8-K

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): September 22, 2016 (September 22, 2016)

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))

Item 2.02. Results of Operations and Financial Condition.

On September 22, 2016, Rite Aid Corporation (the “Company”) reported its financial position and results of operations as of and for the thirteen and twenty-six week periods ended August 27, 2016. The press release includes non-GAAP financial measures, “Adjusted EBITDA,” “Adjusted Net Income” and “Adjusted Net Income per Diluted Share.” The Company uses these non-GAAP measures in assessing its performance in addition to net income, the most directly comparable GAAP financial measure. A reconciliation of Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per Diluted Share to net income is included in the press release, which is furnished as Exhibit 99.1 hereto.

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 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 and other items (including stock-based compensation expense, severance for 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 Company defines Adjusted Net Income as net income excluding the impact of amortization of EnvisionRx intangible assets, merger and acquisition-related costs, loss on debt retirements and LIFO adjustments. The Company calculates Adjusted Net Income per Diluted Share using the Company’s above-referenced definition of Adjusted Net Income. The Company believes Adjusted Net Income and Adjusted Net Income per Diluted Share serve as appropriate measures to be used in evaluating the performance of its business and help its investors better compare the Company’s operating performance over multiple periods.

Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per Diluted Share should not be considered in isolation from, and are not intended to represent alternative measures of, operating results or of cash flows from operating activities, as determined in accordance with GAAP. The Company’s definitions of Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per Diluted Share may not be comparable to similarly titled measurements reported by other companies or similar terms in the Company’s debt facilities.

In addition, a copy of the Company’s Earnings Release Supplement for the second quarter of fiscal 2017 is being furnished as Exhibit 99.2 to this Form 8-K.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

99.1 Press Release, dated September 22, 2016

99.2 Second Quarter Fiscal 2017 Supplemental Information

SIGNATURES

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

	RITE AID CORPORATION
Dated: September 22, 2016	By:	/s/ James J. Comitale
		Name:	James J. Comitale
		Title:	Senior Vice President, General Counsel

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press Release, dated September 22, 2016.
99.2	Second Quarter Fiscal 2017 Supplemental Information

EX-99.1

 Exhibit 99.1

Press Release

For Further Information Contact:

INVESTORS:	MEDIA:
Matt Schroeder	Susan Henderson
(717) 214-8867	(717) 730-7766

or investor@riteaid.com

FOR IMMEDIATE RELEASE

Rite Aid Reports Fiscal 2017 Second Quarter Results

· Revenues of $8.0 Billion for the Second Quarter, Up 4.8 Percent Year-Over-Year

· Second Quarter Net Income of $14.8 Million or $0.01 Per Share, Compared to the Prior Year’s Second Quarter Net Income of $21.5 Million or $0.02 Per Share

· Second Quarter Adjusted Net Income Per Diluted Share of $0.03, Compared to the Prior Year Second Quarter Adjusted Net Income Per Diluted Share of $0.06

· Adjusted EBITDA of $312.7 Million for the Second Quarter, Compared to the Prior Year’s Adjusted EBITDA of $346.8 Million

CAMP HILL, Pa. (Sept. 22, 2016) - Rite Aid Corporation (NYSE: RAD) today reported operating results for its second fiscal quarter ended August 27, 2016.

For the second quarter, the company reported revenues of $8.0 billion, net income of $14.8 million, or $0.01 per diluted share, Adjusted net income of $35.5 million, or $0.03 per diluted share and Adjusted EBITDA of $312.7 million, or 3.9 percent of revenues.

“In the second quarter, we continued to drive positive results in our Pharmacy Services Segment, which includes our EnvisionRx PBM, and had strong performance in our front-end business” said Chairman and CEO John Standley. “We also saw improvements in prescription drug costs, but these improvements were more than offset by the challenging reimbursement rate environment, which we expect to continue through the remainder of the fiscal year. Heading forward, we will remain focused on operating our business as efficiently as possible while pursuing key growth opportunities such as our flu immunization campaign and converting additional stores to the Wellness format, which continue to perform well and now represent nearly half of our chain.”

-More-

Rite Aid FY 2017 Q2 Press Release - page 2

Second Quarter Summary

Revenues for the quarter were $8.0 billion compared to revenues of $7.7 billion in the prior year’s second quarter, an increase of $365.0 million or 4.8 percent. Retail Pharmacy Segment revenues were $6.5 billion and decreased 2.4 percent compared to the prior year period primarily as a result of a decrease in same store sales. Revenues in the company’s Pharmacy Services Segment, which was acquired on June 24, 2015, were $1.6 billion.

