Segment Reporting

3 Months Ended

May 28, 2022

Segment Reporting

Segment Reporting

14. Segment Reporting

The Company has two reportable segments, its retail drug stores (“Retail Pharmacy”), and its pharmacy services (“Pharmacy Services”) segments.

The Retail Pharmacy segment’s primary business is the sale of prescription drugs and related consultation to its customers. Additionally, the Retail Pharmacy segment sells a full selection of health and beauty aids and personal care products, seasonal merchandise and a large private brand product line. The Pharmacy Services segment offers a full range of pharmacy benefit management services including plan design and administration, formulary management and claims processing. Additionally, the Pharmacy Services segment offers specialty and mail order services, and drug benefits to eligible beneficiaries under the federal government’s Medicare Part D program.

The Company’s chief operating decision makers are its Chief Executive Officer, Chief Financial Officer and several other members of the Executive Leadership Team, (collectively the “CODM”). The CODM has ultimate responsibility for enterprise decisions. The CODM determines, in particular, resource allocation for, and monitors performance of, the consolidated enterprise, the Retail Pharmacy segment and the Pharmacy Services segment. The Retail Pharmacy and Pharmacy Services segment managers have responsibility for operating decisions, allocating resources and assessing performance within their respective segments. The CODM relies on internal management reporting that analyzes enterprise results on certain key performance indicators, namely, revenues, gross profit, and Adjusted EBITDA.

The following is balance sheet information for the Company’s reportable segments:

	Retail		Pharmacy
	Pharmacy		Services		Eliminations(1)		Consolidated
May 28, 2022:
Total Assets	$	6,101,168	$	2,464,224	$	(15,619)	$	8,549,773
Goodwill		43,492		835,644		—		879,136
February 26, 2022:
Total Assets	$	6,068,594	$	2,482,232	$	(21,823)	$	8,529,003
Goodwill		43,492		835,644		—		879,136

(1) As of May 28, 2022 and February 26, 2022, intersegment eliminations include netting of the Pharmacy Services segment long-term deferred tax liability of $0 against the Retail Pharmacy segment long-term deferred tax asset for consolidation purposes in accordance with ASC 740, and intersegment accounts receivable of $15,619 and $21,823, respectively, that represents amounts owed from the Pharmacy Services segment to the Retail Pharmacy segment that are created when Pharmacy Services segment customers use Retail Pharmacy segment stores to purchase covered products.

The following table is a reconciliation of the Company’s business segments to the consolidated financial statements for the thirteen week periods ended May 28, 2022 and May 29, 2021:

	Retail		Pharmacy		Intersegment
	Pharmacy		Services		Eliminations(1)		Consolidated
Thirteen Week Period Ended
May 28, 2022:
Revenues	$	4,345,356	$	1,725,857	$	(56,630)	$	6,014,583
Gross Profit		1,097,357		99,372		—		1,196,729
Adjusted EBITDA(2)		73,682		26,448		—		100,130
Additions to property and equipment and intangible assets		78,551		6,873		—		85,424
May 29, 2021:
Revenues	$	4,351,682	$	1,872,282	$	(62,979)	$	6,160,985
Gross Profit		1,169,934		114,941		—		1,284,875
Adjusted EBITDA(2)		94,914		43,963		—		138,877
Additions to property and equipment and intangible assets		60,893		3,707		—		64,600

(1) Intersegment eliminations include intersegment revenues and corresponding cost of revenues that occur when Pharmacy Services segment customers use Retail Pharmacy segment stores to purchase covered products. When this occurs, both the Retail Pharmacy and Pharmacy Services segments record the revenue on a stand-alone basis.

(2) See “Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures” in MD&A for additional details.

The following is a reconciliation of net income (loss) to Adjusted EBITDA for the thirteen week periods ended May 28, 2022 and May 29, 2021:

	May 28,		May 29,
	2022		2021
	(13 weeks)		(13 weeks)
Net loss	$	(110,191)	$	(13,057)
Interest expense		48,119		49,121
Income tax expense		3,497		780
Depreciation and amortization		70,073		75,859
LIFO credit		—		(3,993)
Facility exit and impairment charges		66,571		8,831
Loss on debt retirements, net		—		396
Merger and Acquisition-related costs		—		3,886
Stock-based compensation expense		3,334		2,811
Restructuring-related costs		22,646		5,932
Inventory write-downs related to store closings		7,955		472
Litigation and other contractual settlements		18,271		14,000
Gain on sale of assets, net		(29,196)		(6,558)
Other		(949)		397
Adjusted EBITDA	$	100,130	$	138,877