Acquisition

12 Months Ended

Mar. 04, 2023

Acquisition

Acquisition

2. Acquisition

On December 18, 2020, pursuant to that certain stock purchase agreement, dated as of October 7, 2020, by and between the Company and Bartell Drug Company (“Bartell”), the Company acquired Bartell (the “Acquisition”), a Washington corporation, for approximately $89,724 in cash, subject to certain customary post-closing working capital adjustments. The Company financed the Acquisition with borrowings under its senior secured credit facilities together with cash on hand.  Bartell operated 67 retail drugstores and one distribution center in the greater Seattle Washington area.  Bartell operates as a 100 percent owned subsidiary of the Company within its Retail Pharmacy Segment.

The Company’s consolidated financial statements for fiscal 2023 and 2022 include Bartell’s results of operations. The Company’s consolidated financial statements for fiscal 2021 include Bartell’s results of operations from the Acquisition date of December 18, 2020 through February 27, 2021, including revenues of $101,083. The Company’s consolidated financial statements at February 26, 2022 reflect the final purchase accounting adjustments in accordance with ASC 805 “Business Combinations,” whereby the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values on the Acquisition date.

The following allocation of the purchase price and the estimated transaction costs is final:

Final purchase price
Cash consideration	$	89,724
Total		89,724
Final purchase price allocation
Cash and cash equivalents	$	3,494
Accounts receivable		23,860
Inventories		67,745
Prepaid expenses and other current assets		1,857
Total current assets		96,956
Property and equipment		28,229
Operating lease right-of-use assets		143,651
Intangible assets(1)		68,700
Other assets		1,805
Total assets acquired		339,341
Accounts payable		24,166
Accrued salaries, wages and other current liabilities		20,335
Current portion of operating lease liabilities		24,617
Total current liabilities		69,118
Long-term operating lease liabilities		124,023
Other long-term liabilities		166
Total liabilities assumed		193,307
Deferred tax liabilities recorded on purchase		13,951
Net assets acquired		132,083
Bargain purchase gain		(42,359)
Total purchase price	$	89,724

(1)            Intangible assets are recorded at estimated fair value, as determined by management based on available information which includes a final valuation prepared by an independent third-party. The fair values assigned to identifiable intangible assets were determined through the use of the income approach, specifically the relief from royalty and the multi-period excess earnings methods. The major assumptions used in arriving at the estimated identifiable intangible asset values included management’s final estimates of future cash flows, discounted at an appropriate rate of return which are based on the weighted average cost of capital for both the Company and other market participants, projected customer attrition rates, as well as applicable royalty rates for comparable assets. The useful lives for intangible assets were determined based upon the remaining useful economic lives of the intangible assets that are expected to contribute directly or indirectly to future cash flows. The estimated fair value of intangible assets and related useful lives as included in the final purchase price allocation include:

	Estimated Fair Value		Estimated Useful Life (In Years)
Prescription files	$	54,300	10
Tradename		14,400	Indefinite
Total	$	68,700

During fiscal 2021, the Company recorded a gain on Bartell acquisition of $47,705 primarily due to fair value adjustments related to prescription files and the tradename compared to book values. During fiscal 2022, in connection with determining its final purchase price allocation, the Company recorded a loss on Bartell acquisition of $5,346 primarily due to contract termination charges, inventory valuation adjustments and changes in deferred income taxes, resulting in a net bargain purchase gain of $42,359. The Company believes that the bargain purchase gain was primarily the result of the decision by the Bartell stockholders to sell their interests as Bartell had been experiencing increasing borrowings under its credit agreements to meet its operating needs and increasing net losses. The agreed upon purchase price reflected the fact the seller would have needed to incur further significant debt to cover the operating costs of Bartell, which would have required amendments to its credit arrangements. With the Company’s existing infrastructure, scale and expertise, the Company believe that it has access to the necessary synergies to allow necessary operational improvements to be implemented more efficiently than the seller.

During fiscal 2023, fiscal 2022 and fiscal 2021, acquisition costs of $0, $12,797 and $10,549, respectively, were expensed as incurred. The following unaudited pro forma combined financial data gives effect to the Acquisition as if it had occurred as of March 1, 2019.

The unaudited combined pro forma results do not include any incremental cost savings that may result from the integration. The adjustments are based on information available to the Company at this time. Accordingly, the adjustments are subject to change and the impact of such changes may be material.

The unaudited combined pro forma information is for informational purposes only.  The pro forma information is not necessarily indicative of what the combined company’s results actually would have been had the Acquisition been completed as of the beginning of the periods as indicated.  In addition, the unaudited pro forma information does not purport to project the future results of the combined company.

	March 4,		February 26,		February 27,
	2023		2022		2021
	(53 Weeks)		(52 Weeks)		(52 Weeks)
	Pro forma		Pro forma		Pro forma
Net revenues as reported	$	24,091,899	$	24,568,255	$	24,043,240
Supplemental Pro forma revenues	$	24,091,899	$	24,568,255	$	24,468,777
Net loss as reported	$	(719,188)	$	(522,372)	$	(90,220)
Supplemental Pro forma net loss	$	(719,188)	$	(522,372)	$	(116,040)