granted by subsidiary guarantors on all assets that secure the Company's obligations under the senior secured credit facility, subject to certain limitations. Proceeds from these notes were used to redeem all the $149,500 of the Company's senior secured (shareholders) notes due 2006 as well as to fund other debt repurchases and general corporate purposes.
Repurchase of Debt: The Company repurchased $25,425 of its 6.0% dealer remarketable securities due 2003, $118,605 of its 6.0% notes due 2005, and $15,000 of its 7.125% notes due 2007 during fiscal 2003. In addition to the debt repurchases noted above, the Company retired $150,500 of its 5.25% convertible subordinated notes at maturity in September 2002, and made quarterly mandatory repayments on the senior secured credit facility term loan totaling $27,500 during fiscal 2003. These fiscal 2003 transactions resulted in a gain of $13,628 on debt retirements and modifications.
2002 Refinancing and Other Transactions:
On June 27, 2001, the Company completed a major financial restructuring that extended the maturity dates of the majority of its debt to 2005 or beyond, provided additional equity and converted a portion of its debt to equity. These transactions are described below:
Senior Secured Credit Facility: The Company entered into a new $1,900,000 senior secured credit facility. This facility was replaced by the new senior secured credit facility discussed above.
High Yield Notes: The Company issued $150,000 of 11.25% senior notes due July 2008. These notes are unsecured and are effectively subordinate to the secured debt of the Company.
Debt for Debt Exchange: The Company exchanged $152,025 of its existing 10.5% senior secured notes due 2002 for an equal amount of 12.5% senior notes due September 2006. In addition, holders of these notes received warrants to purchase 3,000 shares of Company common stock at $6.00 per share. On June 29, 2001, the warrant holders exercised these warrants, on a cashless basis, and as a result approximately 982 shares of common stock were issued.
63
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended February 28, 2004, March 1, 2003 and March 2, 2002
(In thousands, except per share amounts)
Tender Offer: On May 24, 2001, the Company commenced a tender offer for the 10.50% senior secured notes due 2002 at a price of 103.25% of the principal amount of the notes. The tender offer was closed on June 27, 2001, at which time $174,462 principal amount of the notes was tendered. The Company incurred a tender offer premium of $5,670 as a result of the transaction. The Company used proceeds from the senior secured credit facility to pay for the notes tendered.
Debt for Equity Exchanges and Sales of Capital Stock: The Company completed the following debt for equity exchanges during fiscal 2002:
| | | | | | | | | | | | | | |
| Debt Exchanged | | Carrying
Amount
Exchanged | | Common
Stock | | Additional
Paid-In
Capital |
| PCS facility | | $ | 14,478 | | | $ | 1,769 | | | $ | 13,867 | |
| RCF facility | | | 169,906 | | | | 26,370 | | | | 158,388 | |
| 5.25% convertible subordinated notes | | | 205,308 | | | | 29,750 | | | | 307,686 | |
| 6.00% dealer remarketable securities | | | 79,885 | | | | 12,382 | | | | 55,633 | |
| 10.50% notes due 2002 | | | 119,134 | | | | 16,115 | | | | 114,223 | |
| | | $ | 588,711 | | | $ | 86,386 | | | $ | 649,797 | |
|
In addition to the debt for equity exchange transactions listed above, the Company sold approximately 80,083 shares of its common stock for net proceeds of $528,404, which resulted in an increase to common stock of $80,083, and additional paid in capital of $448,321.
The Company issued approximately 2,122 shares of its Series C Convertible Preferred Stock in connection with the debt for equity exchanges. The Series C Convertible Preferred Stock was converted into 21,217 shares of common stock on July 30, 2001, at which time the Series C Convertible Preferred Stock was retired.
Lease Obligations: The Company surrendered certain renewal options contained in certain real estate leases on property previously sold and leased back to the Company and as a result these leases were afforded sale and leaseback accounting treatment and, accordingly, have been reclassified as operating leases. This action resulted in a reduction of outstanding capital lease obligations of $850,792. Accordingly, the Company recorded a net deferred gain of $168,483, which is being amortized over the remaining noncancellable lease terms. In addition, the Company repaid certain obligations totaling $16,467 related to leasehold improvements.
Synthetic Leases: The Company terminated existing synthetic lease agreements for certain land, buildings, equipment and aircraft, which were accounted for as operating leases. A wholly owned subsidiary of the Company purchased the equipment for $82,604 and leased the land, buildings and aircraft from different parties. These leases were terminated in fiscal 2004.
Interest Rate Swap Contracts: In June 2000, the Company entered into an interest rate swap contract that fixed the LIBOR component of $500,000 of the Company's variable rate debt at 7.083% for a two-year period. In July 2000, the Company entered into an additional interest rate swap that fixed the LIBOR component of an additional $500,000 of variable rate debt at 6.946% for a two-year period.
As a result of the June 27, 2001 refinancing, the Company's interest rate swaps no longer qualified for hedge accounting treatment and therefore, the changes in fair value of these interest rate swap contracts were required to be recorded as a component of net loss. Accordingly, the Company recognized a charge of $31,047 representing the amount that the Company would have to pay the counter-party to terminate these contracts as of that date. Subsequent changes in the market value of the interest rate swaps of $10,847, inclusive of cash payments, were recorded on the statement of
64
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (concluded)
For the Years Ended February 28, 2004, March 1, 2003 and March 2, 2002
(In thousands, except per share amounts)
operations for the year ended March 2, 2002. This amount represents an adjustment to the aggregate expense recognized by the Company relating to the swaps and was due to a reduction in market interest rates coupled with the passage of time. These contracts expired and were fully funded during fiscal 2003 and were not renewed.
Other: In fiscal 2002, as a result of the above transactions, the Company recognized, as a loss on debt modifications and retirements, i) a loss of $66,589 related to the early retirement of debt, ii) a loss of $21,752 related to debt and lease conversions and modifications and iii) a charge of $132,713 related to debt for equity exchanges in fiscal 2002.
Convertible Notes: The Company issued $250,000 of 4.75% convertible notes due December 2006 in November 2001. These notes were issued at a 3% discount resulting in cash proceeds of $242,500. These notes are unsecured and are effectively subordinate to the secured debt of the Company. The notes are convertible, at the option of the holder, into shares of the Company's common stock at a conversion price of $6.50 per share, subject to adjustments to prevent dilution, at any time.
Other:
The Company had outstanding letters of credit of $115,196 at February 28, 2004 and $89,071 at March 1, 2003.
The annual weighted average interest rate on the Company's indebtedness was 6.8%, 7.3% and 8.2% for fiscal 2004, 2003 and fiscal 2002, respectively.
The aggregate annual principal payments of long-term debt, excluding lease financing obligations, for the five succeeding fiscal years are as follows: 2005 – $11,145; 2006 – $250,849; 2007 – $605,934; 2008 – $12,415; 2009 – $1,404,130 and $1,424,024 in 2010 and thereafter. The Company is in compliance with restrictions and limitations included in the provisions of various loan and credit agreements.
Substantially all of Rite Aid Corporation's wholly-owned subsidiaries guarantee the obligations under the new senior secured credit facility. The subsidiary guarantees are secured by a first priority lien on, among other things, the inventory, accounts receivable and prescription files of the subsidiary guarantors. Rite Aid Corporation is a holding company with no direct operations and is dependent upon dividends, distributions and other payments from its subsidiaries to service payments due under the new senior credit facility. Rite Aid Corporation's direct obligations under the new senior credit facility are unsecured. The 12.5% senior secured notes due 2006, the 9.5% senior secured notes due 2011 and the 8.125% senior secured notes due 2010 are guaranteed by substantially all of the Company's wholly-owned subsidiaries and are secured on a second priority basis by the same collateral as the new senior secured credit facility.
The subsidiary guarantees related to the Company's credit facilities are full and unconditional and joint and several and there are no restrictions on the ability of the parent to obtain funds from its subsidiaries. Also, the parent company's assets and operations are not material and subsidiaries not guaranteeing the credit facilities are minor. Accordingly, condensed consolidating financial information for the parent and subsidiaries is not presented.
