UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

 

Date of report (Date of earliest event reported): January 22, 2018 (January 18, 2018)

 

Rite Aid Corporation

(Exact name of registrant as specified in its charter)

   

Delaware 1-5742 23-1614034

(State or Other Jurisdiction

of Incorporation)

(Commission File Number)

(IRS Employer

Identification Number)

 

 

30 Hunter Lane, Camp Hill, Pennsylvania 17011

(Address of principal executive offices, including zip code)

 

(717) 761-2633

(Registrant’s telephone number, including area code)

 

N/A

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

   

 

 

 

 

 

Item 2.01. Completion of Acquisition or Disposition of Assets.

 

As previously disclosed, 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, Inc., a Delaware corporation (“WBA”), and Walgreen Co., an Illinois corporation and a wholly owned subsidiary of WBA (“Buyer”). Under the Asset Purchase Agreement, Buyer will purchase a total of 1,932 stores, three distribution centers and related inventory from the Company for an all-cash purchase price of $4.375 billion on a cash-free, debt-free basis. As of January 18, 2018, the Company has completed the disposition of a “significant amount” of the Company’s assets within the meaning of, and in accordance with, the standards set forth in Item 2.01 of Form 8-K.

 

As previously disclosed, the Company has been transferring ownership of Company stores and related assets to Buyer in a series of ongoing closings, with the goal of completing the store transfers in the spring of 2018. As of January 18, 2018, the Company has transferred 561 stores and related assets and has received cash proceeds of $1,184,900,000. As of today, January 22, 2018, Rite Aid has transferred 625 stores and related assets to WBA, and has received cash proceeds of $1,309.8 million (the "Proceeds"). The Company will use a portion of the Proceeds from the Sale to fully prepay the outstanding $970 million balance on its two tranches of second priority secured term loans, the Tranche 1 Term Loan due August 2020 (the “Tranche 1 Term Loan”) and the Tranche 2 Term Loan due June 2021 (and together with the Tranche 1 Term Loan, the “Term Loans”). In connection with the prepayment of the Term Loans, all second priority liens will be released and discharged. The majority of the closing conditions have been satisfied, and the subsequent transfers of Company stores and related assets remain subject to minimal customary closing conditions applicable only to the stores being transferred at such subsequent closing, as specified in the Asset Purchase Agreement. The Company does not have any material relationship with WBA or its subsidiaries, including Buyer, out of the ordinary course of business other than in respect of the transactions contemplated by the Asset Purchase Agreement, including the continued disposition of assets, a transition services agreement and the Company’s option to purchase generic drugs from an affiliate of WBA, under terms, including costs, that are substantially similar to WBA for a period of ten years.

 

This Current Report on Form 8-K is being filed to provide unaudited pro forma financial information for the Company giving effect to the sale of all assets contemplated by the Asset Purchase Agreement. Specifically, this pro forma financial information gives effect to the completion of the sale of 1,932 stores, three distribution centers and related assets pursuant to the terms of the Asset Purchase Agreement, including the sale of the remaining Company stores, distribution centers and related assets that have not occurred as of January 18, 2018 given that such sales are probable, in accordance with Article 11 of Regulation S-X. Although the Company believes that the sale of the remaining stores and related assets to Buyer will be consummated during the spring of 2018, there can be no assurance that all of the remaining closings will occur, and there can be no assurance that the Company’s actual results would have been as set forth in the pro forma financial statements, and such differences could be material. In accordance with U.S. Securities and Exchange Commission (“SEC”) rules, the Company intends to file additional current reports on Form 8-K to disclose the closings of the sale of the remaining assets pursuant to the Asset Purchase Agreement when the Company completes the subsequent disposition of a significant amount of the Company’s assets pursuant to the applicable legal requirements. However, the Company does not intend to update the pro forma financial statements contained herein unless the Company is required to update such pro forma financial statements by applicable legal requirements.

 

 

 

 

The notes to the unaudited pro forma financial information includes the non-GAAP financial measure, “Adjusted EBITDA.” The Company uses this non-GAAP measure in assessing its performance in addition to net income, the most directly comparable GAAP financial measure. A reconciliation of Adjusted EBITDA is also included in the notes to the unaudited pro forma financial information, which is filed as Exhibit 99.2 to this Form 8-K.

 

The Company believes Adjusted EBITDA serves as an appropriate measure in evaluating the performance of its business and helps its investors better compare the Company’s operating performance with its competitors. The Company defines 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 previously received WBA 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 the Company’s customer loyalty program). The Company references this non-GAAP financial measure frequently in its decision-making because it provides supplemental information that facilitates internal comparisons to historical periods and external comparisons to competitors. In addition, incentive compensation is based in part on Adjusted EBITDA and the Company bases certain of its forward-looking estimates and budgets on Adjusted EBITDA.

 

The foregoing description of the Asset Purchase Agreement and the transactions contemplated thereby is not complete and is subject to, and qualified in its entirety by, the full text of the Asset Purchase Agreement, a copy of which was filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 19, 2017, and which is incorporated herein by reference.