Same store sales for the quarter decreased 2.5 percent over the prior year, consisting of a 3.6 percent decrease in pharmacy sales, partially offset by a 0.1 percent increase in front-end sales. Pharmacy sales included an approximate 101 basis point negative impact from new generic introductions. The number of prescriptions filled in same stores decreased 1.8 percent over the prior year period. Prescription sales accounted for 68.5 percent of total drugstore sales, and third party prescription revenue was 98.1 percent of pharmacy sales.

Net income was $14.8 million or $0.01 per diluted share compared to last year’s second quarter net income of $21.5 million or $0.02 per diluted share. The decline in operating results is due primarily to a higher LIFO charge, and a decline in Adjusted net income, partially offset by a $33.2 million loss on debt retirement in the prior year related to the redemption of the company’s 8.00% senior secured notes.

Adjusted net income and Adjusted net income per diluted share (which is reconciled to net income on the attached table) was $35.5 million or $0.03 per diluted share compared to last year’s second quarter Adjusted net income of $58.7 million or $0.06 per diluted share. The decline in Adjusted net income and Adjusted net income per share is due to a decrease in Adjusted EBITDA, partially offset by lower income tax and interest expenses.

Adjusted EBITDA (which is reconciled to net income on the attached table) was $312.7 million or 3.9 percent of revenues for the second quarter compared to $346.8 million or 4.5 percent of revenues for the same period last year. The decline in Adjusted EBITDA is due to a decrease of $51.0 million in the Retail Pharmacy Segment, resulting from lower gross profit and higher SG&A expense. Gross profit declined due to lower pharmacy gross profit partially offset by an increase in front end gross profit. Pharmacy gross profit decreased because of lower reimbursement rates and script count, partially offset by improvements in prescription drug costs. SG&A expense increased due to a shift in the timing of Memorial Day holiday pay and increased benefit costs. The decline in Retail Pharmacy Segment Adjusted EBITDA was partially offset by an increase of $16.8 million of Pharmacy Services Segment Adjusted EBITDA. This increase was due to strong operating results in the current year and the fact that prior year’s Pharmacy Services Segment results do not reflect a full quarter’s ownership of Envision Rx.

In the second quarter, the company opened 3 stores, relocated 6 stores, and remodeled 85 stores, bringing the total number of wellness stores chainwide to 2,214. The company also acquired 1 store and closed 14 stores, resulting in a total store count of 4,550 at the end of the second quarter. The company also opened 10 clinics in the second quarter, bringing the total to 90.

As previously announced on October 27, 2015, Rite Aid and Walgreens Boots Alliance, Inc. (“WBA”) entered into a definitive agreement under which WBA will acquire all outstanding shares of Rite Aid for $9.00 per share in cash. The board of directors of both companies and Rite Aid’s shareholders have approved the transaction, which is subject to certain conditions, including, among others, the receipt of approval under applicable antitrust laws and other customary closing conditions. The company continues to believe that the transaction will close in the second half of calendar year 2016.

Rite Aid is one of the nation’s leading drugstore chains with 4,550 stores in 31 states and the District of Columbia. Information about Rite Aid, including corporate background and press releases, is available through Rite Aid’s website at www.riteaid.com.

-More-

Rite Aid FY 2017 Q2 Press Release - page 3

Cautionary Statement Regarding Forward Looking Statements

Statements in this release that are not historical and statements regarding the expected timing of the closing of the proposed merger with WBA and the ability of the parties to complete such transaction considering the various closing conditions and any assumptions underlying any of the foregoing, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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, market and competitive 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 and risks related to the proposed merger. 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, in the definitive proxy statement that we filed with the Securities and Exchange Commission on December 21, 2015 in connection with the proposed merger, 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. Additionally, there can be no assurance that the proposed merger will be completed, or if it is completed, that it will close within the anticipated time period or that the expected benefits of the proposed merger will be realized. 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.

Reconciliation of Non-GAAP Financial Measures

The company separately reports financial results on the basis of Adjusted Net Income, Adjusted Net Income per diluted share, and Adjusted EBITDA, which are non-GAAP financial measures. See the attached tables for a reconciliation of Adjusted Net Income, Adjusted Net Income per diluted share and Adjusted EBITDA to net income, and net income per diluted share, which are the most directly comparable GAAP financial measures. Adjusted Net Income and Adjusted Net Income per diluted share exclude amortization of EnvisionRx intangible assets, merger and acquisition-related costs, loss on debt retirements and LIFO adjustments. Adjusted EBITDA is defined as net income 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 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).

