<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED).
For the fiscal year ended March 4, 1995
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED).
For the transition period from __________ to __________
Commission File Number 1-5742
RITE AID CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-1614034
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
30 Hunter Lane, Camp Hill, Pennsylvania 17011
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (717) 761-2633
--------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
<S> <C>
Common Stock, $1.00 par value New York Stock Exchange
Pacific Stock Exchange
6 3/4% Zero Coupon Convertible
Subordinated Notes due July 24, 2006 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes /X/ No / /
<PAGE> 2
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. /X/
The aggregate market value of the voting stock of the registrant
held by non-affiliates of the registrant on May 18, 1995 based on
the closing price at which such stock was sold on the New York
Stock Exchange on such date was $1,913,029,000.
Registrant's Common Stock outstanding at May 18, 1995 was
83,806,585 shares, par value $1.00 per share.
Portions of the Annual Report to Stockholders for the year ended
March 4, 1995 are incorporated by reference into Parts I, II and IV
of this Report. Portions of the Proxy Statement prepared for the
1995 Annual Meeting of Stockholders are incorporated by reference
into Part III of this Report.
<PAGE> 3
RITE AID CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
<TABLE>
<CAPTION>
Caption Page
------- ----
<S> <C>
PART I
Item 1. Business.................................... 1
Item 2. Properties.................................. 2
Item 3. Legal Proceedings........................... 3
Item 4. Submission of Matters to a Vote
of Security Holders....................... 3
Unnumbered Item. Executive Officers of the Registrant...... 4
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters........... 8
Item 6. Selected Financial Data..................... 8
Item 7. Management's Discussion and Analysis
of Results of Operations and
Financial Condition....................... 9
Item 8. Financial Statements and Supplementary Data. 9
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure...................... 9
PART III
Item 10. Directors and Executive Officers
of the Registrant........................ 9
Item 11. Executive Compensation..................... 10
Item 12. Security Ownership of Certain
Beneficial Owners and Management......... 10
Item 13. Certain Relationships and Related
Transactions............................. 10
PART IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K........ 10
</TABLE>
-i-
<PAGE> 4
PART I
ITEM 1. BUSINESS
(a) General Development of Business
The information set forth on the inside front cover under
the caption "Description of Business," and under the captions
"Growing Through Acquisition," "Expanding Opportunities in New York
City," "New Customer-Oriented Store Design" and "Technology
Strengthens Our Network," commencing on page 6 and ending on page
12 of the Registrant's 1995 Annual Report to Stockholders ("1995
Annual Report"), filed as an exhibit to this Annual Report on Form
10-K, is incorporated herein by reference, excluding any
projections and forecasts, all of which shall not be deemed a part
of this Annual Report on Form 10-K.
(b) Financial Information About Industry Segments
As part of a restructuring strategy announced by the
Registrant on January 7, 1994, the Registrant authorized the sale
of its non-drugstore businesses, namely its auto parts retailing
business, its chain of discount bookstores, its chain of retail dry
cleaning stores and its plasma collection centers. Commencing in
fiscal year 1994, all of such businesses were reclassified as
discontinued operations. During fiscal year 1995, its chain of
discount bookstores and retail dry cleaning stores and its plasma
collection centers were sold. The auto parts stores were sold on
May 12, 1995 to an investment group for approximately $66 million,
subject to certain adjustments. Consequently, the Registrant's
business is classified solely within the retail drug industry
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<PAGE> 5
segment.
(c) Narrative Description of Business
The information set forth under the captions "Growing
Through Acquisition," "Expanding Opportunities in New York City,"
"New Customer-Oriented Store Design," and "Technology Strengthens
Our Network" and "Management's Discussion and Analysis of Results
of Operations and Financial Condition" commencing on page 6 and
ending on page 16 of the 1995 Annual Report, is incorporated herein
by reference, excluding any projections and forecasts, all of which
shall not be deemed a part of this Annual Report on Form 10-K. At
March 4, 1995, the Registrant employed approximately 36,700
persons.
(d) Financial Information About Foreign and Domestic and
Export Sales
Not Applicable.
ITEM 2. PROPERTIES
The Registrant's general offices and corporate headquarters
are located in a 205,000 square foot building in Camp Hill,
Pennsylvania owned by the Registrant. The Registrant's principal
retail store distribution center encompasses 350,000 square feet in
Shiremanstown, Pennsylvania. In addition to the principal store
distribution center, the Registrant operates five other
distribution centers: the Registrant's Rome, New York retail store
distribution center, which has 291,000 square feet; the
Registrant's Nitro, West Virginia distribution center, which has
280,000 square feet; the Registrant's Melbourne, Florida
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<PAGE> 6
distribution center, which has 228,000 square feet; the
Registrant's Winnsboro, South Carolina distribution center which
has 265,000 square feet; and the Registrant's Pontiac, Michigan
distribution center which has 370,000 square feet. With the
exception of the Pontiac, Michigan facility, the Registrant owns
each of its distribution centers. The Michigan distribution center
is leased under a capitalized lease and was financed with an
industrial revenue bond issue. The lease expires in 2009, at which
time the Registrant has the option to purchase the facility for
$100. The South Carolina, West Virginia and New York distribution
centers are subject to liens arising under industrial development
authority financing. The Registrant has the capacity to supply
3,700 stores.
The Registrant leases most of its retail drugstores facilities
under noncancelable operating leases, many of which expire within
ten years. In addition to minimum rental payments, which are set
at competitive market rates, certain leases require additional
payments based on sales volume, as well as reimbursement for taxes,
maintenance and insurance. Most of the Registrant's leases contain
renewal options, some of which involve rent increases. At March 4,
1995, the Registrant had 2,829 retail drugstores.
ITEM 3. LEGAL PROCEEDINGS
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
-3-
<PAGE> 7
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Annual Report on Form
10-K, the following is included as an unnumbered Item in Part I of
this Annual Report in lieu of being included in the Proxy Statement
for the 1995 Annual Meeting of Stockholders to be held on July 11,
1995.
The following is a list of names and ages of all of the
executive officers of the Registrant, indicating all positions and
offices with the Registrant held by each such person and each such
person's principal occupations or employment during the past five
years. All such persons have been appointed to serve until the
next annual election of officers (which shall occur on July 11,
1995) and until their successors are appointed, or until their
earlier resignation or removal. No person other than those listed
below has been chosen to become an executive officer of the
Registrant.
<TABLE>
<CAPTION>
First
Offices and Elected
Name Age Postions Held An Officer
---- --- ------------- ----------
<S> <C> <C> <C>
Alex Grass 67 Honorary Chairman of 1962
the Board, Chairman of
Executive Committee
Martin L. Grass 41 Chairman of the Board, 1980
Chief Executive Officer
and Director
Timothy J. Noonan 53 President, Chief Operating
Officer and Director 1973
Frank M. Bergonzi 49 Executive Vice President 1977
Franklin C. Brown 67 Executive Vice President
and Director 1969
</TABLE>
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<PAGE> 8
<TABLE>
<S> <C> <C> <C>
Kevin J. Mann 42 Executive Vice President 1988
Thomas R. Coogan 39 Vice President and Treasurer 1993
I. Lawrence Gelman 48 Assistant Vice President
and Secretary 1981
Wayne Gibson 36 Senior Vice President 1994
Charles R. Kibler 48 Senior Vice President 1987
Philip D. Markovitz 54 Senior Vice President 1974
Ronald A. Miller 55 Senior Vice President 1981
Robert R. Souder 55 Senior Vice President 1972
Joel F. Feldman 41 Senior Vice President 1991
Dennis J. Bowman 41 Senior Vice President 1993
Gerald P. Cardinale 44 Vice President 1983
Eric S. Elliot 31 Vice President 1994
W. Michael Knievel 47 Vice President 1988
James E. Krahulec 49 Vice President 1980
James O. Lott 56 Vice President 1988
Raymond B. McKeeby 51 Vice President 1993
Suzanne Mead 43 Vice President 1990
Michael F. Morris 45 Vice President 1984
Thomas J. Slovenkay 39 Vice President 1990
Joseph S. Speaker 36 Vice President 1993
James M. Talton 49 Vice President 1995
</TABLE>
Each of the executive officers listed above has served the
Registrant or its subsidiaries in their present executive
capacities for the past five years, except for the following
individuals:
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<PAGE> 9
Alex Grass has been Honorary Chairman of the Board of
Directors and Chairman of the Board's Executive Committee since
March 4, 1995, when he retired as Chairman and Chief Executive
Officer of the Registrant, positions he had held since 1962.
Martin L. Grass has been Chairman of the Board and Chief
Executive Officer of the Registrant since March 4, 1995.
Previously, Mr. Grass was President and Chief Operating Officer of
the Company for more than five years. Martin Grass is the son of
Alex Grass.
Mr. Noonan was appointed President and Chief Operating Officer
on March 4, 1995. Previously, Mr. Noonan was Executive Vice
President of Drugstore Operations for the Registrant, a position he
held for more than five years.
Mr. Bergonzi was appointed Executive Vice President and Chief
Financial Officer for the Registrant on March 4, 1995. Previously,
Mr. Bergonzi was Senior Vice President of Finance for the
Registrant, a position he held for more than five years.
Mr. Mann was appointed Executive Vice President of Marketing
for the Registrant on March 4, 1995. Previously, Mr. Mann was
Senior Vice President of Purchasing for the Registrant, a position
he held for more than five years.
Mr. Coogan was appointed Vice President and Treasurer in April
1993. Mr. Coogan joined Rite Aid as a Business Analyst in January
1989, and achieved the position of Director of Planning and
Budgeting in September 1990, and Assistant Treasurer in December
1992.
Mr. Gelman was appointed Associate Counsel and Secretary of
the Corporation on January 11, 1995. Previously, Mr. Gelman held
the positions of Assistant Vice President and Assistant Secretary
of the Corporation for more than five years.
Mr. Gibson joined Rite Aid as Senior Vice President of
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<PAGE> 10
Planning in June 1994. Prior thereto he was a Partner and Director
of the Retail and Distribution Practice Group in the Atlanta office
of Deloitte & Touche for more than five years.
Mr. Kibler was appointed Senior Vice President of Drugstore
Operations on March 4, 1995. Previously, Mr. Kibler served as Vice
President of Drugstore Operations for the Registrant for more than
five years.
Mr. Feldman has been Vice President of Managed Care Services
since 1991. From September 1989 until his appointment as Vice
President, he held the positions of Assistant Vice President of
Third Party Sales and Director of Third Party. During 1988 and
until September 1989, he held the position of Director of
Governmental Affairs for the National Association of Chain
Drugstores, located in Alexandria, Virginia. Prior thereto he
served as counsel for Davis, Wright and Jones, a law firm in
Washington, D.C.
Mr.Bowman has held his present position with the Registrant
for two years. Prior thereto he was a Senior Information
Technology Consultant with McKinsey & Company from 1984 to 1993.
Mr. Elliot was appointed Vice President of Third Party Administration
on March 4, 1995. Prior thereto he held positions of Assistant Vice President
of Third Party Administration and Controller of the Third Party Department.
Mr. Elliot joined the company in 1989 as Assistant Retail Controller.
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<PAGE> 11
Mr. Slovenkay was appointed Vice President of Purchasing on
December 20, 1994. Previously, Mr. Slovenkay served as Assistant
Vice President of Purchasing for the past five years.
Mr. Speaker has been Vice President and Retail Controller
since April 1993. From February 1991 until his appointment as Vice
President, he had the positions of Assistant Vice President and
Retail Controller. Mr. Speaker attained the status of Retail
Controller in June 1989.
Mr. Talton joined the company on April 1, 1995 as Vice
President of Human Resources. For the year prior to his employment
with Rite Aid Corporation, he was a Senior Vice President for
Executive Assets Company. Prior thereto he held the position of
Director of Employee and Labor Relations for PECO Energy Company
since 1989.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information set forth under the caption "Management's
Discussion and Analysis of Results of Operations and Financial
Condition - Common Stock and Dividends," which appears on page 16
of the Registrant's 1995 Annual Report, is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Ten-Year
Financial Review," which appears on pages 32 and 33 of the
Registrant's 1995 Annual Report, is incorporated herein by
reference.
-8-
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The information set forth under the caption "Management's
Discussion and Analysis of Results of Operations and Financial
Condition," which appears on pages 14 through 16 of the
Registrant's 1995 Annual Report, is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statement information which appears
on pages 18 through 31 of the Registrant's 1995 Annual Report is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information with respect to the executive officers of the
Registrant, reference is made to "Executive Officers of the
Registrant," set forth as an unnumbered item in Part I of this
Annual Report. The information set forth under the caption
"Election of Directors" in the Registrant's Proxy Statement for the
1995 Annual Meeting of Stockholders to be held July 11, 1995 is
incorporated herein by reference.
-9-
<PAGE> 13
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive
Compensation" in the Registrant's Proxy Statement for the 1995
Annual Meeting of Stockholders to be held July 11, 1995 is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information set forth under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the
Registrant's Proxy Statement for the 1995 Annual Meeting of
Stockholders to be held July 11, 1995 is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Related Party
Transactions" in the Registrant's Proxy Statement for the 1995
Annual Meeting of Stockholders to be held July 11, 1995 is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) List of Documents Filed as Part of this Report
(1) Financial Statements
The following consolidated financial statements of
the Registrant and its subsidiaries, required to be included in
Part II, Item 8 of this Annual Report on Form 10-K, are included in
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<PAGE> 14
the 1995 Annual Report and are incorporated herein by reference:
Independent Auditors' Report
Consolidated Balance Sheet - March 4, 1995 and
February 26, 1994
Consolidated Statement of Income - Each of the years
in the three year period ended March 4, 1995
Consolidated Statement of Stockholders' Equity -
Each of the years in the three year period ended
March 4, 1995
Consolidated Statement of Cash Flows - Each of the
years in the three year period ended March 4, 1995
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
All schedules are omitted because they are not
required, inapplicable or the information is included in the
consolidated financial statements or the notes thereto.
Financial statements of 50% or less owned companies
have been omitted since they do not constitute significant
subsidiaries.
(3) Exhibits (numbered in accordance with Item 601 of
Regulation S-K)
<TABLE>
<CAPTION>
Exhibit Incorporation
Numbers Description by Reference to
------- ----------- ---------------
<S> <C>
(2) Not Applicable
(3)(i) Articles of Incorporation together with Exhibit (3) to Form 8
amendments to Articles of Incorporation filed July 2, 1984
filed August 21, 1969; July 15, 1971; July
20, 1976; July 8, 1981; and July 27, 1983
Amendment to Articles of Incorporation Exhibit (3) to Form 10-K
filed July 18, 1986 filed May 26, 1987
</TABLE>
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<PAGE> 15
<TABLE>
<S> <C>
Amendment to Articles of Incorporation Exhibit (3) to Form 10-K
filed July 14, 1987 filed May 27, 1988
Amendment to Certificate of Incorporation Included herein
filed September 2, 1993
(ii) By-laws Exhibit (3a) to Form S-1
Registration Statement
filed April 26, 1968
Amendments to By-laws approved Exhibit (3) to Form 10-K
April 6, 1983 filed May 29, 1983
(4) The rights of security holders of -----
Registrant are defined by a) the Laws
of the State of Delaware, b) the
Certificate of Incorporation of
Registrant and c) the By-laws of
Registrant. The Certificate of
Incorporation and By-laws of
Registrant are hereby incorporated by
reference in accordance with Exhibit
(3) above.