65
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended February 28, 2004, March 1, 2003 and March 2, 2002
(In thousands, except per share amounts)
11. Leases
The Company leases most of its retail stores and certain distribution facilities under noncancellable operating and capital leases, most of which have initial lease terms ranging from five to 22 years. The Company also leases certain of its equipment and other assets under noncancellable operating leases with initial terms ranging from 3 to 10 years. In addition to minimum rental payments, certain store leases require additional payments based on sales volume, as well as reimbursements for taxes, maintenance and insurance. Most leases contain renewal options, certain of which involve rent increases. Total rental expense, net of sublease income of $8,892, $9,470 and $10,175, was $553,928, $566,214 and $573,675 in fiscal 2004, 2003 and 2002, respectively. These amounts include contingent rentals of $32,143, $29,679 and $26,893 in fiscal 2004, 2003 and 2002, respectively.
The Company leases certain facilities through sale-leaseback arrangements accounted for using the financing method. Proceeds from sale-leaseback programs were approximately $2,850 in 2004, $347 in 2003 and $1,620 in 2002.
The net book values of assets under capital leases and sale-leasebacks accounted for under the financing method at February 28, 2004 and March 1, 2003 are summarized as follows:
| | | | | | | | | | |
| | | 2004 | | 2003 |
| Land | | $ | 11,209 | | | $ | 11,209 | |
| Buildings | | | 170,154 | | | | 162,475 | |
| Equipment | | | 12,187 | | | | 3,188 | |
| Accumulated depreciation | | | (52,765 | ) | | | (41,530 | ) |
| | | $ | 140,785 | | | $ | 135,342 | |
|
Following is a summary of lease finance obligations at February 28, 2004 and March 1, 2003:
| | | | | | | | | | |
| | | 2004 | | 2003 |
| Obligations under capital leases | | $ | 183,169 | | | $ | 176,186 | |
| Less current obligation | | | (12,831 | ) | | | (7,138 | ) |
| Long-term lease finance obligations | | $ | 170,338 | | | $ | 169,048 | |
|
Following are the minimum lease payments net of sublease income that will have to be made in each of the years indicated based on non-cancelable leases in effect as of February 28, 2004:
| | | | | | | | | | |
| Fiscal year | | Lease Financing
Obligations | | Operating
Leases |
| 2005 | | $ | 27,803 | | | | 543,922 | |
| 2006 | | | 21,692 | | | | 516,388 | |
| 2007 | | | 21,170 | | | | 481,174 | |
| 2008 | | | 20,663 | | | | 451,123 | |
| 2009 | | | 20,163 | | | | 419,677 | |
| Later years | | | 189,256 | | | | 3,521,944 | |
| Total minimum lease payments | | $ | 300,747 | | | $ | 5,934,228 | |
| Amount representing interest | | | (117,578 | ) | | | | |
| Present value of minimum lease payments | | $ | 183,169 | | | | | |
|
66
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended February 28, 2004, March 1, 2003 and March 2, 2002
(In thousands, except per share amounts)
12. Redeemable Preferred Stock
In March 1999 and February 1999, Rite Aid Lease Management Company, a wholly owned subsidiary of the Company, issued 63,000 and 150,000 shares of Cumulative Preferred Stock, Class A, par value $100 per share, respectively. The Class A Cumulative Preferred Stock is mandatorily redeemable on April 1, 2019 at a redemption price of $100 per share plus accumulated and unpaid dividends. The Class A Cumulative Preferred Stock pays dividends quarterly at a rate of 7.0% per annum of the par value of $100 per share when, as and if declared by the Board of Directors of Rite Aid Lease Management Company in its sole discretion. The amount of dividends payable in respect of the Class A Cumulative Preferred Stock may be adjusted under certain events. The outstanding shares of the Class A Preferred Stock were recorded at their estimated fair value of $19,253, which equaled the sale price on the dates of issuance. Because the fair value of the Class A Preferred Stock was less than the mandatory redemption amount at issuance, periodic accretions to stockholders' equity using the interest method are made so that the carrying amount equals the redemption amount on the mandatory redemption date. Accretion was $102 in fiscal 2004 and 2003 and $104 in fiscal 2002. Pursuant to the adoption of SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liability and Equity", this instrument is recorded in Other Non-Current Liabilities as of February 28, 2004.
13. Capital Stock
In October 1999, the Company issued 3,000 shares of Series B preferred stock at $100 per share which was the liquidation preference. The Series B preferred stock paid dividends at 8% per year which is payable in cash or additional shares of Series B, at the Company's election. Beginning October 25, 2004, the Company had an option to redeem the Series B preferred stock at 105% of the liquidation preference, plus accrued and unpaid dividends to the redemption date. The Series B preferred stock, when issued, was convertible into shares of the Company's common stock at a conversion price of $11.00 per share of common stock. Pursuant to its terms, as a result of the issuance of shares at $5.50 per share on June 14, 2000, the per share conversion price for the Series B preferred stock was adjusted to $5.50. On October 5, 2001, the Company exchanged all outstanding shares of Series B cumulative pay-in-kind preferred stock for an equal number of shares of 8% Series D cumulative pay-in-kind preferred stock ("Series D preferred stock"). The Series D preferred stock differs from the Series B preferred stock only in that the consent of holders of the Series D preferred stock is not required in order for the Company to issue shares of the Company's capital stock that are on parity with the Series D preferred stock with respect to dividends and distributions upon the liquidation, distribution or winding up of the Company.
On June 27, 2001, the stockholders approved an amendment to the Company's Restated Certificate of Incorporation to increase the number of authorized shares of common stock, $1.00 par value, from 600,000 to 1,000,000. As of February 28, 2004, the authorized capital stock of the Company consists of 1,000,000 shares of common stock and 20,000 shares of preferred stock, having a par value of $1.00 per share and $100.00 per share, respectively. Preferred stock is issued in series, subject to terms established by the Board of Directors.
14. Stock Option and Stock Award Plans
The Company reserved 22,000 shares of its common stock for the granting of stock options and other incentive awards to officers and key associates under the 1990 Omnibus Stock Incentive Plan (the 1990 Plan). Options may be granted, with or without stock appreciation rights ("SAR"), at prices that are not less than the fair market value of a share of common stock on the date of grant. The exercise of either a SAR or option automatically will cancel any related option or SAR. Under the
67
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended February 28, 2004, March 1, 2003 and March 2, 2002
(In thousands, except per share amounts)
1990 Plan, the payment for SARs will be made in shares, cash or a combination of cash and shares at the discretion of the Compensation Committee.
In November 1999, the Company adopted the 1999 Stock Option Plan (the 1999 Plan), under which 10,000 shares of common stock are authorized for the granting of stock options at the discretion of the Board of Directors.
In December 2000, the Company adopted the 2000 Omnibus Equity Plan (the 2000 Plan) under which 22,000 shares of common stock are reserved for granting of restricted stock, stock options, phantom stock, stock bonus awards and other stock awards at the discretion of the Board of Directors.
In February 2001, the Company adopted the 2001 Stock Option Plan (the 2001 Plan) under which 20,000 shares of common stock are authorized for granting of stock options at the discretion of the Board of Directors.
All of the plans provide for the Board of Directors (or at its election, the Compensation Committee) to determine both when and in what manner options may be exercised; however, it may not be more than 10 years from the date of grant. All of the plans provide that stock options may be granted at prices that are not less than the fair market value of a share of common stock on the date of grant. The aggregate number of shares authorized for issuance for all plans is 67,378 as of February 28, 2004.
The Company has issued 9,122 options to certain senior executives pursuant to their individual employment contracts. These options were not issued out of the plans listed above, but are included in the option tables herein.
On April 7, 2004, the Board of Directors adopted the 2004 Omnibus Equity Plan, which is subject to stockholder approval at the June 24, 2004 annual meeting. Under the plan, 20,000 shares of common stock will be authorized for granting of restricted stock, stock options, phantom stock, stock bonus awards and other equity based awards at the discretion of the Board of Directors.