 

Item 8.01. Other Events.

 

On January 22, 2018, the Company issued a press release announcing that it has completed the disposition of a “significant amount” of the Company’s assets within the meaning of, and in accordance with, the standards set forth in Item 2.01 of Form 8-K. A copy of the press release is attached as Exhibit 99.1 hereto and is incorporated herein by reference.

 

Item 9.01. Financial Statements and Exhibits.

 

(b) Pro Forma Financial Information

 

The following pro forma financial information for the Company with respect to the transaction is filed as Exhibit 99.2 hereto and is incorporated into this item by reference:

 

· Explanatory Note and Basis of Presentation
· Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 2, 2017
· Unaudited Pro Forma Consolidated Statements of Operations for (i) the fifty-three weeks ended March 4, 2017, (ii) the fifty-two weeks ended (A) February 27, 2016 and (B) February 28, 2015 and (iii) the thirty-nine weeks ended December 2, 2017
· Notes to Unaudited Pro Forma Consolidated Financial Statements

 

(d) Exhibits.

 

Exhibit No.   Description
2.1   Amended and Restated Asset Purchase Agreement, dated September 18, 2017, among Rite Aid Corporation, Walgreens Boots Alliance, Inc. and Walgreen Co. (incorporated by reference to Exhibit 2.1 of Rite Aid Corporation’s Current Report on Form 8-K, filed with the SEC on September 19, 2017)
99.1   Press Release, dated January 22, 2018
99.2   Unaudited Pro Forma Financial Statements.

 

Cautionary Statement Regarding Forward Looking Statements

 

Statements in this report that are not historical, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements regarding the expected timing of subsequent closings of the sale of Company stores and assets to WBA; the ability of the parties to complete each of the subsequent closings for sale and related subsequent transactions considering the various closing conditions applicable to the stores, related assets and/or distribution centers being transferred at such subsequent closing; the outcome of legal and regulatory matters in connection with the sale of stores and assets of the Company to WBA; the expected benefits of the transactions such as improved operations, growth potential, market profile and financial strength; the competitive ability and position of the Company following completion of the proposed transactions; the ability of the Company to implement new business strategies following the completion of the proposed transactions; the ability of the Company to repay its debt using the proceeds from the proposed transactions and any assumptions underlying any of the foregoing. Words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “should,” and “will” and variations of such words and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and involve risks, assumptions and uncertainties, including, but not limited to, our high level of indebtedness and our ability to make interest and principal payments on our debt and satisfy the other covenants contained in our debt agreements; general economic, industry, market, competitive, regulatory and political conditions; our ability to improve the operating performance of our stores in accordance with our long term strategy; the impact of private and public third-party payers continued reduction in prescription drug reimbursements and efforts to encourage mail order; our ability to manage expenses and our investments in working capital; outcomes of legal and regulatory matters; changes in legislation or regulations, including healthcare reform; our ability to achieve the benefits of our efforts to reduce the costs of our generic and other drugs; risks related to the proposed transactions, including the possibility that the subsequent transactions may not close, including because a governmental entity  may prohibit, delay or refuse to grant approval for the consummation of the transactions, or may require conditions, limitations or restrictions in connection with such approvals, the risk that there may be a material adverse change of the Company, or the business of the Company may suffer as a result of uncertainty surrounding the proposed transactions; risks related to the ability to realize the anticipated benefits of the proposed transactions; risks associated with the financing of the proposed transaction; disruption from the proposed transactions making it more difficult to maintain business and operational relationships; the effect of the pending sale on the Company’s business relationships (including, without limitation, customers and suppliers), operating results and business generally; risks related to diverting management’s or employees’ attention from ongoing business operations; the risk that the Company’s stock price may decline significantly if the proposed transaction is not completed; significant transaction costs; unknown liabilities; the risk of litigation and/or regulatory actions related to the proposed transactions; potential changes to our strategy in the event the remaining proposed transactions do not close, which may include delaying or reducing capital or other expenditures, selling assets or other operations, attempting to restructure or refinance our debt, or seeking additional capital, and other business effects. These and other risks, assumptions and uncertainties are more fully described in Item 1A (Risk Factors) of our most recent Annual Report on Form 10-K, and in other documents that we file or furnish with the SEC, which you are encouraged to read. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward- looking statements, which speak only as of the date they are made. The Company expressly disclaims any current intention to update publicly any forward-looking statement after the distribution of this report, whether as a result of new information, future events, changes in assumptions or otherwise.