Preferred Stock Purchase Rights Exhibits 1 and 2 to Form
8-A filed April 12, 1989
(9) Not Applicable -----
(10)(i) Not Applicable -----
(ii)
(iii) Salary Continuation Agreement with Exhibit (10)(iii) to Form
Key Officers* 10-K filed May 29, 1983
1983 Employee Stock Option Plan* Exhibit B to Proxy
Statement dated May 25,
1983
1990 Omnibus Stock Incentive Plan, Exhibit A to Proxy
as amended* Statement dated May 25,
1990 and Proxy Statement
dated June 3, 1994
(11) Statement regarding computation of per Included herein
share earnings
(12) Not Applicable -----
(13) 1995 Annual Report to Stockholders Included herein
(16) Not Applicable -----
(18) Not Applicable -----
(21) Registrant's Subsidiaries Included herein
(22) Not Applicable -----
</TABLE>
* Constitutes a compensatory plan or arrangement required to be filed with
this Form.
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<PAGE> 16
<TABLE>
<S> <C>
(23) Consent of Independent Certified Public Included herein
Accountants
(24) Not Applicable -----
(27) Financial Data Schedule Included herein
(Edgar Filing only)
(28) Not Applicable -----
(99) Pro Forma Condensed Statement of Income Included herein
</TABLE>
(b) Report on Form 8-K
On February 10, 1995, a Form 8-K was filed with the
Securities and Exchange Commission to report the results of a
cash tender offer for all the outstanding shares of common stock
of Perry Drug Stores, Inc. by Lake Acquisition Corporation, a
wholly-owned subsidiary of Rite Aid Corporation. The tender
offer price was $11.00 per share and expired on January 27, 1995.
The shares tendered, together with the 185,000 Perry shares
beneficially owned by Rite Aid prior to commencement of the
offer, constituted approximately 94.5% of Perry's 12,027,382
shares of common stock issued and outstanding. The remaining
Perry shares were acquired in a subsequent second-step merger
transaction on March 25, 1995.
Perry operated 224 drugstores throughout Michigan and a
distribution center and administrative offices located near
Pontiac, Michigan.
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<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: May 31, 1995 RITE AID CORPORATION
(Registrant)
By: /s/Martin L. Grass
-------------------------
Martin L. Grass, Chairman
of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons, which include the Principal
Executive Officer, the Principal Accounting and Financial Officer and a
majority of the Board of Directors, on behalf of the Registrant and in the
capacities and on the dates indicated:
May 31, 1995 /s/Alex Grass May 31, 1995 /s/Martin L. Grass
------------------------- ------------------------
Alex Grass Martin L. Grass
Honorary Chairman of the Board Chairman of the Board
of Directors and Chairman of of Directors and Chief
Executive Committee Executive Officer
May 31, 1995 /s/Timothy J. Noonan May 31, 1995 /s/Frank M. Bergonzi
------------------------- ------------------------
Timothy J. Noonan Frank M. Bergonzi
President and Chief Executive Vice President
Operating Officer and Chief Accounting and
and Director Financial Officer
May 31, 1995 /s/Franklin C. Brown May 31, 1995 /s/Leonard N. Stern
------------------------- ------------------------
Franklin C. Brown Leonard N. Stern
Executive Vice President Director
and Director
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<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
3 Ammendment to Certificate of Incorporation.
11 Statement regarding computation of per share
earnings.
13 1995 Annual Report to Stockholders.
21 Registrant's Subsidiaries.
23 Consent of Independent Certified Public Accountants.
27 Financial Data Schedule.
99 Pro Forma Condensed Statement of Income.
</TABLE>
<PAGE> 1
EXHIBIT 3
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
RITE AID CORPORATION
IT IS HEREBY CERTIFIED THAT:
1. The name of the corporation (hereinafter called the
"Corporation") is RITE AID CORPORATION.
2. The Certificate of Incorporation of the Corporation
is hereby amended by striking out the first paragraph of Article
FOURTH, as amended on July 14, 1986, and by substituting in lieu
of said paragraph the following new first paragraph of Article
FOURTH:
FOURTH: The total number of shares of stock
which this corporation shall have authority to
issue shall be two hundred sixty million
(260,000,000) shares of which two hundred
forty million (240,000,000) shares shall be
Common Stock of the par value of $1.00 per share,
and twenty million (20,000,000) shares shall be
Preferred Stock of the par value of $1.00 per
share."
3. The capital of the Corporation will not be reduced
under or by reason of the foregoing amendment to the Certificate
of Incorporation of the Corporation.
4. The amendement of the Certificate of Incorporation
herein certified has been duly adopted in accordance with the
provisions of Section 242 of the General Corporation law of the
State of Delaware.
IN WITNESS WHEREOF, we, Alex Grass and Charles J. Slane,
Chairman of the Board and Vice President and Secretary,
respectively, of RITE AID CORPORATION, have signed this
Certificate and caused the corporate seal of the Corporation to
be hereunto affixed this 7th day of July, 1993.
/s/Alex Grass
----------------------------
Alex Grass
Chairman of the Board
ATTEST: /s/Charles J. Slane
----------------------------
Charles J. Slane
Vice President and Secretary
<PAGE> 1
EXHIBIT 11
RITE AID CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
YEARS ENDED MARCH 4, 1995, FEBRUARY 26, 1994 AND FEBRUARY 27, 1993
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Earnings Per Common Share-Assuming No Dilution
Earnings
Income from continuing operations $141,286 $ 26,208 $123,750
Income (loss) from
discontinued operations - (16,920) 8,646
-------- -------- --------
Net Income $141,286 $ 9,288 $132,396
======== ======== ========
Weighted average number of
common shares outstanding 84,771 87,972 87,933
======== ======== ========
Primary earnings per common share
Continuing operations $1.67 $ .30 $1.41
Discontinued operations - (.19) .10
----- ----- -----
Net Income $1.67 $ .11 $1.51
===== ===== =====
Earnings Per Common Share-Assuming Full Dilution
Earnings
Income from continuing operations $141,286 $ 26,208 $123,750
Add after tax interest expense
applicable to 6 3/4%
convertible notes (a) 7,425 - 6,359
-------- -------- --------
Income from continuing operations
as adjusted 148,711 26,208 130,109
Income (loss) from
discontinued operations - (16,920) 8,646
-------- -------- --------
Net income as adjusted $148,711 $ 9,288 $138,755
======== ======== ========
Shares
Weighted average number of
common shares outstanding 84,771 87,972 87,933
Assuming conversion of 6 3/4%
convertible notes (a) 6,395 - 6,397
Assuming exercise of options reduced
by the number of shares which could
have been purchased with the proceeds
from exercise of such options 657 299 256
------- ------- -------
Weighted average number of
common shares outstanding as adjusted 91,823 88,271 94,586
======= ======= =======
Earnings per common share assuming
full dilution
Continuing operations $1.62 $ .30 $1.38
Discontinued operations - (.19) .09
----- ----- -----
Net Income $1.62(b) $ .11(b) $1.47(b)
===== ===== =====
</TABLE>
(a) Shown net of income taxes which were calculated at the company's
effective tax rate. For fiscal year 1994, the convertible notes
have an antidilutive effect. In accordance with APB opinion No. 15, the
computation of fully diluted earnings per share excludes all securities
whose conversion, exercise or issuance would have the effect of
increasing the earnings per share amount.
(b) This calculation is submitted in accordance with Regulation S-K item
601 (b)(11) although not required by APB Opinion No. 15 since dilution
is less than 3%.
<PAGE> 1
RITE AID
1995
ANNUAL
REPORT
[GRAPHICS -- SEE EDGAR APPENDIX]
<PAGE> 2
Highlights
<TABLE>
<CAPTION>
Dollars in thousands except per share amounts Years ended March 4, 1995 and February 26, 1994
- ------------------------------------------------------------------------------------------------------
1995 1994
(53 Weeks) (52 Weeks)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $ 4,533,851 $ 4,058,711
- -----------------------------------------------------------------------------------------------------
Income from Continuing Operations $ 141,286 $ 26,208*
Loss from Discontinued Operations -- (16,920)**
- -----------------------------------------------------------------------------------------------------
Net Income $ 141,286 $ 9,288
- -----------------------------------------------------------------------------------------------------
Earnings (Loss) per Common Share
Continuing Operations $ 1.67 $ .30
Discontinued Operations -- (.19)
- -----------------------------------------------------------------------------------------------------
Net Income $ 1.67 $ .11
- -----------------------------------------------------------------------------------------------------
Dividends per Common Share $ .62 $ .60
Average Number of
Common Shares Outstanding 84,771,000 87,972,000
Total Assets $ 2,472,607 $ 1,989,070
Stockholders' Equity $ 1,011,812 $ 954,714
Return on Average Stockholders' Equity 14.4% 11.1%***
Number of Employees 36,700 28,550
- -----------------------------------------------------------------------------------------------------
</TABLE>
Note: The company uses the LIFO method of accounting for substantially all of
its inventories. Under the FIFO method, net income would have been higher by
$9,377,000 or $.11 per share and $6,656,000 or $.07 per share for fiscal
years 1995 and 1994, respectively.
*Income from continuing operations for the 52 weeks ended February 26, 1994,
included a $149,196,000 one-time, pre-tax provision for corporate
restructuring and other charges.
**Loss from discontinued operations for the 52 weeks ended February 26, 1994,
included a $42,000,000 loss on disposal of discontinued operations less
applicable income tax benefit of $16,380,000.
***Return on average stockholders' equity for the 52 weeks ended February 26,
1994, excluded the after-tax impact of the restructuring and other charges,
and the loss from discontinued operations.
Description of Business
Rite Aid Corporation operates more drugstores than any other company in the
United States.
On March 4, 1995, there were 2,829 drugstores in 23 states and the District
of Columbia.
The company also operates Eagle Managed Care, a wholly owned subsidiary
which markets prescription benefit plans and other managed care services to
employers.
Rite Aid common stock is listed on the New York and Pacific Stock Exchanges
under the symbol RAD.
Contents
<TABLE>
<S> <C>
2 Letter to Stockholders
6 Highlights of the Year
13 Financial Review
34 Directors and Corporate Officers
35 Investment Information
</TABLE>
<PAGE> 3
Rite Aid Salutes Founder
Fiscal 1995 ended on a high note with record sales--no better way for Alex
Grass to cap off a career that spanned more than three decades. Alex retired as
chairman and chief executive officer on March 4, 1995, passing the company's
reins to a new management team. He founded Rite Aid in 1962 in Scranton,
Pennsylvania. The first store measured 1,700 square feet, and sold only health
and beauty aids. It was an instant success and Alex quickly opened three more
units. In 1966, Alex installed the first pharmacy department in the 22nd store
in New Rochelle, New York, and created what is today the largest operator of
pharmacies in the world.
Rite Aid has grown through strategic acquisitions along with internally
generated locations. The major purchases began with Daw Drug in 1969 and have
continued to the end of his tenure with the recent Perry Drug acquisition.
Rite Aid has acquired drugstore chains in almost every state in which it
operates. Venerable industry names such as Cohen Drug, Fountain-Stripe,
Keystone, Warner, Read's, Mann, Muir, Peoples Ohio, Gray Drug Fair, Begley and
LaVerdiere's have been successfully acquired and integrated into the Rite Aid
format under the leadership and direction of Alex Grass. In the history of the
chain drug industry, no other person has individually presided over the building
of as large a business in so short a period of time. For the past 32 years from
the company's beginning, Alex Grass was the only chief executive officer. He has
overseen the drugstores from their first dollar of sales to over $4.5 billion in
revenues in fiscal 1995. During this period, the chain has grown from one store
in Pennsylvania to 2,829 units in 23 states and the District of Columbia.
Throughout his tenure, Alex was constantly improving on his formula for a
successful bantam drugstore. He refined the concept year after year,
consistently achieving the highest operating profit margins in the industry. His
vision and ingenuity have been the driving force behind Rite Aid's phenomenal
success, and his tenacious attention to detail has led to a very high level of
execution throughout the business.
Alex also has been an active leader in the chain drug industry. He has
served as chairman of the board of directors of the National Association of
Chain Drug Stores, and has been an outspoken advocate of policies that
contributed to the betterment of the entire drugstore industry. His career has
encompassed a longer tenure than anyone at the helm of a major drugstore chain.
As he retires, he leaves Rite Aid bigger and stronger than at any time in
its history, and poised for explosive growth.
The board of directors and all of the associates of Rite Aid Corporation
join in expressing their sincere appreciation to Alex for his unprecedented and
countless contributions to our company.
Alex Grass
[PHOTO OF ALEX GRASS -- SEE EDGAR APPENDIX]
1
<PAGE> 4
Letter to Stockholders
Rite Aid Corporation achieved record revenues and net income for fiscal 1995.
Sales grew to $4.5 billion and profits from operations reached $141 million or
$1.67 per share. In addition, our same-store sales were the best in three years,
having increased 7.2% for the year while inflation rose only 2.0%.
Our balance sheet remains strong after the acquisitions of Perry Drug
Stores, Inc. and LaVerdiere's Enterprises, Inc. At year end, our net worth
totaled over $1 billion. At 14.4%, our return on equity reached its highest mark
of the past five years.
In January 1995, the board of directors increased the dividend from $.60
per share to $.68 per share on an annualized basis. Capital expenditures were
$183 million, a level we will maintain in fiscal 1996.
[INCOME FROM CONTINUING OPERATIONS BAR CHART -- SEE EDGAR APPENDIX]
<TABLE>
<CAPTION>
Income from Continuing Operations
- ---------------------------------
(Dollars in millions)
<S> <C>
91 100.1
92 114.9
93 123.8
94 116.8
95 141.3
</TABLE>
MANAGING CHANGE FOR LONG-TERM SUCCESS
Fiscal 1995 was a year of significant change and progress for Rite Aid. The
focus on our core drugstore business led to a number of noteworthy developments.
First, we divested the corporation of Sera-Tec Biologicals, Encore Books and
Concord Custom Cleaners, which together yielded proceeds of $100 million. We
expect the ADAP subsidiary to be sold soon, ending our involvement in specialty
retailing.
During the last year, we initiated an aggressive repositioning program to
enable our company to compete more effectively. As part of this program, we
introduced a new store design, which, at 10,000 square feet, is approximately
25% larger than our previous prototype. In addition to including a greater
variety of departments to attract more customers, most of our new locations are
freestanding buildings and offer larger parking lots.
Inside the store, we have added new services and expanded merchandise
assortments. Most freestanding units include large convenience food sections and
coolers, which stock a complete selection of beverages. Another important
enhancement was the addition of full-line cosmetic and fragrance sections in 245
stores, featuring prestige products at discount prices. Initial customer
response to this merchandise has been outstanding. Cosmetics represent a
significant growth area for us and we are committed to gaining a larger share of
this business as we go forward.
One-hour photo and Rite Express counters became a more important part of
our business in fiscal 1995. At year end, we operated 166 one-hour photo
departments throughout the chain. In our experience, overall photo finishing
business increases significantly in stores that also offer one-hour finishing.
We believe many more stores could benefit from one-hour photo departments and
plan to install them wherever demographics and store size indicate adequate
demand. Likewise, we successfully experimented with the sale of small household
and personal care appliances. These products will be included in all new,
relocated and expanded units.