###

RITE AID CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(unaudited)

	August 27, 2016			February 27, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	136,093		$	124,471
Accounts receivable, net		1,828,641			1,601,008
Inventories, net of LIFO reserve of $1,033,907 and $1,006,396		2,827,018			2,697,104
Prepaid expenses and other current assets		146,764			128,144
Total current assets		4,938,516			4,550,727
Property, plant and equipment, net		2,281,392			2,255,398
Goodwill		1,715,479			1,713,475
Other intangibles, net		921,348			1,004,379
Deferred tax assets		1,538,604			1,539,141
Other assets		215,630			213,890
Total assets	$	11,610,969		$	11,277,010
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and lease financing obligations	$	24,399		$	26,848
Accounts payable		1,695,840			1,542,797
Accrued salaries, wages and other current liabilities		1,331,707			1,427,250
Total current liabilities		3,051,946			2,996,895
Long-term debt, less current maturities		7,173,656			6,914,393
Lease financing obligations, less current maturities		46,641			52,895
Other noncurrent liabilities		722,057			731,399
Total liabilities		10,994,300			10,695,582
Commitments and contingencies		-			-
Stockholders' equity:
Common stock		1,052,125			1,047,754
Additional paid-in capital		4,841,988			4,822,665
Accumulated deficit		(5,231,025	)		(5,241,210	)
Accumulated other comprehensive loss		(46,419	)		(47,781	)
Total stockholders' equity		616,669			581,428
Total liabilities and stockholders' equity	$	11,610,969		$	11,277,010

RITE AID CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)

(unaudited)

	Thirteen weeks ended August 27, 2016		Thirteen weeks ended August 29, 2015
Revenues	$	8,029,806	$	7,664,776
Costs and expenses:
Cost of revenues		6,113,063		5,742,485
Selling, general and administrative expenses		1,778,247		1,725,826
Lease termination and impairment charges		7,233		9,637
Interest expense		105,388		115,410
Loss on debt retirements, net		-		33,205
Loss on sale of assets, net		174		281
		8,004,105		7,626,844
Income before income taxes		25,701		37,932
Income tax expense		10,928		16,463
Net income	$	14,773	$	21,469
Basic and diluted earnings per share:
Numerator for earnings per share:
Income attributable to common stockholders - basic and diluted	$	14,773	$	21,469
Denominator:
Basic weighted average shares		1,044,198		1,029,793
Outstanding options and restricted shares, net		17,251		19,341
Diluted weighted average shares		1,061,449		1,049,134
Basic and diluted income per share	$	0.01	$	0.02

RITE AID CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)

(unaudited)

	Twenty-six weeks ended August 27, 2016		Twenty-six weeks ended August 29, 2015
Revenues	$	16,213,987	$	14,312,337
Costs and expenses:
Cost of revenues		12,402,944		10,530,516
Selling, general and administrative expenses		3,571,494		3,425,411
Lease termination and impairment charges		13,014		14,659
Interest expense		210,501		239,017
Loss on debt retirements, net		-		33,205
Loss on sale of assets, net		1,230		320
		16,199,183		14,243,128
Income before income taxes		14,804		69,209
Income tax expense		4,619		28,904
Net income	$	10,185	$	40,305
Basic and diluted earnings per share:
Numerator for earnings per share:
Income attributable to common stockholders - basic and diluted	$	10,185	$	40,305
Denominator:
Basic weighted average shares		1,043,317		1,008,242
Outstanding options and restricted shares, net		17,210		18,959
Diluted weighted average shares		1,060,527		1,027,201
Basic and diluted income per share	$	0.01	$	0.04

RITE AID CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(unaudited)

	Thirteen weeks ended August 27, 2016		Thirteen weeks ended August 29, 2015
Net income	$	14,773	$	21,469
Other comprehensive income:
Defined benefit pension plans:
Amortization of prior service cost, net transition obligation and net actuarial losses included in net periodic pension cost, net of $451 and $398 tax expense		681		598
Total other comprehensive income		681		598
Comprehensive income	$	15,454	$	22,067

RITE AID CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(unaudited)

	Twenty-six weeks ended August 27, 2016		Twenty-six weeks ended August 29, 2015
Net income	$	10,185	$	40,305
Other comprehensive income:
Defined benefit pension plans:
Amortization of prior service cost, net transition obligation and net actuarial losses included in net periodic pension cost, net of $902 and $796 tax expense		1,362		1,195
Total other comprehensive income		1,362		1,195
Comprehensive income	$	11,547	$	41,500

