<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 9, 1997
RITE AID CORPORATION
(Exact name of registrant as specified in charter)
DELAWARE 1-5742 23-1614034
(State of (Commission File Number) (IRS Employer
incorporation) Identification No.)
30 HUNTER LANE, CAMP HILL, PENNSYLVANIA 17011
(Address of principal executive offices, including zip code)
(717) 761-2633
Registrant's telephone number, including area code:
NO CHANGE
(Former name or former address, if changed since last report)
<PAGE> 2
Item 5. Other Events
On December 12, 1996, the merger (the "Thrifty PayLess Merger")
of Thrifty PayLess Holdings, Inc. ("Thrifty PayLess") with and
into Rite Aid Corporation ("Rite Aid") was approved by the
stockholders of both Thrifty PayLess and Rite Aid and consummated.
As a result of the merger each then-outstanding share of the Class
A Common Stock of Thrifty PayLess and the Class B Common Stock of
Thrifty PayLess was converted into a right to receive .65 of a
share of Rite Aid Common Stock. This Form 8-K is being filed to
include the financial statements for Thrifty PayLess for its
fiscal year ended September 29, 1996 and updated pro forma
information giving effect to the Thrifty PayLess Merger.
Item 7. Financial statements, pro forma financial information and exhibits
(a) Financial statements of businesses acquired
The audited consolidated financial statements of Thrifty PayLess
Holdings, Inc. and Subsidiaries are included in this Form 8-K as
follows:
Independent Auditors' Report
Consolidated Balance Sheets as of September 29, 1996, and October 1,
1995.
Consolidated Statements of Operations for the fiscal years
ended September 29, 1996, October 1, 1995 and October 2, 1994.
Consolidated Statements of Shareholders' Equity for the fiscal years
ended September 29, 1996, October 1, 1995 and October 2, 1994.
Consolidated Statements of Cash Flows for the fiscal years ended
September 29, 1996, October 1, 1995 and October 2, 1994.
Notes to Consolidated Financial Statements
(b) Pro forma financial information
The unaudited pro forma condensed consolidated financial data herein
includes the following:
Introduction to pro forma condensed consolidated financial data.
Unaudited pro forma condensed consolidated balance sheet as of
November 30, 1996.
Unaudited pro forma condensed consolidated statements of operations
for the 39 weeks ended November 30, 1996, and the fiscal year
ended March 2, 1996.
Notes to unaudited pro forma condensed consolidated financial data.
(c) Exhibits
Exhibit No. Description
---------- --------------------------------------
23.1 Consent of KPMG Peat Marwick LLP
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RITE AID CORPORATION
By: /s/ Frank M. Bergonzi
Name: Frank Bergonzi
Title: Executive Vice President
and Chief Financial Officer
Date: January 9, 1997
<PAGE> 4
Item 7. (a) Financial statements of businesses acquired
Independent Auditors' Report
The Board of Directors
Thrifty PayLess Holdings, Inc.,
We have audited the accompanying consolidated balance sheets of Thrifty PayLess
Holdings, Inc., and subsidiaries as of September 29, 1996 and October 1, 1995
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the years in the three-year period ended September 29,
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 Thrifty PayLess
Holdings, Inc. and subsidiaries as of September 29, 1996 and October 1, 1995 and
the results of their operations and their cash flows for each of the years in
the three-year period ended September 29, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Portland, Oregon
December 3, 1996
Except Note 16 which is as of December 23, 1996
<PAGE> 5
THRIFTY PAYLESS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
ASSETS
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents...................... $ 5.6 $ 5.2
Receivables, net of allowance for doubtful
accounts of $10.8 in 1996 and $5.9 in 1995... 106.9 82.8
Inventories.................................... 1,160.0 1,160.7
Prepaid expenses and other current assets...... 33.1 42.8
Total current assets.................... 1,305.6 1,291.5
Property, plant and equipment, net................ 557.4 581.9
Leasehold interests, net.......................... 86.7 94.1
Deferred income taxes............................. 36.3 17.3
Other assets...................................... 95.3 114.4
$2,081.3 $ 2,099.2
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt........... $ 28.1 $ 27.1