Stock Options
Following is a summary of stock option transactions for the fiscal years ended February 28, 2004, March 1, 2003 and March 2, 2002:
| | | | | | | | | | |
| | | Shares | | Weighted Average
Price Per Shares |
| Balance, March 4, 2001 | | | 53,197 | | | $ | 6.48 | |
| Granted | | | 10,843 | | | | 5.72 | |
| Exercised | | | (422 | ) | | | 5.23 | |
| Cancelled | | | (2,859 | ) | | | 10.01 | |
| Balance, March 2, 2002 | | | 60,759 | | | | 6.18 | |
| Granted | | | 10,033 | | | | 2.36 | |
| Exercised | | | (101 | ) | | | 2.75 | |
| Cancelled | | | (6,015 | ) | | | 12.41 | |
| Balance, March 1, 2003 | | | 64,676 | | | | 5.01 | |
| Granted | | | 4,687 | | | | 4.65 | |
| Exercised | | | (1,291 | ) | | | 2.82 | |
| Cancelled | | | (6,077 | ) | | | 8.54 | |
| Balance, February 28, 2004 | | | 61,995 | | | $ | 4.72 | |
|
68
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended February 28, 2004, March 1, 2003 and March 2, 2002
(In thousands, except per share amounts)
For various price ranges, weighted average characteristics of outstanding stock options at February 28, 2004 were as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| | | Outstanding Options | | Exercisable Options |
| Range of exercise prices | | Number
Outstanding
as of
February 28, 2004 | | Remaining
life (years) | | Weighted
Average
Price | | Shares | | Weighted
Average
Price |
| $1.98 to $2.26 | | | 8,477 | | | | 8.34 | | | $ | 2.16 | | | | 3,546 | | | $ | 2.21 | |
| $2.30 to $2.70 | | | 3,762 | | | | 8.60 | | | $ | 2.54 | | | | 860 | | | $ | 2.55 | |
| $2.71 to $2.75 | | | 14,969 | | | | 5.98 | | | $ | 2.75 | | | | 14,352 | | | $ | 2.75 | |
| $3.00 to $3.94 | | | 1,243 | | | | 7.47 | | | $ | 3.31 | | | | 732 | | | $ | 3.33 | |
| $3.97 to $4.05 | | | 18,915 | | | | 6.94 | | | $ | 4.05 | | | | 18,689 | | | $ | 4.05 | |
| $4.06 to $8.56 | | | 6,952 | | | | 7.59 | | | $ | 5.18 | | | | 3,427 | | | $ | 5.38 | |
| $8.91 to $45.57 | | | 6,777 | | | | 6.15 | | | $ | 11.34 | | | | 4,422 | | | $ | 13.09 | |
| $47.50 to $47.50 | | | 886 | | | | 4.20 | | | $ | 33.11 | | | | 886 | | | $ | 33.11 | |
| $48.56 to $48.56 | | | 11 | | | | 4.85 | | | $ | 48.56 | | | | 11 | | | $ | 48.56 | |
| $48.81 to $48.81 | | | 3 | | | | 4.86 | | | $ | 48.81 | | | | 3 | | | $ | 48.81 | |
| $1.98 to $48.81 | | | 61,995 | | | | 6.96 | | | $ | 4.72 | | | | 46,928 | | | $ | 4.98 | |
|
At March 1, 2003 and March 2, 2002, the amount of exercisable options and corresponding weighted average price per share was 38,725 and $5.70 and 26,593 and $7.21, respectively.
In November 2000, the Company reduced the exercise price of 16,684 options issued after December 4, 1999 to $2.75 a share, which represents the fair market value of a share of common stock on the date of the repricing. In connection with the repricing, the Company recognized compensation expense for these options using variable plan accounting in fiscal 2003 and 2002. Under variable plan accounting, the Company recognized compensation expense over the option vesting period. In addition, subsequent changes in the market value of Company's common stock during the option period, or until exercised, generated changes in the compensation expense recognized on the repriced options. The Company recognized a reduction of expense of approximately $(2,497) and $(27,771) during fiscal 2003 and 2002, respectively, related to the repriced options. As described in note 1, the Company adopted SFAS No. 123 "Accounting for Stock Based Compensation" effective March 2, 2003, and therefore recorded compensation expense in fiscal 2004 for all options using the fair value method under the modified prospective approach.
Restricted Stock
The Company provides restricted stock grants to key associates under plans approved by the stockholders. Shares awarded under the plans vest in installments up to three years and unvested shares are forfeited upon termination of employment. The Company made the following grants during fiscal 2004, 2003 and 2002:
| | | | | | | | | | | | | | |
| | | 2004 | | 2003 | | 2002 |
| Shares granted | | | 185 | | | | — | | | | 88 | |
| Fair value on the date of the grant | | $ | 1,006 | | | | — | | | $ | 747 | |
|
Compensation expense related to all restricted stock grants is being recorded over a one to three year vesting period of these grants. For the years ended February 28, 2004, March 1, 2003 and March 2, 2002, the Company recognized expense of $693, $7,333, and $9,135, respectively, related to restricted share awards.
During fiscal 2002, in connection with the vesting of certain restricted shares of common stock, the Company made loans totaling approximately $5,900 to executive officers to provide them with
69
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended February 28, 2004, March 1, 2003 and March 2, 2002
(In thousands, except per share amounts)
funds to pay federal and state income taxes due upon the vesting. The loans bore interest and were secured on a non-recourse basis by the vested shares. On December 10, 2001, the executive officers repaid these loans utilizing the 1,140 shares securing those loans. This resulted in a charge of $1,400 during the fourth quarter of fiscal 2002.
During fiscal 2002, the Company entered into an agreement with a service provider whereby the provider would receive shares of Company common stock in exchange for certain services. In connection with this agreement, the Company issued 331 shares of its common stock and recognized $2,118 of stock-based compensation expense during fiscal 2002.
Stock Appreciation Units
The Company has issued stock appreciation units to various members of field management. The grant price for each unit is the closing price of the Company's common stock on the date of grant. The units vest four years from the date of grant. For each outstanding unit, the Company is obligated to pay out the difference between the grant price and the average market price of one share of the Company's common stock for the last twenty trading days before the vesting date. The payment may be in cash or shares, at the discretion of the Company; however, the Company has historically made cash payments. The Company's obligations under the stock appreciation units are remeasured at each balance sheet date and amortized to compensation expense over the vesting period.
At March 1, 2003, there were approximately 2,990 stock appreciation rights units outstanding, which were paid during fiscal 2004. Amounts expensed (credited to expense) relating to the stock appreciation rights units for fiscal 2004, 2003 and 2002 were $1,062, $0 and $(773), respectively.
15. Retirement Plans
Defined Contribution Plans
The Company and its subsidiaries sponsor several retirement plans that are primarily 401(k) defined contribution plans covering salaried associates and certain hourly associates. The Company does not contribute to all of the plans. Effective January 1, 2002, the Company significantly improved the Company's match for its principal 401(k) plan. During fiscal 2003, the Company committed to maintaining the current level of benefits in its principal 401(k) plan through December 31, 2006. Total expenses recognized for the above plans was $29,855 in 2004, $29,878 in 2003 and $12,260 in 2002.
Senior executive officers are entitled to supplemental retirement benefits in accordance with their employment agreements, which vest monthly. The Company makes monthly investments to fund the obligation. Other officers, who are not participating in the defined benefit nonqualified executive retirement plan, are included in a supplemental retirement plan, which is a defined contribution plan that is subject to a five year graduated vesting schedule. The Company makes annual investments to fund the obligation. The expenses recognized for these plans was $5,084 in 2004, $2,064 in 2003 and $3,031 in 2002.
Defined Benefit Plans
The Company and its subsidiaries also sponsor a qualified defined benefit pension plan that requires benefits to be paid to eligible associates based upon years of service and, in some cases, eligible compensation. Prior to February 28, 2002, the Company and its subsidiaries sponsored four separate qualified defined benefit pension plans. However, effective February 28, 2002, the Company merged these four plans into a single plan, the Rite Aid Pension Plan (the "Defined Benefit Pension
70
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended February 28, 2004, March 1, 2003 and March 2, 2002
(In thousands, except per share amounts)
Plan"). The Company merged these plans to take advantage of financial and administrative economies of scale; the merger had no effect on the benefits provided to eligible employees. The Company's funding policy for the Defined Benefit Pension Plan is to contribute the minimum amount required by the Employee Retirement Income Security Act of 1974. In fiscal 2004, the Company made a discretionary contribution of $5,000.