2
<PAGE> 5
ACTIVELY SEEKING OPPORTUNITIES FOR GROWTH
Rite Aid actively pursued growth through acquisition and expansion in fiscal
1995. In September 1994, we acquired LaVerdiere's Enterprises, Inc. in Maine,
enhancing our presence in that state to a commanding 80 stores--more than three
times the number of our nearest competitor. In January 1995, we made the largest
acquisition in our history when we purchased Perry Drug Stores, Inc. Perry
operated 224 stores in Michigan with annual volume of $735 million. With 350
stores contributing annual revenues of approximately $1 billion, Rite Aid is now
the leading drugstore chain in Michigan. We acquired 200 independently owned
drugstores throughout our operating territory, transferring their prescription
files to nearby Rite Aid drugstores. We intend to continue to purchase chains
and stores that can improve market share and give us entry into established
markets where it would otherwise be difficult and costly to build new stores.
- ---------------------------------------
Our bold real estate plan calls for
1,000 new prototype stores in
three years.
- ---------------------------------------
Rite Aid also took advantage of a unique real estate opportunity in New
York City, where we operated 35 stores. We purchased 44 leases from Red Apple
supermarkets, including 34 locations in Manhattan, and supplemented this
transaction with more than 30 additional leases in New York City. Our goal is to
become the largest chain drugstore operator in that market over the next two
years. Twenty-five years of experience in New York City, and our new store
format, make us confident of continued success.
The bold real estate program we will implement over the next three years is
expected to strengthen our presence in all our markets. It calls for the
development of 1,000 prototype stores, of
[PHOTO OF TIM NOONAN AND MARTIN GRASS -- SEE EDGAR APPENDIX]
3
<PAGE> 6
which approximately 375 will be in newly constructed units. We also plan to
relocate 325 smaller stores to larger facilities and to expand 300 shopping
center sites into adjacent space. Fiscal 1996 is already off to an exceptional
start with 285 approved leases.
MEETING THE MANAGED HEALTH CARE CHALLENGE
Eagle Managed Care, our pharmacy benefit management company, had a strong first
full year of business, accounting for $125 million in prescription revenues at
Rite Aid stores. Eagle was successful in all aspects of its business. The
company secured the administration of new pharmacy plans for the Hotel Employees
and Restaurant Employees International Union, Hahnemann University Hospital, the
Newport News Shipbuilding Retirees and Smithfield Foods, Inc. It also placed
Intellorx drug utilization software at Prudential Insurance Company.
Later this year, Eagle will enter the mail order pharmacy business with a
new facility in Maryland. The subsidiary will then offer a complete menu of
pharmacy benefit management services, and be well positioned to compete for all
types of clients. Eagle will play an increasingly important role in the
development of our pharmacy business.
TAKING THE LEAD WITH CUTTING-EDGE TECHNOLOGY
Rite Aid continued to invest heavily in technology in fiscal 1995 as a means of
reducing both the costs of running our stores and the time needed to respond to
our highly competitive marketplace. Today, we have the largest satellite-based,
on-line pharmacy system in the world. We are also the only drugstore chain with
the ability to broadcast live television throughout its network of stores. This
sophisticated technology enables us to transmit important information on a
timely basis and eliminate costly travel and meetings.
- ---------------------------------------
We expect to gain greater efficiencies
throughout the company with new
technology.
- ---------------------------------------
In May 1995, we will finish installing a proprietary automatic
replenishment system. It is used to order non-pharmacy merchandise from our
distribution centers. As we go forward, we expect to derive new benefits from
the use of technology to streamline and enhance efficiencies in all parts of the
business.
ASSEMBLING A DYNAMIC NEW MANAGEMENT TEAM
In April 1995, we began a major realignment of our field operations team. Most
significantly, we are changing from a dual structure of separate general store
and pharmacy management to an integrated one. This new organization will enable
us to utilize the most proficient, skilled field executives, regardless of their
backgrounds.
A result of this important change will be the elimination of 185 positions,
from executive vice president to store supervisors, at a savings of
approximately $8 million annually. Above all, the realignment will enable us to
handle competitive challenges faster and satisfy customer needs more
efficiently.
4
<PAGE> 7
Historically, our selling, general and administrative expenses have
been among the lowest in our industry; now we will be even leaner. A
comprehensive training program, under way during April and May 1995, will
prepare associates for the new management structure.
- -----------------------
We have redoubled
efforts to expand
the business with a
focus on increasing
shareholder value
faster than
our competitors.
- -----------------------
This letter to shareholders marks the first in Rite Aid's history with a
new senior management team in place. Alex Grass, the founder of Rite Aid and our
only chief executive officer for over 32 years, retired at the end of the fiscal
year. He will continue as honorary chairman of the board and chairman of the
executive committee. In addition, Alex will be available to consult on important
strategic issues. Martin Grass was elevated to chairman of the board and chief
executive officer from president. Tim Noonan was named president and chief
operating officer, previously having served as executive vice president.
Together, Martin and Tim have 43 years of Rite Aid experience. Each has played a
major role in the growth of our business over the past decade.
Additional management changes included the appointment of two key officers
as executive vice presidents: Frank Bergonzi, our chief financial officer, and
Kevin Mann, who is in charge of marketing. Wayne Gibson, who oversees strategic
planning, and Chuck Kibler, who is now responsible for all drugstore operations,
both were named senior vice presidents.
LOOKING AHEAD
We have redoubled our efforts to expand the business as rapidly as possible,
with a particular focus on increasing shareholder value faster than any other
company in the drugstore industry. To accomplish this objective, we must
aggressively pursue our plans for expansion, by developing profitable new
prototype stores. In addition, we must grow both the pharmacy and front end
businesses at a rapid rate, use new technology to reduce operating costs and
aggressively market prescription services through Eagle Managed Care.
Certainly, senior management sets the direction and tone for the growth of
our business. However, more than 36,700 dedicated associates execute our
corporate strategy and are truly responsible for our success this past year.
Together, the Rite Aid team looks forward to an exciting, profitable fiscal
1996.
/s/ Martin L. Grass /s/ Tim Noonan
- -------------------------- ----------------------------
Martin L. Grass Timothy J. Noonan
Chairman of the Board and President and
Chief Executive Officer Chief Operating Officer
April 28, 1995
5
<PAGE> 8
Growing through Acquisition
Two acquisitions completed in fiscal 1995 have strengthened Rite Aid's industry
position. Our purchase of 224 Perry drugstores has made us the largest drugstore
chain in Michigan. With a similar retail format, Perry Drugs is an excellent fit
and an important platform for growth. The purchase of 72 LaVerdiere's drugstores
in Maine, Vermont and New Hampshire has likewise expanded our presence in the
New England market. While elements of all our stores are uniform, Rite Aid no
longer takes a cookie-cutter approach to merchandising. A priority is serving
the unique needs of each customer and market. At LaVerdiere's, this means the
stores will continue to offer their special mix of sporting goods and outdoor
equipment, while expanding their assortment of health and beauty aids,
convenience foods and private label products.
[PHOTOS OF RITE AID AND PERRY DRUGSTORE FRONTS -- SEE EDGAR APPENDIX]
6
<PAGE> 9
Expanding Opportunities in New York City
[GRAPHICS OF EXISTING AND PROJECTED RITE AID DRUGSTORES IN NEW YORK CITY -- SEE
EDGAR APPENDIX]
For more than 25 years, Rite Aid has had a limited though lucrative presence in
New York City. In fact, the region's stores are consistently among the chain's
strongest performers. These results, combined with a softer real estate market
in the city, make this an opportune time to expand our position in this
challenging market. With our financial strength and enlarged store format, Rite
Aid is poised to become the largest drugstore chain in New York City.
In fiscal 1995, we reached an agreement with a major operator of
supermarkets to acquire up to 44 leaseholds. We now have real estate commitments
for 74 new stores and expect to add new leases at a rapid rate over the next two
years. Busy New Yorkers should welcome Rite Aid's mix of convenience foods,
expanded cosmetics and seasonal merchandise in their diverse communities.
7
<PAGE> 10
New Customer-Oriented Store Design
Design styles and trends have come and gone since we opened our first small,
neighborhood drugstore more than 30 years ago. But we have always focused on
creating retail environments that are convenient and easy to shop.
Our new, 10,000 square-foot prototype blends traditional neighborhood
drugstore service into a larger store with more products and services. Aisles
were widened and brighter lighting was added to stimulate traffic throughout the
store. There is more space at the front, giving customers easy access to the
checkout. We plan to open, expand or relocate 1,000 of these larger stores over
the next three years. Most of them will be freestanding with large parking lots
and drive-thru windows.
The pharmacy remains the focal point of every Rite Aid store. To encourage
greater interaction between pharmacists and customers, we've added a special
place for private patient counseling.
[PHOTO OF PEOPLE IN STORE -- SEE EDGAR APPENDIX]
8
<PAGE> 11
[PHOTO OF 1-HOUR PHOTO COUNTER -- SEE EDGAR APPENDIX]
[PHOTOS OF PHARMACISTS COUNSELING PATIENTS -- SEE EDGAR APPENDIX]
A comfortable waiting area is set apart from regular store traffic. Behind the
counter, pharmacists are using an advanced computer system, which retains
patient data on-line. This enables customers to have their records available at
any Rite Aid store throughout the chain. In some markets, customers can also
count on the convenience and dependability of 24-hour stores.
One-hour photo departments and Rite Express are being installed in many
stores. Rite Express offers fax, photocopy, and package and postal services.
9
<PAGE> 12
[PHOTO OF SHOPPER WITH CART -- SEE EDGAR APPENDIX]
Convenience foods, such as frozen meals and dairy products, are available in
many Rite Aid stores, and checkout areas now highlight small appliances.
These departments attract new customers and give current customers more
shopping options.
In every aisle, our merchandise selection illustrates Rite Aid's dedication
to meeting customer demand market by market and store by store.
[PHOTO OF BLENDER & COFFEEMAKER -- SEE EDGAR APPENDIX]
10
<PAGE> 13
For instance, surveys reveal customers prefer buying cosmetics in
drugstores. In response, many stores now offer an expanded line of cosmetics and
designer fragrances.
From private label health and beauty aids and national brand household
items, to merchandise geared to African American customers, we constantly
evaluate and adjust product mix to meet customer preferences.
[PHOTO OF PERFUME BOTTLES -- SEE EDGAR APPENDIX]
[PHOTO OF WOMAN SHOPPING FOR COSMETICS -- SEE EDGAR APPENDIX]
11
<PAGE> 14
Technology Strengthens Our Network
Since 1991, we've accelerated our investment in new technology, linking more
than 2,800 stores through one of the largest satellite networks in the United
States. It has reduced data transmission costs while speeding communications
directly to field management and store associates. It has also increased
operating efficiency with the roll out of front end automatic replenishment and
a new point-of-sale merchandise tracking system.
This year, Rite Aid premiered a weekly corporate television program to all
stores. Broadcast from our headquarters, the 30-minute segment provides a forum
for discussion of corporate, operations, merchandising and marketing issues.
Television is used to disseminate a common message to all associates. It will
help us react more quickly to competitive situations, trouble-shoot problems
immediately, merchandise our stores better and ultimately make us more
profitable.
[PHOTO OF VIDEO-CONFERENCING SESSION -- SEE EDGAR APPENDIX]
[PHOTO OF WOMAN TALKING TO TRAINEES -- SEE EDGAR APPENDIX]
12
<PAGE> 15
Financial Review
<TABLE>
<CAPTION>
Contents
- --------
<S> <C>
14 Management's Discussion and Analysis of
Results of Operations and Financial Condition
17 Management's Responsibility for
Financial Statements
18 Independent Auditor's Report
19 Consolidated Balance Sheet
20 Consolidated Statement of Income
21 Consolidated Statement of
Stockholders' Equity
22 Consolidated Statement of Cash Flows
23 Notes to Consolidated Financial Statements
31 Interim Financial Results
32 Ten-Year Financial Review
</TABLE>
[DRUGSTORE SALES BAR CHART -- SEE EDGAR APPENDIX]
<TABLE>
<CAPTION>
Drugstore Sales
(Dollars in billions)
<S> <C>
91 3.260
92 3.531
93 3.834
94 4.059
95 4.534
</TABLE>
[PHARMACY SALES AS A PERCENTAGE OF DRUGSTORE SALES BAR CHART -- SEE EDGAR
APPENDIX]
<TABLE>
<CAPTION>
Pharmacy Sales
As a Percentage of
Drugstore Sales
(Percent)
<S> <C>
91 45.2
92 46.4
93 48.5
94 50.8
95 53.1
</TABLE>
[NUMBER OF DRUGSTORES BAR CHART -- SEE EDGAR APPENDIX]
<TABLE>
<CAPTION>
Number
of Drugstores
<S> <C>
91 2,420
92 2,452
93 2,573
94 2,690
95 2,829
</TABLE>
13
<PAGE> 16
Management's Discussion and Analysis of
Results of Operations and Financial Condition
RESULTS OF OPERATIONS
Sales
Net sales for the fiscal year ended March 4, 1995, increased $475 million or
11.7% to $4.534 billion. The gain was mainly due to same-store sales increases
of 7.2% for the fiscal year. Contributing to the higher sales were revenues from
one additional week since fiscal year 1995 contained 53 weeks and the previous
year contained 52 weeks. Also reflected in the higher sales were revenues
generated by the 339 stores added during the year including 224 units acquired
from Perry Drug Stores, Inc. on January 28, 1995, and 72 LaVerdiere's
Enterprises, Inc. drugstores purchased on September 8, 1994. During fiscal year
1995, 200 underperforming drugstores were closed as part of a corporate
restructuring. Those 200 stores accounted for $166.4 million of sales a year
ago. As of March 4, 1995, the company operated 2,829 drugstores.
For fiscal years 1994 and 1993, net sales were $4.059 billion and $3.834
billion, respectively, representing increases of 5.9% and 8.6% over their
year-earlier periods. The higher sales amounts can be attributed to the stores
added each year and same-store sales gains. The decline in sales growth for
fiscal 1994, however, resulted from a smaller same-store sales increase of 2.8%
compared to 5.1% for fiscal 1993. Adversely impacting the prior years were
declining inflation rates for pharmaceutical products and soft demand for
non-pharmacy merchandise. Fiscal year 1994 was also affected by lower retail
cigarette prices resulting from large price decreases by the manufacturers.
[THIRD-PARTY SALES AS A PERCENTAGE OF PHARMACY SALES BAR CHART -- SEE EDGAR
APPENDIX]
<TABLE>
<CAPTION>
Third-Party Sales
As a Percentage of
Pharmacy Sales
(Percent)
<S> <C>
91 46.5
92 48.0
93 51.3
94 54.1
95 58.5
</TABLE>
Costs and Expenses
Cost of goods sold including occupancy costs were 73.4% of net sales for the
current year compared to 73.2% for both fiscal years 1994 and 1993. The growth
of third-party prescription sales, which usually have lower margins than other
pharmacy sales, continued to pressure gross profits. Prescription sales paid by
third-party payers accounted for 58.5%, 54.1% and 51.3% of total pharmacy
revenues for fiscal years 1995, 1994 and 1993, respectively. Fiscal year 1994
benefited from a drop in the last-in, first-out (LIFO) inventory charge due to a
decline in inflation. The company's weighted average internal inflation indexes
were 2.0% for 1995, 1.5% for 1994 and 2.9% for 1993 resulting in LIFO charges of
$15.4 million, $10.9 million and $17.2 million, respectively. The LIFO method
values merchandise sold at its most recent cost.