Accounts payable............................... 366.9 347.9
Accrued expenses .............................. 237.6 251.7
Deferred income taxes.......................... 180.9 152.0
Total current liabilities............... 813.5 778.7
Long-term debt, excluding current maturities...... 794.4 1,052.6
Other long-term liabilities....................... 73.8 106.5
Total liabilities ...................... 1,681.7 1,937.8
Commitments and Contingencies
Common shareholders' equity:
Preferred stock ($1.00 par value; 10,000,000
shares authorized; shares issued and
outstanding - none) ......................... -- --
Class A common stock ($.01 par value;
22,000,000 shares authorized; 18,000,060
shares issued and outstanding ............... 0.2 0.2
Class B common stock ($.01 par value;
90,000,000 shares authorized; 42,795,005
and 18,477,005 shares issued and
outstanding at September 29, 1996 and
October 1, 1995, respectively)............... 0.4 0.2
Additional paid-in capital .................... 506.3 199.3
Treasury stock, at cost (1,196,058 Class A
shares and 97,200 Class B shares) ........... (10.3) (10.3)
Receivable from sale of common stock .......... (3.2) (3.0)
Accumulated deficit ........................... (93.8) (25.0)
Total shareholders' equity................... 399.6 161.4
$ 2,081.3 $ 2,099.2
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 6
THRIFTY PAYLESS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Sales............................................ $4,798.9 $4,658.8 $3,163.3
Cost of goods sold, buying and occupancy......... 3,517.5 3,413.0 2,311.1
Gross Profit............................. 1,281.4 1,245.8 852.2
Costs and expenses:
Selling and administration................... 1,023.2 1,065.7 746.8
Depreciation and amortization................ 67.8 68.5 29.6
Operating profit ........................ 190.4 111.6 75.8
Non-operating income (expense):
Interest expense............................. (116.6) (138.4) (66.2)
Interest income.............................. 1.5 1.2 2.5
Income (loss) from continuing operations
before income taxes and
extraordinary loss.................. 75.3 (25.6) 12.1
Income tax (expense) benefit..................... (31.3) 2.8 (5.6)
Income (loss) from continuing operations
before extraordinary loss........... 44.0 (22.8) 6.5
Income from discontinued operations, net of
income tax expense of $3.2 in 1994........... -- -- 5.2
Income (loss) before extraordinary loss.. 44.0 (22.8) 11.7
Extraordinary loss from early extinguishment of
debt, net of income tax benefit of $19.8 and
$0.0 in 1996 and 1995, respectively.......... (112.8) (11.9) --
Net income (loss) ....................... (68.8) (34.7) 11.7
Accretion of preferred stock .................... -- -- (1.1)
Net income (loss) on common shares ...... $ (68.8) $ (34.7) $ 10.6
Earnings (loss) per Class A and B common share:
Continuing operations (net of preferred stock
accretion) ................................... $ 0.95 $ (0.65) $ 0.20
Discontinued operations ........................ -- -- 0.20
Extraordinary loss ............................. (2.43) (0.34) --
Net earnings (loss) per Class A and B
common share .......................... $ (1.48)$ (0.99) $ 0.40
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE> 7
THRIFTY PAYLESS HOLDINGS INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in millions)
<TABLE>
<CAPTION>
Receivable
from Total
Additional Sale of Accumulated Common
Common Paid-in Treasury Common Earnings Shareholders'
Stock Capital Stock Stock (Deficit) Equity
<S> <C> <C> <C> <C> <C> <C>
Balance at October 3, 1993 ....... $ 0.2 $ 30.6 $ (1.0) $ (0.5) $ (0.9) $ 28.4
Treasury shares reissued
(156,000 Class A shares)....... -- -- 0.3 -- -- 0.3
Treasury shares acquired
(685,824 Class A shares) ...... -- -- (8.1) 0.5 -- (7.6)
Issuance of 17,905,397 shares of
Class B stock ................. 0.2 316.8 -- -- -- 317.0
Redemption of stock warrants ... -- (10.3) -- -- -- (10.3)
Dividends on preferred stock ... -- -- -- -- (1.1) (1.1)
Dividends to pre-Acquisition
shareholders .................. -- (143.8) -- -- -- (143.8)
Net income...................... -- -- -- -- 11.7 11.7
Balance at October 2, 1994........ 0.4 193.3 (8.8) -- 9.7 194.6
Issuance of 571,608 shares of
Class B stock ................. -- 6.0 -- (4.2) -- 1.8
Repayment on stock sale
receivable .................... -- -- -- 0.2 -- 0.2
