<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 FOR THE FISCAL YEAR ENDED
MARCH 2, 1996 (FEE REQUIRED).
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO
__________ (NO FEE REQUIRED).
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:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
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
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 10, 1996 based on the closing price at
which such stock was sold on the New York Stock Exchange on such date was
$2,288,676,000.
The registrant's Common Stock outstanding at May 10, 1996 was 83,880,661
shares, par value $1.00 per share.
Portions of the Annual Report to Stockholders for the year ended March 2, 1996
are incorporated by reference into Parts I, II and IV of this Report. Portions
of the Proxy Statement prepared for the 1996 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Report.
-2-
<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........................................... 4
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............................... 8
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............................. 9
Item 12. Security Ownership of Certain
Beneficial Owners and Management.................. 9
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 "Our Business," and under the captions "Prescription for Success,"
"Aggressive Real Estate Growth," "Getting Our Message Across," "Intelligent
Technology Leadership" and "Committed to Our Communities," commencing on page 5
and ending on page 12 of the Registrant's 1996 Annual Report to Stockholders
("1996 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, the discount
bookstores, retail dry cleaning stores and plasma collection centers were sold.
The auto parts stores were sold in May 1995 to an investment group for
approximately $59.3 million. Consequently, the Registrant's business is
classified solely within the retail drug industry.
<PAGE> 5
(c) Narrative Description of Business
The information set forth under the captions
"Prescription for Success," "Aggressive Real Estate Growth," "Getting Our
Message Across," "Intelligent Technology Leadership," "Committed to Our
Communities" and "Management's Discussion and Analysis of Results of Operations
and Financial Condition" commencing on page 5 and ending on page 18 of the 1996
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 2, 1996, the Registrant employed approximately 35,700
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 four 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 Winnsboro,
South Carolina
-2-
<PAGE> 6
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 approximately 3,400 stores. The
Registrant's Melbourne, Florida distribution center was closed in August 1995
and is currently for sale.
The Registrant leases most of its drugstore facilities under
noncancelable operating leases, many of which expire within ten to fifteen
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 2, 1996, the Registrant had 2,759 retail drugstores.
ITEM 3. LEGAL PROCEEDINGS
Not Applicable.
-3-
<PAGE> 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
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 1996 Annual Meeting of
Stockholders to be held on June 26, 1996.
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 June
26, 1996) 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 Positions Held an Officer
---- --- -------------- ----------
<S> <C> <C> <C>
Martin L. Grass 42 Chairman of the Board, 1980
Chief Executive Officer
and Director
Timothy J. Noonan 54 President, Chief Operating 1973
Officer and Director
Frank M. Bergonzi 50 Executive Vice President 1977
</TABLE>
-4-
<PAGE> 8
<TABLE>
<S> <C> <C> <C>
Franklin C. Brown 68 Executive Vice President 1969
and Director
Kevin J. Mann 43 Executive Vice President 1988
Richard J. Varmecky 43 Treasurer 1987
I. Lawrence Gelman 49 Secretary 1981
Elliot S. Gerson 54 Senior Vice President 1995
Wayne Gibson 37 Senior Vice President 1994
Charles R. Kibler 49 Senior Vice President 1987
Philip D. Markovitz 55 Senior Vice President 1974
Ronald A. Miller 56 Senior Vice President 1981
Robert R. Souder 56 Senior Vice President 1972
Joseph S. Speaker 37 Senior Vice President 1991
James M. Talton 50 Senior Vice President 1995
Kent L. Whiting 36 Senior Vice President 1992
</TABLE>
Each of the executive officers listed above has served the Registrant
or its subsidiaries in various executive capacities for the past five years,
except for the following individuals:
Mr. 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 Registrant for
more than five years.
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.
-5-
<PAGE> 9
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. Varmecky was appointed Treasurer of the Registrant in July 1995.
Previously, Mr. Varmecky held the positions of Assistant Vice
President and Corporate Controller of the Registrant for more than five
years.
Mr. Gelman was appointed Associate Counsel and Secretary of
the Registrant on January 11, 1995. Previously, Mr. Gelman held
the positions of Assistant Vice President and Assistant Secretary
of the Registrant for more than five years.
Mr. Gerson joined the Registrant as Senior Vice President and
Assistant Chief Legal Counsel in November 1995. Previously, Mr. Gerson was a
partner in the law firm of Bolger, Picker, Hankin & Tannenbaum from May 1993
until joining the Registrant, and a partner in the law firm of Wolf, Block,
Schorr and Solis-Cohen from May 1984 to May 1993.
Mr. Gibson was appointed Senior Vice President of Distribution
and Logistics in July 1995. Mr. Gibson joined the Registrant as Senior
Vice President of Planning in June 1994. Prior thereto he was a
-6-
<PAGE> 10
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. Speaker was appointed Senior Vice President of Accounting
and Administration on May 24, 1996. Previously, Mr. Speaker served
as 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 was appointed Senior Vice President of Human
Resources in November 1995. Mr. Talton joined the Registrant on April
1, 1995 as Vice President of Human Resources. For the year prior
to his employment with the Registrant, 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.
Mr. Whiting was appointed Senior Vice President of Information
Services on April 18, 1996. He rejoined the Registrant in February
1996 as Vice President of Strategic Business Solutions. From March
1995 until rejoining the Registrant, Mr. Whiting was Vice President of
Operations for ADT Data Systems. Prior thereto, he held the
-7-
<PAGE> 11
positions of Assistant Vice President and Director of Strategic Business
Solutions for the Registrant since 1988.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information set forth under the caption "Common Stock and
Dividends," which appears on the inside back cover page of the
Registrant's 1996 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 34 and 35 of the
Registrant's 1996 Annual Report, is incorporated herein by
reference.
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 18 of the Registrant's 1996 Annual Report, is incorporated
herein by reference.
-8-
<PAGE> 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statement information which appears
on pages 20 through 33 of the Registrant's 1996 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 on Form 10-K. The information set forth under the
caption "Election of Directors" in the Registrant's Proxy Statement
for the 1996 Annual Meeting of Stockholders to be held June 26,
1996 is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Compensation of
Executive Officers" in the Registrant's Proxy Statement for the
1996 Annual Meeting of Stockholders to be held June 26, 1996 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
-9-
<PAGE> 13
Registrant's Proxy Statement for the 1996 Annual Meeting of
Stockholders to be held June 26, 1996 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 1996 Annual Meeting of
Stockholders to be held June 26, 1996 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 the 1996 Annual Report and
are incorporated herein by reference:
Independent Auditors' Report
Consolidated Balance Sheets - March 2, 1996 and
March 4, 1995
Consolidated Statements of Income - Each of the years
in the three year period ended March 2, 1996
Consolidated Statements of Stockholders' Equity - Each
of the years in the three year period ended March 2,
1996
Consolidated Statements of Cash Flows - Each of the
years in the three year period ended March 2, 1996
Notes to Consolidated Financial Statements
-10-
<PAGE> 14
(2) Financial Statement Schedules
The following additional information for the years
1996, 1995 and 1994 is included in Part IV of this Report:
Page No.
Schedule II - Valuation and Qualifying Accounts 15
Independent Auditors' Report 16
All other 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> <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
Amendment to Articles of Incorporation Exhibit (3) to Form 10-K
filed July 14, 1987 filed May 27, 1988
Amendment to Certificate of Incorporation Exhibit (3) to Form 10-K
filed September 2, 1993 filed May 31, 1995
(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
</TABLE>
-11-
<PAGE> 15
<TABLE>
<S> <C> <C>
(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) Not Applicable -----
(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 Statements
dated June 3, 1994 and
June 7, 1995
Annual Performance-Based Incentive Included in Proxy
Program* Statement dated June 7,
1995
Deferred Compensation Agreement* Included herein
(11) Statement Regarding Computation of Per Included herein
Share Earnings
(12) Not Applicable -----
(13) 1996 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.
-12-
<PAGE> 16
<TABLE>
<S> <C> <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 -----
</TABLE>
(b) Report on Form 8-K
No Reports on Form 8-K were filed by the Registrant during the
last quarter of the period covered by this Report.
-13-
<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 30, 1996 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 30, 1996 /s/Martin L. Grass May 30, 1996 /s/Alex Grass
-------------------- --------------------
Martin L. Grass Alex Grass
Chairman of the Board Director
of Directors and Chief
Executive Officer
May 30, 1996 /s/Frank M. Bergonzi May 30, 1996 /s/Timothy J. Noonan
-------------------- --------------------
Frank M. Bergonzi Timothy J. Noonan
Chief Accounting Director
and Financial Officer
May 30, 1996 /s/Franklin C. Brown May 30, 1996 /s/Leonard N. Stern
-------------------- --------------------
Franklin C. Brown Leonard N. Stern
Director Director
-14-
<PAGE> 18
Rite Aid Corporation and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
(dollars in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ADDITIONS
BALANCE AT ------------------------------------ BALANCE
BEGINNING CHARGED TO CHARGED TO AT END OF
DESCRIPTION OF PERIOD COSTS AND EXPENSES OTHER ACCOUNTS DEDUCTIONS PERIOD
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for
Uncollectable Accounts:
Fiscal year ended, $5,079 $16,785 $16,319 $5,545
March 2, 1996
Fiscal year ended, 342 22,938 $3,769 (a) 21,970 5,079
March 4, 1995
Fiscal year ended, 168 22,570 22,396 342
February 26, 1994
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Allowance for doubtful accounts acquired from Perry Drugstores on January
11, 1995.
-15-
<PAGE> 19
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Rite Aid Corporation
Under date of April 24, 1996, we reported on the consolidated balance
sheets of Rite Aid Corporation and subsidiaries as of March 2, 1996 and March
4, 1995, and the related consolidated statements of income, retained
earnings, and cash flows for each of the years in the three-year period ended
March 2, 1996, which are incorporated by reference in the Company's annual
report on Form 10-K. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule in the Company's annual report on Form 10-K. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement
schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth herein.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for investments in fiscal year 1995.
KPMG Peat Marwick LLP
Harrisburg, Pennsylvania
April 24, 1996
-16-
<PAGE> 20
EXHIBIT INDEX
Exhibit No. Description
10 Deferred Compensation Agreement.
11 Statement Regarding Computation of Per Share Earnings.
13 1996 Annual Report to Stockholders.
21 Registrant's Subsidiaries.
23 Consent of Independent Certified Public Accountants.
27 Financial Data Schedule. (EDGAR Filing Only)
-17-
<PAGE> 1
DEFERRED COMPENSATION AGREEMENT
AGREEMENT entered into as of the ____ day of _____, 1996, by and
between RITE AID CORPORATION, with offices at 30 Hunter Lane, Camp Hill,
Pennsylvania 17011 ("Corporation"), and the employee named on the signature
page of this Agreement ("Employee").
WHEREAS, Employee is rendering and Corporation desires that Employee
continue to render valuable services to Corporation; and
WHEREAS, to assist Employee in providing for the contingencies of
death, disability and old age dependency, Corporation and Employee desire to
enter into this Agreement ("Agreement") to provide Employee with deferred
compensation.
NOW, THEREFORE, Corporation and Employee hereby agree as follows:
<PAGE> 2
1. (a) In the event that Employee's employment with
Corporation terminates after Employee has reached age sixty five (65) and has
completed at least twenty (20) years of service with Corporation, Employee
shall be entitled to retirement ("Retirement") with the compensation provided
in this Agreement. In such event, the Corporation shall pay to Employee,
monthly, an amount equal to one twelfth (1/12) of _____ (__%) percent of the
average of the three (3) highest annual base salaries paid or accrued in
respect of three (3) fiscal years of the Corporation within the last ten (10)
fiscal years of the Corporation prior to termination of Employee's employment;
provided, however, that in the event Employee's Retirement commences after at
least six (6) months of the fiscal year in which Employee's Retirement takes
place have elapsed, that fiscal year shall be included as the tenth year in the
calculation of the Retirement Allowance and Employee shall be deemed to have
been paid an annual base salary for that entire fiscal year at the highest rate
paid to Employee in that fiscal year. The monthly amount of such payments shall
hereinafter be referred to as the "Retirement Allowance". Monthly payments of
Retirement Allowance shall commence on the first day of the month next
following Employee's Retirement and shall continue for one hundred eighty (180)
months. All payments of Retirement Allowance
2
<PAGE> 3
under this Agreement shall be made subject to such withholding and deductions
as may be required by law.
