Exhibit 99.2
Unaudited Pro Forma Condensed Consolidated Financial Statements
On September 18, 2017, Rite Aid Corporation, a Delaware corporation (the “Company”), entered into the Amended and Restated Asset Purchase Agreement (the “Asset Purchase Agreement”) with Walgreens Boots Alliance (“WBA”) and Walgreen Co., an Illinois corporation and wholly owned direct subsidiary of WBA (“Buyer”), which amended and restated in its entirety the previously disclosed Asset Purchase Agreement (the “Original APA”), dated as of June 28, 2017, by and among the Company, WBA and Buyer. Pursuant to the terms and subject to the conditions set forth in the Amended and Restated Asset Purchase Agreement, Buyer will purchase from the Company 1,932 stores (the “Acquired Stores”), three (3) distribution centers, related inventory and other specified assets and liabilities related thereto (collectively the “Assets to be Sold” or “Disposal Group”) for a purchase price of approximately $4.375 billion, on a cash-free, debt-free basis (the “Sale”). The Sale is scheduled to occur in increments, whereby the Assets to be Sold will be sold to Buyer over time based on guidelines as established in the Amended and Restated Asset Purchase Agreement.
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 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, the amount charged to Buyer for transition services was nominal.
In the event that the Company enters into an agreement to sell all of the remainder of Rite Aid or over 50% of its stock or assets to a third party prior to the end of the transition period under the Transition Services Agreement (“TSA”), any potential acquirer would be obligated to assume the Company’s remaining obligations under the TSA. Under the terms of the Amended and Restated Asset Purchase Agreement, the Company has the option to purchase pharmaceutical drugs through an affiliate of WBA under terms, including cost, that are substantially equivalent to WBA’s for a period of ten (10) years, subject to certain terms and conditions.
Divestiture of the Assets to be Sold
The Sale constituted a significant disposition for purposes of Item 2.01 of Form 8-K. As a result, the Company prepared the accompanying unaudited pro forma condensed consolidated financial statements in accordance with Article 11 of Regulation S-X. Based on its magnitude and because the Company is exiting certain markets, the Sale represents a significant strategic shift that has a material effect on the Company’s operations and financial results. Accordingly, the Company has applied discontinued operations treatment for the Sale as required by Accounting Standards Codification 210-05 –Discontinued Operations (ASC 205-20). In accordance with ASC 205-20, the Company reclassified the 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 sheet as of the period ended December 2, 2017, and reclassified the financial results of the Disposal Group in its condensed consolidated statements of operations and condensed consolidated statements of cash flows for all periods presented. Additionally, corporate support activities related to the Disposal Group were not reclassified to discontinued operations.
The following unaudited pro forma condensed consolidated financial statements of the Company include the unaudited pro forma condensed consolidated balance sheet as of December 2, 2017 (the “unaudited pro forma condensed consolidated balance sheet), which present the historical results of operations and financial position of the Company adjusted to reflect the impact of the Sale, and the unaudited pro forma consolidated statements of operations for the thirty-nine week period ended December 2, 2017 and for each of the fiscal years ended March 4, 2017 February 27, 2016 and February 28, 2015 (the “unaudited pro forma condensed consolidated statements of operations”). The unaudited pro forma condensed consolidated balance sheet is presented as if the Sale had occurred on December 2, 2017. The unaudited pro forma condensed consolidated statements of operations present the Sale as if it occurred on March 1, 2014 for the thirty-nine week period ended December 2, 2017 and for the fiscal years ended March 4, 2017, February 27, 2016 and February 28, 2015. The pro forma adjustments are described in the accompanying notes and are based upon information and assumptions available at the time of the filing of this current Report on Form 8-K.
The unaudited pro forma condensed consolidated financial statements were based on and derived from our historical consolidated financial statements, adjusted to reflect discontinued operations presentation as required by ASC 205-20 and for those amounts which were determined to be directly attributable to the Sale, factually supportable, and with respect to the unaudited pro forma condensed consolidated statements of operations, expected to have a continuing impact on our consolidated results. Actual adjustments, however, may differ materially from the information presented.