Treasury shares acquired (45,834
Class A shares and 97,200 Class
B shares)..................... -- -- (1.5) 1.0 -- (0.5)
Net loss........................ -- -- -- -- (34.7) (34.7)
Balance at October 1, 1995........ 0.4 199.3 (10.3) (3.0) (25.0) 161.4
Issuance of 24,318,000 shares
of Class B stock (net of $33.2
of expenses) .................. 0.2 307.0 -- (0.2) -- 307.0
Net loss........................ -- -- -- -- (68.8) (68.8)
Balance at September 29, 1996 .... $ 0.6 $506.3 $(10.3) $ (3.2) $(93.8) $ 399.6
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE> 8
THRIFTY PAYLESS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Operating Activities:
Net income (loss) ........................... $ (68.8) $ (34.7) $ 11.7
Adjustments to reconcile net income (loss) to
net cash provided by operating
activities:
Depreciation and amortization............ 67.8 68.5 29.6
Debt discount and fee amortization....... 6.9 8.1 3.1
Deferred tax provision .................. 29.7 8.3 17.1
Interest on Senior Notes paid-in-kind ... 11.9 19.0 7.7
Gain on sale of assets................... (7.8) -- -
Extraordinary loss....................... 112.8 11.9 -
Changes in operating assets and liabilities:
Receivables................................... (19.5) (4.8) (4.6)
Inventories................................... 0.7 51.6 (53.8)
Prepaid expenses.............................. 9.7 (9.7) (0.4)
Accounts payable.............................. 18.9 (48.3) 50.3
Accrued expenses.............................. (42.4) (66.1) 3.1
Net cash provided by
operating activities.......... 119.9 3.8 63.8
Investing activities:
Additions to property, plant and equipment.... (42.7) (54.3) (82.3)
Proceeds from sale of properties............. 14.6 22.2 19.7
Decrease (increase) in other assets........... (9.6) (12.3) 0.6
Acquisition of PayLess Drug, net of cash
acquired................................. -- -- (555.5)
Investing activities related to discontinued
operations............................... -- -- (7.6)
Net cash used in investing
activities..................... (37.7) (44.4) (625.1)
Financing activities:
New borrowings................................ 669.6 159.9 723.3
Proceeds from common stock issuance .......... 307.0 0.6 26.7
Redemption of preferred stock ................ -- -- (20.0)
Preferred stock dividends .................... -- -- (2.9)
Redemption of warrants ....................... -- -- (10.3)
Dividends to pre-acquisition shareholders .... -- -- (61.3)
Treasury stock acquired ...................... -- (0.5) (7.3)
Repayment of long-term debt and bank fees .... (1,058.4) (118.2) (185.9)
Payments on ESOP reimbursement liability...... -- -- (53.1)
Financing activities related to discontinued
operations............................... -- -- 9.8
Net cash provided by (used in)
financing activities.............. (81.8) 41.8 419.0
Increase (decrease) in cash and cash equivalents... 0.4 1.2 (142.3)
Cash and cash equivalents, beginning of year....... 5.2 4.0 146.3
Cash and cash equivalents, end of year............. $ 5.6 $ 5.2 $ 4.0
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest................................. $ 112.9 $ 130.7 $ 25.8
Income taxes............................. $ 2.0 $ -- $ --
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE> 9
THRIFTY PAYLESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(1) THE COMPANY
The accompanying consolidated financial statements present the financial
position and results of operations of Thrifty PayLess Holdings, Inc. and
subsidiaries (the "Company" or "Thrifty PayLess"). The Company was incorporated
in Delaware in 1992 and was formed by Green Equity Investors, L.P. ("GEI"),
whose general partner is Leonard Green & Associates, L.P. ("LGA"), when the
Company acquired Thrifty Corporation and certain of its subsidiaries ("Thrifty")
from Pacific Enterprises ("PE") (the "1992 Acquisition"). In April 1994, the
Company acquired Pay Less Drug Stores Northwest, Inc. ("PayLess") from Kmart
Corporation ("Kmart"), and PayLess was subsequently merged into Thrifty PayLess,
Inc. ("TPI"), a wholly owned subsidiary of the Company, in September 1995. The
Company is a holding company that, through TPI and Bi-Mart Corporation
("Bi-Mart"), operates Thrifty Drug Stores, PayLess Drug Stores and Bi-Mart
membership discount stores. Operations of PayLess are included in the
consolidated financial statements since the date of acquisition.