(b) If the Employee's service with the Corporation is terminated
or suspended by reason of disability ("Disability"), then regardless of the
Employee's age or length of service, and provided Employee is not then
receiving disability payments under Corporation's Long Term Disability Plan, if
requested by Employee and if approved by the Board of Directors in its sole
discretion, Corporation shall pay to Employee, monthly, commencing on the first
day of the third month next following its receipt of Employee's request, so
much of the Retirement Allowance (determined at the date of Employee's
Disability) as the Board of Directors shall deem appropriate. Such monthly
payments shall continue until the earlier of: (i) the cessation of Employee's
Disability (whether or not Employee returns to active employment with
Corporation or with another employer) or (ii) the payment of an aggregate
amount of the product of 180 and the Retirement Allowance or (ii) Employee's
death.
Employee shall be deemed to have incurred a Disability only if
according to certification of competent medical authority approved or selected
by Corporation's Board of
3
<PAGE> 4
Directors ("Board of Directors"), Employee is incapable of performing normal
duties with Corporation by reason of a medically determinable physical or
mental impairment which will persist for an indeterminate period of time.
(c) If after receiving monthly Disability payments under this
Agreement, Employee returns to employment with Corporation, the total dollar
amount of Retirement Allowance received by Employee during Employee's
Disability shall, in any manner deemed equitable by the Board of Directors, be
subtracted from the aggregate Retirement Allowance to which Employee may later
become entitled at such time as that Retirement Allowance becomes payable under
this Agreement. However, there shall not be subtracted from the Retirement
Allowance any payments received under any other disability insurance or program
not arising out of this Agreement.
2. (a) If Employee dies while employed by Corporation or
while subject to a Disability, Corporation shall pay to Employee's beneficiary
designated pursuant to Section 5 or as otherwise provided in that Section, a
Retirement Allowance the amount of which shall be calculated as if the death
had occurred (i) after Employee had completed twenty (20) years of service with
Corporation and (ii) after Employee had
4
<PAGE> 5
reached age sixty five (65), reduced by one-180th of the aggregate amount, if
any, paid to Employee under Section 1(b). Monthly payment of that Retirement
Allowance shall commence on the first day of the month next following the date
of Employee's death and shall continue for one hundred eighty (180) months.
(b) If Employee dies after payments under Section 1 have
commenced, but before payments have been completed, the remaining payments
shall be continued to Employee's beneficiary designated pursuant to Section 5
or as otherwise provided in that Section.
3. If Employee's employment with Corporation terminates for any
reason other than Retirement, disability or death, this Agreement shall
terminate and no benefits shall be payable to Employee or to any person or
entity claiming by, from or through Employee.
4. If at any time Employee is discharged for good cause by
Corporation with the acquiescence of the Board of Directors, or if subsequent
to Employee's retirement, disability or death, it is discovered that Employee
committed an act which could have resulted in Employee's discharge for
5
<PAGE> 6
good cause by Corporation, had it been known to Corporation, this Agreement
shall terminate and any and all rights and benefits of Employee and of any
person claiming by, from or through Employee under this Agreement shall be
forfeited and any benefits then being paid or to be paid in the future shall
cease. In the case of an after-discovered fact, the Board of Directors shall
determine whether there has been an act which would have justified a discharge
for good cause, using reasonable and non-discriminatory standards.
5. Employee shall designate in writing on a form delivered to the
Board of Directors (Attention: Chairman) a beneficiary or beneficiaries and
successor beneficiaries (including address) to receive the benefits, if any,
payable under this Agreement upon Employee's death. The Board of Directors
shall decide which beneficiary or beneficiaries, if any, shall have been
validly designated. Such designation of beneficiary may be revoked and changed
by Employee, from time to time, in writing on a form delivered to the Board of
Directors (Attention: Chairman), and shall be revoked automatically if the
designated beneficiary or beneficiaries predecease Employee, in which case a
new designation of beneficiary or beneficiaries may be made. If, at the time
of Employee's death no designation of beneficiary is then in
6
<PAGE> 7
effect, or following Employee's death, upon the death of all successor
beneficiaries designated by Employee, all remaining Retirement Allowance shall
be paid to Employee's estate.
6. Employee's rights under this Agreement and the rights of
Employee's beneficiary or estate may not be assigned, transferred, pledged or
encumbered.
7. In determining Employee's length of service with Corporation
for purposes of this Agreement there shall be counted any period of: (a)
employment with any business entity controlling, controlled by or under common
control with Corporation; (b) employment with any business entity at the
request of Corporation; (c) service prior to the date of this Agreement with
any business entity referred to in (a) and (b) of this Section and (d) any
period of Disability (whether or not payments of the Retirement Allowance were
made to Employee as a result thereof).
8. Nothing contained in this Agreement shall be construed as
conferring upon Employee the right to continue in the employ of Corporation in
any capacity and the employment rights of Employee shall be determined as if
this Agreement had never been executed.
7
<PAGE> 8
9. If at any time after Retirement Employee, without the prior
consent of the Board of Directors, undertakes employment with or provides
consulting or advisory services to any person or entity engaged in the
continental United States: (a) in any business in which Corporation or any
entity, employment with which would, for purposes of this Agreement, constitute
employment by the Corporation, is engaged (whether or not in competition with
Corporation or such entity) or (b) in the operation of pharmacy benefit
manager, Employee's right to any remaining Retirement Allowance otherwise
payable under this Agreement shall at that time cease and terminate
permanently. The provisions of this Section 9 shall not be applicable with
respect to employment by or consulting services to a trade association of
persons or entities referred to in (a) of this Section.
10. The benefits, if any, payable to Employee in accordance with this
Agreement shall not constitute a segregation of funds or other property for the
benefit of Employee or of any person or entity claiming by, from or through
Employee. Nothing contained in this Agreement and no action taken pursuant to
the provision of this Agreement shall create or be construed as creating a
trust of any kind or a fiduciary relationship between Corporation and Employee
8
<PAGE> 9
or any person or entity claiming by, from or through Employee and neither
Employee nor any person or entity claiming by, from or through Employee shall
have rights with respect to the benefits under this Agreement greater than the
rights of an unsecured general creditor of the Corporation.
11. (a) The Board of Directors shall have full power and
authority to interpret, construe and administer this Agreement and shall not be
liable to Employee or any person or entity claiming by, from or through
Employee for any action taken or omitted in connection with the interpretation,
construction or administration or this Agreement and no action taken or omitted
by the Board of Directors in connection with the interpretation, construction
or administration of any similar or dissimilar agreement between Corporation
and any other employee of Corporation shall by reason of this Agreement create
any cause of action in Employee or any person or entity claiming by, from or
through Employee. All decisions, interpretations and actions of the Board of
Directors taken in connection with this Agreement, including any claims for
benefits made under this Agreement, shall be conclusive, final and binding on
all parties.
9
<PAGE> 10
(b) If the Board of Directors denies the claim of an
Employee or of any person claiming by, from or through Employee (a "Claimant")
for payment of the Retirement Allowance under this Agreement, the Board of
Directors shall provide written notice, within sixty (60) days after receipt of
the claim, setting forth in a manner calculated to be understood by the
Claimant;
(i) the specific reasons for such denial;
(ii) the specific reference to the provisions of
this Agreement on which denial is based;
(iii) a description of any additional material or
information necessary to perfect the claim and an explanation of why
such material or information is needed; and
(iv) an explanation of this Agreement's claim
review procedure and the time limitations of this subsection
applicable thereto.
Employee or any Claimant whose claim for payment of the
Retirement Allowance has been denied may request review
10
<PAGE> 11
by the Board of Directors of the denied claim by notifying the Board of
Directors in writing within sixty (60) days after receipt of the notification
of claim denial. As part of said review procedure, the Employee or Claimant or
their authorized representatives may review pertinent documents and submit
issues and comments to the Board of Directors in writing. The Board of
Directors shall render its decision to Employee or the Claimant in writing in a
manner calculated to be understood by the Employee or Claimant not later than
sixty (60) days after receipt of the request for review, unless special
circumstances require an extension of time, in which case decision shall be
rendered as soon after the sixty (60) day period as possible, but not later
than one hundred twenty (120) days after receipt of the request for review.
The decision on review shall state the specific reasons therefor and the
specific Agreement references on which it is based.
12. This Agreement shall be binding upon and inure to the benefit
of this Corporation, its successors and assigns, and Employee, Employee's
beneficiary, heirs, executors, administrators and legal representatives.
11
<PAGE> 12
13. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such
term, covenant or condition, nor shall any waiver or relinquishment of any
right or power hereunder at any one time or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
14. If any clause, sentence, paragraph, section or part of this
Agreement shall be held by any court of competent jurisdiction to be invalid,
such judgment shall not affect, impair or invalidate the remainder hereof.
15. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered or certified
mail; if to Employee, to the address shown on the books of Corporation; and if
to Corporation, to the address shown above or such other address as Corporation
may have designated in writing, or if actually received by the person to whom
sent.
16. This Agreement shall be subject to and construed in accordance
with the laws of the Commonwealth of Pennsylvania
12
<PAGE> 13
where it is made without giving effect to principles of conflict of law.
IN WITNESS WHEREOF, Corporation has caused this Agreement to be
executed by its duly authorized officer and Employee has hereunder set
Employee's hand as of the date first above written.
RITE AID CORPORATION EMPLOYEE
By:
---------------------------- -------------------------------
Martin L. Grass Name:
Chairman of the Board and
Chief Executive Officer
13
<PAGE> 1
EXHIBIT 11
Rite Aid Corporation and Subsidiaries
Statement Regarding Computation of Per Share Earnings
Years ended March 2, 1996, March 4, 1995 and February 26, 1994
In thousands except per share amounts
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
EARNINGS PER COMMON SHARE - ASSUMING NO DILUTION
Earnings
Income from continuing operations $158,947 $141,286 $ 26,208
Loss from discontinued operations -- -- (16,920)
-------- -------- --------
Net Income $158,947 $141,286 $ 9,288
======== ======== ========
Shares
Weighted average number of common shares outstanding 83,808 84,771 87,972
======== ======== ========
Primary earnings per common share
Income from continuing operations $ 1.90 $ 1.67 $ 0.30
Loss from discontinued operations -- -- (0.19)
-------- -------- --------
Net Income $ 1.90 $ 1.67 $ 0.11
======== ======== ========
EARNINGS PER COMMON SHARE - ASSUMING ISSUANCE OF ALL DILUTIVE
CONTINGENT SHARES
Earnings
Income from continuing operations $158,947 $141,286 $ 26,208
Add after tax interest expense applicable
to 6 3/4% convertible debentures (a) 8,356 7,425 --
-------- -------- --------
Income from continuing operations as adjusted 167,303 148,711 26,208
Loss from discontinued operations -- -- (16,920)
-------- -------- --------
Net Income $167,303 $148,711 $ 9,288
======== ======== ========
Shares
Weighted average number of common shares outstanding 83,808 84,771 87,972
Assuming conversion of 6 3/4% convertible debentures (a) 6,395 6,395 --
Assuming exercise of options reduced by the number of shares
which could have been purchased with the proceeds
from exercise of such options 585 657 299
-------- -------- --------
Weighted average number of common shares outstanding as
adjusted 90,788 91,823 88,271
======== ======== ========
Earnings per common share assuming full dilution
Income from continuing operations $ 1.84 $ 1.62 $ 0.30
Loss from discontinued operations -- -- (0.19)
-------- -------- --------
Net Income (b) $ 1.84 $ 1.62 $ 0.11
======== ======== ========
</TABLE>
(a) Shown net of income taxes which were calculated at the Company's
tax rate. For fiscal year 1994, the convertible notes had 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 the
dilution is not material.