RITE AID CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL SEGMENT OPERATING INFORMATION

(Dollars in thousands)

(unaudited)

	Thirteen weeks ended August 27, 2016			Thirteen weeks ended August 29, 2015
Retail Pharmacy Segment
Revenues (a)	$	6,485,482		$	6,647,243
Cost of revenues (a)		4,666,133			4,786,730
Gross profit		1,819,349			1,860,513
LIFO charge		13,760			5,986
FIFO gross profit		1,833,109			1,866,499
Gross profit as a percentage of revenues		28.05	%		27.99	%
LIFO charge as a percentage of revenues		0.21	%		0.09	%
FIFO gross profit as a percentage of revenues		28.26	%		28.08	%
Selling, general and administrative expenses		1,708,633			1,678,909
Selling, general and administrative expenses as a percentage of revenues		26.35	%		25.26	%
Cash interest expense		100,105			109,796
Non-cash interest expense		5,273			5,608
Total interest expense		105,378			115,404
Adjusted EBITDA		262,643			313,602
Adjusted EBITDA as a percentage of revenues		4.05	%		4.72	%
Pharmacy Services Segment
Revenues (a)	$	1,634,876		$	1,071,889
Cost of revenues (a)		1,537,482			1,010,111
Gross profit		97,394			61,778
Gross profit as a percentage of revenues		5.96	%		5.76	%
Adjusted EBITDA		50,010			33,222
Adjusted EBITDA as a percentage of revenues		3.06	%		3.10	%

(a) - Revenues and cost of revenues include $90,552 and $54,356 of inter-segment activity for the thirteen weeks ended August 27, 2016 and August 29, 2015, respectively, that is eliminated in consolidation.

RITE AID CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL SEGMENT OPERATING INFORMATION

(Dollars in thousands)

(unaudited)

	Twenty-six weeks ended August 27, 2016			Twenty-six weeks ended August 29, 2015
Retail Pharmacy Segment
Revenues (a)	$	13,161,030		$	13,294,804
Cost of revenues (a)		9,536,314			9,574,761
Gross profit		3,624,716			3,720,043
LIFO charge		27,511			11,973
FIFO gross profit		3,652,227			3,732,016
Gross profit as a percentage of revenues		27.54	%		27.98	%
LIFO charge as a percentage of revenues		0.21	%		0.09	%
FIFO gross profit as a percentage of revenues		27.75	%		28.07	%
Selling, general and administrative expenses		3,432,536			3,378,494
Selling, general and administrative expenses as a percentage of revenues		26.08	%		25.41	%
Cash interest expense		199,787			212,558
Non-cash interest expense		10,702			26,453
Total interest expense		210,489			239,011
Adjusted EBITDA		507,470			612,865
Adjusted EBITDA as a percentage of revenues		3.86	%		4.61	%
Pharmacy Services Segment
Revenues (a)	$	3,237,235		$	1,071,889
Cost of revenues (a)		3,050,908			1,010,111
Gross profit		186,327			61,778
Gross profit as a percentage of revenues		5.76	%		5.76	%
Adjusted EBITDA		91,185			33,222
Adjusted EBITDA as a percentage of revenues		2.82	%		3.10	%

(a) - Revenues and cost of revenues include $184,278 and $54,356 of inter-segment activity for the twenty-six weeks ended August 27, 2016 and August 29, 2015, respectively, that is eliminated in consolidation.

RITE AID CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION

RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA

(In thousands)

(unaudited)

	Thirteen weeks ended August 27, 2016			Thirteen weeks ended August 29, 2015
Reconciliation of net income to adjusted EBITDA:
Net income	$	14,773		$	21,469
Adjustments:
Interest expense		105,388			115,410
Income tax expense		10,928			16,463
Depreciation and amortization		142,051			127,699
LIFO charge		13,760			5,986
Lease termination and impairment charges		7,233			9,637
Loss on debt retirements, net		-			33,205
Other		18,520			16,955
Adjusted EBITDA	$	312,653		$	346,824
Percent of revenues		3.89	%		4.52	%

RITE AID CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION

RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA

(In thousands)

(unaudited)

	Twenty-six weeks ended August 27, 2016			Twenty-six weeks ended August 29, 2015
Reconciliation of net income to adjusted EBITDA:
Net income	$	10,185		$	40,305
Adjustments:
Interest expense		210,501			239,017
Income tax expense		4,619			28,904
Depreciation and amortization		280,839			237,348
LIFO charge		27,511			11,973
Lease termination and impairment charges		13,014			14,659
Loss on debt retirements, net		-			33,205
Other		51,986			40,676
Adjusted EBITDA	$	598,655		$	646,087
Percent of revenues		3.69	%		4.51	%