The Company has established the nonqualified executive retirement plan for certain officers who, pursuant to their employment agreements, are not participating in the defined contribution suplemental retirement plan. Generally, eligible participants receive an annual benefit, payable monthly over fifteen years, equal to a percentage of the highest base salary and highest bonus paid or accrued for each participant within the ten fiscal years prior to the date of the event giving rise to payment of the benefit. This defined benefit plan is unfunded. In fiscal 2004 and 2003, the Company determined that the obligation for certain former executives that had either been indicted by the U.S. Attorney's office, or had pleaded guilty to certain criminal charges, were no longer binding. Therefore, the Company recorded settlement benefits due to the elimination of these obligations.
The Company uses a February 28 measurement date for the majority of its plans.
Net periodic pension expense for the defined benefit plans included the following components:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Defined Benefit Pension Plans | | Nonqualified Executive
Retirement Plan |
| | | 2004 | | 2003 | | 2002 | | 2004 | | 2003 | | 2002 |
| Service cost | | $ | 2,614 | | | $ | 2,486 | | | $ | 4,162 | | | $ | 85 | | | $ | 158 | | | $ | 294 | |
| Interest cost | | | 4,615 | | | | 4,492 | | | | 4,508 | | | | 1,450 | | | | 2,641 | | | | 2,471 | |
| Expected return on plan assets | | | (1,481 | ) | | | (3,492 | ) | | | (5,022 | ) | | | — | | | | — | | | | — | |
Amortization of unrecognized
net transition (asset)/obligation | | | — | | | | (19 | ) | | | (160 | ) | | | 87 | | | | 87 | | | | 87 | |
Amortization of unrecognized
prior service cost | | | 452 | | | | 458 | | | | 513 | | | | — | | | | — | | | | — | |
Amortization of unrecognized
net loss (gain) | | | 3,287 | | | | 1,047 | | | | — | | | | 335 | | | | 394 | | | | (41 | ) |
| Curtailment and settlements | | | — | | | | — | | | | — | | | | (5,222 | ) | | | (10,376 | ) | | | (4,083 | ) |
| Change due to plan amendment | | | — | | | | — | | | | — | | | | — | | | | 156 | | | | 186 | |
| Net pension expense (credit) | | $ | 9,487 | | | $ | 4,972 | | | $ | 4,001 | | | $ | (3,265 | ) | | $ | (6,940 | ) | | $ | (1,086 | ) |
|
71
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended February 28, 2004, March 1, 2003 and March 2, 2002
(In thousands, except per share amounts)
The table below sets forth a reconciliation from the beginning of the year for both the benefit obligation and plan assets of the Company's defined benefits plans, as well as the funded status and amounts recognized in the Company's balance sheet as of February 28, 2004 and March 1, 2003:
| | | | | | | | | | | | | | | | | | |
| | | Defined Benefit
Pension Plan | | Nonqualified Executive
Retirement Plan |
| | | 2004 | | 2003 | | 2004 | | 2003 |
| Change in benefit obligations: | |
| Benefit obligation at end of prior year | | $ | 71,905 | | | $ | 69,464 | | | $ | 27,046 | | | $ | 35,597 | |
| Service cost | | | 2,614 | | | | 2,486 | | | | 85 | | | | 158 | |
| Interest cost | | | 4,615 | | | | 4,492 | | | | 1,450 | | | | 2,641 | |
| Distributions | | | (5,088 | ) | | | (5,458 | ) | | | (2,110 | ) | | | (3,241 | ) |
| Settlements | | | — | | | | — | | | | (5,222 | ) | | | (10,376 | ) |
| Change due to change in assumptions | | | 5,049 | | | | 3,640 | | | | 503 | | | | 957 | |
| Change due to plan amendment | | | 1,706 | | | | — | | | | — | | | | 156 | |
| Actuarial (gain) or loss | | | 1,106 | | | | (2,719 | ) | | | (28 | ) | | | 1,154 | |
| Benefit obligation at end of year | | $ | 81,907 | | | $ | 71,905 | | | $ | 21,724 | | | $ | 27,046 | |
| Change in plan assets: | | | | | |
| Fair value of plan assets at beginning of year | | $ | 50,566 | | | $ | 62,273 | | | $ | — | | | $ | — | |
| Employer contributions | | | 5,000 | | | | 3,916 | | | | 2,110 | | | | 3,241 | |
| Actual return on plan assets | | | 11,315 | | | | (7,990 | ) | | | — | | | | — | |
| Distributions (including expenses paid by the plan) | | | (6,896 | ) | | | (7,633 | ) | | | (2,110 | ) | | | (3,241 | ) |
| Fair value of plan assets at end of year | | $ | 59,985 | | | $ | 50,566 | | | $ | — | | | $ | — | |
| Funded status | | $ | (21,922 | ) | | $ | (21,339 | ) | | $ | (21,724 | ) | | $ | (27,046 | ) |
| Unrecognized net loss | | | 21,887 | | | | 27,045 | | | | 1,705 | | | | 1,692 | |
| Unrecognized prior service cost | | | 2,852 | | | | 1,598 | | | | — | | | | — | |
| Unrecognized net transition obligation | | | — | | | | — | | | | 347 | | | | 434 | |
| Prepaid or (accrued) pension cost recognized | | $ | 2,817 | | | $ | 7,304 | | | $ | (19,672 | ) | | $ | (24,920 | ) |
| Amounts recognized in consolidated balance sheets consisted of: | | | | | | | | | | | | | | | | |
| Prepaid pension cost | | $ | 2,817 | | | $ | 7,304 | | | $ | — | | | $ | — | |
| Accrued pension liability | | | (24,288 | ) | | | (28,197 | ) | | | (21,462 | ) | | | (26,773 | ) |
| Pension intangible asset | | | 2,852 | | | | 1,598 | | | | 347 | | | | 434 | |
| Accumulated other comprehensive income | | | 21,436 | | | | 26,599 | | | | 1,443 | | | | 1,419 | |
| Net amount recognized | | $ | 2,817 | | | $ | 7,304 | | | $ | (19,672 | ) | | $ | (24,920 | ) |
|
72
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended February 28, 2004, March 1, 2003 and March 2, 2002
(In thousands, except per share amounts)
The increase in minimum liability included in other comprehensive income was as follows:
| | | | | | | | | | | | | | | | | | |
| | | Defined Benefit
Pension Plan | | Nonqualified Executive
Retirement Plan |
| | | 2004 | | 2003 | | 2004 | | 2003 |
| Increase (decrease) in minimum liability included in other comprehensive income | | $ | (5,163 | ) | | $ | 13,344 | | | | 24 | | | | 1,419 | |
|
The accumulated benefit obligation for all defined benefit pension plans was $102,918 and $98,231 as of February 28, 2004 and March 1, 2003, respectively.
The significant actuarial assumptions used for all defined benefit pension plans to determine the benefit obligation as of February 28, 2004 and March 1, 2003 were as follows:
| | | | | | | | | | | | | | | | | | |
| | | Defined Benefit Pension Plan | | Nonqualified Executive
Retirement Plan |
| | | 2004 | | 2003 | | 2004 | | 2003 |
| Discount rate | | | 6.00 | % | | | 6.50 | % | | | 6.00 | % | | | 6.50 | % |
| Rate of increase in future compensation levels | | | 4.50 | | | | 4.50 | | | | 3.00 | | | | 3.00 | |
|
Weighted average assumptions used to determine net cost for years ended February 28, 2004, March 1, 2003 and March 2, 2002 were:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Defined Benefit Pension Plans | | Nonqualified Executive
Retirement Plan |
| | | 2004 | | 2003 | | 2002 | | 2004 | | 2003 | | 2002 |
| Discount rate | | | 6.50 | % | | | 7.00 | % | | | 7.00 | % | | | 6.32 | % | | | 7.18 | % | | | 7.50 | % |
| Rate of increase in future compensation levels | | | 4.50 | | | | 4.50 | | | | 4.50 | | | | 3.00 | | | | 3.00 | | | | 3.00 | |
| Expected long-term rate of return on plan assets | | | 8.00 | | | | 8.00 | | | | 9.00 | | | | N/A | | | | N/A | | | | N/A | |
|
To develop the expected long-term rate of return on assets assumption, the Company considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. This resulted in the selection of the 8.00% long-term rate of return on assets assumption for fiscal 2004 and 2003 and 9.00% for fiscal 2002.