The unaudited pro forma financial information is subject to adjustments and is presented for informational purposes only and does not purport to represent what the Company’s results of operations or financial position would actually have been if the Sale had in fact occurred on the dates discussed above. It also does not project or forecast the Company’s consolidated results of operations or financial position for any future date or period. These unaudited pro forma condensed consolidated financial statements have been developed from and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Fiscal 2017 Form 10-K as filed with the Securities and Exchange Commission (the “SEC”) on May 3, 2017 and the Company’s Quarterly Report on Form 10-Q for the thirteen and thirty-nine weeks ended December 2, 2017 as filed with SEC on January 11, 2018. Such historical consolidated financial statements were prepared in accordance with United states generally accepted accounting principles. Because the Sale qualifies as a discontinued operation that has not been reflected in the Company's historical consolidated financial statement filings with the SEC, pro forma income statements are provided herein for all historical financial statement periods that are presented in the aforementioned filings with the SEC.
RITE AID CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(unaudited)
December 2, 2017 | Pro Forma | Pro Forma | |||||||||||
Historical | Adjustments | December 2, 2017 | |||||||||||
ASSETS | |||||||||||||
Current assets: | |||||||||||||
Cash and cash equivalents | $ | 169,800 | $ | - | $ | 169,800 | |||||||
Accounts receivable, net | 1,796,919 | (352,426 | ) | (a) | 1,444,493 | ||||||||
Inventories, net of LIFO reserve of $627,718 | 1,853,886 | - | 1,853,886 | ||||||||||
Prepaid expenses and other current assets | 240,712 | (71,008 | ) | (a), (b) | 169,704 | ||||||||
Current assets held for sale | 1,868,128 | (1,868,128 | ) | (b) | - | ||||||||
Total current assets | 5,929,445 | (2,291,562 | ) | 3,637,883 | |||||||||
Property, plant and equipment, net | 1,479,214 | - | 1,479,214 | ||||||||||
Goodwill | 1,682,847 | - | 1,682,847 | ||||||||||
Other intangibles, net | 618,274 | - | 618,274 | ||||||||||
Deferred tax assets | 1,419,544 | (960,900 | ) | (b) | 458,644 | ||||||||
Other assets | 211,290 | (13,711 | ) | (b) | 197,579 | ||||||||
Noncurrent assets held for sale | - | - | - | ||||||||||
Total assets | $ | 11,340,614 | $ | (3,266,173 | ) | $ | 8,074,441 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||||
Current liabilities: | |||||||||||||
Current maturities of long-term debt and lease financing obligations | $ | 20,354 | $ | - | $ | 20,354 | |||||||
Accounts payable | 1,789,456 | (407,071 | ) | (a) | 1,382,385 | ||||||||
Accrued salaries, wages and other current liabilities | 1,258,586 | (203,483 | ) | (a), (b) | 1,055,103 | ||||||||
Current liabilities held for sale | 3,837,519 | (3,837,519 | ) | (b) | - | ||||||||
Total current liabilities | 6,905,915 | (4,448,073 | ) | 2,457,842 | |||||||||
Long-term debt, less current maturities | 2,985,700 | - | 2,985,700 | ||||||||||
Lease financing obligations, less current maturities | 31,654 | - | 31,654 | ||||||||||
Other noncurrent liabilities | 592,201 | (66,400 | ) | (b) | 525,801 | ||||||||
Noncurrent liabilities held for sale | - | - | - | ||||||||||
Total liabilities | 10,515,470 | (4,514,473 | ) | 6,000,997 | |||||||||
Commitments and contingencies | - | - | - | ||||||||||
Stockholders' equity: | |||||||||||||
Common stock | 1,067,887 | - | 1,067,887 | ||||||||||
Additional paid-in capital | 4,846,213 | - | 4,846,213 | ||||||||||
Accumulated deficit | (5,048,182 | ) | 1,248,300 | (b) | (3,799,882 | ) | |||||||
Accumulated other comprehensive loss | (40,774 | ) | - | (40,774 | ) | ||||||||
Total stockholders' equity | 825,144 | 1,248,300 | 2,073,444 | ||||||||||
Total liabilities and stockholders' equity | $ | 11,340,614 | $ | (3,266,173 | ) | $ | 8,074,441 |
See Notes accompanying the Unaudited Pro Forma Condensed Consolidated Financial Statements.