RITE AID CORPORATION AND SUBSIDIARIES

 SUPPLEMENTAL INFORMATION

ADJUSTED NET INCOME

(Dollars in thousands, except per share amounts)

(unaudited)

	Thirteen weeks ended August 27, 2016		Thirteen weeks ended August 29, 2015
Net income	$	14,773	$	21,469
Add back - Income tax expense		10,928		16,463
Income before income taxes		25,701		37,932
Adjustments:
Amortization of EnvisionRx intangible assets		20,853		17,040
LIFO charge		13,760		5,986
Loss on debt retirements, net		-		33,205
Merger and Acquisition-related costs		1,402		9,617
Adjusted income before income taxes		61,716		103,780
Adjusted income tax expense		26,229		45,041
Adjusted net income	$	35,487	$	58,739
Adjusted net income per diluted share:
Numerator for adjusted net income per diluted share:
Adjusted net income	$	35,487	$	58,739
Denominator:
Basic weighted average shares		1,044,198		1,029,793
Outstanding options and restricted shares, net		17,251		19,341
Diluted weighted average shares		1,061,449		1,049,134
Net income per diluted share	$	0.01	$	0.02
Adjusted net income per diluted share	$	0.03	$	0.06

RITE AID CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION

ADJUSTED NET INCOME

(Dollars in thousands, except per share amounts)

(unaudited)

	Twenty-six weeks ended August 27, 2016		Twenty-six weeks ended August 29, 2015
Net income	$	10,185	$	40,305
Add back - Income tax expense		4,619		28,904
Income before income taxes		14,804		69,209
Adjustments:
Amortization of EnvisionRx intangible assets		41,168		17,040
LIFO charge		27,511		11,973
Loss on debt retirements, net		-		33,205
Merger and Acquisition-related costs		4,158		11,701
Adjusted income before income taxes		87,641		143,128
Adjusted income tax expense		27,344		59,828
Adjusted net income	$	60,297	$	83,300
Adjusted net income per diluted share:
Numerator for adjusted net income per diluted share:
Adjusted net income	$	60,297	$	83,300
Denominator:
Basic weighted average shares		1,043,317		1,008,242
Outstanding options and restricted shares, net		17,210		18,959
Diluted weighted average shares		1,060,527		1,027,201
Net income per diluted share	$	0.01	$	0.04
Adjusted net income per diluted share	$	0.06	$	0.08

RITE AID CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(unaudited)

	Thirteen weeks ended August 27, 2016			Thirteen weeks ended August 29, 2015
OPERATING ACTIVITIES:
Net income	$	14,773		$	21,469
Adjustments to reconcile to net cash used in operating activities:
Depreciation and amortization		142,051			127,699
Lease termination and impairment charges		7,233			9,637
LIFO charge		13,760			5,986
Loss on sale of assets, net		174			281
Stock-based compensation expense		12,552			8,831
Loss on debt retirements, net		-			33,205
Changes in deferred taxes		7,747			(7,966	)
Excess tax benefit on stock options and restricted stock		(2,365	)		(18,049	)
Changes in operating assets and liabilities:
Accounts receivable		(152,725	)		(2,908	)
Inventories		(216,911	)		(80,673	)
Accounts payable		34,693			(47,806	)
Other assets and liabilities, net		(8,060	)		(75,969	)
Net cash used in operating activities		(147,078	)		(26,263	)
INVESTING ACTIVITIES:
Payments for property, plant and equipment		(119,641	)		(130,646	)
Intangible assets acquired		(12,488	)		(29,169	)
Acquisition of businesses, net of cash acquired		-			(1,779,571	)
Proceeds from dispositions of assets and investments		3,745			3,243
Net cash used in investing activities		(128,384	)		(1,936,143	)
FINANCING ACTIVITIES:
Net proceeds from revolver		270,000			869,000
Principal payments on long-term debt		(5,509	)		(655,640	)
Change in zero balance cash accounts		(1,728	)		(17,034	)
Net proceeds from the issuance of common stock		1,587			4,727
Financing fees paid for early debt redemption		-			(26,003	)
Excess tax benefit on stock options and restricted stock		2,365			18,049
Deferred financing costs paid		-			(175	)
Net cash provided by financing activities		266,715			192,924
Decrease in cash and cash equivalents		(8,747	)		(1,769,482	)
Cash and cash equivalents, beginning of period		144,840			1,922,129
Cash and cash equivalents, end of period	$	136,093		$	152,647
SUPPLEMENTAL CASH FLOW INFORMATION
Payments for property, plant and equipment	$	119,641		$	130,646
Intangible assets acquired		12,488			29,169
Total cash capital expenditures		132,129			159,815
Equipment received for noncash consideration		114			1,466
Equipment financed under capital leases		1,307			471
Gross capital expenditures	$	133,550		$	161,752