Selling, general and administrative expenses, expressed as a percentage of
net sales, were 20.6%, 21.3% and 20.8% for fiscal years 1995, 1994 and 1993,
respectively. The current period's lower operating expense ratio compared to the
two previous years resulted from a higher same-store sales increase and the
additional sales week, which enhanced the company's ability to leverage
operating expenses. In addition, fiscal 1995 benefited from closing the 200
underperforming drugstores which historically had higher percentages of
operating expenses to sales. Also, the stores' closing costs were charged to the
reserve for restructuring and other charges, and not operations. Fiscal 1994
reflected the low same-store sales gain and its unfavorable impact on operating
expenses. Both fiscal years 1994 and 1993 incurred costs associated with a
chainwide installation of point-of-sale cash registers and satellite equipment,
as well as a large number of store openings and closings. There were 189
drugstores opened and 72 units closed in 1994 and 165 openings and 44 closings
in 1993.
Interest expense amounted to $42.3 million in 1995, $28.7 million in 1994 and
$29.4 million in 1993. The higher interest expense for fiscal 1995 reflects the
rise in short-term interest rates and a greater level of indebtedness. The
annual weighted average rates on the company's commercial paper were 5.0%, 3.2%
and 3.5% for fiscal years 1995, 1994 and 1993, respectively. The increased debt
was used for the company's acquisitions including the purchase of Perry and
LaVerdiere's, and to finance the stock buyback programs. Since January 10, 1994,
when the first buyback was initiated, the company has purchased 3,925,069 shares
of its common stock at a cost of $75 million.
In August 1993, a large portion of the company's outstanding short-term debt
was financed on a long-term basis through the issuance of 20-year, 6 7/8% senior
debentures having an aggregate principal value of $200 million. This has
resulted in higher interest expense but has fixed a portion of interest cost on
a long-term basis at a favorable rate.
Restructuring and Other Charges
On January 7, 1994, the company announced a restructuring plan which included
sale of the
14
<PAGE> 17
non-drugstore businesses, stock buyback program, closure of 200 underperforming
drugstores and write-off of other assets. To provide for the drugstore closings
and disposition of other assets, a pre-tax charge of $149.2 million was recorded
in the fourth quarter of fiscal year 1994.
The components of the restructuring charge that related to the 200 drugstore
closings were as follows: lease settlement costs--$44.5 million; write-off of
intangible and fixed assets--$31.0 million; inventory liquidation costs--$13.6
million; severance costs--$4.5 million; and operating losses during the closing
period--$13.1 million. Of the remaining provision, $19.8 million related to
impaired investments and $22.7 million was for the write-off of other assets. As
of March 4, 1995, the 200 stores have been closed and the impaired investments
and other assets have been written off. The reserve components ended fiscal year
1995 with minimal balances except lease settlement costs which had a remaining
balance of $32.4 million. The company continues to negotiate with landlords of
the closed stores to terminate their leases. Where favorable terms cannot be
agreed upon, the company will endeavor to sublet the locations until the leases
expire. Additional details on charges to the restructuring reserve are set forth
in Note 2 to the financial statements.
It is estimated that the operating results for fiscal 1995 included about
$9.3 million in pre-tax savings from closing the underperforming stores.
Although these stores generated revenues of $166.4 million annually, their per
store sales were well below the company's per store average. Consequently, their
labor costs and other nonoccupancy operating expenses exceeded their gross
margin dollars.
Income Taxes
The effective income tax rate was 39.0% for fiscal 1995 compared to 42.6% for
1994 and 38.3% for 1993. The higher effective rate for fiscal 1994 reflected the
change in the federal corporate income tax rate from 34% to 35% legislated in
August 1993 by the Omnibus Budget Reconciliation Act of 1993. In accordance with
Statement of Financial Accounting Standards No. 109, deferred tax balances were
also recomputed using the enacted rate, resulting in a charge to the income tax
provision of $1.7 million.
Income from Continuing Operations
Income from continuing operations for fiscal 1995 rose to $141.3 million from
$26.2 million in 1994 and $123.8 million in 1993. The current year benefited
from strong same-store sales and the additional sales week. Fiscal 1995 was also
favorably impacted by the closing of the 200 underperforming stores. Adversely
affecting the current year results, but to a lesser extent, were a greater
percentage of third-party prescription sales, higher interest costs and a larger
LIFO inventory charge.
The prior year drop in earnings reflected the $149.2 million pre-tax
provision for restructuring and other charges. Excluding the after-tax effect of
this provision, income from continuing operations for fiscal 1994 would have
been $116.8 million. Contributing to last year's unfavorable results were low
same-store sales, a larger operating expense ratio and a higher effective income
tax rate. The 1994 increase in lower margin third-party prescription sales over
the year-earlier period was mostly offset by the drop in the LIFO inventory
charge.
[ANNUAL DIVIDEND BAR CHART -- SEE EDGAR APPENDIX]
<TABLE>
<CAPTION>
Annual Dividend
Per Share
(Cents per share)
<S> <C>
91 46.25
92 51.25
93 56.25
94 60.0
95 62.0
</TABLE>
Discontinued Operations
As part of the 1994 restructuring strategy, the company authorized the sale of
its four non-drugstore businesses which included ADAP, an auto parts retailer
with 96 stores; Encore Books, which operated 98 stores; Concord Custom Cleaners,
which had 168 outlets; and Sera-Tec Biologicals, which consisted of 33 plasma
collection centers providing plasma for use in therapeutic and diagnostic
products.
An after-tax provision of $25.6 million was recorded in the fourth quarter of
fiscal 1994 for the loss on disposal of these businesses. Their prior years' net
earnings were $8.7 million for 1994 and $8.6 million for 1993, and were
segregated in the statement of income as discontinued operations. During fiscal
year 1995, Encore, Concord and Sera-Tec were sold. The net proceeds received
amounted to $75.8 million after taxes and expenses of $24.3 million. The
resulting aggregate after-tax loss of $12.3 million was recorded to the reserve
for loss on disposal of discontinued operations. The reserve amount originally
provided for the sale of these three businesses was $12.3 million. The remaining
net reserve balance of $13.3 million as of March 4, 1995, is believed to be
adequate for the sale of ADAP, which is expected to take place in the first
quarter of fiscal 1996.
15
<PAGE> 18
Net Income
Net income was $141.3 million for fiscal year 1995, and $9.3 million and $132.4
million, including the results from discontinued operations, for fiscal years
1994 and 1993, respectively. Included in the fiscal 1994 loss from discontinued
operations was the $25.6 million after-tax provision for loss on disposal of the
company's four non-drugstore businesses.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $190.2 million, $222.7 million and
$199.4 million for fiscal years 1995, 1994 and 1993, respectively. Despite
increased earnings, cash from current year operations decreased compared to last
year partly due to cash expenditures of approximately $29.1 million related to
the store closing program. In addition, cash was needed to support the
operations of the discontinued businesses. There were also greater cash payments
for interest, income taxes and to support higher inventory levels. The increase
in cash from operations for fiscal 1994 reflected the positive contribution from
discontinued operations, as well as lower cash payments for interest and income
taxes. Typically, cash provided by operations is adequate to supply working
capital, provide cash for dividend payments and substantially contribute to
investing activities. External sources of cash are used mainly to help finance
the purchase of businesses and other large cash requirements.
The company issues commercial paper rated A-2 by Standard & Poor's and P-2 by
Moody's to supplement cash generated by operations. Unused credit commitments
are maintained to support commercial paper issuances. Outstanding commercial
paper of the company amounted to $436.5 million at March 4, 1995, $186 million
at February 26, 1994, and $272 million at February 27, 1993. Along with the
proceeds received from the sale of the discontinued businesses, the additional
commercial paper borrowings during fiscal 1995 were used to finance the
acquisitions and stock buyback program. Commercial paper indebtedness was
reduced in August 1993 through the use of net proceeds received from the
20-year, 6 7/8% senior debentures totaling $200 million.
On March 15, 1995, $50 million of 8.5% convertible debentures acquired from
Perry were redeemed by the company through proceeds from commercial paper
borrowings. On April 20, 1995, the company issued $200 million of 7 5/8% senior
notes, due April 15, 2005, to repay part of its outstanding commercial paper.
These notes were issued under a previously filed Form S-3 shelf registration
statement leaving $25 million of registered debt securities available to be
issued.
In the first quarter of fiscal 1996, the company expects to receive cash
proceeds from the sale of ADAP. The company also has $600 million in revolving
credit commitments for future cash needs if required.
Net working capital was $796 million at March 4, 1995, $763.2 million at
February 26, 1994, and $811.6 million at February 27, 1993. The ratios of
current assets to current liabilities were 2.4:1, 3.1:1 and 4.0:1, respectively.
The current ratio for 1995 dropped due to the increase in short-term debt and
current maturities of long-term debt. The decrease in net working capital and
current ratio for fiscal 1994 reflected the liabilities recorded for
restructuring and other charges, and net loss on disposal of discontinued
operations.
Inventory levels for fiscal years 1995 and 1994 have risen at a rate greater
than the sales increase. Both years were impacted by a broader product selection
containing enhanced cosmetic and fragrance merchandise, along with small
appliances and electronics. The inventory balances also reflect merchandise
obtained through the purchase of businesses.
Total debt as a percentage of capitalization (i.e., total debt and
stockholders' equity) was 48.3% for fiscal year-end 1995 versus 40.3% and 33.4%
for the two prior years. Fiscal years 1995 and 1994 reflect the higher
outstanding debt of the company along with last year's decrease in stockholders'
equity. At March 4, 1995, stockholders' equity amounted to $1.012 billion
compared to $954.7 million at February 26, 1994, and $1.036 billion at February
27, 1993. The company remains financially strong. The corporate restructuring
has allowed the company to focus on the retail drug business, positioning itself
for future growth.
IMPACT OF INFLATION AND CHANGING PRICES
The company's internal inflation indexes rose in fiscal 1995 after declining the
two previous years. Though not significant, inflation continues to cause
increases in product, occupancy and operating costs, as well as the cost of
acquiring capital assets. The effect of higher costs is minimized by achieving
operating efficiencies and passing vendor price increases along to customers.
COMMON STOCK AND DIVIDENDS
Rite Aid Corporation's common stock is listed on the New York and Pacific Stock
Exchanges with the stock symbol RAD. On April 24, 1995, there were approximately
9,000 shareholders. Quarterly high and low stock prices, based on New York Stock
Exchange composite transactions, together with dividend information are shown
below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
FISCAL QUARTER HIGH LOW DIVIDEND
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995 First 20 3/8 18 1/8 15(cent)
Second 21 1/2 18 7/8 15(cent)
Third 24 20 15(cent)
Fourth 26 3/8 21 5/8 17(cent)
- ------------------------------------------------------------------
1994 First 20 7/8 17 5/8 15(cent)
Second 19 1/8 16 1/4 15(cent)
Third 17 3/4 15 1/4 15(cent)
Fourth 19 3/8 15 1/4 15(cent)
- ------------------------------------------------------------------
</TABLE>
16
<PAGE> 19
Management's Responsibility
for Financial Statements
The management of Rite Aid Corporation is responsible for the preparation,
integrity and objectivity of the consolidated financial statements contained in
this annual report. The financial statements have been prepared in conformity
with generally accepted accounting principles appropriate in the circumstances
and necessarily include some amounts that are based on our best estimates and
judgments. The other financial information in this annual report is consistent
with the financial statements.
The company maintains an effective internal control structure designed to
provide reasonable assurance at reasonable costs that assets are safeguarded
from material loss, that transactions are executed in accordance with
management's authorization and that financial records are reliable for use in
preparing financial statements. In addition, the company maintains an internal
auditing department to review the adequacy, application and compliance of
internal accounting controls.
KPMG Peat Marwick LLP, Independent Certified Public Accountants, have been
engaged to audit the financial statements and to render an opinion as to their
conformity with generally accepted accounting principles. Their audit is
conducted in accordance with generally accepted auditing standards and includes
such procedures deemed necessary to provide reasonable assurance that the
financial statements are presented fairly. KPMG Peat Marwick LLP is a member of
the SEC Practice Section of the American Institute of Certified Public
Accountants and has submitted a copy of their peer review results to management.
The Board of Directors pursues its responsi bility for these financial
statements through its audit committee, composed of outside directors, which
meets periodically with both management and the independent auditors to assure
that each is carrying out its responsibilities. KPMG Peat Marwick LLP and the
internal audit department have free access to the audit committee, with and
without the presence of management.
17
<PAGE> 20
Independent
Auditor's Report
The Board of Directors
Rite Aid Corporation
Camp Hill, Pennsylvania
We have audited the accompanying consolidated balance sheets of Rite Aid
Corporation and subsidiaries as of March 4, 1995 and February 26, 1994, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the years in the three year period ended March 4, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Rite Aid
Corporation and subsidiaries as of March 4, 1995 and February 26, 1994, and the
results of their operations and their cash flows for each of the years in the
three year period ended March 4, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for investments to conform with Statement of Financial
Accounting Standards No. 115 in fiscal year 1995 and changed its method of
accounting for income taxes to conform with Statement of Financial Accounting
Standards No. 109 in fiscal year 1993.