RITE AID CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
(unaudited)
Pro Forma Adjustments | ||||||||||||||||
Thirty-nine weeks ended December 2, 2017 Historical | Remove Discontinued Operations results(c) | Record TSA Fees and related income tax expense(d) | Pro Forma Thirty-nine weeks ended December 2, 2017 | |||||||||||||
Revenues | $ | 16,134,704 | $ | 16,134,704 | ||||||||||||
Costs and expenses: | ||||||||||||||||
Cost of revenues | 12,624,365 | 12,624,365 | ||||||||||||||
Selling, general and administrative expenses | 3,469,298 | (72,000 | ) | 3,397,298 | ||||||||||||
Lease termination and impairment charges | 11,090 | 11,090 | ||||||||||||||
Interest expense | 152,165 | 152,165 | ||||||||||||||
Walgreens Boots Alliance merger termination fee | (325,000 | ) | (325,000 | ) | ||||||||||||
Gain on sale of assets, net | (20,623 | ) | (20,623 | ) | ||||||||||||
15,911,295 | - | (72,000 | ) | 15,839,295 | ||||||||||||
Income from continuing operations before income taxes | 223,409 | - | 72,000 | 295,409 | ||||||||||||
Income tax expense (benefit) | 89,268 | 21,852 | 111,120 | |||||||||||||
Net income from continuing operations | 134,141 | - | 50,148 | 184,289 | ||||||||||||
Net income (loss) from discontinued operations, net of tax | 42,257 | (42,257 | ) | - | ||||||||||||
Net income | $ | 176,398 | $ | (42,257 | ) | $ | 50,148 | $ | 184,289 | |||||||
Basic and diluted income (loss) per share: | ||||||||||||||||
Numerator for income (loss) per share: | ||||||||||||||||
Net income from continuing operations attributable to common stockholders - basic and diluted | $ | 134,141 | $ | 184,289 | ||||||||||||
Net income (loss) from discontinued operations attributable to common stockholders - basic and diluted | 42,257 | - | ||||||||||||||
Income attributable to common stockholders - basic and diluted | $ | 176,398 | $ | 184,289 | ||||||||||||
Denominator: | ||||||||||||||||
Basic weighted average shares | 1,048,342 | 1,048,342 | ||||||||||||||
Outstanding options and restricted shares, net | 18,948 | 18,948 | ||||||||||||||
Diluted weighted average shares | 1,067,290 | 1,067,290 | ||||||||||||||
Basic income (loss) per share | ||||||||||||||||
Continuing operations | $ | 0.13 | $ | 0.18 | ||||||||||||
Discontinued operations | $ | 0.04 | N/A | |||||||||||||
Net basic income per share | $ | 0.17 | $ | 0.18 | ||||||||||||
Diluted income (loss) per share | ||||||||||||||||
Continuing operations | $ | 0.13 | $ | 0.17 | ||||||||||||
Discontinued operations | $ | 0.04 | N/A | |||||||||||||
Net diluted income per share | $ | 0.17 | $ | 0.17 |
See Notes accompanying the Unaudited Pro Forma Condensed Consolidated Financial Statements.
RITE AID CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
(unaudited)
Pro Forma Adjustments | ||||||||||||||||||||
Fifty-three weeks ended March 4, 2017 Historical | Remove Discontinued Operations results(c) | Add back anticipated continuing revenues and cost of revenues between the Company and the Disposal Group that were previously eliminated in consolidation(d) | Record TSA Fees and related income tax expense(e) | Pro Forma Fifty-three weeks ended March 4, 2017 | ||||||||||||||||
Revenues | $ | 32,845,073 | $ | (10,050,049 | ) | $ | 132,516 | $ | 22,927,540 | |||||||||||
Costs and expenses: | ||||||||||||||||||||
Cost of revenues | 25,071,008 | (7,340,691 | ) | 132,516 | 17,862,833 | |||||||||||||||
Selling, general and administrative expenses | 7,242,359 | (2,465,364 | ) | (96,000 | ) | 4,680,995 | ||||||||||||||
Lease termination and impairment charges | 55,294 | (9,516 | ) | 45,778 | ||||||||||||||||
Interest expense | 431,991 | (231,926 | ) | 200,065 | ||||||||||||||||
Gain on sale of assets, net | (4,024 | ) | (2,625 | ) | (6,649 | ) | ||||||||||||||
32,796,628 | (10,050,122 | ) | 132,516 | (96,000 | ) | 22,783,022 | ||||||||||||||
Income before income taxes | 48,445 | 73 | - | 96,000 | 144,518 | |||||||||||||||
Income tax expense (benefit) | 44,392 | 46 | - | 60,725 | 105,163 | |||||||||||||||
Net income (loss) | $ | 4,053 | $ | 27 | $ | - | $ | 35,275 | $ | 39,355 | ||||||||||
Basic and diluted income (loss) per share: | ||||||||||||||||||||
Numerator for income (loss) per share: | ||||||||||||||||||||
Net income (loss) attributable to common stockholders - basic and diluted | $ | 4,053 | $ | 39,355 | ||||||||||||||||
Denominator: | ||||||||||||||||||||
Basic weighted average shares | 1,044,427 | 1,044,427 | ||||||||||||||||||
Outstanding options and restricted shares, net | 16,399 | 16,399 | ||||||||||||||||||
Diluted weighted average shares | 1,060,826 | 1,060,826 | ||||||||||||||||||
Basic income (loss) per share | ||||||||||||||||||||
Net basic income per share | $ | 0.00 | $ | 0.04 | ||||||||||||||||
Diluted income (loss) per share | ||||||||||||||||||||
Net diluted income per share | $ | 0.00 | $ | 0.04 |
See Notes accompanying the Unaudited Pro Forma Condensed Consolidated Financial Statements.