RITE AID CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(unaudited)

	Twenty-six weeks ended August 27, 2016			Twenty-six weeks ended August 29, 2015
OPERATING ACTIVITIES:
Net income	$	10,185		$	40,305
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization		280,839			237,348
Lease termination and impairment charges		13,014			14,659
LIFO charge		27,511			11,973
Loss on sale of assets, net		1,230			320
Stock-based compensation expense		23,696			16,201
Loss on debt retirements, net		-			33,205
Changes in deferred taxes		1,998			1,574
Excess tax benefit on stock options and restricted stock		(3,248	)		(20,869	)
Changes in operating assets and liabilities:
Accounts receivable		(227,255	)		8,119
Inventories		(157,471	)		(24,469	)
Accounts payable		150,339			31,909
Other assets and liabilities, net		(107,972	)		(8,703	)
Net cash provided by operating activities		12,866			341,572
INVESTING ACTIVITIES:
Payments for property, plant and equipment		(225,718	)		(271,683	)
Intangible assets acquired		(28,869	)		(43,462	)
Acquisition of businesses, net of cash acquired		-			(1,779,571	)
Proceeds from dispositions of assets and investments		6,833			6,081
Net cash used in investing activities		(247,754	)		(2,088,635	)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt		-			1,800,000
Net proceeds from revolver		250,000			728,000
Principal payments on long-term debt		(11,230	)		(661,217	)
Change in zero balance cash accounts		534			(51,309	)
Net proceeds from the issuance of common stock		3,958			8,105
Financing fees paid for early debt redemption		-			(26,003	)
Excess tax benefit on stock options and restricted stock		3,248			20,869
Deferred financing costs paid		-			(34,634	)
Net cash provided by financing activities		246,510			1,783,811
Increase in cash and cash equivalents		11,622			36,748
Cash and cash equivalents, beginning of period		124,471			115,899
Cash and cash equivalents, end of period	$	136,093		$	152,647
SUPPLEMENTAL CASH FLOW INFORMATION
Payments for property, plant and equipment	$	225,718		$	271,683
Intangible assets acquired		28,869			43,462
Total cash capital expenditures		254,587			315,145
Equipment received for noncash consideration		746			2,011
Equipment financed under capital leases		2,860			1,271
Gross capital expenditures	$	258,193		$	318,427

EX-99.2

Exhibit 99.2

 

September 22, 2016

 

Safe Harbor Statement

InvestorsareurgedtoreviewRiteAid’sSECfilings.Statements,estimates,targetsandotherinformationincludedhereinmightbeconsideredforward-looking.Thesestatementsandestimatesarebaseduponvariousassumptionsthatmaynotprovetobecorrect.Suchassumptionsareinherentlysubjecttosignificantuncertaintiesandcontingencies,manyofwhicharebeyondthecompany’scontrol.Norepresentationismade,andnoassurancecanbegiven,thatsuchresultscanorwillbeattained.TheriskfactorsassociatedwiththoseuncertaintiesaredescribedinRiteAid’smostrecentForm10-K,itsForm10-Q’sandotherfilingswiththeSEC. RiteAidassumesnoobligationtoupdatetheinformationortheforward-lookingstatementscontainedherein,whetherasaresultofnewinformationorotherwise.Alsoincludedhereinarenon-GAAPfinancialmeasures.ThedefinitionandpurposeforusingthesemeasuresareinRiteAid’sForm8-KfurnishedtotheSEConthedatehereof.  

 

Reconciliation of Non-GAAP Financial Measures ThecompanyseparatelyreportsfinancialresultsonthebasisofAdjustedNetIncome,AdjustedNetIncomeperdilutedshare,andAdjustedEBITDA,whicharenon-GAAPfinancialmeasures.AdjustedNetIncomeandAdjustedNetIncomeperdilutedshareexcludeamortizationofEnvisionRxintangibleassets,mergerandacquisition-relatedcosts,lossondebtretirementsandLIFOadjustments.AdjustedEBITDAisdefinedasnetincomeexcludingtheimpactofincometaxes,interestexpense,depreciationandamortization,LIFOadjustments,chargesorcreditsforfacilityclosingandimpairment,inventorywrite-downsrelatedtostoreclosings,debtretirementsandotheritems(includingstock-basedcompensationexpense,mergerandacquisition-relatedcosts,severanceandcostsrelatedtodistributioncenterclosures,gainorlossonsaleofassetsandrevenuedeferralsrelatedtoourcustomerloyaltyprogram).

