3. Asset Sale to WBA

On September 18, 2017, the Company entered into the Amended and Restated Asset Purchase Agreement with WBA and Buyer, which amended and restated in its entirety the previously disclosed Asset Purchase Agreement, 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 agreed to purchase from the Company 1,932 Acquired Stores, three distribution centers, related inventory and other specified assets and liabilities related thereto for a purchase price of $4,375,000, on a cash-free, debt-free basis in the Sale.

The Company announced on September 19, 2017 that the waiting period under the HSR Act, expired with respect to the Sale. The Company completed the store transfer process in March of 2018, which resulted in the transfer of all 1,932 stores and related assets to WBA, and the received of cash proceeds of $4,156,686.

On September 13, 2018, the Company completed the sale of one of its distribution centers and related assets to WBA for proceeds of $61,251. The impact of the sale of the distribution center and related assets resulted in a pre-tax gain of $14,151, which has been included in the results of operations and cash flows of discontinued operations during the fifty-two week period ended March 2, 2019. The transfer of the remaining two distribution centers and related assets remains subject to minimal customary closing conditions applicable only to the distribution centers being transferred at such distribution center 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 distribution centers being sold to WBA in the ordinary course during the period between the execution of the Amended and Restated Asset Purchase Agreement and the distribution center closing. The Company has also agreed to provide transition services to Buyer for up to three years after the initial closing of the Sale. Under the terms of the TSA, the Company provides various services on behalf of WBA, including but not limited to the purchase and distribution of inventory and virtually all selling, general and administrative activities. The initial term of the TSA continues until October 17, 2019 and may be extended for up to two additional periods of six months each upon WBA providing written notice to Rite Aid at least 90 days prior to the expiration of the then-current term. In connection with these services, the Company purchases the related inventory and incurs cash payments for the selling, general and administrative activities, which, the Company bills on a cash neutral basis to WBA in accordance with terms as outlined in the TSA. Total billings for these items during the fifty-two week periods ended March 2, 2019 and March 3, 2018 were $6,887,092 and $725,190, respectively, of which $293,662 and $354,321 is included in Accounts receivable, net. The Company charged WBA TSA fees of $80,277 during the fifty-two week period ended March 2, 2019 and $8,422 in the fifty-two week period ended March 3, 2018, which are reflected as a reduction to selling, general and administrative expenses.

Based on its magnitude and because the Company exited certain markets, the Sale represented 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 Disposal Group to assets and liabilities held for sale on its consolidated balance sheets as of the periods ended March 2, 2019 and March 3, 2018, and reclassified the financial results of the Disposal Group in its consolidated statements of operations and consolidated statements of cash flows for all periods presented. The Company also revised its discussion and presentation of operating and financial results to be reflective of its continuing operations as required by ASC 205-20.

The carrying amount of the Assets to be Sold, which were included in the Retail Pharmacy segment, have been reclassified from their historical balance sheet presentation to current assets and liabilities held for sale as follows:


	March 2,		March 3,
	2019		2018
Inventories	$	68,233	$	264,286
Property and equipment		49,348		158,433
Goodwill(a)		—		4,629
Intangible assets		—		10,789
Current assets held for sale	$	117,581	$	438,137
Current maturities of long-term lease financing obligations	$	—	$	270
Accrued salaries, wages and other current liabilities		—		6,146
Long-term debt, less current maturities(b)		—		549,549
Lease financing obligations, less current maturities		—		838
Other noncurrent liabilities		—		3,402
Current liabilities held for sale	$	—	$	560,205

(a)

The Company had $76,124 of goodwill in its Retail Pharmacy segment resulting from the acquisition of Health Dialog and RediClinic, which is accounted for as Retail Pharmacy segment enterprise goodwill. The Company has allocated a portion of its Retail Pharmacy segment enterprise goodwill to the discontinued operation.

(b)

In connection with the Sale, the Company had estimated that the Sale would generate in excess of $4.0 billion of cash proceeds, all of which was used to repay outstanding indebtedness.

The operating results of the discontinued operations that are reflected on the consolidated statements of operations within net income (loss) from discontinued operations are as follows:


	March 2,		March 3,		March 4,
	2019		2018		2017
	(52 weeks)		(52 weeks)		(53 weeks)
Revenues	$	34,889	$	8,686,397	$	10,050,049
Costs and expenses:
Cost of revenues(a)		24,271		6,406,067		7,340,691
Selling, general and administrative expenses(a)		20,681		2,134,276		2,465,364
Lease termination and impairment charges		—		77		9,516
Loss on debt retirements, net		22,646		8,180		—
Interest expense(b)		4,616		224,300		231,926
Gain on stores sold to Walgreens Boots Alliance		(374,619)		(2,128,832)		—
Loss (gain) on sale of assets, net		1,486		(377)		2,625
		(300,919)		6,643,691		10,050,122
Income (loss) from discontinued operations before income taxes		335,808		2,042,706		(73)
Income tax expense		91,067		749,704		46
Net income (loss) from discontinued operations, net of tax	$	244,741	$	1,293,002	$	(27)

(a)

Cost of revenues and selling, general and administrative expenses for the discontinued operations excludes corporate overhead. These charges are reflected in continuing operations.

(b)

In accordance with ASC 205-20, the operating results for the fifty-two week period ended March 2, 2019, the fifty-two week period ended March 3, 2018 and the fifty-three week period ended March 4, 2017, respectively, for the discontinued operations include interest expense relating to outstanding indebtedness repaid with the estimated excess proceeds from the Sale.

The operating results reflected above do not fully represent the Disposal Group’s historical operating results, as the results reported within net income from discontinued operations only include expenses that are directly attributable to the Disposal Group.