<PAGE> 1
RITE AID
1996 ANNUAL REPORT
[PHOTO]
<PAGE> 2
OUR BUSINESS
Rite Aid Corporation operates more drugstores than any other company in the
United States. On March 2, 1996, there were 2,759 drugstores in 21 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 as RAD.
FOR YOUR LIFE, RITE AID'S GOT IT.(SM)
Cover: Rite Aid's first-ever advertising campaign, rolled out during October
1995 on TV, radio and in newspaper in our major markets, targets our core
customers -- active, time-pressed women and their families -- using dynamic
images to illustrate their busy lives.
Contents
1 Highlights of the Year
2 Letter to Stockholders
5 Prescription for Success
13 Financial Review
36 Directors and Corporate Officers
<PAGE> 3
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS Year ended March 2, 1996 Year ended March 4, 1995
- ------------------------------------------------------------------------------------------------------------------
(52 WEEKS) (53 WEEKS) % CHANGE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $ 5,446,017 $ 4,533,851 20.1
- ------------------------------------------------------------------------------------------------------------------
Net Income $ 158,947 $ 141,286 12.5
- ------------------------------------------------------------------------------------------------------------------
Earnings per Common Share $ 1.90 $ 1.67 13.8
- ------------------------------------------------------------------------------------------------------------------
Dividends per Common Share $ .695 $ .62 12.1
- ------------------------------------------------------------------------------------------------------------------
Average Number of Common Shares Outstanding 83,808,000 84,771,000
Total Assets $ 2,841,995 $ 2,472,607
Stockholders' Equity $ 1,103,619 $ 1,011,812
Return on Average Stockholders' Equity 15.0% 14.4%
Number of Employees 35,700 36,700
- ------------------------------------------------------------------------------------------------------------------
</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
$11,152,000 or $.13 per share and $9,377,000 or $.11 per share for fiscal years
1996 and 1995, respectively.
DRUGSTORE SALES GRAPH
(DOLLARS IN BILLIONS)
<TABLE>
<S> <C>
1992 3.53
1993 3.83
1994 4.06
1995 4.53
1996 5.45
</TABLE>
INCOME FROM CONTINUING OPERATIONS GRAPH
(DOLLARS IN MILLIONS)
<TABLE>
<S> <C>
1992 114.9
1993 123.8
1994 116.8*
1995 141.3
1996 158.9
</TABLE>
* Income from continuing operations excluding the after-tax effect of the
provision for corporate restructuring and other charges.
ANNUAL DIVIDEND PER SHARE GRAPH
(CENTS PER SHARE)
<TABLE>
<S> <C>
1992 51.25
1993 56.25
1994 60.00
1995 62.00
1996 69.50
</TABLE>
1
<PAGE> 4
TO OUR STOCKHOLDERS
Fiscal 1996 has been filled with many exciting changes. We completed a very
successful year, recording the best sales and earnings in our history. Revenues
reached $5.45 billion and net income was $158.9 million. We finished the year
operating 2,759 drugstores, more than any other drugstore retailer in the United
States. Comparable store sales increased 6.6%, with solid growth in both the
front end of the store and the pharmacy.
We are working diligently to improve our market share as well as the
quality of our store base. Today we are opening stores that are 10,500 square
feet. The new stores are generally situated on one acre corner parcels, large
enough to provide 50 parking spaces and the convenience of a drive-thru pharmacy
window. We presently have 25 full-time representatives responsible for finding
the best possible sites for these stores. In fiscal 1996, we opened 145 new
stores, relocated 121 smaller profitable units and expanded 102 buildings. This
year we will intensify that program, adding 125 new stores, relocating 200
drugstores and enlarging 100 stores. Our streamlined store planning process has
enabled us to approve a site and have an executed transaction within two weeks.
This is a competitive advantage when negotiating with landlords who have great
demand for their property and are interested in executing a lease quickly.
In our quest to improve our market share wherever we operate, we decided to
exit markets where we did not have enough stores to be a major managed care
provider. We sold 109 stores in Florida to Eckerd Corporation in July. Shortly
after that, we sold our Massachusetts and Rhode Island stores to Brooks Pharmacy
and CVS, Inc. We made two strategic acquisitions during this same period,
purchasing 30 Pathmark drugstores in New York City and 20 Brooks stores in
Maine. Today we are the largest pharmacy provider in both of these markets.
We continue to refine the interior and exterior of our buildings. In
January, we opened the first of our new prototype stores. The interior of this
unit features a new layout, more clearly delineating the product categories
within the store. The color tones are pastel with contemporary graphics which
cater to our target customers -- women between the ages of 20 and 55. The store
continues to feature, in addition to the pharmacy, a convenience food section, a
one-hour photo department and our business service counter. The store includes a
new system for displaying in-store signage and banners.
Category management, which we introduced this past year, has already
yielded results in the front end of the store. We are more carefully analyzing
gross margin return per linear foot. In addition, we have found that we can
increase the number of larger product sizes, generating greater sales per
customer. It is our intention to have the entire store category planned by the
end of fiscal 1997. Our supplier partners have been extremely supportive. In
almost every case they have seen a substantive improvement in our sale of their
products.
In the third quarter we introduced a broadcast advertising program to
enhance our image and increase our pharmacy business. The television commercials
began in October and were supplemented by radio in smaller
2
<PAGE> 5
[PHOTO OF MARTIN L. GRASS AND TIMOTHY J. NOONAN]
MARTIN L. GRASS
Chairman of the Board &
Chief Executive Officer
(left)
TIMOTHY J. NOONAN
President &
Chief Operating Officer
(right)
markets that could not be reached economically by television. We have
dramatically reduced our newspaper advertisements and cut back the number of
circulars in certain markets. After the initial campaign, we supplemented our
message with a strong item and price campaign utilizing our core images and
music in the television and radio advertising.
We realize that we cannot change our marketing image overnight with
television. However, we believe that we are well on our way to enhancing our
position in the minds of our current and potential customers. We have conducted
extensive post-advertising surveys and the results have been overwhelmingly
positive when measured against industry benchmarks. In addition, we have
significantly raised our visibility in the managed care community. This is
extremely important when negotiating third-party pharmacy business.
We continue to invest heavily in technology to improve our customer service
and lower our selling, general and administrative expense. We do this
recognizing that the drug retailers, who survive to become the preferred
partners with managed care in the future, will be the enterprises that possess
the most sophisticated technology. In fiscal 1997, we will introduce a
chain-wide pharmacy replenishment system to complement the front-end system that
is already in place. We have recently become one of the early users of parallel
sysplex/data sharing. This system, developed by IBM, allows us to add stores
more easily and to ensure consistency and flexibility in the flow of data
between our stores and corporate headquarters. We are introducing interactive
telephone systems in all of our stores to enable prescription customers and
doctors to order both new and refill prescriptions more easily. Last October, we
commenced software development at a new location in Hunt Valley, Maryland. The
proximity to numerous universities, and a larger technology job pool, will
enhance our recruiting efforts. We expect to have more than 50 developers on
staff by the end of fiscal 1997.
Going forward, retail pharmacy will have to become more proactive with
managed care providers. To reduce costs, managed care is going to be forced to
contract only with the most efficient retail providers that can offer the
highest quality service along with the most competitive prices. This trend
impels us to ensure that our customers are receiving the lowest cost drugs in
compliance with their doctors' orders. There are many drugs in the marketplace
referred to as "me too" drugs. These are medications that provide the same
therapy as another drug but at a different price level. The opportunity in the
marketplace today is to partner with those pharmacy benefit managers and
pharmaceutical manufacturers that are trying to provide the most effective
pharmacy therapy at the
3
<PAGE> 6
lowest possible price by implementing formularies or approved lists of drugs. We
intend to aggressively implement this strategy throughout our chain.
At Rite Aid we have decided that not all pharmacy benefit managers (PBMs)
are the same. We have already begun to distinguish between those PBMs that
derive most of their profit by squeezing retailers' margins and those that
provide a value-added service before entering into preferred partnerships. We
are aware, however, that we must be the most cost competitive to be an effective
managed care partner.
At the April meeting of your Directors, Nancy Lieberman was nominated to
the Board of Rite Aid Corporation. Ms. Leiberman is a partner with the law firm
of Skadden, Arps, Slate, Meagher & Flom in New York City. She has extensive
experience in corporate matters and will be an asset to our board.
On November 30, 1995, we announced the proposed acquisition of Revco D.S.,
Inc., a chain of 2,100 drugstores operating in the midwest and southeastern
United States. Unfortunately, because of strenuous, unfounded anti-trust
objections by the Federal Trade Commission, we were forced to abandon our tender
offer on April 24, 1996.
Despite the tremendous investment in building new stores and implementing
the finest technology, our more than 35,700 associates are still our primary
asset. Their performance this past year has been outstanding. As always, we will
call upon them to redouble their effort and propel us to yet another year of
record achievement. Furthermore, the executive management of Rite Aid is well
aware that the success of our stock price is the principal factor in enhancing
their net worth. We will push harder this year to continue the achievements of
fiscal 1996.
/s/MARTIN L. GRASS
- ------------------
MARTIN L. GRASS
Chairman of the Board and
Chief Executive Officer
/s/TIMOTHY J. NOONAN
- --------------------
TIMOTHY J. NOONAN
President and
Chief Operating Officer
4
<PAGE> 7
PRESCRIPTION FOR SUCCESS
[PHOTO]
[WE ARE ESTABLISHING RITE AID AS THE LEADING DRUGSTORE IN OUR MARKETS. WE ARE
ACHIEVING THIS BY ENSURING THAT OUR STORES, PRODUCTS AND SERVICES ARE
CONSISTENTLY THE BEST.]
5
<PAGE> 8
For decades, Rite Aid followed a simple formula in running our business:
maintain centralized support operations, tightly control costs and offer a
focused and basic merchandise mix. But in today's environment, it is no longer
business as usual. We are faced with fierce competition in our markets and the
continuously changing preferences and shopping habits of an increasingly diverse
customer base. To contend with these mounting pressures, we are evaluating every
facet of our business.
Our customer research has formed the basis of the aggressive three-year
growth plan we introduced last year. Its key objectives -- to increase per-store
sales, foster customer loyalty, enhance the level of convenience we provide and
position Rite Aid as the premier drugstore provider in all of our markets. In
fact, when surveyed, our most loyal customers identified convenience as the
primary reason they choose a drugstore. We intend to be the standard against
which all other drugstores are measured. Achieving our goal is an ongoing,
evolutionary process, but we made major strides during the year.
AGGRESSIVE REAL ESTATE GROWTH
In 1995, we aggressively launched a program to reposition our store base. Our
new 10,500-square-foot store prototype responds to the needs and expectations of
our core customer. Wider aisles, more attractive lighting,
[PHOTO]
[OUR NEW PROTOTYPE DEMONSTRATES WE'RE LISTENING TO WHAT OUR CUSTOMERS WANT:
WIDER AISLES, SOFTER COLORS AND LIGHTING AND, OVERALL, A STORE THAT'S EASY,
PLEASANT AND COMFORTABLE TO SHOP.]
6
<PAGE> 9
[PHOTO]
7
<PAGE> 10
an expanded merchandise mix, one-hour photo finishing, larger pharmacy waiting
areas and public restrooms underscore our commitment to making shopping as
convenient and easy as possible. So does our expanded offering of cosmetics,
designer fragrances, frozen meals, dairy products and other convenience foods
for shoppers on the run. New stores also feature small appliances and a business
service counter. Market by market, store by store, we're satisfying customers.
Our new approach is increasing traffic, attracting many new pharmacy customers
to the front end and, overall, generating strong sales gains.
We plan to build more than 1,000 larger format stores by fiscal year-end
1998. Roughly two-thirds of them will be relocations or expansions of existing
stores. Almost all of our new stores are freestanding locations offering the
ultimate in customer convenience. We defined the ideal sites for new stores as
high-profile locations that provide easy access, plentiful parking and
drive-thru pharmacy windows.
[10,500 SQ. FT.]