KPMG Peat Marwick LLP
Harrisburg, Pennsylvania
April 21, 1995
18
<PAGE> 21
Consolidated Rite Aid Corporation and Subsidiaries
Balance Sheet
<TABLE>
<CAPTION>
March 4, 1995 and February 26, 1994
- -----------------------------------------------------------------------------------------------------------------------------
In thousands of dollars 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash $ 7,148 $ 17,403
Accounts receivable, net (Note 1) 239,859 185,857
Inventories (Note 1) 1,070,346 844,074
Prepaid expenses and other current assets 28,716 19,231
Net current assets of discontinued operations (Note 3) 27,151 58,860
- -----------------------------------------------------------------------------------------------------------------------------
Total current assets 1,373,220 1,125,425
- -----------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost (Note 7)
Land 75,908 57,746
Buildings 244,128 197,381
Leasehold improvements 405,274 360,662
Equipment 666,359 556,334
Construction in progress 35,422 25,138
- -----------------------------------------------------------------------------------------------------------------------------
1,427,091 1,197,261
Accumulated depreciation and amortization 648,612 558,567
- -----------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 778,479 638,694
- -----------------------------------------------------------------------------------------------------------------------------
Intangible assets (Note 1)
Excess of cost over underlying equity in subsidiaries (less accumulated
amortization of $8,023 and $7,299) 99,653 27,149
Lease acquisition costs and other intangible assets
(less accumulated amortization of $106,592 and $97,885) 154,359 98,893
- -----------------------------------------------------------------------------------------------------------------------------
Total intangible assets 254,012 126,042
- -----------------------------------------------------------------------------------------------------------------------------
Other assets 26,153 21,125
- -----------------------------------------------------------------------------------------------------------------------------
Net noncurrent assets of discontinued operations (Note 3) 40,743 77,784
- -----------------------------------------------------------------------------------------------------------------------------
$2,472,607 $1,989,070
=============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt and current maturities of long-term debt (Note 6) $ 137,553 $ 30,912
Accounts payable 273,128 173,825
Income taxes (Notes 1 and 5) 38,241 5,016
Sales and other taxes payable 13,796 10,569
Accrued salaries, wages and other current liabilities 79,263 40,587
Reserve for restructuring and other charges (Note 2) 35,244 101,300
- -----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 577,225 362,209
Long-term debt, less current maturities (Note 6) 805,984 613,418
Deferred income taxes (Notes 1 and 5) 77,586 58,729
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,460,795 1,034,356
- -----------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 10 and 14)
Stockholders' equity (Notes 11, 12 and 13)
Preferred stock, par value $1 per share, series A junior participating preferred stock -- --
Common stock, par value $1 per share, issued 90,290,136 and 90,287,859 shares 90,290 90,288
Additional paid-in capital 60,655 59,423
Retained earnings 955,111 866,134
Net unrealized gain on marketable securities (Note 1) 2,847 --
Cumulative pension liability adjustments (Note 9) (1,314) (1,916)
Treasury stock, at cost (6,125,069 and 4,277,271 shares) (95,777) (59,215)
- -----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,011,812 954,714
- -----------------------------------------------------------------------------------------------------------------------------
$2,472,607 $1,989,070
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE> 22
Consolidated Rite Aid Corporation and Subsidiaries
Statement of Income
<TABLE>
<CAPTION>
Years ended March 4, 1995, February 26, 1994 and February 27, 1993
- -----------------------------------------------------------------------------------------------------------------------------
In thousands of dollars except per share amounts 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $4,533,851 $4,058,711 $3,833,591
Costs and expenses
Cost of goods sold, including occupancy costs 3,327,920 2,970,025 2,804,787
Selling, general and administrative expenses 932,167 865,137 798,848
Interest expense 42,300 28,683 29,387
Restructuring and other charges (Note 2) -- 149,196 --
- -----------------------------------------------------------------------------------------------------------------------------
4,302,387 4,013,041 3,633,022
- -----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 231,464 45,670 200,569
Income taxes (Notes 1 and 5) 90,178 19,462 76,819
- -----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 141,286 26,208 123,750
- -----------------------------------------------------------------------------------------------------------------------------
Discontinued operations (Note 3)
Income from operations (less applicable income
taxes of $5,809 and $5,366) -- 8,700 8,646
Provision for dispositions (less applicable
income tax benefit of $16,380) -- (25,620) --
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations -- (16,920) 8,646
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 141,286 $ 9,288 $ 132,396
=============================================================================================================================
Earnings (loss) per share (Notes 1 and 11)
Continuing operations $ 1.67 $ .30 $ 1.41
Discontinued operations -- (.19) .10
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 1.67 $ .11 $ 1.51
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE> 23
Consolidated Statement Rite Aid Corporation and Subsidiaries
of Stockholders' Equity
<TABLE>
<CAPTION>
In thousands of dollars except per share amounts Years ended March 4, 1995, February 26, 1994 and February 27, 1993
- -----------------------------------------------------------------------------------------------------------------------------
CUMULATIVE ADJUSTMENTS
COMMON STOCK ADDITIONAL -----------------------------------------
------------------- PAID-IN RETAINED UNREALIZED PENSION
ISSUED TREASURY CAPITAL EARNINGS TRANSLATION SECURITIES GAIN LIABILITY TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, FEB. 29, 1992 $90,014 $(20,786) $55,258 $826,719 $ -- $ -- $ (630) $ 950,575
Stock options exercised 226 3,334 3,560
Net income 132,396 132,396
Cash dividends paid
($.5625 per share) (49,442) (49,442)
Foreign currency
translation adjustments (923) (923)
Minimum pension liability
adjustments (523) (523)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, FEB. 27, 1993 90,240 (20,786) 58,592 909,673 (923) -- (1,153) 1,035,643
Stock acquired through
self-tender offer (38,429) (38,429)
Stock options exercised 48 831 879
Net income 9,288 9,288
Cash dividends paid
($.60 per share) (52,827) (52,827)
Foreign currency
translation adjustments 923 923
Minimum pension liability
adjustments (763) (763)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, FEB. 26, 1994 90,288 (59,215) 59,423 866,134 -- -- (1,916) 954,714
Stock acquired for treasury (36,562) (36,562)
Stock options exercised 2 1,232 1,234
Net income 141,286 141,286
Cash dividends paid
($.62 per share) (52,309) (52,309)
Net unrealized gain on
marketable securities 2,847 2,847
Minimum pension liability
adjustments 602 602
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 4, 1995 $90,290 $(95,777) $60,655 $955,111 $ -- $ 2,847 $ (1,314) $ 1,011,812
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE> 24
Consolidated Statement Rite Aid Corporation and Subsidiaries
of Cash Flows
<TABLE>
<CAPTION>
Years ended March 4, 1995, February 26, 1994 and February 27, 1993
- -----------------------------------------------------------------------------------------------------------------------------
In thousands of dollars 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations before income taxes $ 231,464 $ 45,670 $ 200,569
Adjustments to reconcile to net cash
provided by continuing operating activities:
Depreciation and amortization 98,560 95,668 90,266
Accreted interest on zero coupon notes 12,215 11,487 10,306
Restructuring and other charges (Note 2) -- 123,781 --
Changes in operating assets and liabilities
net of effects from acquisitions (Note 4)
(Increase) decrease in accounts receivable (23,291) 4,120 (10,710)
(Increase) in inventories (63,911) (36,737) (59,155)
(Increase) decrease in prepaid
expenses and other current assets (3,646) 8,043 1,437
Increase in accounts payable 33,184 2,161 22,521
Increase (decrease) in accrued expenses
and other current liabilities (21,276) 14,569 7,655
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided by continuing operations before income taxes 263,299 268,762 262,889
Pre-tax income from discontinued operations including results
during phaseout period of $5,490 in 1995 and ($553) in 1994 5,490 13,956 14,012
Adjustments to reconcile to net cash provided by
discontinued operating activities:
Depreciation and amortization 8,319 10,150 8,509
Changes in net operating assets (15,148) (9,668) (14,695)
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) discontinued operations before income taxes (1,339) 14,438 7,826
Income taxes paid (71,717) (60,541) (71,316)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 190,243 222,659 199,399
- -----------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (182,665) (169,142) (114,795)
Purchase of businesses, net of cash acquired (Note 4) (175,729) (35,416) (43,329)
Intangible assets acquired (14,476) (5,853) (1,063)
Investing activities of discontinued operations (14,336) (17,020) (12,968)
Proceeds from the sale of discontinued operations 91,488 -- --
Other 1,215 (483) (9,696)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (294,503) (227,914) (181,851)
- -----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net proceeds (payments) of commercial paper borrowings 197,662 (86,000) 92,000
Proceeds from the issuance of senior debentures (Note 6) -- 197,690 --
Principal payments on long-term debt (16,020) (1,071) (86,765)
Cash dividends paid (52,309) (52,827) (49,442)
Stock acquired for treasury (Note 11) (36,562) (38,429) --
Proceeds from the sale of stock 1,234 879 3,560
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 94,005 20,242 (40,647)
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (10,255) 14,987 (23,099)
Cash at beginning of year 17,403 2,416 25,515
- -----------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 7,148 $ 17,403 $ 2,416
=============================================================================================================================
Supplemental disclosure of cash paid for interest
(net of amounts capitalized of $373, $217 and $445) $ 32,664 $ 16,231 $ 20,178
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE> 25
Notes to Consolidated
Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year. The company's fiscal year ends on the Saturday closest to February
29 or March 1. The fiscal year ended March 4, 1995, contained 53 weeks. The
fiscal years ended February 26, 1994, and February 27, 1993, contained 52 weeks.
Principles of Consolidation. The consolidated financial statements include the
accounts of the company and all of its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The investments in and operating results of 50% or less owned
companies are included in the statements on the basis of the equity method of
accounting.
Accounts Receivable. Accounts receivable are stated net of an allowance for
uncollectible accounts of $5,079,000 at March 4, 1995, and $342,000 at February
26, 1994. Most of the company's accounts receivable are due from third-party
providers (e.g., insurance companies and governmental agencies) under
third-party payment plans. Since payments due from third-party payers are
sensitive to payment criteria changes and legislative actions, the allowance is
reviewed continually and adjusted for accounts deemed uncollectible by
management.
Inventories. Inventories are stated at the lower of cost or market. The company
uses the last-in, first-out (LIFO) method of accounting for substantially all of
its inventories. At March 4, 1995, February 26, 1994, and February 27, 1993,
respectively, inventories were $170,464,000, $155,102,000 and $144,191,000 lower
than the amounts that would have been reported using the first-in, first-out
(FIFO) method.
Intangible Assets. The excess of cost over underlying equity in subsidiaries
(goodwill) purchased after October 31, 1970, is being amortized on a
straight-line basis over 40 years. Goodwill purchased prior to November 1, 1970
($1,834,000), is considered to have continuing value over an indefinite period
and is not amortized. Lease acquisition costs incurred principally for the
purchase of new and existing store locations are generally amortized over the
terms of the leases on a straight-line basis. Patient prescription file
purchases are amortized over their estimated useful lives. The company reviews
the realizability of its intangible assets annually, based upon expectations of
nondiscounted cash flows and operating income. As of March 4, 1995, management
believes that there are no materially impaired intangible assets.
Marketable Securities. In fiscal year 1995, the company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS No. 115). The adoption of SFAS No. 115
resulted in an increase in stockholders' equity of $2,847,000. In accordance
with SFAS No. 115, prior years' financial statements were not restated to
reflect the change in accounting method.
At March 4, 1995, the company's investment in marketable equity securities
was categorized as available-for-sale. Their fair value of $4,970,000 is
included with other assets on the balance sheet. The resulting gross unrealized
holding gain of $4,380,000 was reported, net of income taxes, in a separate
component of stockholders' equity. In prior years, marketable equity securities
were stated at the lower of cost or market.
Preopening Expenses. Expenditures of a noncapital nature incurred prior to the
opening of a new store or associated with a remodeled store are charged against
earnings as administrative and general expenses when incurred.
Insurance. The company is substantially self-insured with respects to general
liability, workers' compensation and covered employee medical claims. Excess
insurance coverage is maintained for general liability and workers' compensation
claims. Management believes its reserve for claims reported and claims incurred
but not reported is adequate.
Income Taxes. In fiscal year 1993, the company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109).
Under the asset and liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect of a change in tax rates on
deferred tax assets and liabilities is recognized in income in the period that
includes the enactment date.
Earnings per Share. Primary earnings per share have been computed based on the
weighted average number of shares of common stock outstanding during each fiscal
year (84,771,000 in 1995, 87,972,000 in 1994 and 87,933,000 in 1993). Fully
diluted earnings per share are not shown since the dilution is not material.
23
<PAGE> 26
2. RESTRUCTURING AND OTHER CHARGES
In January 1994, the company announced a corporate restructuring including the
sale of its four non-drugstore businesses (see Note 3), a stock buyback program
(see Note 11), the closing of 200 underperforming drugstores and the disposition
of other assets. Consequently, a pre-tax charge of $149,196,000 was recorded in
the fourth quarter of fiscal year 1994.
Shown below are the significant components of the charge and their subsequent
utilization:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
In thousands of dollars
- -----------------------------------------------------------------------------------------------------------------------------
AMOUNTS TO BE AMOUNTS TO BE
AMOUNTS AMOUNTS UTILIZED AT AMOUNTS UTILIZED AT
CHARGED UTILIZED YEAR-END UTILIZED YEAR-END
IN 1994 IN 1994 1994 IN 1995 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Lease settlement $ 44,490 $ 244 $ 44,246 $11,862 $32,384
Intangible and fixed assets write-off 31,000 5,459 25,541 24,531 1,010
Inventory liquidation 13,581 -- 13,581 13,081 500
Severance costs 4,480 -- 4,480 4,480 --
Operating losses during closing period 13,132 3,107 10,025 9,311 714
Impaired investments 19,813 17,022 2,791 2,791 --
Other assets write-off 22,700 22,064 636 -- 636
- -----------------------------------------------------------------------------------------------------------------------------
$149,196 $47,896 $101,300 $66,056 $35,244
=============================================================================================================================
</TABLE>
As of March 4, 1995, the 200 drugstores have been closed and the company has
determined that the remaining reserve balances are adequate to cover committed
restructuring actions. The company continues to negotiate with landlords of the
closed stores to terminate their leases. Where favorable terms cannot be agreed
upon, the company will endeavor to sublet the locations until the leases expire.
Based on actual restructuring activity in 1995, it was necessary to reduce the
reserve balance for inventory liquidation by $4,287,000 and increase the
following reserves: lease settlement--$3,500,000, severance costs--$458,000, and
impaired investments--$329,000.
3. DISCONTINUED OPERATIONS
As part of the corporate restructuring strategy, the company planned to
concentrate its focus and resources entirely on the drugstore segment and,
therefore, authorized the sale of its four non-drugstore businesses. The four
businesses were ADAP, an auto parts retailer with 96 stores; Encore Books, which
operated 98 stores; Concord Custom Cleaners, which had 168 outlets; and Sera-Tec
Biologicals, which consisted of 33 plasma collection centers providing plasma
for use in therapeutic and diagnostic products.
A pre-tax provision of $42,000,000 for loss on disposal of these discontinued
operations was recorded in the fourth quarter of fiscal 1994 and is shown on the
statement of income net of a $16,380,000 income tax benefit. In addition, the
net assets and operating results of the discontinued operations were segregrated
in the financial statements.
During fiscal year 1995, Encore, Concord and Sera-Tec were sold. The net
proceeds received amounted to $75,765,000 after taxes and expenses of
$24,312,000. The resulting aggregrate after-tax loss of $12,274,000 was recorded
to the reserve for loss on disposal of discontinued operations and compares
favorably to the $12,320,000 reserve amount originally provided for the sale of
these three businesses. The remaining net reserve balance of $13,346,000 as of
March 4, 1995, is included with net current assets of discontinued operations on
the balance sheet. Sera-Tec was sold to a group of investors that included Alex
Grass, former chairman and chief executive officer of Rite Aid Corporation.
The sale of ADAP is currently being negotiated and is expected to be
completed in the first quarter of fiscal 1996. The company believes that the
remaining reserve amount for loss on disposal of ADAP is adequate. ADAP's net
assets are segregrated on the March 4, 1995, balance sheet and primarily consist
of inventories, property, leasehold improvements, store fixtures and equipment.
4. ACQUISITIONS
On January 27, 1995, the company completed a cash tender offer for the common
stock of Perry Drug Stores, Inc. at a price of $11.00 per share. The shares
tendered, together with the 185,000 Perry shares beneficially owned by the
company prior to commencement of the offer, constituted approximately 94.5% of
Perry's 12,027,382 shares of common stock issued and outstanding. The remaining
Perry shares were acquired in a subsequent second-step merger transaction on
March 24, 1995. Perry operated 224 drugstores, a distribution center and
administrative offices in Michigan. In October 1994, 16 Revco drugstores located
in
24
<PAGE> 27
Michigan were purchased and in September 1994, a New England chain of 72
LaVerdiere's drug stores were acquired. As of March 4, 1995, the total
consideration paid for these acquisitions as well as various single stores
acquired amounted to $175,729,000. The value of goodwill assigned to the Perry
and LaVerdiere's acquisitions totaled $73,325,000 and is being amortized on a
straight-line basis over 40 years.