RITE AID CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
(unaudited)
Pro Forma Adjustments | ||||||||||||||||
Fifty-two weeks ended February 27, 2016 Historical | Remove Discontinued Operations results(c) | Add back anticipated continuing revenues and cost of revenues between the Company and the Disposal Group that were previously eliminated in consolidation(d) | Pro Forma Fifty-two weeks ended February 27, 2016 | |||||||||||||
Revenues | $ | 30,736,657 | $ | (10,045,543 | ) | $ | 79,123 | $ | 20,770,237 | |||||||
Costs and expenses: | ||||||||||||||||
Cost of revenues | 22,910,402 | (7,211,267 | ) | 79,123 | 15,778,258 | |||||||||||
Selling, general and administrative expenses | 7,013,346 | (2,432,175 | ) | 4,581,171 | ||||||||||||
Lease termination and impairment charges | 48,423 | (7,946 | ) | 40,477 | ||||||||||||
Interest expense | 449,574 | (263,442 | ) | 186,132 | ||||||||||||
Loss on debt retirements, net | 33,205 | - | 33,205 | |||||||||||||
Gain on sale of assets, net | 3,303 | (3,909 | ) | (606 | ) | |||||||||||
30,458,253 | (9,918,739 | ) | 79,123 | 20,618,637 | ||||||||||||
Income before income taxes | 278,404 | (126,804 | ) | - | 151,600 | |||||||||||
Income tax expense (benefit) | 112,939 | (63,427 | ) | - | 49,512 | |||||||||||
Net income (loss) | $ | 165,465 | $ | (63,377 | ) | - | $ | 102,088 | ||||||||
Basic and diluted income (loss) per share: | ||||||||||||||||
Numerator for income (loss) per share: | ||||||||||||||||
Net income (loss) attributable to common stockholders - basic and diluted | $ | 165,465 | $ | 102,088 | ||||||||||||
Denominator: | ||||||||||||||||
Basic weighted average shares | 1,024,377 | 1,024,377 | ||||||||||||||
Outstanding options and restricted shares, net | 17,985 | 17,985 | ||||||||||||||
Diluted weighted average shares | 1,042,362 | 1,042,362 | ||||||||||||||
Basic income (loss) per share | ||||||||||||||||
Net basic income per share | $ | 0.16 | $ | 0.10 | ||||||||||||
Diluted income (loss) per share | ||||||||||||||||
Net diluted income per share | $ | 0.16 | $ | 0.10 |
See Notes accompanying the Unaudited Pro Forma Condensed Consolidated Financial Statements.