[WITH SUBSTANTIALLY MORE FLOOR SPACE, WE'VE EXPANDED OUR MERCHANDISE OFFERING TO
INCLUDE A RANGE OF NEW PRODUCT CATEGORIES THAT ARE CONTRIBUTING TO IMPROVED
PROFIT MARGINS IN THE FRONT END OF OUR STORES.]
[PHOTO]
[OUR CUSTOMERS CAN FIND AN EVEN LARGER SELECTION OF GENERAL MERCHANDISE AND
OTHER LIFESTYLE PRODUCTS.]
[PHOTO]
[WE'RE DEMONSTRATING OUR COMMITMENT TO OUR CUSTOMERS' WELL-BEING WITH A FULL
SELECTION OF PRODUCTS THAT PROMOTE HEALTHY LIFESTYLES.]
8
<PAGE> 11
[PHOTO]
[RITE AID SETS THE STANDARD FOR CONVENIENCE AS CUSTOMERS DEPEND INCREASINGLY ON
US FOR ESSENTIALS LIKE CONVENIENCE FOOD, BREAD AND FRESH DAIRY PRODUCTS.]
[PHOTO]
[OUR ONE-HOUR PHOTO COUNTERS, NOW IN OVER 500 STORES, ARE GENERATING SALES
INCREASES IN FILM AND PHOTOGRAPHY-RELATED ITEMS, AS WELL AS GREATER CUSTOMER
TRAFFIC THROUGHOUT THE STORE.]
[PHOTO]
[NOW RITE AID IS THE SOURCE OF A GREATER RANGE OF COMPETITIVELY PRICED, UPSCALE
COSMETICS AND DEPARTMENT-STORE-BRAND FRAGRANCES, AS WELL AS PRODUCT LINES GEARED
TO ETHNIC CUSTOMERS.]
9
<PAGE> 12
[PHOTO]
10
<PAGE> 13
[PHOTO]
[TODAY, ALL OUR PHARMACIES ARE LINKED ON-LINE, ENSURING THAT PHARMACISTS AND
CUSTOMERS GET THE MOST CURRENT INFORMATION ABOUT THEIR DRUGS. THIS LETS
CUSTOMERS FILL PRESCRIPTIONS CHAIN-WIDE -- SO THAT PRACTICALLY ANYWHERE THEY GO,
RITE AID CAN BE THEIR NEIGHBORHOOD STORE.]
GETTING OUR MESSAGE ACROSS
We made a significant investment in a comprehensive, image-building marketing
communications program in 1995. Television and radio advertising launched in 52
markets appeals to our core customers with the tag line "For Your Life, Rite
Aid's Got It." Words and images portray Rite Aid as the most convenient place
for busy women to find helpful, knowledgeable pharmacists and value-priced
health and beauty products. This image-enhancing program seeks to bring
perceptions in our markets in line with the reality of our products and
services. To reinforce our message, the media mix also includes print ads,
seasonal circulars and in-store signage.
INTELLIGENT TECHNOLOGY LEADERSHIP
A strong technical infrastructure creates business value by reducing costs and
leveraging the impact of each new enhancement. In fiscal 1996, we again led the
industry in the use of new communications technologies. Our field management
team now has instant access to all store financial information through laptop
computers that can dial into our computer network. E-mail links throughout our
network and weekly television broadcasts to our stores and field managers have
transformed the way we communicate, bringing together a diverse team across the
regions we serve. Rite Aid now enjoys an unprecedented level of information
sharing.
11
<PAGE> 14
COMMITTED TO OUR COMMUNITIES
Rite Aid is committed to being a good neighbor in every community we serve.
Indeed, 35,700 Rite Aid associates live in these same communities. In 1995,
associates throughout the chain participated in hundreds of programs that
support children's healthcare services and educational initiatives, feed the
needy, provide health screenings and counseling for the elderly and raise
awareness of pertinent health issues. Children's healthcare gets special
attention at Rite Aid with our support of the St. Jude Children's Research
Hospital in Memphis and our national sponsorship of the Children's Miracle
Network. We also remain committed to our nationally recognized Mother's Day
Mammogram Program, which offers free mammograms each May. As we grow, we will
continue to demonstrate our commitment to being active, involved members
wherever Rite Aid stores are located.
[PHOTO]
[CHILDREN'S MIRACLE NETWORK, ST. JUDE COOL GHOUL PROGRAM AND THE MOTHER'S DAY
MAMMOGRAM PROGRAM ARE AMONG THE CHILDREN'S MEDICAL CARE, WOMEN'S HEALTH CARE AND
EDUCATIONAL PROGRAMS WE SUPPORT OR SPONSOR AS DEDICATED MEMBERS OF THE
COMMUNITIES WE SERVE.]
[PHOTO]
[JOHN HOPPLE'S (SEATED) BALTIMORE MARKET MANAGEMENT TEAM, MADE UP OF (LEFT TO
RIGHT) BILL HARDING, HUMAN RESOURCES MANAGER, KIRK GEISLER, DISTRICT MANAGER
EAST, AND SHARON ABAYASEKARA, PHARMACY DEVELOPMENT MANAGER, IS EXEMPLARY IN ITS
SUCCESSFUL, INTERDISCIPLINARY APPROACH TO ENHANCING CUSTOMER SERVICE, EMPLOYEE
DEVELOPMENT AND FINANCIAL PERFORMANCE IN THE FIELD.]
12
<PAGE> 15
FINANCIAL REVIEW
Contents
14 Management's Discussion and Analysis of
Results of Operations and Financial Condition
19 Management's Responsibility for
Financial Statements
20 Independent Auditors' Report
21 Consolidated Balance Sheets
22 Consolidated Statements of Income
23 Consolidated Statements of
Stockholders' Equity
24 Consolidated Statements of Cash Flows
25 Notes to Consolidated Financial Statements
33 Interim Financial Results (Unaudited)
34 Ten-Year Financial Review
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 2, 1996 totaled $5.446 billion, an
increase of $912.2 million or 20.1% higher than last year. Although fiscal 1996
contained 52 weeks compared to 53 weeks for fiscal 1995, the current year
recorded strong sales growth mainly attributable to the 224 Perry Drug Stores,
Inc. locations acquired on January 27, 1995. Included in the fiscal 1996 net
sales were revenues generated by the Perry drugstores for the entire 52-week
period amounting to $738.5 million. Fiscal 1995, however, contained Perry
drugstore sales for only a five-week period of $76.9 million. Also contributing
to the sales gain were same-store sales increases of 6.6% and revenues from the
145 stores opened during fiscal 1996. Adversely impacting sales growth were
severe winter weather experienced in the fourth quarter and the 215 locations
that were either sold or closed during the year. Most of the stores sold or
closed were located in the Florida, Massachusetts and Rhode Island markets and
accounted for $112.4 million of fiscal 1996 net sales, down from $260.3 million
for the prior fiscal year. As of March 2, 1996, the company operated 2,759
drugstores.
For fiscal years 1995 and 1994, net sales were $4.534 billion and $4.059
billion, respectively, representing increases of 11.7% and 5.9% over the
year-earlier periods. The fiscal 1995 sales gain resulted from same-store sales
increases of 7.2% and the benefit of one additional sales week from a 53-week
fiscal year. Also included were revenues from the 224 Perry drugstores and 72
LaVerdiere's units from their respective acquisition dates of January 27, 1995
and 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 in fiscal 1994.
The 5.9% sales growth for fiscal 1994 reflected same-store sales gains of
only 2.8% largely due to a decline in inflation rates for pharmaceutical
products and soft demand for nonpharmacy merchandise. There were also lower
retail cigarette prices resulting from large price decreases by the
manufacturers.
Costs and Expenses:
Cost of goods sold including occupancy costs were 73.8% of net sales for the
current year compared to 73.4% for fiscal 1995 and 73.2% for fiscal 1994. As the
ratio of pharmacy sales to total drugstore sales grew, so did the ratio of
third-party
PHARMACY SALES
AS A PERCENTAGE OF
DRUGSTORE SALES
(percent)
[GRAPH]
<TABLE>
<S> <C>
1992 46.4
1993 48.5
1994 50.8
1995 53.1
1996 55.2
</TABLE>
THIRD-PARTY SALES
AS A PERCENTAGE OF
PHARMACY SALES
(percent)
[GRAPH]
<TABLE>
<S> <C>
1992 48.0
1993 51.3
1994 54.1
1995 58.5
1996 62.8
</TABLE>
NUMBER OF DRUGSTORES
[GRAPH]
<TABLE>
<S> <C>
1992 2,452
1993 2,573
1994 2,690
1995 2,829
1996 2,759
</TABLE>
14
<PAGE> 17
prescription sales to pharmacy sales. This growth in third-party sales, which
typically have lower margins than other pharmacy sales, continued to pressure
gross profits. For fiscal years 1996, 1995 and 1994, the percentages of total
pharmacy sales to drugstore sales were 55.2%, 53.1% and 50.8%, with third-party
sales accounting for 62.8%, 58.5% and 54.1% of total pharmacy sales,
respectively. Fiscal 1996 was impacted by the inclusion of the Perry drugstores,
which have higher third-party sales and lower gross margins than the rest of the
chain. The company's weighted average internal inflation indexes were 2.2% for
fiscal 1996, 2.0% for fiscal 1995 and 1.5% for fiscal 1994 resulting in LIFO
(last-in, first-out) inventory charges of $18.0 million, $15.4 million and $10.9
million, respectively.
Selling, general and administrative expenses, expressed as a percentage
of net sales, were 20.3%, 20.6% and 21.3% for fiscal years 1996, 1995 and 1994,
respectively. The lower operating expense ratio in fiscal 1996 was primarily due
to an aggressive cost cutting program and the benefits derived from completing
the integration of the Perry acquisition. During the second quarter of fiscal
1996, the administrative offices of Perry were closed and economies of scale and
increased efficiencies were realized from more fully utilizing the Perry
distribution center. The Michigan distribution center, which previously serviced
the original 224 Perry stores, now services over 600 drugstores in the Great
Lakes region. The fiscal 1996 expense ratio was also enhanced by the 215 stores
that were sold or closed during the year, since they historically had higher
cost to sales percentages. Fiscal 1995, compared to the previous year, benefited
from higher same-store sales increases and an additional week of sales in which
to leverage operating expenses. Furthermore, in fiscal 1995, the company
realized the operating benefits from closing the 200 underperforming stores
which were part of a corporate restructuring strategy. The closing costs from
those stores were charged to the restructuring reserve and not operations.
Fiscal year 1994 reflected the low same-store sales gain and its unfavorable
impact on operating expenses as well as additional costs associated with a
chainwide installation of point-of-sale cash registers and satellite equipment.
Interest expense was $68.3 million in 1996, $42.3 million in 1995 and
$28.7 million in 1994. The increasing expense trend for the three years was
mainly due to higher levels of indebtedness and the general rise in short-term
interest rates. The annual weighted average rates on the company's commercial
paper were 5.9%, 5.0% and 3.2% for fiscal years 1996, 1995 and 1994,
respectively. Proceeds from the increased borrowings were used to finance
various drugstore acquisitions including 30 Pathmark and 20 Brooks Pharmacy
stores in fiscal 1996, and the purchase of Perry and LaVerdiere's in fiscal
1995. Funding was also needed to support the company's new, larger prototype
store design. During fiscal 1996, 80 new prototype stores were built, along with
121 relocations and 102 expansions to the new store size. Contributing to the
higher debt were the company's stock buyback programs initiated in the fourth
quarter of fiscal 1994. The company increased its treasury stock holdings by
407,100 shares, 1,847,798 shares and 2,077,271 shares each year in the
three-year period ended March 2, 1996 at a cost of $9.0 million, $36.6 million
and $38.4 million, respectively. In April 1995, the company replaced $200
million of short-term debt through the issuance of 7 5/8% senior notes due April
15, 2005. Although the refinancing was at a higher interest rate, it fixed a
portion of interest cost on a long-term basis at a favorable rate. In July 1995,
the company moved to eliminate its highest rate debt by redeeming the 9 5/8%
sinking fund debentures totaling $45 million with proceeds received from the
sale of ADAP.