The following represents the unaudited pro forma results of operations as if
the merger of Perry Drug Stores, Inc. had occurred at the beginning of fiscal
years 1995 and 1994:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Unaudited PRO FORMA
- -------------------------------------------------------------------
In thousands of dollars YEAR ENDED YEAR ENDED
except per share amounts MARCH 4, 1995 FEBRUARY 26, 1994
- -------------------------------------------------------------------
<S> <C> <C>
Revenues $5,211,865 $4,767,013
Income from continuing operations $ 149,520 $ 32,482
Earnings per share from
continuing operations $ 1.76 $ .37
===================================================================
</TABLE>
The pro forma results include adjustments to reflect additional amortization
expenses associated with the assignment of goodwill and other intangible assets.
Interest expense related to the additional debt to finance the merger was also
recorded. Adjustments were made to recognize the impact of certain anticipated
operational and administrative efficiencies. The pro forma results are not
necessarily indicative of what would have occurred had the merger of Perry
actually taken place on the dates indicated or what may be obtained in the
future.
In fiscal year 1994, the company purchased two businesses for its managed
care subsidiary. They were Pharmacy-Card, Inc., which offers full-service
prescription drug benefit administration, and Intell-rx Incorporated,
a provider of drug utilization reviews and other drug information services. In
addition, during fiscal years 1994 and 1993, Rite Aid obtained certain assets,
mainly inventories, pharmacy prescription files, store fixtures and favorable
lease agreements, through various drugstore acquisitions. The aggregate
consideration paid totaled $35,416,000 for 1994 and $43,329,000 for 1993.
Among the drugstore acquisitions for fiscal 1994 were 35 Reliable Drugs'
stores located in Indiana and Kentucky. In fiscal 1993, 34 Wellby Super Drug
stores situated throughout Maine and New Hampshire were acquired.
All of the acquisitions discussed above were accounted for as purchases;
accordingly, the acquired assets and liabilities were recorded at their
estimated fair values at date of acquisition. Operating results of the acquired
companies were included with those of Rite Aid since their respective
acquisition dates.
5. INCOME TAXES
Total income tax expense for fiscal years ended March 4, 1995, February 26,
1994, and February 27, 1993, is allocated as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
In thousands of dollars 1995 1994 1993
- -------------------------------------------------------------------
<S> <C> <C> <C>
Continuing operations $90,178 $ 19,462 $76,819
Discontinued operations -- (10,571) 5,366
- -------------------------------------------------------------------
Total income tax expense $90,178 $ 8,891 $82,185
===================================================================
</TABLE>
The income tax expense attributable to income from continuing operations
consists of the following components:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
In thousands of dollars 1995 1994 1993
- -------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable:
Federal $53,617 $45,119 $69,625
State 4,632 3,999 6,434
- -------------------------------------------------------------------
58,249 49,118 76,059
- -------------------------------------------------------------------
Deferred tax expense (benefit):
Federal 30,149 (27,064) 503
State 1,780 (2,592) 257
- -------------------------------------------------------------------
31,929 (29,656) 760
- -------------------------------------------------------------------
Total income taxes $90,178 $19,462 $76,819
===================================================================
</TABLE>
Presented below are the deferred tax liabilities and deferred tax assets at
March 4, 1995, and February 26, 1994:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
In thousands of dollars 1995 1994
- -------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 45,253 $ 38,021
Inventory valuation 47,728 37,765
Lease acquisition costs and
other intangible assets 39,556 21,457
Purchased tax benefits 11,896 11,896
Prepaid expenses 5,108 5,622
Other 3,515 2,065
- -------------------------------------------------------------------
Total gross deferred tax liabilities 153,056 116,826
- -------------------------------------------------------------------
Deferred tax assets:
Provision for restructuring and
other charges (12,332) (44,812)
State net operating loss carryforwards (9,670) (7,815)
Insurance reserve (7,492) (3,428)
Deferred compensation accrual (3,980) (2,453)
Other (9,365) (2,379)
- -------------------------------------------------------------------
Total gross deferred tax assets (42,839) (60,887)
Valuation allowance 7,951 7,037
- -------------------------------------------------------------------
Net deferred tax assets (34,888) (53,850)
- -------------------------------------------------------------------
Net deferred tax liabilities $118,168 $ 62,976
===================================================================
</TABLE>
Net deferred tax liabilities of $23,263,000 associated with the acquisitions
made during fiscal year 1995 are included in the above table. Based on the
company's historical and current pre-tax earnings, management believes it is
more likely than not that the company will realize the net deferred tax assets.
25
<PAGE> 28
The valuation allowance as of March 4, 1995, and February 26, 1994,
principally results from net operating loss carryforwards for state income tax
purposes. The current portions of net deferred taxes for 1995 and 1994 amounted
to $40,582,000 and $4,247,000, respectively, and are included with income taxes
on the balance sheet.
State income taxes account for most of the differences between the actual
provision for income taxes attributable to continuing operations and taxes
computed by applying the statutory rate. Following is a reconciliation of the
statutory to effective tax rate:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Percentage 1995 1994 1993
- -------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35.0 35.0 34.0
State income taxes, net of
federal tax benefit 1.6 6.0 2.6
Nondeductible expenses .4 1.1 .3
Effect of tax rate changes on
deferred taxes -- 3.6 --
Retroactive targeted jobs credit -- (2.5) --
Change in valuation
allowance .4 .1 (.4)
Other, net 1.6 (.7) 1.8
- -------------------------------------------------------------------
39.0 42.6 38.3
===================================================================
</TABLE>
6. INDEBTEDNESS AND CREDIT AGREEMENTS
Following is a summary of indebtedness at March 4, 1995, and February 26, 1994:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
In thousands of dollars 1995 1994
- -------------------------------------------------------------------
<S> <C> <C>
Commercial paper, 6.2% and
3.5% weighted average rates at
year-end 1995 and 1994 $436,500 $186,000
6 7/8% senior debentures due 2013 200,000 200,000
6 3/4% zero coupon subordinated
convertible notes due 2006 187,825 175,662
9 5/8% sinking fund debentures,
5% of principal amount due from
1997 through 2016 44,980 61,000
5 7/8% to 10.475% industrial
development bonds due
through 2016 19,050 19,050
8 1/2% convertible debentures
redeemed March 15, 1995 49,996 --
Other 5,186 2,618
- -------------------------------------------------------------------
943,537 644,330
Short-term debt and current
maturities of long-term debt (137,553) (30,912)
- -------------------------------------------------------------------
Long-term debt,
less current maturities $805,984 $613,418
===================================================================
</TABLE>
The company has $600,000,000 in revolving credit commitments for general
corporate purposes consisting of a $250,000,000, 364-day facility and a
$350,000,000 five-year facility. Borrowings under these facilities bear interest
rates, at the company's option, based on the prime, federal funds, certificate
of deposit or London interbank rates, as well as competitive bid. Pricing on
loans and commitments will vary commensurate with credit quality. The 364-day
facility has a 7/100% per annum facility fee on the entire commitment amount
irrespective of usage. The five-year facility has a 1/10% per annum facility fee
on the entire commitment amount. Both credit facilities also have a 1/20% per
annum utilization fee on borrowings in excess of 50% of the facilities. At March
4, 1995, and February 26, 1994, there were no amounts outstanding under these
agreements.
Rite Aid maintains, at all times, unused long-term revolving credit agreement
commitments at least equal to the principal amount of its outstanding commercial
paper which the company intends to carry on a long-term basis. Accordingly,
outstanding commercial paper of $350,000,000 at March 4, 1995, and $156,000,000
at February 26, 1994, was classified as long-term debt on the consolidated
balance sheet. The remaining outstanding commercial paper of $86,500,000 at
year-end 1995 and $30,000,000 at year-end 1994 was classified as short-term
debt.
In August 1993, Rite Aid issued 6 7/8% senior debentures having an aggregate
principal amount of $200,000,000. These debentures are due August 15, 2013, and
may not be redeemed prior to maturity or be entitled to any sinking fund. The
net proceeds from this issuance were used for working capital and general
corporate purposes, including the repayment of outstanding commercial paper of
the company.
The 6 3/4% zero coupon subordinated convertible notes due on July 24, 2006,
are convertible at any time by the holder into Rite Aid common stock at a rate
of 15.993 shares per note. The conversion rate will not be adjusted for accrued
original issue discount. Any note will be purchased by the company, at the
option of the holder, on July 24, 1996, and July 24, 2001, for a purchase price
per note of $514.86 and $717.54, respectively, representing the issue
26
<PAGE> 29
price plus accrued original issue discount to each such date. The company may
redeem the notes for cash at any time, in whole or in part, at redemption prices
equal to the issue price plus accrued original issue discount to the date of
redemption.
The 8 1/2% convertible debentures were acquired from Perry Drug Stores, Inc.
In accordance with the terms of the merger agreement with Perry, these
debentures were redeemed on March 15, 1995, through the use of proceeds from
additional commercial paper borrowings.
The aggregate annual principal payments of long-term debt for the five
succeeding fiscal years are as follows: 1996, $51,053,000; 1997, $607,000; 1998,
$862,000; 1999, $4,139,000; and 2000, $435,000.
The company has complied with restrictions and limitations included in the
provisions of various loan and credit agreements. At March 4, 1995, retained
earnings were not restricted as to payment of dividends by these provisions.
7. PROPERTY, PLANT AND EQUIPMENT
Depreciation and amortization expenses were $82,740,000 for 1995, $76,312,000
for 1994 and $71,998,000 for 1993. Depreciation and amortization generally are
computed on a straight-line basis over the following estimated lives: Buildings,
30 to 45 years; Leasehold improvements, term of lease or useful lives of
assets, whichever is shorter; and Equipment, 3 to 15 years. Accelerated methods
are used for income tax purposes.
At March 4, 1995, land, buildings and related equipment with a carrying value
of $11,285,000 were pledged to secure certain long-term debt totaling
$10,812,000.
8. FINANCIAL INSTRUMENTS
The carrying amounts and fair values of financial instruments at March 4, 1995,
and February 26, 1994, are listed as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
In thousands of dollars 1995 1994
- -------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marketable equity
securities $ 4,970 $ 4,970 $ 3,793 $ 11,390
Commercial paper
indebtedness 436,500 436,500 186,000 186,000
Long-term
indebtedness 507,037 484,196 458,330 446,943
- -------------------------------------------------------------------
</TABLE>
It was not practicable to estimate the fair values of non-marketable
investments because of the lack of quoted market prices and the inability to
estimate fair values without incurring excessive costs. The carrying amounts of
$4,131,000 at March 4, 1995, and $2,209,000 at February 26, 1994, represent the
original costs of the investments currently owned, which management believes are
not impaired.
The following methods and assumptions were used in estimating fair value
disclosures for financial instruments:
Marketable equity securities: The fair value of marketable equity securities is
based on quoted market prices.
Commercial paper indebtedness: The carrying amounts for commercial paper
indebtedness approximate their fair market values.
Long-term indebtedness: The fair values of long-term indebtedness are estimated
based on the quoted market prices for the same or similar issues, or on the
current rates offered to the company for debt of the same remaining maturities.
The Perry 8 1/2% debentures were valued at their March 15, 1995, redemption
price.
9. RETIREMENT PLANS
The company and its subsidiaries have several retirement plans covering salaried
employees and certain hourly-paid employees. Amounts charged to earnings for
retirement plans totaled $4,845,000 in 1995, $4,795,000 in 1994 and $3,691,000
in 1993.
The retirement plans include a profit sharing retirement plan. Contributions
are a percent of each covered employee's salary, as determined by the Board of
Directors based on the company's profitability.
There are also several defined benefit plans that call for benefits to be
paid to eligible employees based upon years of service with the company or
formulas applied to their compensation. The company's funding policy is to
contribute the minimum required by the Employee Retirement Income Security Act
of 1974.
Pension expense for the defined benefit plans includes the following
components:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
In thousands of dollars 1995 1994 1993
- -------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 1,776 $ 1,417 $ 1,247
Interest cost 1,570 1,433 1,335
Actual return on plan assets 527 (2,374) (1,672)
Net amortization and deferral (2,606) 452 (176)
- -------------------------------------------------------------------
Pension expense $ 1,267 $ 928 $ 734
===================================================================
</TABLE>
27
<PAGE> 30
The table below sets forth the funded status and amounts recognized in the
company's balance sheet for its defined benefit plans as of March 4, 1995, and
February 26, 1994:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
In thousands of dollars 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
PLAN ASSETS ACCUMULATED PLAN ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS PLAN ASSETS BENEFITS PLAN ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ (8,177) $(12,472) $ (8,503) $(12,435)
Nonvested benefits (123) (972) (180) (909)
- -----------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation (8,300) (13,444) (8,683) (13,344)
Effect of anticipated future compensation levels
and other events (513) -- (551) --
- -----------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation (8,813) (13,444) (9,234) (13,344)
Fair value of assets held in the plans 10,420 11,980 11,287 11,316
- -----------------------------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than) benefit obligation 1,607 (1,464) 2,053 (2,028)
Unrecognized net loss 943 1,499 577 2,130
Unrecognized prior service cost 78 434 10 425
Unrecognized net obligation (asset) at March 1, 1987,
net of amortization (978) (155) (1,118) (177)
Adjustment to recognize additional minimum liability -- (1,778) -- (2,378)
- -----------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost $ 1,650 $ (1,464) $ 1,522 $ (2,028)
=============================================================================================================================
</TABLE>
The significant actuarial assumptions used were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Percentage 1995 1994 1993
- -------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 8.0 7.0 7.5
Rate of increase in future
compensation levels 5.0 5.0 6.0
Expected long-term rate of
return on plan assets 9.0 9.0 9.0
===================================================================
</TABLE>
Assets of the defined benefit plans are invested in a directed trust that
invests in money market funds, common stock, corporate bonds and U.S. government
obligations.
In accordance with the provisions of Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions," an additional minimum
pension liability was recognized resulting in a direct reduction of
stockholders' equity of $1,314,000 at March 4, 1995, and $1,916,000 at February
26, 1994.
10. LEASES
The company leases most of its retail store facilities under noncancelable
operating leases, many of which expire within ten years. The approximate minimum
rental commitments of $985,806,000 at March 4, 1995, are payable as follows:
1996, $143,606,000; 1997, $138,341,000; 1998, $123,109,000; 1999, $107,934,000;
2000, $90,602,000; and $382,214,000 thereafter. These amounts are net of
sublease income, which is not significant.
In addition to minimum rental payments, certain leases require additional
payments based on sales volume, as well as reimbursements for taxes, maintenance
and insurance. Most leases contain renewal options, certain of which involve
rent increases.
Total rental expense, net of sublease income, was approximately $130,788,000,
in 1995; $128,692,000 in 1994 and $120,401,000 in 1993. These amounts include
contingent rentals of $9,516,000, $7,411,000 and $7,423,000, respectively.
In addition, the company has agreed to lease certain store locations that
presently are under construction or in the process of renovation. The terms of
these leases generally will commence upon completion of the building and will
extend from 5 to 15 years with options to renew for varying terms. The minimum
annual rentals are not determinable at the present time and, therefore, are not
included above.