The Company's pension plan asset allocations at February 28, 2004 and March 1, 2003 by asset category were as follows:
| | | | | | | | | | |
| | | February 28, 2004 | | March 1, 2003 |
| Equity securities | | | 68 | % | | | 74 | % |
| Debt securities | | | 32 | % | | | 18 | % |
| Other | | | — | | | | 8 | % |
| Total | | | 100 | % | | | 100 | % |
|
The investment objectives of the Defined Benefit Pension Plan, the only defined benefit plan with assets, are to:
| |
| • | Achieve a rate of return on investments that exceeds inflation by at least 4% over a full market cycle, consistent with actuarial assumptions; |
| |
| • | Diversify the portfolio among various asset classes with the goal of reducing volatility of return (risk), and among various issuers of securities to reduce principal risk; |
| |
| • | Maintain liquidity in the portfolio sufficient to meet plan obligations as they come due; and |
| |
| • | Control administrative and management costs. |
73
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended February 28, 2004, March 1, 2003 and March 2, 2002
(In thousands, except per share amounts)
The asset allocation established for the pension investment program reflects the risk tolerance of the Company, as determined by:
| |
| • | The current and anticipated financial strength of the Company; |
| |
| • | the funded status of the plan; and |
| |
| • | plan liabilities. |
Exposure to both the equity and fixed income markets will be maintained, recognizing that historical results indicate that equities (primarily common stocks) have higher expected returns than fixed income investments. It is also recognized that the expected higher equity returns may be accompanied by higher volatility of equity asset values. The proportion of total assets allocated to equity investments will be a major determinant of the risk level of the investment program.
The following targets are to be applied to the allocation of plan assets.
| | | | | | |
| Category | | Target Allocation |
| U.S. equities | | | 50 | % |
| International equities | | | 15 | % |
| U.S. fixed income | | | 25 | % |
| High yield fixed income | | | 10 | % |
| Other | | | 0 | % |
| Total | | | 100 | % |
|
The Company expects to contribute $12,700 to the Defined Benefit Pension Plan and $2,300 to the Nonqualified Executive Retirement Plan during fiscal 2005.
16. Commitments, Contingencies and Guarantees
Legal Proceedings
Federal investigations
There are currently pending federal governmental investigations, both civil and criminal, by the United States Attorney, involving various matters related to prior management's business practices. The Company is cooperating fully with the United States Attorney. The Company has begun settlement discussions with the United States Attorney for the Middle District of Pennsylvania. The United States Attorney has proposed that the government would not institute any criminal proceeding against the Company if it enters into a consent judgement providing for a civil penalty payable over a period of years. The amount of the civil penalty has not been agreed to and there can be no assurance that a settlement will be reached or that the amount of such penalty will not have a material adverse effect on the Company's financial condition and results of operations. The Company recorded an accrual of $20,000 in fiscal 2003 in connection with the resolution for these matters; however, the Company may incur charges in excess of that amount and is unable to estimate the possible range of loss. The Company will continue to evaluate its estimate and to the extent that additional information arises or our strategy changes, the Company will adjust the accrual accordingly.
These investigations and settlement discussions are ongoing and the Company cannot predict their outcomes. If the Company was convicted of any crime, certain licenses and government contracts such as Medicaid plan reimbursement agreements that are material to the Company's operations may be revoked, which would have a material adverse effect on the Company's results of operations,
74
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (concluded)
For the Years Ended February 28, 2004, March 1, 2003 and March 2, 2002
(In thousands, except per share amounts)
financial condition or cash flows. In addition, substantial penalties, damages or other monetary remedies assessed against the Company, including a settlement, could also have a material adverse effect on the Company's results of operations, financial condition or cash flows.
Reimbursement Matters
Multiple state attorneys general are investigating the Company for its reimbursement practices relating to partially filled prescriptions and fully filled prescriptions that are not picked up by ordering customers. The Company is supplying similar information with respect to these matters to the United States Department of Justice. The Company believes that these investigations are similar to investigations that were, and are being, undertaken with respect to the practices of others in the retail drug industry. The Company also believes that its existing policies and procedures fully comply with the requirements of applicable law and intend to fully cooperate with these investigations. The Company cannot, however, predict their outcomes at this time. An individual acting on behalf of the United States of America, has filed a lawsuit in the United States District Court for the Eastern District of Pennsylvania under the Federal False Claims Act alleging that the Company defrauded federal healthcare plans by failing to appropriately issue refunds for partially filled prescriptions and prescriptions which were not picked up by customers. The United States Department of Justice has intervened in this lawsuit, as is its right under the law. The Company has reached an agreement to settle these investigations and the lawsuit filed by the private individual for $7,225, which is subject to court approval. The Company has accrued $7,225 for this potential liability.
Other
The Company, together with a significant number of major U.S. retailers, has been sued by the Lemelson Foundation in a complaint that alleges that portions of the technology included in its point-of-sale system infringe upon a patent held by the plaintiffs. The amount of damages sought is unspecified and may be material. The Company cannot predict the outcome of this litigation or whether it could result in a material adverse effect on its results of operations, financial conditions or cash flows.
The Company is subject from time to time to lawsuits arising in the ordinary course of business. In the opinion of the Company, these matters are adequately covered by insurance or, if not so covered, are without merit or are of such nature or involve amounts that would not have a material adverse effect on its financial conditions, results of operations or cash flows if decided adversely.
Guaranteed Lease Obligations
In connection with certain business dispositions, the Company continues to guarantee lease obligations for 118 former stores. The respective purchasers assume the Company's obligation and are, therefore, primarily liable for these obligations. Assuming that each respective purchaser became insolvent, an event which the Company believes to be highly unlikely, management estimates that it could settle these obligations for amounts substantially less than the aggregate obligation of $238,186 as of February 28, 2004. The obligations are for varying terms dependent upon the respective lease, the longest of which lasts through January 1, 2021.
In the opinion of management, the ultimate disposition of these guarantees will not have a material effect on the Company's results of operations, financial position or cash flows.
75
17. Supplementary Cash Flow Data
| | | | | | | | | | | | | | |
| | | Year Ended |
| | | February 28,
2004 | | March 1,
2003 | | March 2,
2002 |
| Cash paid for interest (net of capitalized amounts of $133, $301 and $806) | | $ | 295,368 | | | $ | 288,008 | | | $ | 388,986 | |
| Cash paid for (refunds from) income taxes | | $ | 7,539 | | | $ | (68,668 | ) | | $ | (3,686 | ) |
| Equipment financed under capital leases | | $ | 17,828 | | | $ | 544 | | | | — | |
| Equipment received for noncash consideration | | $ | 24,781 | | | | — | | | | — | |
| Conversion of debt to common stock | | | — | | | | — | | | $ | 588,711 | |
| Conversion of debt for debt | | | — | | | | — | | | $ | 152,025 | |
| Exchange of preferred shares | | | — | | | | — | | | $ | 349,600 | |
| Issuance of senior secured (shareholder) notes in lieu of accrued liability | | | — | | | | — | | | $ | 149,500 | |
| Exchange of lease liability for note receivable | | | — | | | | — | | | $ | 40,546 | |
| Components of conversion (lease modification) of leases from capital to operating: | | | | | | | | | | | | |
| Reduction in leases assets, net | | | — | | | | — | | | $ | 704,191 | |
| Reduction in lease financing obligation | | | — | | | | — | | | $ | 850,791 | |
| Increase in deferred gain | | | — | | | | — | | | $ | 168,483 | |
|
18. Related Party Transactions
Included in other assets at February 28, 2004 and March 1, 2003 were employee loan receivables of $589, and $995.