Restructuring and Other Charges:
In January 1994, the company announced a restructuring plan which included sale
of the non-drugstore businesses, stock buyback program, closure of 200
underperforming drugstores and write-off of other assets. To provide for the
15
<PAGE> 18
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. During fiscal 1995, the 200 stores were closed. The reserve
components ended fiscal year 1995 with minimal balances except lease settlement
costs which had a remaining balance of $32.4 million. Most of the cash required
for the committed restructuring actions was paid out by fiscal year-end 1996. As
of March 2, 1996, the remaining reserve balance was $18.9 million and solely
related to future lease settlement costs. 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 dropped to 38.0% for fiscal 1996 from 39.0% and
42.6% for fiscal years 1995 and 1994, respectively. The lower current year tax
rate resulted from tax planning strategies which utilized state net operating
loss carryforwards (NOLs), the tax benefits of which were previously considered
unlikely to be realized. Consequently, the deferred tax benefits related to
these state NOLs carried a valuation allowance in prior years. The high
effective rate for 1994 reflected the change in the federal corporate income tax
rate from 34% to 35% legislated in August 1993. 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 1996 rose to $158.9 million
compared to $141.3 million in 1995 and $26.2 million in 1994. The current year
benefited from the Perry acquisition with its contributions to the sales gain
and lower operating expense ratio. The higher earnings for fiscal 1996 also
resulted from solid same-store increases and a decrease in the effective income
tax rate, despite continued pressure on margins from third-party reimbursements
and higher interest cost. Last year's results reflected strong same-store sales
increases, an additional sales week and the favorable impact of closing the 200
underperforming stores a year earlier. Adversely affecting fiscal 1995 were a
greater percentage of third-party prescription sales, higher interest cost and a
larger LIFO inventory charge.
Fiscal 1994 included the $149.2 million pre-tax provision for
restructuring and other charges. Excluding the after-tax effect of this
provision, income from continuing operations would have been $116.8 million.
Contributing to the unfavorable results for fiscal 1994 were low same-store
sales increases, 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.
Discontinued Operations:
As part of the 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
16
<PAGE> 19
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 1994
net earnings were $8.7 million 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 charged to the reserve for loss on disposal of discontinued
operations. The sale of ADAP was completed in the first quarter of fiscal 1996.
The aggregate consideration for the transaction was approximately $59.3 million
and the remaining reserve amount of $13.3 million was adequate for the after-tax
loss on disposal of ADAP.
Net Income:
Net income was $158.9 million and $141.3 million for fiscal years 1996 and 1995,
respectively. For fiscal 1994, net income was $9.3 million which included an
after-tax loss from discontinued operations of $16.9 million.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $148.6 million, $190.2 million and
$222.7 million for fiscal years 1996, 1995 and 1994, respectively. Although
earnings have increased, less cash was provided by operations largely due to
increases in inventory levels and cash expenditures for store closings of $28.2
million in 1996 and $29.1 million in 1995. In fiscal year 1996, cash outlays
were also necessary to settle accrued liabilities acquired from Perry.
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 to fund other large cash requirements.
The company issues commercial paper rated A-2 by Standard & Poors 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 $556.8 million at March 2, 1996, $436.5 million
at March 4, 1995 and $186 million at February 26, 1994. The additional
commercial paper borrowings were used to finance acquisitions, capital
expenditures and stock buyback programs. Supplementing liquidity were proceeds
received from drugstore dispositions and the sale of discontinued operations.
In March 1995, $50 million of 8.5% convertible debentures acquired from
Perry were redeemed by the company through proceeds from commercial paper
borrowings. In April 1995, the company issued $200 million of 7 5/8% senior
notes, due April 15, 2005, to repay part of its outstanding commercial paper.
The company redeemed its 9 5/8% sinking fund debentures totaling $45 million in
July 1995 with proceeds received from the sale of ADAP.
The company maintains $600 million in revolving credit commitments to
provide additional borrowing capacity and support its commercial paper program.
In July 1995, Rite Aid filed a Form S-3 Shelf Registration Statement for $375
million. Including $25 million remaining on a previously filed shelf
registration statement, the company now has the ability to issue $400 million in
registered debt securities.
Net working capital was $835 million at March 2, 1996, $796 million at
March 4, 1995 and $763.2 million at February 26, 1994. The ratios of current
assets to current liabilities were 2.3:1, 2.4:1 and 3.1:1, respectively. The
current ratio for 1995 dropped due to the increase in short-term debt and
current maturities of long-term debt.
Inventory levels had risen at a rate greater than the sales increase for
fiscal year 1995 and continued to grow during fiscal 1996 but at a slower pace.
Additional inventory was necessary to stock the larger prototype store size used
for new stores as well as existing stores that were relocated or
17
<PAGE> 20
expanded. Harsh weather during the fourth quarter of fiscal 1996 weakened sales,
resulting in higher year-end inventory levels. 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 52.6% at fiscal year-end 1996 versus 48.3% and 40.3%
for the two prior years. The increasing leverage was primarily due to the
company's strategy of growth through acquisitions and an aggressive store
construction and expansion program utilizing the new prototype design.
Management believes that the company remains financially strong and has
additional debt capacity available if needed. The indebtedness incurred to
implement the growth strategy is an investment that will allow the company to
compete more effectively.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The adoption
of SFAS No. 121 did not have a significant impact on the company's results of
operations or financial position. The FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation" in October 1995. The company will adopt SFAS No. 123
for the year ending March 1, 1997 in accordance with its provisions and report a
pro forma disclosure as part of the notes to the consolidated financial
statements. The adoption of SFAS No. 123 will not have a significant effect on
the company's financial statements.
IMPACT OF INFLATION AND CHANGING PRICES
The company's internal inflation trend remained consistent during the three-year
period with decreases in front end merchandise offset by higher pharmacy costs.
Though not significant, inflation continues to cause increases in product,
occupancy and operating expenses, 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 consumers.
SUBSEQUENT EVENT
On December 4, 1995, Rite Aid commenced a cash tender offer to purchase 50.1% or
35,144,833 shares of common stock of Revco D.S., Inc. at a price of $27.50 per
share in cash. The remainder of the outstanding Revco shares would have been
converted into Rite Aid stock in a second-step merger transaction. On April 17,
1996, the Federal Trade Commission (FTC) voted to deny approval of the merger as
proposed by Rite Aid. Although negotiations continued with the FTC, the company
was unable to reach an agreeable settlement. Consequently, Rite Aid withdrew its
tender offer for Revco on April 24, 1996.
Expenses incurred by the company related to the Revco acquisition will be
approximately $16 million and will be charged against earnings in the first
quarter of fiscal year 1997.
18
<PAGE> 21
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
audit 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 responsibility 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.
19
<PAGE> 22
INDEPENDENT AUDITORS' 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 2, 1996 and March 4, 1995, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the years in the three-year period ended March 2, 1996. 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 2, 1996 and March 4, 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended March 2, 1996, 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.
/s/ KPMG Peat Marwick LLP
- -------------------------
KPMG Peat Marwick LLP
Harrisburg, Pennsylvania
April 24, 1996
20
<PAGE> 23
CONSOLIDATED BALANCE SHEETS
Rite Aid Corporation and Subsidiaries
<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS March 2, 1996 and March 4, 1995
- ------------------------------------------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash $ 3,131 $ 7,148
Accounts receivable, net (Note 1) 246,966 239,859
Inventories (Note 1) 1,170,747 1,070,346
Prepaid expenses and other current assets 44,204 28,716
Net current assets of discontinued operations (Note 3) -- 27,151
- ------------------------------------------------------------------------------------------------------------------
Total current assets 1,465,048 1,373,220
- ------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost (Note 7)
Land 109,246 75,908
Buildings 269,095 244,128
Leasehold improvements 509,523 405,274
Equipment 765,286 666,359
Construction in progress 24,360 35,422
- ------------------------------------------------------------------------------------------------------------------
1,677,510 1,427,091
Accumulated depreciation and amortization 697,961 648,612
- ------------------------------------------------------------------------------------------------------------------
Total property, plant and equipment, net 979,549 778,479
- ------------------------------------------------------------------------------------------------------------------
Intangible assets (Note 1)
Excess of cost over underlying equity in subsidiaries (less accumulated
amortization of $9,619 and $8,023) 141,266 99,653
Lease acquisition costs and other intangible assets (less accumulated
amortization of $115,430 and $106,592) 197,129 154,359
- ------------------------------------------------------------------------------------------------------------------
Total intangible assets 338,395 254,012
- ------------------------------------------------------------------------------------------------------------------
Other assets 59,003 26,153
- ------------------------------------------------------------------------------------------------------------------
Net noncurrent assets of discontinued operations (Note 3) -- 40,743
- ------------------------------------------------------------------------------------------------------------------
Total Assets $2,841,995 $2,472,607
==================================================================================================================
Liabilities and Stockholders' Equity
Current liabilities
Short-term debt and current maturities of long-term debt (Note 6) $ 232,811 $ 137,553
Accounts payable 271,782 273,128
Income taxes (Notes 1 and 5) 42,463 38,241
Sales and other taxes payable 13,913 13,796
Accrued salaries, wages and other current liabilities 50,158 79,263
Reserve for restructuring and other charges (Note 2) 18,872 35,244
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities 629,999 577,225
Long-term debt, less current maturities (Note 6) 994,321 805,984
Deferred income taxes (Notes 1 and 5) 114,056 77,586
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 1,738,376 1,460,795
- ------------------------------------------------------------------------------------------------------------------
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 90,379,823 and 90,290,136 shares 90,380 90,290
Additional paid-in capital 62,623 60,655
Retained earnings 1,055,795 955,111
Net unrealized gain on marketable securities (Note 1) -- 2,847
Cumulative pension liability adjustments (Note 9) (433) (1,314)
Treasury stock, at cost (6,532,169 and 6,125,069 shares) (104,746) (95,777)
- ------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,103,619 1,011,812
- ------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $2,841,995 $2,472,607
==================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE> 24
CONSOLIDATED STATEMENTS OF INCOME
Rite Aid Corporation and Subsidiaries
<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS Years ended March 2, 1996, March 4, 1995 and February 26, 1994
- ----------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $5,446,017 $4,533,851 $4,058,711
Costs and expenses
Cost of goods sold, including occupancy costs 4,017,351 3,327,920 2,970,025
Selling, general and administrative expenses 1,104,123 932,167 865,137
Interest expense 68,341 42,300 28,683
Restructuring and other charges (Note 2) -- -- 149,196
- ----------------------------------------------------------------------------------------------------------------
5,189,815 4,302,387 4,013,041
- ----------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 256,202 231,464 45,670
Income taxes (Notes 1 and 5) 97,255 90,178 19,462
- ----------------------------------------------------------------------------------------------------------------
Income from continuing operations 158,947 141,286 26,208
- ----------------------------------------------------------------------------------------------------------------
Discontinued operations (Note 3)
Income from operations (less applicable income
taxes of $5,809) -- -- 8,700
Provision for dispositions (less applicable
income tax benefit of $16,380) -- -- (25,620)
- ----------------------------------------------------------------------------------------------------------------
Loss from discontinued operations -- -- (16,920)
- ----------------------------------------------------------------------------------------------------------------
Net income $ 158,947 $ 141,286 $ 9,288
================================================================================================================
Earnings (loss) per share (Notes 1 and 11)
Continuing operations $ 1.90 $ 1.67 $ .30
Discontinued operations -- -- (.19)
- ----------------------------------------------------------------------------------------------------------------
Net income $ 1.90 $ 1.67 $ .11
================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE> 25
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Rite Aid Corporation and Subsidiaries
<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS Years ended March 2, 1996, March 4, 1995 and February 26, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
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, Febuary 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, Febuary 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
($.62 per share) (52,309) (52,309)
Net unrealized gain on
marketable securities 2,847 2,847
Minimum pension liability
adjustments 602 602
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 4, 1995 90,290 (95,777) 60,655 955,111 -- 2,847 (1,314) 1,011,812
Stock acquired for treasury (8,969) (8,969)
Stock options exercised 90 1,968 2,058
Net income 158,947 158,947
Cash dividends paid
($.695 per share) (58,263) (58,263)
Sale of marketable securities (2,847) (2,847)
Minimum pension liability
adjustments 881 881
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 2, 1996 $90,380 $(104,746) $62,623 $1,055,795 $ -- $ -- $ (433) $1,103,619
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE> 26
CONSOLIDATED STATEMENTS OF CASH FLOWS
Rite Aid Corporation and Subsidiaries
<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS Years ended March 2, 1996, March 4, 1995 and February 26, 1994
- ------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Income from continuing operations before income taxes $ 256,202 $ 231,464 $ 45,670
Adjustments to reconcile to net cash
provided by continuing operating activities:
Depreciation and amortization 118,662 98,560 95,668
Accreted interest on zero coupon notes 12,855 12,215 11,487
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 (20,195) (23,291) 4,120
(Increase) in inventories (111,087) (63,911) (36,737)
(Increase) decrease in prepaid
expenses and other current assets (21,092) (3,646) 8,043
Increase (decrease) in accounts payable (1,859) 33,184 2,161
Increase (decrease) in accrued expenses
and other current liabilities (52,306) (21,276) 14,569
- ------------------------------------------------------------------------------------------------------------
Cash provided by continuing operations before income taxes 181,180 263,299 268,762
Pre-tax income from discontinued operations including results during
phaseout period of $190 in 1996, $5,490 in 1995 and $(553) in 1994 190 5,490 13,956
Adjustments to reconcile to net cash provided by
discontinued operating activities:
Depreciation and amortization 700 8,319 10,150
Changes in net operating assets -- (15,148) (9,668)
- ------------------------------------------------------------------------------------------------------------
Cash provided by (used in) discontinued operations before income taxes 890 (1,339) 14,438
Income taxes paid (33,453) (71,717) (60,541)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 148,617 190,243 222,659
- ------------------------------------------------------------------------------------------------------------
Investing Activities
Expenditures for property, plant and equipment (315,120) (182,665) (169,142)
Purchase of businesses, net of cash acquired (Note 4) (131,714) (175,729) (35,416)
Intangible assets acquired (15,909) (14,476) (5,853)
Investing activities of discontinued operations -- (14,336) (17,020)
Proceeds from dispositions 136,928 91,488 --
Other (6,774) 1,215 (483)
- ------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (332,589) (294,503) (227,914)
- ------------------------------------------------------------------------------------------------------------
Financing Activities
Net proceeds (payments) of commercial paper borrowings 120,265 197,662 (86,000)
Proceeds from the issuance of long-term debt (Note 6) 224,212 -- 197,690
Principal payments on long-term debt (99,348) (16,020) (1,071)
Cash dividends paid (58,263) (52,309) (52,827)
Stock acquired for treasury (Note 11) (8,969) (36,562) (38,429)
Proceeds from the sale of stock 2,058 1,234 879
- ------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 179,955 94,005 20,242
- ------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (4,017) (10,255) 14,987
Cash at beginning of year 7,148 17,403 2,416
- ------------------------------------------------------------------------------------------------------------
Cash at end of year $ 3,131 $ 7,148 $ 17,403
============================================================================================================
Supplemental disclosure of cash paid for interest
(net of amounts capitalized of $1,948, $373 and $217) $ 56,851 $ 32,664 $ 16,231
============================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business. Rite Aid Corporation operates over 2,750 retail
drugstores in the eastern United States.