28
<PAGE> 31
11. CAPITAL STOCK
The authorized capital stock of the company consists of 240,000,000 shares of
common stock and 20,000,000 shares of preferred stock, both having a par value
of $1.00 per share. The preferred stock is issuable in series with terms as
fixed by the Board of Directors. No preferred stock has been issued. However,
45,000 shares of Series A Junior Participating Preferred Stock with a $1.00 per
share par value have been authorized and reserved for issuance in connection
with the Stockholder Rights Plan as discussed in Note 12.
As part of the company's restructuring in fiscal year 1994, the Board of
Directors authorized a "Dutch Auction" cash self-tender offer for up to
22,000,000 shares of its common stock. A total of 2,077,271 shares were tendered
at $18.50 per share.
On February 16, 1994, the Board of Directors approved a stock repurchase
program to acquire up to 5,000,000 shares of the company's common stock in the
open market or in privately negotiated transactions. During fiscal year 1995,
1,847,798 shares were purchased in connection with this repurchase program.
12. STOCKHOLDER RIGHTS PLAN
The company maintains a Stockholder Rights Plan designed to deter coercive or
unfair takeover tactics, to prevent a person or group from gaining control of
the company without offering fair value to all stockholders and to deter other
abusive takeover tactics that are not in the best interests of stockholders.
Under the terms of the Plan, each outstanding share of common stock is
accompanied by one Right. Each Right entitles the registered holder to purchase
from the company a unit consisting of one one-thousandth of a share of Series A
Junior Participating Preferred Stock of the company at an exercise price of
$120. The Rights trade with the company's common stock until exercisable. They
become exercisable after any person or group acquires 20% or more of the
company's outstanding common stock or announces an offer that would result in
such person or group acquiring 20% or more of the company's common stock, or 15%
of the company's common stock is acquired by an "Adverse Person," as declared by
a majority of the company's independent directors. The Rights expire on April 5,
1999, and may be redeemed by the company for $.01 per Right until 10 business
days after a person or group acquires 20% or more of the company's common stock.
If 20% or more of the company's common stock is acquired or following such an
acquisition, there is a merger or other business combination involving the
company, each Right entitles its holder to buy shares of Rite Aid common stock
having a market value of twice the current exercise price of each Right.
13. STOCK OPTION AND STOCK AWARD PLANS
The company reserves 6,000,000 shares of its common stock for the granting of
stock options and other incentive awards to officers and key employees under the
1990 Omnibus Stock Incentive Plan. The number of shares available for grants was
increased from 3,000,000 shares by stockholder approval at the 1994 annual
meeting. No further grants may be made under the 1983 Employee Stock Option and
Appreciation Rights Plan.
Options may be granted, with or without stock appreciation rights (SARs), at
prices that are not less than the fair market value of a share of common stock
on the date of grant. Under the 1983 Plan, options are exercisable at the
cumulative rate of 25% a year after one year from the date of grant and expire
five years after the date of granting. The 1990 Plan provides for the
Compensation Committee to determine when and the manner in which options may be
exercised; however, it may not be more than ten years from the date of grant.
The exercise of either a SAR or option automatically will cancel any related
option or SAR. Under the Plans, the payment for SARs will be made in shares,
cash or cash and shares at the discretion of the Compensation Committee.
Following is a summary of stock option transactions for the three fiscal
years ended March 4, 1995:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Shares under option 1995 1994 1993
- -------------------------------------------------------------------
<S> <C> <C> <C>
Stock options:
Outstanding--beginning
of year 2,437,606 2,599,756 755,830
Granted 604,400 13,500 2,201,250
Exercised ($15.00 to
$21.00 per share) (375) (65,400) (321,446)
Converted to and
exercised as SARs (312,592) -- --
Expired and cancelled (244,388) (110,250) (35,878)
Outstanding--end of year
($16.935 to $20.625
per share) 2,484,651 2,437,606 2,599,756
Exercisable--end of year 190,876 796,919 274,206
Stock appreciation rights:
Outstanding--beginning
of year -- -- 3,200
Granted -- -- --
Exercised -- -- --
Expired and cancelled -- -- (3,200)
Outstanding--end of year -- -- --
===================================================================
</TABLE>
29
<PAGE> 32
The 1990 Plan also permits the granting of restricted stock and stock-based
awards that may require, among other things, continued employment and/or the
attainment of specified performance objectives. In fiscal year 1991, 395,000
shares were granted for stock-based awards, which will be expensed over the
five-year vesting period. Amounts charged to earnings for the stock-based awards
were $3,531,000 in 1995, $1,409,000 in 1994 and $1,652,000 in 1993.
As of March 4, 1995, February 26, 1994, and February 27, 1993, there were
3,067,162 shares, 397,750 shares and 353,750 shares, respectively, available for
future grants under the Plan.
14. COMMITMENTS AND CONTINGENCIES
The company had standby letters of credit of $31,390,000 and $31,004,000 at
March 4, 1995, and February 26, 1994, respectively.
The company is the defendant in claims and lawsuits arising in the ordinary
course of business. In the opinion of management, these matters are covered
adequately by insurance, or if not so covered, are without merit or are of such
nature or involve such amounts as would not have a material effect on the
financial statements of the company if decided adversely.
15. SUBSEQUENT EVENT
On April 20, 1995, the company issued $200,000,000 of 7 5/8% senior notes due
April 15, 2005. The notes were issued under a previously filed Form S-3 shelf
registration statement. Net proceeds from the sale of the notes were used for
general corporate purposes including the repayment of outstanding commercial
paper of the company. The notes may not be redeemed prior to maturity and will
not be entitled to any sinking fund.
30
<PAGE> 33
Interim Financial Rite Aid Corporation and Subsidiaries
Results (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
In thousands of dollars except per share amounts YEAR 1995 (53 WEEKS)
- -----------------------------------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $1,051,142 $1,035,132 $ 1,093,811 $1,353,766 $4,533,851
Costs and expenses 995,439 990,665 1,049,669 1,266,614 4,302,387
- -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 55,703 44,467 44,142 87,152 231,464
Income taxes 21,723 17,343 17,214 33,898 90,178
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 33,980 $ 27,124 $ 26,928 $ 53,254 $ 141,286
=============================================================================================================================
Earnings per share $ .40 $ .32 $ .32 $ .63 $ 1.67
=============================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------
In thousands of dollars except per share amounts YEAR 1994 (52 WEEKS)
- -----------------------------------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
- -----------------------------------------------------------------------------------------------------------------------------
Net sales $ 999,540 $ 973,147 $1,008,586 $1,077,438 $4,058,711
Costs and expenses 948,100 934,910 974,799 1,155,232* 4,013,041
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes 51,440 38,237 33,787 (77,794) 45,670
Income taxes 19,804 16,660 13,120 (30,122) 19,462
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 31,636 21,577 20,667 (47,672) 26,208
Income (loss) from discontinued operations 2,522 2,008 2,294 (23,744)** (16,920)
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 34,158 $ 23,585 $ 22,961 $ (71,416) $ 9,288
=============================================================================================================================
Earnings (loss) per share
Continuing operations $ .36 $ .25 $ .23 $ (.54) $ .30
Discontinued operations .03 .02 .03 (.27) (.19)
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ .39 $ .27 $ .26 $ (.81) $ .11
=============================================================================================================================
</TABLE>
*Included a one-time, pre-tax provision of $149,196,000 for corporate
restructuring and other charges (see Note 2 of Notes to Consolidated Financial
Statements).
**Included a $42,000,000 charge for loss on disposal of discontinued operations
less applicable income tax benefit of $16,380,000 (see Note 3 of Notes to
Consolidated Financial Statements).
31
<PAGE> 34
Ten-Year Rite Aid Corporation and Subsidiaries
Financial Review
<TABLE>
<CAPTION>
Years ended
- -----------------------------------------------------------------------------------------------------------------------------------
MARCH 4, 1995 FEB. 26, 1994 FEB. 27, 1993 FEB. 29, 1992 MARCH 2, 1991
In thousands of dollars except per share amounts (53 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $ 4,533,851 $ 4,058,711 $ 3,833,591 $ 3,530,560 $ 3,259,766
Cost of goods sold, including occupancy costs 3,327,920 2,970,025 2,804,787 2,564,751 2,350,873
Selling, general and administrative expenses 932,167 865,137 798,848 741,144 696,401
Interest expense 42,300 28,683 29,387 37,463 49,484
Provision for videocassette rental department closings -- -- -- -- --
Restructuring and other charges -- 149,196 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 231,464 45,670 200,569 187,202 163,008
Income taxes 90,178 19,462 76,819 72,261 62,879
- -----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 141,286 26,208 123,750 114,941 100,129
Income (loss) from discontinued operations, net of
income taxes -- (16,920) 8,646 9,075 7,171
Cumulative effect of accounting change -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 141,286 $ 9,288 $ 132,396 $ 124,016 $ 107,300
===================================================================================================================================
PER SHARE OF COMMON STOCK
Income from continuing operations $ 1.67 $ .30 $ 1.41 $ 1.32 $ 1.21
Net income $ 1.67 $ .11 $ 1.51 $ 1.43 $ 1.29
Dividends per share $ .62 $ .60 $ .5625 $ .5125 $ .4625
Book value, based on shares outstanding at year end $ 12.02 $ 11.10 $ 11.76 $ 10.82 $ 9.32
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR-END FINANCIAL POSITION
Working capital $ 795,995 $ 763,216 $ 811,645 $ 723,195 $ 707,451
Current ratio 2.38:1 3.11:1 4.03:1 3.49:1 3.98:1
Property, plant and equipment (net) $ 778,479 $ 638,694 $ 551,392 $ 502,728 $ 493,947
Long-term debt $ 805,984 $ 613,418 $ 489,220 $ 427,503 $ 585,434
Total assets $ 2,472,607 $ 1,989,070 $ 1,858,506 $ 1,734,479 $ 1,666,958
Stockholders' equity $ 1,011,812 $ 954,714 $ 1,035,643 $ 950,575 $ 773,948
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Weighted average shares outstanding 84,771,000 87,972,000 87,933,000 86,917,000 82,996,000
Number of retail drugstores 2,829 2,690 2,573 2,452 2,420
Number of employees 36,700 28,550 27,750 27,607 27,290
- -----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTARY DATA
Results prepared on a FIFO basis:
Income from continuing operations $ 150,663 $ 32,864 $ 134,335 $ 125,228 $ 111,290
Per share amount $ 1.78 $ .37 $ 1.53 $ 1.44 $ 1.34
Net income $ 150,663 $ 15,944 $ 142,981 $ 134,303 $ 118,461
Per share amount $ 1.78 $ .18 $ 1.63 $ 1.55 $ 1.42
===================================================================================================================================
</TABLE>
32
<PAGE> 35
Ten-Year Rite Aid Corporation and Subsidiaries
Financial Review
<TABLE>
<CAPTION>
Years ended
- -----------------------------------------------------------------------------------------------------------------------------------
March 3, 1990 March 4, 1989 Feb 27, 1988 Feb 28, 1987 March 1, 1986
In thousands of dollars except per share amounts (52 Weeks) (53 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $ 3,011,250 $ 2,729,325 $ 2,381,022 $ 1,650,643 $ 1,469,532
Cost of goods sold, including occupancy costs 2,165,097 1,960,627 1,721,528 1,181,719 1,051,627
Selling, general and administrative expenses 646,540 583,860 481,921 323,435 280,633
Interest expense 51,933 40,840 32,344 19,992 17,683
Provision for videocassette rental department closings 22,000 -- -- -- --
Restructuring and other charges -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 125,680 143,998 145,229 125,497 119,589
Income taxes 48,764 56,325 59,135 56,329 57,870
- -----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 76,916 87,673 86,094 69,168 61,719
Income (loss) from discontinued operations, net of
income taxes 25,142 7,537 54,747 8,816 828
Cumulative effect of accounting change -- -- 3,712 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 102,058 $ 95,210 $ 144,553 $ 77,984 $ 62,547
===================================================================================================================================
PER SHARE OF COMMON STOCK
Income from continuing operations $ .93 $ 1.06 $ 1.04 $ .84 $ .75
Net income $ 1.23 $ 1.15 $ 1.75 $ .94 $ .76
Dividends per share $ .42 $ .38 $ .34 $ .30 $ .26
Book value, based on shares outstanding at year end $ 8.49 $ 7.67 $ 6.90 $ 5.48 $ 4.82
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR-END FINANCIAL POSITION
Working capital $ 633,326 $ 297,334 $ 309,130 $ 234,391 $ 233,652
Current ratio 3.93:1 1.62:1 1.86:1 1.74:1 2.09:1
Property, plant and equipment (net) $ 475,548 $ 434,801 $ 383,653 $ 298,820 $ 235,960
Long-term debt $ 542,051 $ 228,260 $ 227,153 $ 153,399 $ 146,146
Total assets $ 1,539,311 $ 1,417,520 $ 1,224,244 $ 964,330 $ 792,167
Stockholders' equity $ 704,413 $ 636,184 $ 571,014 $ 452,544 $ 397,993
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Weighted average shares outstanding 82,958,000 82,904,000 82,660,000 82,562,000 82,470,000
Number of retail drugstores 2,352 2,184 2,072 1,586 1,392
Number of employees 26,935 27,347 26,703 19,454 16,217
- -----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTARY DATA
Results prepared on a FIFO basis:
Income from continuing operations $ 86,504 $ 95,481 $ 92,041 $ 73,049 $ 65,243
Per share amount $ 1.04 $ 1.15 $ 1.11 $ .88 $ .79
Net income $ 111,646 $ 103,018 $ 150,500 $ 81,865 $ 66,071
Per share amount $ 1.35 $ 1.24 $ 1.82 $ .99 $ .80
===================================================================================================================================
</TABLE>
33
<PAGE> 36
Directors and
Corporate Officers
<TABLE>
<S> <C> <C> <C>
DIRECTORS CHAIRMAN VICE PRESIDENTS ASSISTANT
VICE PRESIDENTS
Franklin C. Brown Martin L. Grass Thomas R. Coogan
Executive Vice President Chief Executive Officer Treasurer I. Lawrence Gelman
and Chief Legal Counsel Associate Counsel
PRESIDENT Gerald P. Cardinale and Secretary
Alex Grass Category Management,
Honorary Chairman of the Timothy J. Noonan Support Services Ted W. Armstrong
Board and Chairman of the Chief Operating Officer Human Resources
Executive Committee Eric S. Elliott
EXECUTIVE Third Party Barry E. Criss
Martin L. Grass VICE PRESIDENTS Administration Store Planning
Chairman of the Board and
Chief Executive Officer Frank M. Bergonzi W. Michael Knievel Daniel E. Garber
Chief Financial Officer Corporate Security Rack Rite Distributors
Philip Neivert
Private Investor Franklin C. Brown James E. Krahulec Michael A. Podgurski
Rochester, NY Chief Legal Counsel Government and Drugstore Operations
Trade Relations
Timothy J. Noonan Kevin J. Mann Richard J. Varmecky
President and Marketing James O. Lott Corporate Controller
Chief Operating Officer Risk Management
SENIOR VICE PRESIDENTS Mary A. Verbryke
Leonard N. Stern Raymond B. McKeeby Category Management,
Chairman of the Board and Dennis J. Bowman Pricing Purchasing
Chief Executive Officer Information Services
The Hartz Group, Inc. Suzanne Mead Gregory D. Webb
New York, NY Joel F. Feldman Corporate Communications Drugstore Operations
Eagle Managed Care
Henry Taub Michael F. Morris ASSISTANT SECRETARY
Honorary Chairman Wayne Gibson Store Planning
of the Board Planning Lilli A. Binder
Automatic Data Thomas J. Slovenkay
Processing, Inc. Charles R. Kibler Category Management, ASSISTANT TREASURER
Roseland, NJ Drugstore Operations Purchasing
Glenn Gershenson
Preston Robert Tisch Philip D. Markovitz Joseph S. Speaker
Co-chairman and Corporate Real Estate Retail Controller
Co-chief Executive Officer
Loews Corporation Ronald A. Miller James M. Talton
New York, NY Distribution Human Resources
Gerald Tsai, Jr. Robert R. Souder
Chairman, President Human Resources
and Chief Executive Officer
Delta Life Corporation
Memphis, TN
</TABLE>
34
<PAGE> 37
Investment Information
ANNUAL MEETING
The annual meeting will be held on July 11, 1995, at 11:00 a.m. in the theater
of the Hershey Lodge and Convention Center, West Chocolate Avenue and University
Drive, Hershey, PA 17033, (717) 533-3311
FORM 10-K
The annual report to the Securities and Exchange Commission on Form 10-K is
available upon written request to the secretary of the company.