 

Q2 -Fiscal 2017 Summary ($ in millions, except per share amounts) 13 Weeks Ended August 27, 201613 Weeks Ended August 29, 2015 Revenue8,029.8$ 7,664.8$ Net Income14.8$ 21.5$ Net Income per Diluted Share0.01$ 0.02$ Adjusted Net Income35.5$ 58.7$ Adjusted Net Income per Diluted Share0.03$ 0.06$ Adjusted EBITDA312.7$ 3.89%346.8$ 4.52%

 

Q2 -Fiscal 2017 Reconciliation of Net Income to Adjusted EBITDA ($ in thousands)

13 Weeks Ended August 27, 201613 Weeks Ended August 29, 2015Net Income14,773$ 21,469$ Adjustments:Interest expense105,388 115,410 Income tax expense10,928 16,463 Depreciation and amortization142,051 127,699 LIFO charge13,760 5,986 Lease termination and impairment charges7,233 9,637 Loss on debt retirements, net- 33,205 Other18,520 16,955 Adjusted EBITDA312,653$ 346,824$ Percent of revenues3.89%4.52%

 

Q2 -Fiscal 2017 Reconciliation of Net Income to Adjusted Net Income 13 Weeks Ended August 27, 201613 Weeks Ended August 29, 2015Net Income $ 14,773 $ 21,469 Add back - Income tax expense 10,928 16,463 Income before income taxes25,701 37,932 Adjustments:Amortization of EnvisionRx intangible assets20,853 17,040 LIFO charge13,760 5,986 Loss on debt retirements, net- 33,205 Merger and acquisition-related costs1,402 9,617 Adjusted income before income taxes61,716$ 103,780$ Adjusted income tax expense26,229 45,041$ Adjusted net income35,487$ 58,739$ Net income per diluted share0.01$ 0.02$ Adjusted net income per diluted share0.03$ 0.06 ($ in thousands, except per share amounts)

 

Q2 -Fiscal 2017 SummaryRETAIL PHARMACY SEGMENT Revenue6,485.5$ 6,647.2$ Adjusted EBITDA Gross Profit1,839.1$ 28.36%1,866.8$ 28.08%Adjusted EBITDA SG&A1,576.5$ 24.31%1,553.2$ 23.37%Adjusted EBITDA262.6$ 4.05%313.6$ 4.72%($ in millions)

 

Q2 -Fiscal 2017 SummaryRETAIL PHARMACY SEGMENT 161.7 million or 2.4%, driven by a 1.8% decrease in comparable script growth and a decrease in reimbursement rates, offset slightly by a 0.1% increase in same store front end sales. EBITDA Gross Profit decreased $27.7 million, with Adjusted EBITDA Gross Margin improving by 28 bps. The decrease was driven by reductions in reimbursement rates and script volume, partially offset by an increase in front-end gross profit and improvements in prescription drug costs. EBITDA SG&A increased $23.3 million and increased 94 bps as a percentage of revenues. The increase in SG&A expenses is due to a shift in the timing of Memorial Day pay and increased benefit costs. The increase in SG&A rate is also due to our decline in revenue.

 

Reconciliation of Adjusted EBITDA Gross ProfitRETAIL PHARMACY SEGMENT 13 Weeks Ended August 27, 201613 Weeks Ended August 29, 2015Revenues6,485,482$ 6,647,243$ Gross Profit1,819,349 1,860,513 Addback:LIFO charge13,760 5,986 Customer loyalty card program revenue deferral(967) (3,346) Depreciation and amortization (COGS portion only)4,797 3,502 Other2,177 157 Adjusted EBITDA Gross Profit1,839,116$ 1,866,812$ Adjusted EBITDA Gross Profit as a percent of revenue28.36%28.08%($ in thousands)

 

Reconciliation of Adjusted EBITDA SG&ARETAIL PHARMACY SEGMENT 13 Weeks Ended August 27, 201613 Weeks Ended August 29, 2015Total Revenues6,485,482$ 6,647,243$ Selling, general and administrative expenses1,708,633 1,678,909 Less:Depreciation and amortization (SG&A portion only)115,023 106,584 Stock based compensation expense12,552 8,831 Other4,584 10,290 Adjusted EBITDA SG&A1,576,474$ 1,553,204$ Adjusted EBITDA SG&A as a percent of revenue24.31%23.37%($ in thousands)