Fiscal Year. The company's fiscal year ends on the Saturday closest to February
29 or March 1. The fiscal years ended March 2, 1996 and February 26, 1994
contained 52 weeks. The fiscal year ended March 4, 1995 contained 53 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.
Accounts Receivable. Accounts receivable are stated net of an allowance for
uncollectible accounts of $5,545,000 at March 2, 1996 and $5,079,000 at March 4,
1995. 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 and are booked net of any allowances provided for
under the respective 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 2, 1996, March 4, 1995 and February 26, 1994
respectively, inventories were $178,932,000, $170,464,000 and $155,102,000 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) generally is being amortized on a straight-line basis over 40 years.
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 2, 1996, 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). During fiscal year 1996, the company
sold all of its marketable securities and recognized a pre-tax gain of
$8,343,000 on the transaction. At March 4, 1995, the company's investment in
marketable equity securities was categorized as available-for-sale. The
resulting gross unrealized holding gain of $4,380,000 was reported, net of
income taxes, as a separate component of stockholders' equity.
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 respect 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. 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. 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 (83,808,000 in 1996, 84,771,000 in 1995 and 87,972,000 in 1994). Fully
diluted earnings per share are not shown since the dilution is not material.
Use of Estimates. The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
25
<PAGE> 28
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. During fiscal year 1995, the 200
drugstores were closed. The company has determined that the remaining reserve
balance as of March 2, 1996 is adequate to cover the remaining committed
restructuring actions, which are primarily lease settlement costs.
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.
Shown below are the significant components of the charge and their
subsequent utilization:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
AMOUNTS TO BE AMOUNTS TO BE AMOUNTS TO BE
AMOUNTS AMOUNTS UTILIZED AT AMOUNTS UTILIZED AT AMOUNTS UTILIZED AT
CHARGED UTILIZED YEAR-END UTILIZED YEAR-END UTILIZED YEAR-END
IN THOUSANDS OF DOLLARS IN 1994 IN 1994 1994 IN 1995 1995 IN 1996 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lease settlement $ 44,490 $ 244 $ 44,246 $ 11,862 $ 32,384 $ 13,512 $ 18,872
Intangible and fixed assets write-off 31,000 5,459 25,541 24,531 1,010 1,010 --
Inventory liquidation 13,581 -- 13,581 13,081 500 500 --
Severance costs 4,480 -- 4,480 4,480 -- -- --
Operating losses during closing period 13,132 3,107 10,025 9,311 714 714 --
Impaired investments 19,813 17,022 2,791 2,791 -- -- --
Other assets write-off 22,700 22,064 636 -- 636 636 --
- ---------------------------------------------------------------------------------------------------------------------------------
$149,196 $ 47,896 $101,300 $ 66,056 $ 35,244 $ 16,372 $ 18,872
=================================================================================================================================
</TABLE>
3. DISPOSITIONS AND DISCONTINUED OPERATIONS
During fiscal year 1996, Rite Aid sold 37 drugstores and the assets of 72 other
stores located in Florida to the Eckerd Corporation. In conjunction with the
sale, the company closed its Florida distribution center. Additionally, Rite Aid
sold 33 stores and the assets of 21 other stores located in Massachusetts and
Rhode Island to Brooks Pharmacy and CVS, Inc. The company also completed the
sale of its nursing home pharmacy business. As a result of these transactions,
the company received approximately $85,873,000 in cash proceeds. The gain from
these transactions was not significant.
In January 1994, the company adopted a restructuring strategy that
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 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 segregated
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 aggregate after-tax loss of $12,274,000 was charged
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. 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 was completed in the first quarter of fiscal 1996. The
aggregate consideration for the transaction was approximately $59,272,000 and
the remaining reserve amount of $13,346,000 for loss on disposal of ADAP was
adequate.
26
<PAGE> 29
4. ACQUISITIONS
In July 1995, the company purchased the entire chain of conventional,
freestanding drugstores owned and operated by Pathmark Stores, Inc. The chain
consisted of 30 stores located in the New York metropolitan region. In October
1995, an additional 20 stores, located in the state of Maine, were purchased
from Brooks Pharmacy. Also during fiscal 1996, Rite Aid obtained certain assets,
mainly inventories, pharmacy prescription files, store fixtures and favorable
lease agreements through various single store acquisitions. Total consideration
paid for the above acquisitions amounted to $105,878,000. The value of goodwill
assigned to the acquisitions totaled $15,062,000 and is being amortized on a
straight-line basis over 40 years.
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 Michigan were purchased and in September 1994, a New
England chain of 72 LaVerdiere's drugstores was 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. In fiscal 1996, as a result of the Perry
shares purchased in the second step of the merger transaction and final
valuation adjustments relating to the Perry assets and liabilities acquired, an
additional $26,265,000 was assigned to goodwill.
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 2, 1996, March 4, 1995 and
February 26, 1994 is allocated as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
IN THOUSANDS OF DOLLARS 1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Continuing operations $97,255 $90,178 $ 19,462
Discontinued operations -- -- (10,571)
- --------------------------------------------------------------------------
Total income tax expense $97,255 $90,178 $ 8,891
==========================================================================
</TABLE>
The income tax expense attributable to income from continuing operations
consists of the following components:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
IN THOUSANDS OF DOLLARS 1996 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable:
Federal $21,488 $53,617 $ 45,119
State 4,927 4,632 3,999
- ---------------------------------------------------------------------------
26,415 58,249 49,118
- ---------------------------------------------------------------------------
Deferred tax expense (benefit):
Federal 60,486 30,149 (27,064)
State 10,354 1,780 (2,592)
- ---------------------------------------------------------------------------
70,840 31,929 (29,656)
- ---------------------------------------------------------------------------
Total income tax expense $97,255 $90,178 $ 19,462
===========================================================================
</TABLE>
Presented below are the deferred tax liabilities and deferred tax assets at
March 2, 1996 and March 4, 1995:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
IN THOUSANDS OF DOLLARS 1996 1995
- ----------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Property and equipment $ 71,047 $ 45,253
Inventory valuation 45,416 47,728
Lease acquisition costs and
other intangible assets 34,251 39,556
Purchased tax benefits 16,559 11,896
Prepaid expenses 8,830 5,108
Other 11,530 3,515
- ----------------------------------------------------------------
Total gross deferred tax liabilities 187,633 153,056
- ----------------------------------------------------------------
Deferred tax assets:
Provision for restructuring and
other charges (7,164) (12,332)
State net operating loss carryforwards (3,198) (9,670)
Insurance reserve (8,645) (7,492)
Deferred compensation accrual (108) (3,980)
Other (4,764) (9,365)
- ----------------------------------------------------------------
Total gross deferred tax assets (23,879) (42,839)
Valuation allowance 1,777 7,951
- ----------------------------------------------------------------
Net deferred tax assets (22,102) (34,888)
- ----------------------------------------------------------------
Net deferred tax liabilities $165,531 $ 118,168
================================================================
</TABLE>
27
<PAGE> 30
Net deferred tax assets of $23,477,000 and net deferred tax liabilities of
$23,263,000 associated with acquisitions made during fiscal years 1996 and 1995,
respectively, 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.
The valuation allowance as of March 2, 1996 and March 4, 1995 principally
applies to net operating loss carryforwards (NOLs) for state income tax
purposes. As a result of tax planning strategies, state NOLs previously having a
valuation allowance were utilized in fiscal 1996. Consequently, the valuation
allowance decreased $6,174,000 with a corresponding decrease in the deferred tax
asset for state NOLs. The current portions of net deferred taxes for 1996 and
1995 amounted to $51,475,000 and $40,582,000, 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 1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35.0 35.0 35.0
State income taxes, net of
federal tax benefit 4.0 1.6 6.0
Nondeductible expenses .7 .4 1.1
Effect of tax rate changes on
deferred taxes -- -- 3.6
Retroactive targeted jobs credit -- -- (2.5)
Change in valuation
allowance (2.4) .4 .1
Other, net .7 1.6 (.7)
- --------------------------------------------------------------------------
38.0 39.0 42.6
==========================================================================
</TABLE>
6. INDEBTEDNESS AND CREDIT AGREEMENTS
Following is a summary of indebtedness at March 2, 1996 and March 4, 1995:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
IN THOUSANDS OF DOLLARS 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
Commercial paper, 5.4% and
6.2% weighted average rates at
year-end 1996 and 1995 $ 556,765 $ 436,500
7 5/8% senior notes due 2005 200,000 --
6 7/8% senior debentures due 2013 200,000 200,000
6 3/4% zero coupon subordinated
convertible notes due 2006 200,680 187,825
5 7/8% to 10.475% industrial development
bonds due through 2016 19,050 19,050
9 5/8% sinking fund debentures
redeemed July 1995 -- 44,980
8 1/2% convertible debentures
redeemed March 1995 -- 49,996
Obligations under capital leases 44,200 --
Other 6,437 5,186
- --------------------------------------------------------------------------
1,227,132 943,537
Short-term debt and current
maturities of long-term debt (232,811) (137,553)
- --------------------------------------------------------------------------
Long-term debt,
less current maturities $ 994,321 $ 805,984
==========================================================================
</TABLE>
The company has $600,000,000 in revolving credit commitments for general
corporate purposes consisting of a $250,000,000 facility that expires on August
5, 1996 and a $350,000,000 facility expiring in February 2000. 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 $250,000,000 facility has a 7/100% per annum facility fee on
the entire commitment amount irrespective of usage. The $350,000,000 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 2, 1996 and March 4, 1995, 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 2, 1996
28
<PAGE> 31
and March 4, 1995 was classified as long-term debt on the consolidated balance
sheet. The remaining outstanding commercial paper of $206,765,000 and
$86,500,000 at year-end 1996 and 1995, respectively, was classified as
short-term debt.