RITE AID CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
(unaudited)
Pro Forma Adjustment | |||||||||||
Fifty-two weeks ended February 28, 2015 Historical | Remove Discontinued Operations results(c) | Pro Forma Fifty-two weeks ended February 28, 2015 | |||||||||
Revenues | $ | 26,528,377 | $ | (9,970,182 | ) | $ | 16,558,195 | ||||
Costs and expenses: | |||||||||||
Cost of revenues | 18,951,645 | (7,112,860 | ) | 11,838,785 | |||||||
Selling, general and administrative expenses | 6,695,642 | (2,416,362 | ) | 4,279,280 | |||||||
Lease termination and impairment charges | 41,945 | (4,741 | ) | 37,204 | |||||||
Interest expense | 397,612 | (280,615 | ) | 116,997 | |||||||
Loss on debt retirements, net | 18,512 | - | 18,512 | ||||||||
Gain on sale of assets, net | (3,799 | ) | (1,117 | ) | (4,916) | ||||||
26,101,557 | (9,815,695 | ) | 16,285,862 | ||||||||
Income before income taxes | 426,820 | (154,487 | ) | 272,333 | |||||||
Income tax expense (benefit) | (1,682,353 | ) | (57,160 | ) | (1,739,513) | ||||||
Net income (loss) | $ | 2,109,173 | $ | (97,327 | ) | $ | 2,011,846 | ||||
Basic and diluted income (loss) per share: | |||||||||||
Numerator for income (loss) per share: | |||||||||||
Net income (loss) attributable to common stockholders - basic and diluted | $ | 2,109,173 | $ | 2,011,846 | |||||||
Denominator: | |||||||||||
Basic weighted average shares | 971,102 | 971,102 | |||||||||
Outstanding options and restricted shares, net | 21,967 | 21,967 | |||||||||
Convertible notes | 24,792 | 24,792 | |||||||||
Diluted weighted average shares | 1,017,861 | 1,017,861 | |||||||||
Basic income (loss) per share | |||||||||||
Net basic income per share | $ | 2.17 | $ | 2.07 | |||||||
Diluted income (loss) per share | |||||||||||
Net diluted income per share | $ | 2.07 | $ | 1.97 |
See Notes accompanying the Unaudited Pro Forma Condensed Consolidated Financial Statements.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
The unaudited pro forma condensed consolidated financial statements contain the following adjustments:
(a) | To adjust the pro forma condensed consolidated financial statements to reflect the completion of the Sale as of December 2, 2017 as follows: |
Sources and Uses of Proceeds | ||||
Total anticipated cash proceeds | $ | 4,375,000 | ||
Proceeds received through December 2, 2017 | (240,900 | ) | ||
Net additional anticipated cash proceeds | $ | 4,134,100 | ||
Cash taxes | (86,000 | ) | ||
Closing costs, net of taxes | (63,800 | ) | ||
Anticipated proceeds that will be received from (used to pay) items settled in cash | ||||
(i.e. assets and liabilities that relate to the Disposal Group and are | ||||
recorded on the historical balance sheet as of December 2, 2017, that | ||||
are not being sold as part of the Sale): | ||||
Accounts receivable, net | 352,426 | |||
Prepaid expenses and other current assets | 47,808 | |||
Accounts payable | (407,071 | ) | ||
Accrued salaries, wages and other current liabilities | (190,983 | ) | ||
Anticipated repayment of indebtedness with expected excess | ||||
Sale proceeds (a component of current liabilities held for sale). | (3,786,480 | ) | ||
Total anticipated uses | $ | (4,134,100 | ) |
(b) | Estimated gain components |
Anticipated cash proceeds | $ | 4,134,100 | ||
Current assets held for sale | (1,868,128 | ) | ||
Current liabilities held for sale | 51,039 | |||
Expense prepaid closing costs | (23,200 | ) | ||
Remove accrued closing costs | 11,200 | |||
Cash taxes | (86,000 | ) | ||
Closing costs, net of taxes | (63,800 | ) | ||
Remove items not settled in cash (i.e. assets of liabilities that relate | ||||
to the Disposal Group that are not being sold as part of the Sale) | ||||
Other assets | (13,711 | ) | ||
Accrued salaries wages and other current liabilities | 1,300 | |||
Other noncurrent liabilities | 66,400 | |||
Estimated pre tax gain on Sale | 2,209,200 | |||
Estimated income tax expense | (960,900 | ) | ||
Estimated after tax gain on Sale | $ | 1,248,300 |
(c) | Removal of the operating results of the discontinued operations that are included in the historical unaudited condensed consolidated statements of operations. |
(d) | 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 to reflect amounts that were previously eliminated in consolidation relating to intercompany sales between the Company and the Disposal Group. |
(e) | In connection with the Sale, the Company entered into an Amended and Restated Asset Purchase Agreement, the Company agreed to provide transitional services to Buyer for up to three (3) years after the initial closing of the Sale. In exchange for the transitional services as defined in the Transition Services Agreement (“TSA”) , the Company will receive $96,000 per year once the store sales are completed based on providing transition services for all 1,932 stores to be sold. The TSA fee decreases proportionally with any decrease in the number of stores being serviced under the TSA by the Company. |
The Company has included the TSA fees in its unaudited pro forma condensed consolidated statements of operations as a reduction of Selling, general and administrative expenses. Additionally, the Company has included the corresponding income tax impact of the TSA fee using the Company's historical income tax rate for each period presented. |
For the thirty-nine week period ended December 2, 2017, the Company included TSA fees of $72,000 which is representative of three quarters of the annual TSA fees. The Company has reflected the receipt of the TSA fees as an adjustment to its unaudited pro forma condensed consolidated statement of operations for the fiscal year ended March 4, 2017 and the thirty-nine week period ended December 2, 2017 in accordance with rules stipulated in Article 11 of Regulation S-X. |
Pro Forma Adjusted EBITDA Reconciliations
In addition to net income (loss) determined in accordance with GAAP, we use the non-GAAP measure, “Adjusted EBITDA”, in assessing our operating performance as we believe it serves 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, charges or credits for facility closing and impairment, inventory write-downs related to store closings, debt retirements, the Walgreens Boots Alliance merger termination fee, and other items (including stock-based compensation expense, merger and acquisition-related costs, severance and costs related to distribution center closures, gain or loss on sale of assets, and revenue deferrals related to our customer loyalty program). We reference Adjusted EBITDA 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.