 

Pharmacy Services Segment Results 13 Weeks Ended August 27, 2016Period Ended(1) August 29, 2015Revenues1,634.9$ 1,071.9$ Cost of Revenues1,537.5 1,010.1 Gross Profit97.4 61.8 Selling, General and Administrative Expense(69.6) (46.9) Addback:Depreciation and Amortization22.2 17.6 One-time Transaction Expenses- 0.7 Adjusted EBITDA - Pharmacy Services Segment50.0$ 33.2$ (1) Results are from June 24, 2015, the date of acquisition of EnvisionRx, through August 29, 2015.($ in millions)

 

Q2 -FY 2017 SummaryPHARMACY SERVICES SEGMENT 563.0 million due to fiscal 2017 reflecting results for a full quarter compared to a partial quarter last year. Revenues were strong due to the addition of lives at both Envision and MedTrak. profit increased $35.6 million due to fiscal 2017 reflecting results for a full quarter compared to a partial quarter last year. Gross profits were also positively impacted by the addition of lives at both Envision and MedTrak. , general and administrative expenses increased due to fiscal 2017 reflecting results for a full quarter compared to a partial quarter last year. SG&A expenses were in line with expectations.

 

17 FRONT END SALES RX SALES SCRIPT COUNT FY 15 0.0% 1.1% 1.6% 2.0% 0.6% 0.3% 0.3% -0.4% 1.2% 0.1% 4.6% 5.6% 7.2% 5.7% 3.9% 2.8% 1.2% -0.8% 0.1% -3.6% FY 16 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Comparable Store Sales Growth 2.3% 3.7% 4.5% 3.5% 1.6% 0.2% 0.2% 0.1% 0.6% -1.8%

 

Wellness Store Renovations results for Wellness stores continue to exceed the chain average(1)Front-end sales growth outperformance of 221 bps in Q2 of Fiscal 2017 Script count growth outperformance of 160 bps in Q2 of Fiscal 2017 274 797 1,215 1,634 2,042 2,214 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017Q2 (1)Calculation compares the comp results of Wellness stores remodeled in the last 24 months to the remainder of the chain. Remodeled Stores Since 2012

 

Capitalization Table & Leverage

Note: Debt in the capitalization table is shown net of unamortized debt issuance costs. August 27, 2016February 27, 2016Secured Debt:Senior secured revolving credit facility due January 2020 2,320,505$ 2,066,097$ Tranche 1 Term Loan (second lien) due August 2020465,198 464,586 Tranche 2 Term Loan (second lien) due June 2021497,275 496,993 Other90 90 3,283,068 3,027,766 Unsecured Guaranteed Debt:9.25% senior notes due March 2020895,529 894,563 6.75% senior notes due June 2021802,870 802,128 6.125% senior secured notes due April 2023 1,771,795 1,769,657 3,470,194 3,466,348 Unsecured Unguaranteed Debt:7.7% notes due February 2027293,289 293,206 6.875% fixed-rate senior notes due December 2028127,195 127,163 420,484 420,369 Lease financing obligations 70,950 79,653 Total Debt:7,244,696 6,994,136 Current maturities of long-term debt and lease financing obligations (24,399) (26,848) Long-term debt and lease financing obligations, less current maturities 7,220,297$ 6,967,288$ Leverage Ratio:Total Debt7,244,696$ 6,994,136$ Add back: Unamortized debt issuance costs83,751 93,349 Less invested cash15,598 14,910 7,312,849$ 7,072,575$ Retail Pharmacy Segment Adjusted EBITDA (Last 12 months)1,195,510$ 1,300,905$ Pharmacy Services Segment Adjusted EBITDA159,320 155,000 1,354,830$ 1,455,905$ Debt: EBITDA Leverage Ratio5.40 4.86 ($ in thousands)

 

Debt Maturity Profile Maturity table as of August 27, 2016. Note: Maturities reflect calendar year. $2,350 $1,350 $295 $128 $470 $500 $905 $810 $1,800 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 $5,000 $5,500 2016 2017 2018 2019 2020 2021 2022 2023 . . . . . . 2027 2028 ($ in millions) Second Lien ABL Funded ABL Unfunded Commitment Senior Unsecured Notes Senior Unsecured (Guaranteed) Notes Callable at 104.625