On April 20, 1995, the company issued $200,000,000 of 7 5/8% senior notes
due April 15, 2005. 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.
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 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.
In February 1996, the company entered into a sale and leaseback transaction
of certain leasehold improvements for which it received consideration totaling
$120,700,000 and was accounted for as a financing. The lease obligation accrues
interest at a rate of 5.6% in the first year, 6.8% for years two through six and
12.5% for years seven through nine. As part of the terms of the transaction, the
company prepaid $76,500,000 of the lease obligation for years two through six. A
payment of $25,572,000 is due to the lessor at the end of the first year. As
part of the consideration of the transaction, the company received a
$20,000,000, 12.5% note receivable from the lessor which matures in six years.
The company may exercise a purchase option for $40,600,000 at the end of the
sixth year.
The aggregate annual principal payments of long-term debt for the five
succeeding fiscal years are as follows: 1997, $26,046,000; 1998, $1,997,000;
1999, $4,360,000; 2000, $519,000; and 2001, $519,000.
The company has complied with restrictions and limitations included in the
provisions of various loan and credit agreements. At March 2, 1996, retained
earnings were not restricted as to payment of dividends by these provisions.
7. PROPERTY, PLANT AND EQUIPMENT
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.
Depreciation and amortization expenses were $96,974,000 for 1996, $82,740,000
for 1995 and $76,312,000 for 1994.
At March 2, 1996, land, buildings and related equipment with a carrying
value of $12,525,000 were pledged as collateral against certain long-term debt
totaling $10,593,000.
8. FINANCIAL INSTRUMENTS
The carrying amounts and fair values of financial instruments at March 2, 1996
and March 4, 1995 are listed as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
IN THOUSANDS OF DOLLARS 1996 1995
- ------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marketable equity
securities $ -- $ -- $ 4,970 $ 4,970
Commercial paper
indebtedness 556,765 556,765 436,500 436,500
Long-term
indebtedness 626,167 646,009 507,037 484,196
Note receivable 20,000 20,000 -- --
==============================================================================
</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
$4,702,000 at March 2, 1996 and $4,131,000 at March 4, 1995 represent the
original costs of the investments currently owned, which management believes are
not impaired.
29
<PAGE> 32
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.
Note receivable: The fair value of the fixed rate note receivable was determined
using the present value of projected cash flows. The discount rate was based
upon the U.S.Treasury yield curve adjusted for credit risk.
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 $1,367,012 in 1996, $4,845,000 in 1995 and $4,795,000
in 1994.
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 1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 1,390 $ 1,776 $ 1,417
Interest cost 1,782 1,570 1,433
Actual return on plan assets (5,258) 527 (2,374)
Net amortization and deferral 3,118 (2,606) 452
- --------------------------------------------------------------------------
Pension expense $ 1,032 $ 1,267 $ 928
==========================================================================
</TABLE>
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 2, 1996 and
March 4, 1995:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
IN THOUSANDS OF DOLLARS 1996 1995
- --------------------------------------------------------------------------------------------------------------
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 $ (8,556) $(15,251) $ (8,177) $(12,472)
Nonvested benefits (185) (884) (123) (972)
- --------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation (8,741) (16,135) (8,300) (13,444)
Effect of anticipated future compensation levels
and other events (678) (510) (513) --
- --------------------------------------------------------------------------------------------------------------
Projected benefit obligation (9,419) (16,645) (8,813) (13,444)
Fair value of assets held in the plans 12,385 15,451 10,420 11,980
- --------------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than) benefit obligation 2,966 (1,194) 1,607 (1,464)
Unrecognized net (gain) loss (456) 1,082 943 1,499
Unrecognized prior service cost 70 1,150 78 434
Unrecognized net obligation (asset) at March 1, 1987,
net of amortization (838) (139) (978) (155)
Adjustment to recognize additional minimum liability -- (1,584) -- (1,778)
- --------------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost $ 1,742 $ (685) $ 1,650 $ (1,464)
==============================================================================================================
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
The significant actuarial assumptions used were as follows:
- --------------------------------------------------------------------------
PERCENTAGE 1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.25 8.0 7.0
Rate of increase in future
compensation levels 5.0 5.0 5.0
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 $433,000 at March 2, 1996 and $1,314,000 at March 4,
1995.
10. LEASES
The company leases most of its retail store facilities under noncancelable
operating leases, many of which expire within ten to fifteen years. The
approximate minimum rental commitments of $1,221,476,000 at March 2, 1996, are
payable as follows: 1997, $160,126,000; 1998, $154,967,000; 1999, $140,782,000;
2000, $123,965,000; 2001, $105,538,000; and $536,098,000 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 $163,965,000
in 1996, $130,788,000 in 1995 and $128,692,000 in 1994. These amounts include
contingent rentals of $7,728,000, $9,516,000 and $7,411,000, 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 ten to fifteen 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.
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. The company purchased
407,100 shares and 1,847,798 shares in fiscal years 1996 and 1995, respectively,
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 ten 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.
31
<PAGE> 34
13. STOCK OPTION AND STOCK AWARD PLANS
The company reserved 7,000,000 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 6,000,000 shares by stockholder approval at the 1995 annual
meeting.
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. 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 Plan,
the payment for SARs will be made in shares, cash or cash and shares at the
discretion of the Compensation Committee. All options granted under the 1983
Employee Stock Option and Appreciation Rights Plan have either been exercised or
have expired.
Following is a summary of stock option transactions for the three fiscal
years ended March 2, 1996:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Shares under option 1996 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Stock options:
Outstanding--beginning
of year 2,484,651 2,437,606 2,599,756
Granted 823,400 604,400 13,500
Exercised ($16.935 to
$23.00 per share) (89,687) (375) (65,400)
Converted to and
exercised as SARs (153,200) (312,592) --
Expired and cancelled (6,875) (244,388) (110,250)
Outstanding--end of year
($17.825 to $29.75
per share) 3,058,289 2,484,651 2,437,606
Exercisable--end of year 1,391,076 190,876 796,919
=====================================================================
</TABLE>
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 were expensed over the
five-year vesting period. Amounts charged to earnings for the stock-based awards
were $2,109,000 in 1996, $3,531,000 in 1995 and $1,409,000 in 1994.
As of March 2, 1996, March 4, 1995 and February 26, 1994, there were
3,241,900 shares, 3,067,162 shares and 397,750 shares, respectively, available
for future grants under the Plan.
14. COMMITMENTS AND CONTINGENCIES
The company had standby letters of credit of $33,188,000 and $31,390,000 at
March 2, 1996 and March 4, 1995, 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 December 4, 1995, Rite Aid commenced a cash tender offer to purchase 50.1% or
35,144,833 shares of common stock of Revco D.S., Inc. at a price of $27.50 per
share in cash. The remainder of the outstanding Revco shares would have been
converted into Rite Aid stock in a second-step merger transaction. On April 17,
1996, the Federal Trade Commission (FTC) voted to deny approval of the merger as
proposed by Rite Aid. Although negotiations continued with the FTC, the company
was unable to reach an agreeable settlement. Consequently, Rite Aid withdrew its
tender offer for Revco on April 24, 1996.
Expenses incurred by the company related to the Revco acquisition will be
approximately $16,000,000 and will be charged against earnings in the first
quarter of fiscal year 1997.
32
<PAGE> 35
INTERIM FINANCIAL RESULTS (UNAUDITED)
Rite Aid Corporation and Subsidiaries
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS YEAR 1996 (52 WEEKS)
- -----------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $1,354,841 $1,328,399 $1,331,796 $1,430,981 $5,446,017
Costs and expenses 1,291,918 1,277,912 1,278,343 1,341,642 5,189,815
- -----------------------------------------------------------------------------------------------------
Income before income taxes 62,923 50,487 53,453 89,339 256,202
Income taxes 24,540 19,577 20,793 32,345 97,255
- -----------------------------------------------------------------------------------------------------
Net income $ 38,383 $ 30,910 $ 32,660 $ 56,994 $ 158,947
=====================================================================================================
Earnings per share $ .46 $ .37 $ .39 $ .68 $ 1.90
=====================================================================================================
</TABLE>
<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
=====================================================================================================
</TABLE>
33
<PAGE> 36
TEN-YEAR FINANCIAL REVIEW
Rite Aid Corporation and Subsidiaries
<TABLE>
<CAPTION>
YEARS ENDED
- -----------------------------------------------------------------------------------------------------------
MARCH 2, 1996 MARCH 4, 1995 FEB. 26, 1994
IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS (52 WEEKS) (53 WEEKS) (52 WEEKS)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Summary of Operations
Net sales $ 5,446,017 $ 4,533,851 $ 4,058,711
Cost of goods sold, including occupancy costs 4,017,351 3,327,920 2,970,025
Selling, general and administrative expenses 1,104,123 932,167 865,137
Interest expense 68,341 42,300 28,683
Provision for videocassette rental department closings -- -- --
Restructuring and other charges -- -- 149,196
- -----------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 256,202 231,464 45,670
Income taxes 97,255 90,178 19,462
- -----------------------------------------------------------------------------------------------------------
Income from continuing operations 158,947 141,286 26,208
Income (loss) from discontinued operations, net of income taxes -- -- (16,920)
Cumulative effect of accounting change -- -- --
- -----------------------------------------------------------------------------------------------------------
Net income $ 158,947 $ 141,286 $ 9,288
- -----------------------------------------------------------------------------------------------------------
Per Share of Common Stock
Income from continuing operations $ 1.90 $ 1.67 $ .30
Net income $ 1.90 $ 1.67 $ .11
Dividends per share $ .695 $ .62 $ .60
Book value, based on shares outstanding at year end $ 13.16 $ 12.02 $ 11.10
- -----------------------------------------------------------------------------------------------------------
Year-End Financial Position
Working capital $ 835,049 $ 795,995 $ 763,216
Current ratio 2.33:1 2.38:1 3.11:1
Property, plant and equipment (net) $ 979,549 $ 778,479 $ 638,694
Long-term debt $ 994,321 $ 805,984 $ 613,418
Total assets $ 2,841,995 $ 2,472,607 $ 1,989,070
Stockholders' equity $ 1,103,619 $ 1,011,812 $ 954,714
- -----------------------------------------------------------------------------------------------------------