On May 27, 2001, the Company amended the employment agreements of Robert Miller, currently Chairman of the Board, and Mary Sammons, currently President and Chief Executive Officer, to provide for the payment, subject to certain conditions, of bonuses representing the difference between the amounts called for under their severance agreements from a former employer and the amounts they actually receive. In January 2002, the Company made payments of $5,971 to Mr. Miller and $1,931 to Ms. Sammons for these bonuses. The bonuses were repayable to the extent of each executive's recovery of severance due from the former employer. The Company recorded the payment to Mr. Miller as recoverable, as a summary judgment had been filed by the courts in his favor. In December 2003, the case was resolved in Mr. Miller's favor, and the Company received a full reimbursement of the advanced funds from Mr. Miller. The Company expensed the payment to Ms. Sammons over the term of her employment contract. In February 2004, an arbitrator awarded Ms. Sammons $997. The Company received reimbursement of $696 from Ms. Sammons in March 2004, and expects to receive the remaining $301 by the end of fiscal 2005. The Company will record the amount related to Ms. Sammons as income when the cash is received.
The Company entered into a two year agreement with Leonard Green & Partners, L.P., effective January 1, 2003, as amended whereby the Company has agreed to pay Leonard Green & Partners, L.P., an annual fee of $990 for its consulting services. The consulting agreement also provides for the reimbursement of out-of-pocket expenses incurred by Leonard Green & Partners, L.P. This agreement is an extension of the Company's existing consulting agreement with Leonard Green & Partners, L.P.
During fiscal 2004 and 2003, the Company paid Leonard Green & Partners, L.P., fees of $990 and $1,167 for financial advisory services, respectively. During fiscal 2002, the Company paid Leonard Green & Partners, L.P., an annual fee of $1,500 and a $2,500 fee for advisory services in connection
76
with the financial restructuring transactions that were completed during fiscal 2002. Jonathan D. Sokoloff and John G. Danhakl, two directors, are equity owners of Leonard Green & Partners, L.P. A director of the Company from 1999 until his death in October 2002, Leonard Green was an equity owner of Leonard Green & Partners, L.P.
During fiscal 2004, the Company paid J.P. Morgan $941 in connection with the May 2003 issuance of its 9.25% senior notes due 2013, $3,109 in connection with the April 2003 issuance of its 8.125% senior secured notes due 2010, and $3,225 in connection with the May 2003 refinancing of the senior credit facility due 2008. During fiscal 2003, the Company paid J.P. Morgan $3,150 in fees connected with the February 2003 offering of its 9.5% senior secured notes due 2011. During fiscal 2002, the Company paid J.P. Morgan Chase & Co. ("J.P. Morgan"), one of the Company's lenders and, at the time, beneficial owner of more than 5% of the Company's issued common stock, fees, and other amounts in connection with the June 27, 2001 refinancing of $15,500.
The law firm of Skadden, Arps, Slate, Meagher & Flom LLP provides legal services to the Company. Nancy A. Lieberman, director of the Company from 1996 until June 2002 is a partner of that law firm. Fees paid by the Company to Skadden, Arps, Slate, Meagher & Flom LLP were $5,557, $3,611, and $2,866 during fiscal 2004, 2003, and 2002, respectively, and did not exceed five percent of the firm's gross revenues for its fiscal year.
On June 15, 2001 and September 1, 2001, executive officers Elliot S. Gerson (no longer an executive officer as of June 2002), Christopher Hall, David R. Jessick (no longer an executive officer as of June 2002), James P. Mastrian, Robert G. Miller, Mary F. Sammons and John T. Standley received loans from the Company aggregating $72, $172, $751, $72, $2,130, $1,284 and $660, respectively, with the largest aggregate principal and interest amount of such indebtedness for each executive officer, outstanding at any time during the loan period, equal to $73, $176, $767, $73, $2,173 $1,310, and $673, respectively. The interest rate on the loans was set at 4.25% (for loans issued on June 15, 2001) and 3.82% (for loans issued September 1, 2001). The loans were non-recourse loans which were secured solely by the restricted stock held by the executive officers. The purpose of the loans was to pay for the income tax consequences arising from the June 15, 2001 and September 1, 2001 vesting of restricted stock held by them. On December 10, 2001, with the approval of the Executive Committee of our Board of Directors, the executive officers surrendered all restricted shares issued to them on June 15, 2001 and September 1, 2001 in satisfaction of the loans. The value of all the restricted shares pledged by the executive officers on June 15, 2001 and September 1, 2001 was approximately equivalent in value to the loans satisfied. The Executive Committee also approved the payment to David J. Jessick (no longer an executive officer as of June 2002), Robert G. Miller, Mary F. Sammons and John T. Standley of $97, $286, $23 and $10, respectively, to compensate them for the restricted shares.
On October 11, 2002, the Company entered into a three year agreement with Info Access.net whereby the Company will be providing point-of-sale data to Info Access.net, which customizes reports, which it sells to the Company's vendors. The Company has paid Info Access.net an initial set-up fee of $125. The son of James P. Mastrian, the Company's Senior Executive Vice President, Marketing Logistics and Pharmacy Services, was a Vice President, Strategic Alliances with Info Access.net at the time the Company entered into the agreement.
During fiscal 2004 and 2003, the Company incurred $64 and $47, respectively, in legal fees payable to Janice Jackson, the sister of Mary F. Sammons, for representation of Ms. Sammons in a dispute concerning her employment agreement with a former employer.
77
19. Interim Financial Results (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | |
| | | Fiscal Year 2004 |
| | | First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter | | Year |
| Revenues | | $ | 4,046,168 | | | $ | 4,052,091 | | | $ | 4,105,844 | | | $ | 4,396,346 | | | $ | 16,600,449 | |
| Cost of goods sold, including occupancy costs | | | 3,068,175 | | | | 3,087,845 | | | | 3,104,990 | | | | 3,307,395 | | | | 12,568,405 | |
| Selling, general and administrative expenses | | | 889,733 | | | | 893,352 | | | | 885,843 | | | | 925,477 | | | | 3,594,405 | |
| Stock-based compensation expense | | | 9,835 | | | | 8,847 | | | | 7,274 | | | | 3,865 | | | | 29,821 | |
| Store closing and impairment charges (credits) | | | 6,366 | | | | (8,994 | ) | | | 3,064 | | | | 22,030 | | | | 22,466 | |
| Interest expense | | | 78,958 | | | | 79,409 | | | | 77,718 | | | | 77,413 | | | | 313,498 | |
| Loss on debt modifications and retirements, net | | | 33,427 | | | | 1,888 | | | | — | | | | — | | | | 35,315 | |
| Loss (gain) on sale of assets and investments, net | | | (1,504 | ) | | | 342 | | | | 879 | | | | 2,306 | | | | 2,023 | |
| | | | 4,084,990 | | | | 4,062,689 | | | | 4,079,768 | | | | 4,338,486 | | | | 16,565,933 | |
| | | | (38,822 | ) | | | (10,598 | ) | | | 26,076 | | | | 57,860 | | | | 34,516 | |
| Income tax benefit | | | — | | | | — | | | | (47,518 | ) | | | (1,277 | ) | | | (48,795 | ) |
| Net income (loss) | | $ | (38,822 | ) | | $ | (10,598 | ) | | $ | 73,594 | | | $ | 59,137 | | | $ | 83,311 | |
| Basic income (loss) per share | | $ | (0.08 | ) | | $ | (0.04 | ) | | $ | 0.13 | | | $ | 0.10 | | | $ | 0.11 | |
| Diluted income (loss) per share | | $ | (0.08 | ) | | $ | (0.04 | ) | | $ | 0.12 | | | $ | 0.09 | | | $ | 0.11 | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Fiscal Year 2003 |
| | | First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter | | Year |
| Revenues | | $ | 3,923,731 | | | $ | 3,856,510 | | | $ | 3,871,246 | | | $ | 4,139,791 | | | $ | 15,791,278 | |
| Cost of goods sold, including occupancy costs | | | 2,993,778 | | | | 2,958,690 | | | | 2,952,145 | | | | 3,130,924 | | | | 12,035,537 | |
| Selling, general and administrative expenses | | | 899,143 | | | | 865,931 | | | | 849,242 | | | | 857,257 | | | | 3,471,573 | |
| Stock-based compensation (benefit) expense | | | 8,094 | | | | (6,746 | ) | | | 2,625 | | | | 833 | | | | 4,806 | |
| Store closing and impairment charges (credits) | | | (4,117 | ) | | | 58,223 | | | | 2,945 | | | | 78,277 | | | | 135,328 | |
| Interest expense | | | 84,631 | | | | 84,955 | | | | 80,941 | | | | 79,493 | | | | 330,020 | |
| Interest rate swap contracts | | | 264 | | | | 14 | | | | — | | | | — | | | | 278 | |
| Gain on debt modifications and retirements, net | | | (270 | ) | | | (1,392 | ) | | | — | | | | (11,966 | ) | | | (13,628 | ) |
| Loss (gain) on sale of assets and investments, net | | | (16,865 | ) | | | 1,477 | | | | (775 | ) | | | (2,457 | ) | | | (18,620 | ) |
| | | | 3,964,658 | | | | 3,961,152 | | | | 3,887,123 | | | | 4,132,361 | | | | 15,945,294 | |
| Loss before income taxes | | | (40,927 | ) | | | (104,642 | ) | | | (15,877 | ) | | | 7,430 | | | | (154,016 | ) |
| Income tax expense (benefit) | | | (43,511 | ) | | | 649 | | | | 490 | | | | 432 | | | | (41,940 | ) |
| Net income (loss) | | $ | 2,584 | | | $ | (105,291 | ) | | $ | (16,367 | ) | | $ | 6,998 | | | $ | (112,076 | ) |
| Basic and diluted loss per share | | $ | (0.01 | ) | | $ | (0.21 | ) | | $ | (0.05 | ) | | $ | (0.02 | ) | | $ | (0.28 | ) |
|
Certain reclassifications have been made to prior periods' amounts to conform to current period classifications.