REGISTRAR AND TRANSFER AGENT
Harris Trust Company of New York
c/o Harris Bank
311 West Monroe Street
11th Floor
Chicago, IL 60606
DIVIDEND REINVESTMENT
The company offers an automatic dividend reinvestment plan for the convenience
of stockholders and employees. For further information, contact:
Harris Trust Company of New York
Dividend Reinvestment Plan
P.O. Box A3309
Chicago, IL 60690-3309
RITE AID CORPORATION
General Offices:
30 Hunter Lane
Camp Hill, PA 17011-2404
MAILING ADDRESS
P.O. Box 3165
Harrisburg, PA 17105-3165
(717) 761-2633
Rite Aid Drugstores
[GRAPHIC OF MAP -- SEE EDGAR APPENDIX]
AS OF MARCH 4, 1995
<TABLE>
<S> <C>
Alabama 5
Connecticut 47
Delaware 20
District of Columbia 7
Florida 141
Georgia 56
Indiana 32
Kentucky 117
Maine 77
Maryland 180
Massachusetts 47
Michigan 347
New Hampshire 39
New Jersey 184
New York 270
North Carolina 111
Ohio 329
Pennsylvania 386
Rhode Island 7
South Carolina 81
Tennessee 37
Vermont 11
Virginia 163
West Virginia 135
- -----------------------------
Total 2,829
</TABLE>
35
<PAGE> 38
EDGAR APPENDIX
<TABLE>
<CAPTION>
EDGAR VERSION TYPESET VERSION
- ------------- ---------------
<S> <C>
1995 Form 10-K, Exhibit 13 -- 1995 Form 10-K, Exhibit 13 --
(Rite Aid Corporation's 1995 (Rite Aid Corporation's 1995
Annual Report to Shareholders) Annual Report to Stockholders)
Front Cover -- Graphics omitted. Front Cover -- Photograph of
prescription medicines.
Page 1 -- Photograph omitted. Page 1 -- Photograph of Alex Grass,
Former Chairman of the Board and
Chief Executive Officer.
Page 2 -- One bar chart omitted Page 2 -- One bar chart depicting
income from continuing operations in
millions of dollars from fiscal year
1991 to fiscal year 1995. (The text
and numbers used in this chart appear
in the text of the EDGAR Version).
Page 3 -- Photograph omitted. Page 3 -- Photograph of Martin L.
Grass, Chairman of the Board and Chief
Executive Officer and Timothy J.
Noonan, President and Chief Operating
Officer.
Page 6 -- Photographs omitted. Page 6 -- One photograph depicting
a Rite Aid Pharmacy store front and
one photograph depicting a Perry
Drugs store front.
Page 7 -- Graphics omitted. Page 7 -- Map of New York City
showing existing Rite Aid drugstores
and projected Rite Aid drugstores.
Page 8 -- Photograph omitted. Page 8 -- One photograph depicting
customers shopping at a Rite Aid
drugstore.
Page 9 -- Photographs omitted Page 9 -- Photograph at top of page
depicts customer at a Rite Aid 1 Hour
Photo/Rite Express counter and below,
two photographs show pharmacists
counseling patients.
</TABLE>
<PAGE> 39
EDGAR APPENDIX (CONTINUED)
<TABLE>
<CAPTION>
EDGAR VERSION TYPESET VERSION
- ------------- ---------------
<S> <C>
Page 10 -- Photograph and Page 10 -- Photograph at top of page
graphics omitted. depicts customer shopping for food
products at a Rite Aid drugstore. At
bottom of page are shown small appliances
sold by Rite Aid drugstores.
Page 11 -- Graphics and Page 11 -- At top of page are shown
Photograph omitted. designer fragrances sold by Rite Aid
drugstores. Below, a photograph depicts
a customer shopping for hair care
products.
Page 12 -- Photographics omitted. Page 12 -- One photograph depicting
Rite Aid Corporation's video-
conferencing capability. Another photo-
graph depicts a training session for Rite
Aid Employees.
Page 13 -- Three bar charts omitted. Page 13 -- One bar chart depicting
drugstore sales in billions of
dollars from fiscal year 1991 to
fiscal year 1995. (The text and
numbers used in this chart appear
in the text of the EDGAR Version).
Page 13 -- One bar chart depicting
pharmacy sales as a percentage of
drugstore sales from fiscal year 1991
to fiscal year 1995. (The text and
numbers used in this chart appear in
the text of the EDGAR Version).
Page 13 -- One bar chart depicting
number of drugstores from fiscal year
1991 to fiscal year 1995. (The text
and numbers used in this chart appear in
the text of the EDGAR Version).
Page 14 -- One bar chart Page 14 -- One bar chart depicting
omitted. third-party sales as a percentage of
pharmacy sales from fiscal year 1991
to fiscal year 1995. (The text and
numbers used in this chart appear in
the text of the EDGAR Version.)
</TABLE>
<PAGE> 40
EDGAR APPENDIX (CONTINUED)
<TABLE>
<CAPTION>
EDGAR VERSION TYPESET VERSION
- ------------- ---------------
<S> <C>
Page 15 -- One bar chart Page 15 -- One bar Chart depicting
omitted. annual dividend per share from fiscal
year 1991 to fiscal year 1995. (The text
and numbers used in this chart appear in
the text of the EDGAR Version).
Inside Back Cover -- graphic Inside Back Cover -- Map of Eastern
omitted. United States of America depicting
Rite Aid's area of operation.
</TABLE>
<PAGE> 1
Exhibit 21
Registrant's Subsidiaries
The following table sets forth certain of the subsidiaries of
Registrant at March 4, 1995, all of which are wholly-owned and are
included in the consolidated financial statements:
<TABLE>
<CAPTION>
Organized
Name Under the Laws of
---- -----------------
<S> <C>
ADAP, Inc. New Jersey
Eagle Managed Care Corp. Delaware
GDF, Inc. Maryland
Gray Drug Fair, Inc. Ohio
Keystone Centers, Inc. Pennsylvania
Lake Acquisition Corporation Delaware
Lane Drug Company Ohio
Life-Aid Services, Inc. Delaware
Name Rite, Inc. Delaware
Perry Drug Stores, Inc. Michigan
Rack Rite Distributors, Inc. Pennsylvania
RAFS, Inc. Delaware
Rite Aid Drug Palace, Inc. Delaware
Rite Aid of Alabama, Inc. Alabama
Rite Aid of Connecticut, Inc. Connecticut
Rite Aid of Delaware, Inc. Delaware
Ride Aid of Florida, Inc. Florida
Rite Aid of Georgia, Inc. Georgia
Rite Aid of Indiana, Inc. Indiana
Rite Aid of Kentucky, Inc. Kentucky
Rite Aid of Maine, Inc. Maine
Rite Aid of Maryland, Inc. Maryland
Rite Aid of Massachusetts, Inc. Massachusetts
Rite Aid of Michigan, Inc. Michigan
Rite Aid of New Hampshire, Inc. New Hampshire
Rite Aid of New Jersey, Inc. New Jersey
Rite Aid of New York, Inc. New York
Rite Aid of North Carolina, Inc. North Carolina
Rite Aid of Ohio, Inc. Ohio
Rite Aid of Pennsylvania, Inc. Pennsylvania
Rite Aid of Rhode Island, Inc. Rhode Island
Rite Aid of South Carolina, Inc. South Carolina
Rite Aid of Tennessee, Inc. Tennessee
Rite Aid of Vermont, Inc. Vermont
Rite Aid of Virginia, Inc. Virginia
Rite Aid of Washington, D.C., Inc. District of Columbia
Rite Aid of West Virginia, Inc. West Virginia
Rite Aid Realty Corp. Delaware
Rite Aid Rome Distribution Center, Inc. New York
Rite Investments, Inc. Delaware
WRAC, Inc. Pennsylvania
</TABLE>
At March 4, 1995, the Registrant also had additional wholly-owned
subsidiaries, which considered in the aggregate, would not constitute a
significant subsidiary under Rule 1-02 of Regulation S-X.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Rite Aid Corporation
Camp Hill, Pennsylvania
We consent to incorporation by reference in the Registration Statement
(No. 2-87981) on Form S-8 and the Registration Statement (No. 33-63794) on
Form S-3 of the Rite Aid Corporation of our report dated April 21, 1995,
relating to the consolidated balance sheets of Rite Aid Corporation and
subsidiaries as of March 4, 1995 and February 26, 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the years in the three year period ended March 4, 1995, which report
appears in and is incorporated by reference in the March 4, 1995 Annual Report
on Form 10-K of Rite Aid Corporation.
Our report refers to a change in the method of accounting for investments
in the fiscal year ended March 4, 1995, as well as the change in the method of
accounting for income taxes in the fiscal year ended February 27, 1993.
KPMG Peat Marwick LLP
Harrisburg, Pennsylvania
May 31, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
RITE AID CORPORATION AND SUBSIDIARIES EXHIBIT 27
ARTICLE 5 FINANCIAL DATA SCHEDULES
FORM 10-K
FISCAL YEAR ENDED MARCH 4, 1995
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-04-1995
<PERIOD-END> MAR-04-1995
<CASH> 7,148
<SECURITIES> 0
<RECEIVABLES> 244,938
<ALLOWANCES> 5,079
<INVENTORY> 1,070,346
<CURRENT-ASSETS> 1,373,220
<PP&E> 1,427,091
<DEPRECIATION> 648,612
<TOTAL-ASSETS> 2,472,607
<CURRENT-LIABILITIES> 577,225
<BONDS> 805,984
<COMMON> 90,290
0
0
<OTHER-SE> 921,522
<TOTAL-LIABILITY-AND-EQUITY> 2,472,607
<SALES> 4,533,851
<TOTAL-REVENUES> 4,533,851
<CGS> 3,327,920
<TOTAL-COSTS> 3,327,920
<OTHER-EXPENSES> 931,777
<LOSS-PROVISION> 390
<INTEREST-EXPENSE> 42,300
<INCOME-PRETAX> 231,464
<INCOME-TAX> 90,178
<INCOME-CONTINUING> 141,286
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 141,286
<EPS-PRIMARY> 1.67
<EPS-DILUTED> 1.62
</TABLE>
<PAGE> 1
EXHIBIT 99
RITE AID CORPORATION AND PERRY DRUG STORES, INC.
PRO FORMA CONDENSED STATEMENT OF INCOME
Lake Acquisition Corporation, a wholly-owned subsidiary of Rite Aid
Corporation, completed a cash tender offer for all outstanding shares of common
stock of Perry Drug Stores, Inc. on Friday, January 27, 1995. The shares
tendered, together with the 185,000 Perry shares beneficially owned by Rite Aid
prior to commencement of the offer, constituted approximately 94.5% of Perry's
12,027,382 shares of common stock issued and outstanding. The remaining Perry
shares were acquired in a subsequent second-step merger transaction on March
25, 1995.
The following unaudited pro forma condensed statement of income for the
year ended March 4, 1995, was computed assuming that the acquisition of Perry
Drug Stores, Inc. was consummated at the beginning of the fiscal year. The pro
forma statement of income has been prepared by the Registrant based upon
audited financial statements of the Registrant for the year ended, March 4,
1995, giving effect to the acquisition under the purchase method of accounting.
The assumptions and adjustments used are described in the accompanying notes to
the pro forma condensed statement of income.
The Perry amounts in the pro forma condensed statement of income for the
eleven months ended January 28, 1995, were developed by using Perry's audited
statement of operations for the year ended October 31, 1994, and unaudited
statements of operations for the quarterly periods ended January 28, 1995 and
January 31, 1994.
This pro forma statement of income is not indicative of the results that
actually would have occurred if the acquisition had been in effect on the date
indicated or which may be obtained in the future. Since the valuation of the
Perry assets is not yet completed, the amounts used for the pro forma
adjustments are preliminary estimates. The pro forma statement of income
should be read in conjunction with the related notes.
<PAGE> 2
EXHIBIT 99 (CONTINUED)
RITE AID CORPORATION AND PERRY DRUG STORES, INC.
PRO FORMA CONDENSED STATEMENT OF INCOME
(Unaudited)
(Dollars In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Rite Aid Perry Drug Pro Forma
Corporation Stores, Inc. Combined
Fiscal Year Eleven Months Fiscal Year
Ended Ended Pro Forma Ended
March 4, 1995 Jan. 28, 1995 Adjustments March 4, 1995
------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
NET SALES $ 4,533,851 $ 678,014 $5,211,865
COSTS AND EXPENSES
Cost of Goods Sold,
Including Occupancy Costs 3,327,920 501,713 $ 22,079 (a) 3,851,712
Selling, General and
Administrative Expenses 932,167 165,040 (22,079)(a) 1,062,998
(14,438)(b)
2,308 (c)
Interest Expense 42,300 7,797 5,587 (d) 52,069
(3,615)(e)
----------- ---------- ---------- ----------
Income Before Income Taxes 231,464 3,464 10,158 245,086
Income Taxes 90,178 839 4,549 (f) 95,566
----------- ---------- ---------- ----------
Net Income $ 141,286 $ 2,625 $ 5,609 $ 149,520
=========== ========== ========== ==========
Earnings Per Share $1.67 $1.76
===== =====
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 84,771,000 84,771,000
</TABLE>
See notes to the pro forma condensed statement of income.
<PAGE> 3
EXHIBIT 99 (CONTINUED)
RITE AID CORPORATION AND PERRY DRUG STORES, INC.
NOTES TO THE PRO FORMA CONDENSED STATEMENT OF INCOME
Pro Forma Adjustments
(a) Reclassify Perry's occupancy costs to cost of goods sold.
(b) Elimination of Perry's corporate administrative expenses.
(c) Net additional amortization expense related to the net
additional favorable leases, prescription lists and
goodwill acquired from Perry.
(d) Additional interest expense related to the debt incurred to
finance the Perry acquisition.
(e) Interest expense savings resulting from replacing Perry's debt
with Rite Aid commercial paper financing.
(f) Tax effect of pro forma adjustments.