The Company is the largest drug store chain on the West Coast and one of
the largest in the United States. As of September 29, 1996, the Company operated
a total of 1,004 Thrifty Drug and PayLess Drug stores and 45 Bi-Mart membership
stores. The Company's stores are located throughout the Western United States
with 677 in California, 155 in Washington, 113 in Oregon and additional 104
stores in other western states.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. TPI, the
Company's significant subsidiary, is the operator of Thrifty Drug Stores and
PayLess Drug stores. All significant intercompany accounts and transactions have
been eliminated in consolidation. Certain amounts reflected in prior years'
financial statements have been reclassified to conform with the current year
presentation.
(B) FISCAL YEAR. The Company's fiscal year ends on the Sunday closest to
September 30. The fiscal year refers to the year in which the period ends (e.g.;
fiscal 1996 ended September 29, 1996).
(C) CASH AND CASH EQUIVALENTS. The Company considers all highly liquid debt
investments with an original maturity of three months or less such as
certificates of deposit, commercial paper, government paper and money market
accounts, to be cash equivalents.
<PAGE> 10
THRIFTY PAYLESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(D) INVENTORIES. Inventories consist of merchandise held for resale and
are stated at the lower of last-in, first-out (LIFO) cost or market. A
summary of inventories follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Merchandise inventories, at lower of
FIFO cost or market.............. $ 1,066.7 $1,058.1
Acquisition step-up costs............ 106.8 110.8
LIFO reserve......................... (13.5) (8.2)
Merchandise inventories, at lower of
LIFO cost or market.............. $ 1,160.0 $1,160.7
</TABLE>
(E) PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated
at cost. Depreciation is computed on a straight-line basis over the estimated
useful lives of the assets. Useful lives for buildings are between 20 and 30
years, and for furniture, fixtures and equipment are between 5 and 20 years.
Major renewal and renovations are capitalized. Maintenance and repairs are
charged to expense.
(F) LEASEHOLD INTERESTS. Leasehold interests represent the present value of
the excess of current market rents at dates of acquisition over the below market
rents of leases acquired. Such costs are amortized on a straight-line basis over
the remaining lives of the underlying leases (approximately 15 years). At
September 29, 1996 and October 1, 1995, accumulated amortization was $17.1 and
$10.2, respectively.
(G) PRE-OPENING AND CLOSING COSTS. Costs incurred with the opening of a new
store are expensed during the first full month of operations. Upon deciding to
close a store, the Company expenses the undiscounted future net lease
obligation, non-recoverable investment in fixed assets and other expenses
directly related to discontinuance of store operations.
(H) GOODWILL. Goodwill is amortized on a straight-line basis over 15
years. Amortization expense was $3.1, $3.0 and $1.3 for fiscal 1996, 1995 and
1994, respectively. The Company reviews the realizability of its intangible
assets, including goodwill, annually, based upon expectations of nondiscounted
cash flows and operating income. As of September 29, 1996, management believes
that there are no materially impaired intangible assets.
(I) INSURANCE. The Company is primarily self insured for workers'
compensation and public liability expenses. Self insurance liabilities are based
on claims filed and estimates for claims incurred but not reported.
These liabilities are not discounted.
(J) ADVERTISING. Net advertising costs are expensed when incurred and
were $41.0, $72.5, and $42.7 for fiscal 1996, 1995, and 1994, respectively.
<PAGE> 11
THRIFTY PAYLESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(K) INCOME TAXES. Deferred income taxes are provided at the current
statutory rates on the difference between financial statement and tax basis of
assets and liabilities and are classified in the consolidated balance sheet as
current or long-term consistent with the classification of the related asset or
liability giving rise to the deferred income taxes.
(L) ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(M) NET EARNINGS (LOSS) PER COMMON SHARE. Net earnings (loss) per share is
computed using the weighted average number of shares and common stock
equivalents (if dilutive) outstanding. Class A and B shareholders share Company
earnings on a pro-rata basis. Weighted average shares outstanding for Class A
and Class B were 46,417,191, 35,221,411 and 26,689,767 for fiscal 1996, 1995 and
1994, respectively.