During the fourth quarter of fiscal 2004, the Company incurred $22,030 in store closing and impairment charges. The Company recorded $12,550 of non-recurring gains in selling, general and administrative expenses related to favorable litigation payments.
78
During the third quarter of fiscal 2004, the Company recorded a non-recurring income tax benefit, driven by the approval by the Congressional Joint Committee on Taxation on the conclusions of the Internal Revenue Service examination of the Company's federal tax returns for the fiscal years 1996 through 2000.
During the first quarter of fiscal 2004, the Company recorded a loss on debt modification of $43,197 related to the placement of its new senior secured credit facility.
During the fourth quarter of fiscal 2003, the Company incurred $78,277 in store closing and impairment charges. The Company also recorded a $27,700 million credit related to the elimination of several liabilities for former executives and a $19,502 million reduction of its LIFO reserve related to a lower level of inflation than originally estimated.
During the second quarter of fiscal 2003, the Company incurred $58,223 in store closing and impairment charges. In the first quarter of fiscal 2003, the company incurred a charge of $20,000 to reserve for probable loss related to the U.S. Attorney's investigation of former management's business practices. The Company also recorded a tax benefit of $44,011 related to a tax law change that increased the carryback period from two years to five for certain net operating losses.
20. Financial Instruments
The carrying amounts and fair values of financial instruments at February 28, 2004 and March 1, 2003 are listed as follows:
| | | | | | | | | | | | | | | | | | |
| | | 2004 | | 2003 |
| | | Carrying
Amount | | Fair
Value | | Carrying
Amount | | Fair
Value |
| Variable rate indebtedness | | $ | 1,150,000 | | | $ | 1,150,000 | | | $ | 1,372,500 | | | $ | 1,372,500 | |
| Fixed rate indebtedness | | $ | 2,558,497 | | | $ | 2,640,995 | | | $ | 2,313,942 | | | $ | 2,027,603 | |
| | | | | | | | | | | | | | | | | |
|
Cash, trade receivables and trade payables are carried at market value, which approximates their fair values due to the short-term maturity of these instruments.
The following methods and assumptions were used in estimating fair value disclosures for financial instruments:
LIBOR-based borrowings under credit facilities:
The carrying amounts for LIBOR-based borrowings under the credit facilities, term loans and term notes approximate their fair values due to the short-term nature of the obligations and the variable interest rates.
Long-term indebtedness:
The fair values of long-term indebtedness is estimated based on the quoted market prices of the financial instruments. If quoted market prices were not available, the Company estimated the fair value based on the quoted market price of a financial instrument with similar characteristics.
79
RITE AID CORPORATION AND SUBSIDIARIES
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended February 28, 2004, March 1, 2003 and March 2, 2002
(dollars in thousands)
| | | | | | | | | | | | | | | | | | |
Allowances deducted from accounts receivable
for estimated uncollectible amounts: | | Balance at
Beginning
of Period | | Additions
Charged to
Costs and
Expenses | | Deductions | | Balance at
End of
Period |
| Year ended February 28, 2004 | | $ | 35,711 | | | $ | 29,437 | | | $ | 30,094 | | | $ | 35,054 | |
| Year ended March 1, 2003 | | | 31,039 | | | | 36,904 | | | | 32,232 | | | | 35,711 | |
| Year ended March 2, 2002 | | | 37,050 | | | | 15,481 | | | | 21,492 | | | | 31,039 | |
|
80
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: April 26, 2004
| RITE AID CORPORATION |
| By: /s/ MARY F. SAMMONS |
| Mary F. Sammons
President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in their respective capacities on April 26, 2004.
| | | | |
| Signature | | Title | | |
|
| /S/ ROBERT G. MILLER | | Chairman of the Board of Directors
| | |
|
| Robert G. Miller |
|
| /S/ MARY F. SAMMONS | | Chief Executive Officer, President, and Director | | |
|
| Mary F. Sammons |
|
| /S/ JOHN T. STANDLEY | | Chief Financial Officer, Chief
Administrative Officer, and Senior Executive Vice President | | |
|
| John T. Standley |
|
| /S/ KEVIN TWOMEY | | Chief Accounting Officer and Senior Vice President | | |
|
| Kevin Twomey |
|
| /S/ JOHN G. DANHAKL | | Director | | |
|
| John G. Danhakl |
|
| /S/ ALFRED M. GLEASON | | Director | | |
|
| Alfred M. Gleason |
|
| /S/ GEORGE G. GOLLEHER | | Director | | |
|
| George G. Golleher |
|
| /S/ COLIN V. REED | | Director | | |
|
| Colin V. Reed |
|
| /S/ STUART M. SLOAN | | Director | | |
|
| Stuart M. Sloan |
|
| /S/ JONATHAN D. SOKOLOFF | | Director | | |
|
| Jonathan D. Sokoloff |
|
81
EXHIBIT INDEX
| | | | | | | | | | |
Exhibit
Numbers | | Description | | Incorporation By Reference To |
| 3.1 | | Restated Certificate of Incorporation dated December 12, 1996 | | Exhibit 3(i) to Form 8-K, filed on November 2, 1999 |
| 3.2 | | Certificate of Amendment to the Restated Certificate of Incorporation dated February 22, 1999 | | Exhibit 3(ii) to Form 8-K, filed on November 2, 1999 |
| 3.3 | | Certificate of Amendment to the Restated Certificate of Incorporation dated June 27, 2001 | | Exhibit 3.4 to Registration Statement on Form S-1, File No. 333-64950, filed on July 12, 2001 |
| 3.4 | | 8% Series D Cumulative Convertible Pay-in-Kind Preferred Stock Certificate of Designation dated October 3, 2001 | | Exhibit 3.5 to Form 10-Q, filed on October 12, 2001 |
| 3.5 | | By-laws, as amended on November 8, 2000 | | Exhibit 3.1 to Form 8-K, filed on November 13, 2000 |
| 3.6 | | Amendment to By-laws, adopted January 30, 2002 | | Exhibit T3B.2 to Form T-3, filed on March 4, 2002 |
| 4.1 | | Indenture, dated August 1, 1993, by and between Rite Aid Corporation, as issuer, and Morgan Guaranty Trust Company of New York, as trustee, related to the Company's 6.70% Notes due 2001, 7.125% Notes due 2007, 7.70% Notes due 2027, 7.625% Notes due 2005 and 6.875% Notes due 2013 | | Exhibit 4A to Registration Statement on Form S-3, File No. 033-63794, filed on June 3, 1993 |
| 4.2 | | Supplemental Indenture, dated as of February 3, 2000, between Rite Aid Corporation, as issuer, and U.S. Bank Trust National Association as successor to Morgan Guaranty Trust Company of New York, to the Indenture dated as of August 1, 1993, relating to the Company's 6.70% Notes due 2001, 7.125% Notes due 2007, 7.70% Notes due 2027, 7.625% Notes due 2005 and 6.875% Notes due 2013 | | Exhibit 4.1 to Form 8-K filed on February 7, 2000 |