 

 

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  RITE AID CORPORATION
   
   
Dated: January 22, 2018 By: /s/ James J. Comitale
    Name: James J. Comitale
    Title: Senior Vice President, General Counsel

 

 

 

 

Exhibit 99.1

 

Press Release

For Further Information Contact:

 

INVESTORS: MEDIA:
Byron Purcell   Susan Henderson
(717) 975-5809 (717) 730-7766

or investor@riteaid.com

 

FOR IMMEDIATE RELEASE

 

Rite Aid Provides Update on Sale of Assets to Walgreens Boots Alliance

 

CAMP HILL, Pa. (Jan. 22, 2018) - Rite Aid Corporation (NYSE: RAD) today provided an update on the progress of its plans to sell stores to Walgreens Boots Alliance, Inc. (Nasdaq: WBA) pursuant to the previously disclosed Amended and Restated Asset Purchase Agreement, dated as of September 18, 2017 (the “Asset Purchase Agreement”). As of January 22, 2018, Rite Aid has transferred 625 stores and related assets to WBA, and has received cash proceeds of $1,309.8 million, which it is using to repay all of its $970 million of outstanding secured loans while maintaining a strong liquidity position. Under the Asset Purchase Agreement, WBA will purchase a total of 1,932 stores, three distribution centers and related inventory from Rite Aid for an all-cash purchase price of $4,375 million on a cash-free, debt-free basis.

 

“Our teams continue to make tremendous progress in transferring stores to WBA and I want to thank them for their ongoing commitment and dedication,” said Rite Aid Chairman and CEO John Standley. “We are on track to complete the transfer of stores in the spring of this year. Going forward, we remain focused on the continued smooth execution of that process and capitalizing on our most significant business-building opportunities as we work together to deliver a great experience to our customers and patients, and drive value for our shareholders.”

 

The majority of the closing conditions have been satisfied, and the subsequent transfers of Rite Aid stores and related assets remain subject to minimal customary closing conditions applicable only to the stores being transferred at such subsequent closing, as specified in the Asset Purchase Agreement. Additional details regarding today’s announcement have been filed with the Securities and Exchange Commission on Form 8-K.

 

Rite Aid is one of the nation's leading drugstore chains with fiscal 2017 annual revenues of $32.8 billion. Information about Rite Aid, including corporate background and press releases, is available through the company's website at www.riteaid.com .

 

-MORE-

 

 

 

 

 

Rite Aid Press Release – page 2

 

Cautionary Statement Regarding Forward Looking Statements

 

Statements in this release that are not historical, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements regarding the expected timing of subsequent closings of the sale of Rite Aid stores and assets to WBA; the ability of the parties to complete each of the subsequent closings for sale and related subsequent transactions considering the various closing conditions applicable to the stores, related assets and/or distribution centers being transferred at such subsequent closing; the outcome of legal and regulatory matters in connection with the sale of stores and assets of Rite Aid to WBA; the expected benefits of the transactions such as improved operations, growth potential, market profile and financial strength; the competitive ability and position of Rite Aid following completion of the proposed transactions; the ability of Rite Aid to implement new business strategies following the completion of the proposed transactions; the ability of Rite Aid to repay its debt using the proceeds from the proposed transactions and any assumptions underlying any of the foregoing. Words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “should,” and “will” and variations of such words and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and involve risks, assumptions and uncertainties, including, but not limited to, our high level of indebtedness and our ability to make interest and principal payments on our debt and satisfy the other covenants contained in our debt agreements; general economic, industry, market, competitive, regulatory and political conditions; our ability to improve the operating performance of our stores in accordance with our long term strategy; the impact of private and public third-party payers continued reduction in prescription drug reimbursements and efforts to encourage mail order; our ability to manage expenses and our investments in working capital; outcomes of legal and regulatory matters; changes in legislation or regulations, including healthcare reform; our ability to achieve the benefits of our efforts to reduce the costs of our generic and other drugs; risks related to the proposed transactions, including the possibility that the subsequent transactions may not close, including because a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the transactions, or may require conditions, limitations or restrictions in connection with such approvals, the risk that there may be a material adverse change of Rite Aid, or the business of Rite Aid may suffer as a result of uncertainty surrounding the proposed transactions; risks related to the ability to realize the anticipated benefits of the proposed transactions; risks associated with the financing of the proposed transaction; disruption from the proposed transaction making it more difficult to maintain business and operational relationships; the effect of the pending sale on Rite Aid’s business relationships (including, without limitation, customers and suppliers), operating results and business generally; risks related to diverting management’s or employees’ attention from ongoing business operations; the risk that Rite Aid’s stock price may decline significantly if the proposed transaction is not completed; significant transaction costs; unknown liabilities; the risk of litigation and/or regulatory actions related to the proposed transactions; potential changes to our strategy in the event the remaining proposed transactions do not close, which may include delaying or reducing capital or other expenditures, selling assets or other operations, attempting to restructure or refinance our debt, or seeking additional capital, and other business effects.

 

-MORE-

 

 

 

 

 

 

Rite Aid Press Release – page 3

 

These and other risks, assumptions and uncertainties are more fully described in Item 1A (Risk Factors) of our most recent Annual Report on Form 10-K, and in other documents that we file or furnish with the Securities and Exchange Commission, which you are encouraged to read.

 

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward- looking statements, which speak only as of the date they are made. Rite Aid expressly disclaims any current intention to update publicly any forward-looking statement after the distribution of this release, whether as a result of new information, future events, changes in assumptions or otherwise.

 

###

 

 

 

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