Other Data
Weighted average shares outstanding 83,808,000 84,771,000 87,972,000
Number of retail drugstores 2,759 2,829 2,690
Number of employees 35,700 36,700 28,550
- -----------------------------------------------------------------------------------------------------------
Supplementary Data
Results prepared on a FIFO basis:
Income from continuing operations $ 170,099 $ 150,663 $ 32,864
Per share amount $ 2.03 $ 1.78 $ .37
Net income $ 170,099 $ 150,663 $ 15,944
Per share amount $ 2.03 $ 1.78 $ .18
===========================================================================================================
</TABLE>
34
<PAGE> 37
TEN-YEAR FINANCIAL REVIEW
Rite Aid Corporation and Subsidiaries
<TABLE>
<CAPTION>
YEARS ENDED
- -----------------------------------------------------------------------------------------------------------
FEB. 27, 1993 FEB. 29, 1992 MARCH 2, 1991
IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS (52 WEEKS) (52 WEEKS) (52 WEEKS)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Summary of Operations
Net sales $ 3,833,591 $ 3,530,560 $ 3,259,766
Cost of goods sold, including occupancy costs 2,804,787 2,564,751 2,350,873
Selling, general and administrative expenses 798,848 741,144 696,401
Interest expense 29,387 37,463 49,484
Provision for videocassette rental department closings -- -- --
Restructuring and other charges -- -- --
- -------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 200,569 187,202 163,008
Income taxes 76,819 72,261 62,879
- -------------------------------------------------------------------------------------------------------------
Income from continuing operations 123,750 114,941 100,129
Income (loss) from discontinued operations, net of income taxes 8,646 9,075 7,171
Cumulative effect of accounting change -- -- --
- -------------------------------------------------------------------------------------------------------------
Net income $ 132,396 $ 124,016 $ 107,300
- -------------------------------------------------------------------------------------------------------------
Per Share of Common Stock
Income from continuing operations $ 1.41 $ 1.32 $ 1.21
Net income $ 1.51 $ 1.43 $ 1.29
Dividends per share $ .5625 $ .5125 $ .4625
Book value, based on shares outstanding at year end $ 11.76 $ 10.82 $ 9.32
- -------------------------------------------------------------------------------------------------------------
Year-End Financial Position
Working capital $ 811,645 $ 723,195 $ 707,451
Current ratio 4.03:1 3.49:1 3.98:1
Property, plant and equipment (net) $ 551,392 $ 502,728 $ 493,947
Long-term debt $ 489,220 $ 427,503 $ 585,434
Total assets $ 1,858,506 $ 1,734,479 $ 1,666,958
Stockholders' equity $ 1,035,643 $ 950,575 $ 773,948
- -------------------------------------------------------------------------------------------------------------
Other Data
Weighted average shares outstanding 87,933,000 86,917,000 82,996,000
Number of retail drugstores 2,573 2,452 2,420
Number of employees 27,750 27,607 27,290
- -------------------------------------------------------------------------------------------------------------
Supplementary Data
Results prepared on a FIFO basis:
Income from continuing operations $ 134,335 $ 125,228 $ 111,290
Per share amount $ 1.53 $ 1.44 $ 1.34
Net income $ 142,981 $ 134,303 $ 118,461
Per share amount $ 1.63 $ 1.55 $ 1.42
=============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED
- --------------------------------------------------------------------------------------------------------------------------
MARCH 3, 1990 MARCH 4, 1989 FEB. 27, 1988 FEB. 28, 1987
IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS (52 WEEKS) (53 WEEKS) (52 WEEKS) (52 WEEKS)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Summary of Operations
Net sales $ 3,011,250 $ 2,729,325 $ 2,381,022 $ 1,650,643
Cost of goods sold, including occupancy costs 2,165,097 1,960,627 1,721,528 1,181,719
Selling, general and administrative expenses 646,540 583,860 481,921 323,435
Interest expense 51,933 40,840 32,344 19,992
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
Income taxes 48,764 56,325 59,135 56,329
- --------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 76,916 87,673 86,094 69,168
Income (loss) from discontinued operations, net of income taxes 25,142 7,537 54,747 8,816
Cumulative effect of accounting change -- -- 3,712 --
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 102,058 $ 95,210 $ 144,553 $ 77,984
- --------------------------------------------------------------------------------------------------------------------------
Per Share of Common Stock
Income from continuing operations $ .93 $ 1.06 $ 1.04 $ .84
Net income $ 1.23 $ 1.15 $ 1.75 $ .94
Dividends per share $ .42 $ .38 $ .34 $ .30
Book value, based on shares outstanding at year end $ 8.49 $ 7.67 $ 6.90 $ 5.48
- --------------------------------------------------------------------------------------------------------------------------
Year-End Financial Position
Working capital $ 633,326 $ 297,334 $ 309,130 $ 234,391
Current ratio 3.93:1 1.62:1 1.86:1 1.74:1
Property, plant and equipment (net) $ 475,548 $ 434,801 $ 383,653 $ 298,820
Long-term debt $ 542,051 $ 228,260 $ 227,153 $ 153,399
Total assets $ 1,539,311 $ 1,417,520 $ 1,224,244 $ 964,330
Stockholders' equity $ 704,413 $ 636,184 $ 571,014 $ 452,544
- --------------------------------------------------------------------------------------------------------------------------
Other Data
Weighted average shares outstanding 82,958,000 82,904,000 82,660,000 82,562,000
Number of retail drugstores 2,352 2,184 2,072 1,586
Number of employees 26,935 27,347 26,703 19,454
- --------------------------------------------------------------------------------------------------------------------------
Supplementary Data
Results prepared on a FIFO basis:
Income from continuing operations $ 86,504 $ 95,481 $ 92,041 $ 73,049
Per share amount $ 1.04 $ 1.15 $ 1.11 $ .88
Net income $ 111,646 $ 103,018 $ 150,500 $ 81,865
Per share amount $ 1.35 $ 1.24 $ 1.82 $ .99
==========================================================================================================================
</TABLE>
35
<PAGE> 38
DIRECTORS AND CORPORATE OFFICERS
<TABLE>
<S> <C> <C> <C>
DIRECTORS CHAIRMAN VICE PRESIDENTS ASSISTANT
Franklin C. Brown Martin L. Grass Gerald P. Cardinale VICE PRESIDENTS
Executive Vice President and Chief Executive Officer Information Services Eugene P. Brown
Chief Legal Counsel Information Services
Eric S. Elliott Operations
Alex Grass PRESIDENT Pharmacy Marketing
Honorary Chairman of the Timothy J. Noonan Tara J. Stevens
Board and Chairman of the Chief Operating Officer I. Lawrence Gelman Pharmacy Marketing
Executive Committee Associate Counsel
and Secretary
Martin L. Grass EXECUTIVE ASSISTANT SECRETARY
Chairman of the Board and VICE PRESIDENTS W. Michael Knievel Lilli A. Binder
Chief Executive Officer Frank M. Bergonzi Corporate Security
Chief Financial Officer
Philip Neivert James E. Krahulec ASSISTANT TREASURER
Private Investor Franklin C. Brown Government and Glenn C. Gershenson
Rochester, NY Chief Legal Counsel Trade Relations
Timothy J. Noonan Kevin J. Mann James O. Lott REGIONAL
President and Marketing Risk Management VICE PRESIDENTS
Chief Operating Officer DRUGSTORE OPERATIONS
Raymond B. McKeeby Jon M. Olson
Leonard N. Stern SENIOR Pricing
Chairman of the Board and VICE PRESIDENTS Michael A. Podgurski
Chief Executive Officer Thomas R. Coogan Suzanne Mead
The Hartz Group, Inc. Planning Corporate Communications Gregory D. Webb
New York, NY
Elliot S. Gerson Michael F. Morris
Henry Taub Assistant Chief Legal Store Development
Honorary Chairman Counsel
of the Board Joseph S. Speaker
Automatic Data Wayne Gibson Controller
Processing, Inc. Distribution and Logistics
Roseland, NJ Richard J. Varmecky
Charles R. Kibler Treasurer
Preston Robert Tisch Drugstore Operations
Co-chairman and Mary A. Verbryke
Co-chief Executive Officer Philip D. Markovitz Category Management,
Loews Corporation Store Development Purchasing
New York, NY
Ronald A. Miller
Gerald Tsai, Jr. Distribution
Chairman, President
and Chief Executive Officer Robert R. Souder
Delta Life Corporation Labor Relations
Memphis, TN
James M. Talton
Human Resources
Kent L. Whiting
Information Services
</TABLE>
36
<PAGE> 39
INVESTOR INFORMATION
ANNUAL MEETING
The annual meeting will
be held on June 26, 1996,
at 11:00 a.m. at:
Radisson Penn Harris
Hotel & Convention Center,
1150 Camp Hill Bypass
Camp Hill, PA 17011
(717) 763-7117
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, or through the
SEC EDGAR database on
the World Wide Web at:
http://www.sec.gov/
REGISTRAR AND
TRANSFER AGENT
Harris Trust Company of
New York
c/o Harris Bank
311 West Monroe Street
11th Floor
Chicago, IL 60606
(312) 461-3309
DIVIDEND
REINVESTMENT
The company offers an auto-
matic 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
(312) 461-3309
CORPORATE
INFORMATION
General information about
the company, including corpo-
rate background and current
announcements, is available
through the company's News-
On-Demand fax service at
(800) 916-7788, and our World
Wide Web site at:
http://www.RiteAid.com/
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
[MAP]
MARCH 2, 1996
Alabama 5
Connecticut 48
Delaware 19
District of Columbia 8
Florida 23
Georgia 55
Indiana 32
Kentucky 117
Maine 94
Maryland 180
Michigan 343
New Hampshire 39
New Jersey 189
New York 341
North Carolina 109
Ohio 324
Pennsylvania 409
South Carolina 80
Tennessee 38
Vermont 11
Virginia 161
West Virginia 134
- -------------------------
TOTAL 2,759
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 22, 1996, there were approximately 24,000
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>
1996 First 25 1/2 22 1/4 17.0 cents
Second 29 24 1/4 17.0 cents
Third 32 5/8 26 5/8 17.0 cents
Fourth 34 1/4 30 1/4 18.5 cents
- --------------------------------------------------------------------------
1995 First 20 3/8 18 1/8 15.0 cents
Second 21 1/2 18 7/8 15.0 cents
Third 24 20 15.0 cents
Fourth 26 3/8 21 5/8 17.0 cents
- --------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 21
Registrant's Subsidiaries
The following table sets forth certain of the subsidiaries of
the Registrant at March 2, 1996, all of which are wholly-owned and are included
in the consolidated financial statements:
<TABLE>
<CAPTION>
Organized
Name Under the Laws of
---- -----------------
<S> <C>
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
Name Rite, Inc. Delaware
Ocean Acquisition Corporation Delaware
Perry Drug Stores, Inc. Michigan
Rack Rite Distributors, Inc. Pennsylvania
RAFS, Inc. Delaware
Rite Aid Drug Palace, Inc. Delaware
Rite Aid Hdqtrs. Corp. 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 Fund, Inc. Delaware
Rite Investments, Inc. Delaware
WRAC, Inc. Pennsylvania
</TABLE>
At March 2, 1996, 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
We consent to incorporation by reference in the Registration Statement
(No. 2-87981) on Form S-8 and the Registration Statement (No. 33-61185) on Form
S-3 of Rite Aid Corporation of our reports dated April 24, 1996, relating to the
consolidated balance sheets of Rite Aid Corporation and subsidiaries as of
March 2, 1996 and March 4, 1995, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the years in the
three-year period ended March 2, 1996, and the related schedule, which reports
appear in and are incorporated by reference in the March 2, 1996 Annual Report
on Form 10-K of Rite Aid Corporation.
Our report on the consolidated financial statements refers to a change in the
method of accounting for investments in the fiscal year ended March 4, 1995.
KPMG Peat Marwick LLP
Harrisburg, Pennsylvania
May 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-02-1996
<PERIOD-END> MAR-02-1996
<CASH> 3131
<SECURITIES> 0
<RECEIVABLES> 252511
<ALLOWANCES> 5545
<INVENTORY> 1170747
<CURRENT-ASSETS> 1465048
<PP&E> 1677510
<DEPRECIATION> 697961
<TOTAL-ASSETS> 2841995
<CURRENT-LIABILITIES> 629999
<BONDS> 994321
0
0
<COMMON> 90380
<OTHER-SE> 1013239
<TOTAL-LIABILITY-AND-EQUITY> 2841995
<SALES> 5446017
<TOTAL-REVENUES> 5446017
<CGS> 4017351
<TOTAL-COSTS> 4017351
<OTHER-EXPENSES> 1104123
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68341
<INCOME-PRETAX> 256202
<INCOME-TAX> 97255
<INCOME-CONTINUING> 158947
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 158947
<EPS-PRIMARY> 1.90
<EPS-DILUTED> 1.84
</TABLE>