(3) THE RECAPITALIZATION
In April 1996, the Company consummated an initial public offering of its
common stock, the repurchase and redemption of certain debt obligations and the
procurement of a new bank facility (the "Recapitalization"). The objectives of
the Recapitalization were to reduce indebtedness and interest expense, improve
operating and financial flexibility and increase shareholders' equity. The
Recapitalization included the following components: (i) the offering of 24.3
million of the Company's Class B common stock with net proceeds to the Company
of $307.0; (ii) the redemptions, with proceeds of the offering, of $105.0 in
outstanding principal amount of TPI's 12 1/4% Senior Subordinated Notes due 2004
and $175.5 in outstanding principal amount of the Company's 11 5/8% Senior Notes
due 2006 (the "PIK Notes"); (iii) the repurchase, with proceeds of the offering,
of $12.8 million of the remaining outstanding principal amount of the PIK Notes
that were not redeemable; (iv) the repurchase, with borrowings under the new
bank facility (the "New Bank Facility") of $249.7 in outstanding principal
amount of TPI's 11 3/4% Senior Notes due 2003; and, (v) the procurement of the
$1 billion New Bank Facility which (a) refinanced the Company's existing
indebtedness under its Credit Agreement ("Old Bank Facility"), dated April 20,
1994, as amended, (b) provided financing used to repurchase the 11 3/4% Senior
Notes and, (c) provided for a lower interest rate on the Company's indebtedness.
Under the Old Bank Facility, interest rates were at LIBOR plus a spread ranging
between 2.625% and 3.375% with respect to various tranches. The New Bank
Facility interest rate is LIBOR plus 1.50%, subject to reduction upon achieving
certain performance measures. As a result of the Recapitalization, the Company
incurred an extraordinary charge in fiscal 1996 of $112.8 (net of a $19.8 tax
benefit) to write-off deferred financing fees, original issue discounts, consent
fees, premiums, and other expenses.
<PAGE> 12
THRIFTY PAYLESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(4) PURCHASE OF PAYLESS ("THE ACQUISITION")
On April 20, 1994, the Company acquired PayLess from Kmart for
approximately $983.8. Shortly after the purchase, the Company repaid $46.6 of
PayLess' long-term debt which is reflected as part of the purchase price.
Consideration for the purchase consisted of; (1) cash of $572.6 (including
expenses of $30.5); (2) senior notes of $100.0 (valued at $76.2); (3) $50.0
senior subordinated notes (valued at $44.7); (4) $5.3 in Class C common stock
and (5) 15,913,362 shares of Class B common stock (valued at $285.0 and
representing 48.3% of the Company's outstanding voting common stock). The
Acquisition has been accounted for using the purchase method of accounting;
wherein, $58.9 in goodwill was recognized after recording $103.6 in leasehold
interests. The operations of PayLess are included in the Consolidated Statement
of Operations as of the date acquired.
To finance, in part, the Acquisition and related transactions, the Company
and TPI raised $800.0 through bank debt and the sale of publicly traded debt
securities of TPI and Class C common stock of the Company. Effective with the
Recapitalization described in Note 3, all Class C common shares converted to
Class B common shares on a basis of 20 shares of Class C converting to 6 shares
of Class B.
(5) DISCONTINUED OPERATIONS
Concurrent with the Acquisition, the Company distributed the stock of its
sporting goods retail companies Gart Sporting Company (Gart) and MC Sports
Company (MC), to its shareholders. The results from operations for these
discontinued businesses, which are classified separately as discontinued
operations in the accompanying Consolidated Statements of Operations, are
summarized as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
October 2, 1994
<S> <C>
Sales $ 183.4
Income before income tax expense $ 8.4
Income tax expense (3.2)
Income from discontinued operations $ 5.2
</TABLE>
<PAGE> 13
THRIFTY PAYLESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(6) ACQUISITION RESERVE
Upon the consummation of the Acquisition and the 1992 Acquisition, the
Company had plans to close specific overlapping and unprofitable stores.