The following is a reconciliation of our pro forma net income to our pro forma Adjusted EBITDA for the thirty-nine week period ended December 2, 2017 and our fifty-three week period ended March 4, 2017:
RITE AID CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
RECONCILIATION OF PRO FORMA NET INCOME TO PRO FORMA ADJUSTED EBITDA
(In thousands)
(unaudited)
Pro Forma Adjustments | ||||||||||||||||
Thirty-nine weeks ended | Record TSA fees and | Pro Forma | ||||||||||||||
December 2, 2017 | Remove Discontinued | related income tax | Thirty-nine weeks ended | |||||||||||||
Historical | Operations Results | expense | December 2, 2017 | |||||||||||||
Reconciliation of net income to adjusted EBITDA: | ||||||||||||||||
Net income | $ | 134,141 | $ | 50,148 | $ | 184,289 | ||||||||||
Adjustments: | ||||||||||||||||
Interest expense | 152,165 | - | 152,165 | |||||||||||||
Income tax (benefit) expense | 89,268 | 21,852 | 111,120 | |||||||||||||
Depreciation and amortization | 292,448 | - | 292,448 | |||||||||||||
LIFO charge | 20,393 | - | 20,393 | |||||||||||||
Lease termination and impairment charges | 11,090 | - | 11,090 | |||||||||||||
Walgreens Boots Alliance merger termination fee | (325,000 | ) | - | (325,000 | ) | |||||||||||
Other | 27,985 | 27,985 | ||||||||||||||
Adjusted EBITDA - continuing operations | $ | 402,490 | $ | 72,000 | $ | 474,490 | ||||||||||
Adjusted EBITDA - discontinued operations | 217,519 | (217,519 | ) | - | - | |||||||||||
Adjusted EBITDA | $ | 620,009 | $ | (217,519 | ) | $ | 72,000 | $ | 474,490 |
RITE AID CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
RECONCILIATION OF PRO FORMA NET INCOME TO PRO FORMA ADJUSTED EBITDA
(In thousands)
(unaudited)
Pro Forma Adjustments | ||||||||||||||||
Fifty-three weeks ended | Record TSA fees and | Pro Forma | ||||||||||||||
March 4, 2017 | Remove Discontinued | related income tax | Fifty-three weeks ended | |||||||||||||
Historical | Operations Results | expense | March 4, 2017 | |||||||||||||
Reconciliation of net income to adjusted EBITDA: | ||||||||||||||||
Net income | $ | 4,053 | $ | 27 | $ | 35,275 | $ | 39,355 | ||||||||
Adjustments: | ||||||||||||||||
Interest expense | 431,991 | (231,926 | ) | - | 200,065 | |||||||||||
Income tax (benefit) expense | 44,392 | 46 | 60,725 | 105,163 | ||||||||||||
Depreciation and amortization | 568,231 | (160,865 | ) | - | 407,366 | |||||||||||
LIFO charge | (6,620 | ) | 2,899 | - | (3,721 | ) | ||||||||||
Lease termination and impairment charges | 55,294 | (9,516 | ) | - | 45,778 | |||||||||||
Other | 39,800 | 2,245 | - | 42,045 | ||||||||||||
Adjusted EBITDA | $ | 1,137,141 | $ | (397,090 | ) | $ | 96,000 | $ | 836,051 |