| 4.3 | | Indenture, dated as of December 21, 1998, between Rite Aid Corporation, as issuer, and Harris Trust and Savings Bank, as trustee, related to the Company's 5.50% Notes due 2000, 6% Notes due 2005, 6.125% Notes due 2008 and 6.875% Notes due 2028 | | Exhibit 4.1 to Registration Statement on Form S-4, File No. 333-74751, filed on March 19, 1999 |
| 4.4 | | Supplemental Indenture, dated as of February 3, 2000, between Rite Aid Corporation and Harris Trust and Savings Bank, to the Indenture dated December 21, 1998, between Rite Aid Corporation and Harris Trust and Savings Bank, related to the Company's 5.50% Notes due 2000, 6% Notes due 2005, 6.125% Notes due 2008 and 6.875% Notes due 2028 | | Exhibit 4.4 to Form 8-K, filed on February 7, 2000 |
| 4.5 | | Indenture, dated as of June 27, 2001, between Rite Aid Corporation, as issuer, and State Street Bank and Trust Company, as trustee, related to the Company's 12.50% Senior Secured Notes due 2006 | | Exhibit 4.7 to Registration Statement on Form S-1, File No. 333-64950, filed on July 12, 2001 |
|
82
| | | | | | | | | | |
Exhibit
Numbers | | Description | | Incorporation By Reference To |
| 4.6 | | Indenture, dated as of June 27, 2001 between Rite Aid Corporation, as issuer, and BNY Midwest Trust Company, as trustee, related to the Company's 11¼% Senior Notes due 2008 | | Exhibit 4.8 to Registration Statement on Form S-1, File No. 333-64950, filed on July 12, 2001 |
| 4.7 | | Indenture, dated as of November 19, 2001, between Rite Aid Corporation, as issuer, and BNY Midwest Trust Company, as trustee, related to the Company's 4.75% Convertible Notes due December 1, 2006 | | Exhibit 4.3 to Form 10-Q, filed on January 15, 2002 |
| 4.8 | | Indenture, dated as of February 12, 2003, between Rite Aid Corporation, as issuer, and BNY Midwest Trust Company, as trustee, related to the Company's 9% Senior Secured Notes due 2011 | | Exhibit 4.1 to Form 8-K, filed on March 5, 2003 |
| 4.9 | | Indenture, dated as of April 22, 2003, between Rite Aid Corporation, as issuer, and BNY Midwest Trust Company, as trustee, related to the Company's 8.125% Senior Secured Notes due 2010 | | Exhibit 4.11 to Form 10-K, filed on May 2, 2003 |
| 4.10 | | Indenture, dated as of May 20, 2003, between Rite Aid Corporation, as issuer, and BNY Midwest Trust Company, as trustee, related to the Company's 9.25% Senior Notes due 2013 | | Exhibit 4.12 to Form 10-Q, filed on July 3, 2003 |
| 10.1 | | 1999 Stock Option Plan* | | Exhibit 10.1 to Form 10-K, filed on May 21, 2001 |
| 10.2 | | 2000 Omnibus Equity Plan* | | Included in Proxy Statement dated October 24, 2000 |
| 10.3 | | 2001 Stock Option Plan* | | Exhibit 10.3 to Form 10-K, filed on May 21, 2001 |
| 10.4 | | Employment Agreement by and between Rite Aid Corporation and Robert G. Miller dated as of December 5, 1999* | | Exhibit 10.1 to Form 8-K, filed on January 18, 2000 |
| 10.5 | | Amendment No. 1 to Employment Agreement by and between Rite Aid Corporation and Robert G. Miller, dated as of May 7, 2001* | | Exhibit 10.9 to Form 10-K, filed on May 21, 2001 |
| 10.6 | | Employment Agreement by and between Rite Aid Corporation and Robert G. Miller, dated as of April 9, 2003* | | Exhibit 10.7 to Form 10-K, filed on May 2, 2003 |
| 10.7 | | Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, made as of December 5, 1999, by and between Rite Aid Corporation and Robert G. Miller* | | Exhibit 4.31 to Form 8-K, filed on January 18, 2000 |
| 10.8 | | Employment Agreement by and between Rite Aid Corporation and Mary F. Sammons, dated as of December 5, 1999* | | Exhibit 10.2 to Form 8-K, filed on January 18, 2000 |
| 10.9 | | Amendment No. 1 to Employment Agreement by and between Rite Aid Corporation and Mary F. Sammons, dated as of May 7, 2001* | | Exhibit 10.12 to Form 10-K, filed on May 21, 2001 |
|
83
| | | | | | | | | | |
Exhibit
Numbers | | Description | | Incorporation By Reference To |
| 10.10 | | Amendment No. 2 to Employment Agreement by and between Rite Aid Corporation and Mary F. Sammons, dated as of September 30, 2003* | | Exhibit 10.3 to Form 10-Q, filed on October 7, 2003 |
| 10.11 | | Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, made as of December 5, 1999, by and between Rite Aid Corporation and Mary F. Sammons* | | Exhibit 4.32 to Form 8-K, filed on January 18, 2000 |
| 10.12 | | Employment Agreement by and between Rite Aid Corporation and John T. Standley, dated as of December 5, 1999* | | Exhibit 10.4 to Form 8-K, filed on January 18, 2000 |
| 10.13 | | Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, made as of December 5, 1999, by and between Rite Aid Corporation and John T. Standley* | | Exhibit 4.34 to Form 8-K, filed on January 18, 2000 |
| 10.14 | | Employment Agreement by and between Rite Aid Corporation and James Mastrian, dated as of September 27, 1999* | | Exhibit 10.20 to Form 10-K, filed on May 21, 2001 |
| 10.15 | | Rite Aid Corporation Special Executive Retirement Plan* | | Filed herewith |
| 10.16 | | Employment Agreement by and between Rite Aid Corporation and Christopher Hall, dated as of January 26, 2000* | | Exhibit 10.48 to Form 10-K, filed on May 21, 2001 |
| 10.17 | | Employment Agreement by and between Rite Aid Corporation and Robert B. Sari, dated as of February 28, 2001* | | Exhibit 10.49 to Form 10-K filed on May 21, 2001 |
| 10.18 | | Employment Agreement by and between Rite Aid Corporation and Kevin Twomey, dated as of September 30, 2003* | | Exhibit 10.4 to Form 10-Q, filed on October 7, 2003 |
| 11 | | Statement regarding computation of earnings per share (see note 4 to the consolidated financial statements) | | Filed herewith |
| 12 | | Statement regarding computation of ratio of earnings to fixed charges | | Filed herewith |
| 14 | | Code of Ethics for the Chief Executive Officer and Senior Financial Officers | | Filed herewith |
| 21 | | Subsidiaries of the Registrant | | Filed herewith |
| 23 | | Consent of Independent Auditors | | Filed herewith |
| 31.1 | | Certification of CEO pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934 | | Filed herewith |
| 31.2 | | Certification of CFO pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934 | | Filed herewith |
| 32 | | Certification of CEO and CFO pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | Filed herewith |
|
| * | Constitutes a compensatory plan or arrangement required to be filed with this Form 10-K. |
84