Accordingly, the Company accrued, as part of the acquisitions, the estimated
future cash payments, primarily future lease payments and costs and expenses
associated with subleasing or terminating such leases. At September 29, 1996,
minimum annual lease payments for the closed stores was $12.6. Remaining terms
of the leases related to these closed stores range up to 20 years. As of
September 29, 1996, and October 1, 1995, the acquisition reserve for these
future costs was $42.0 and $68.0, respectively. Additionally, amounts charged to
this reserve in fiscal 1996 and 1995, were $26.0 and $27.3, respectively.
(7) PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consists of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land..................................... $ 100.1 $ 104.3
Buildings................................ 349.0 339.8
Furniture, fixtures and equipment........ 235.2 214.1
684.3 658.2
Less accumulated depreciation ........... 126.9 76.3
Property, plant and equipment, net.. $ 557.4 $ 581.9
</TABLE>
In the 1992 Acquisition, the excess of estimated market value of the net
assets acquired over the purchase price was greater than the noncurrent assets
acquired. Accordingly, the noncurrent assets, including property, plant and
equipment, were reduced to zero at September 25, 1992. The aforementioned
amounts reflect assets acquired subsequent to the 1992 Acquisition.
(8) ACCRUED EXPENSES
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Employee wages and benefits.............. $ 83.8 $ 67.7
Self Insurance........................... 35.4 39.7
Income and non-income taxes.............. 36.0 33.5
Interest................................. 18.2 33.2
Other.................................... 64.2 77.6
$ 237.6 $ 251.7
</TABLE>
<PAGE> 14
THRIFTY PAYLESS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(9) LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following: 1996 1995
<S> <C> <C>
Revolving note payable, under a working capital line
of credit agreement, bears interest of LIBOR + 1.50%
or at the average of the three lead banks' prime rate
+ 0.5%. Final maturity is December 31, 2002. Weighted
average interest rate at September 29, 1996 was 7.11%. $355.5 $ --
Term Loan, secured by substantially all of the
Company's assets including capital stock of its
subsidiaries and bears interest of LIBOR + 1.50% or
at the average of the three lead banks' prime rate
+ 0.5%. Final maturity is December 31, 2002.
Interest rate at September 29, 1996 was 7.0%.......... 249.9 --
Senior Subordinated Notes, unsecured and bearing an
effective interest rate of 14.3% due April 15, 2004;
35% of principal called in April 1996 and remaining
principal callable subsequent to April 15, 1999.
Amounts are net of unamortized discount of $18.0 and
$29.7 in 1996 and 1995, respectively.................. 177.0 270.3
Term Loan Notes payable with tranches A, B and C
bearing interest at varying rates including the
average of the three lead banks' prime rate + 1.5% to
2.25% or the average of LIBOR + 2.625% to 3.375%.
Prepaid April 1996.................................... -- 302.9
Senior Notes, unsecured and bearing interest at 11.75%
due April 15, 2003; Redeemed April 1996............... 0.3 250.0
Senior Notes, unsecured and bearing an effective
interest rate of 14.3%. Amount is net of unamortized
discount of $37.1 at October 1, 1995.
Redeemed April 1996 ................................. -- 139.4
Revolving note payable, under a working capital line
of credit agreement with interest due at the three
lead banks' prime rate plus 1.50% or the average of
LIBOR + 2.625%. Prepaid April 1996.................... -- 69.9
Notes payable, bearing interest at 5.0 - 12.0% are
in varying installments through April 1, 2010.
Secured by various owned properties of the Company.... 39.8 47.2
Total notes payable............................. 822.5 1,079.7
Less current maturities......................... 28.1 27.1
Long-term debt.................................. $794.4 $1,052.6
</TABLE>
<PAGE> 15
THRIFTY PAYLESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(9) LONG-TERM DEBT (CONTINUED)
Annual maturities of long-term debt at September 29, 1996, are as follows:
<TABLE>
<S> <C>
1997............................................. $ 28.1
1998............................................. 28.2
1999............................................. 33.1
2000............................................. 38.1
2001............................................. 42.9
Thereafter....................................... 652.1
$ 822.5
</TABLE>
As of September 29, 1996, the Company had available a $650.0 revolving line
of credit of which $50.0 was available for import letters of credit. As of
September 29, 1996, $275.3 was available for working capital requirements,
including $30.8 for import letters of credit. In addition, the Company had a
$100.0 line of standby letters of credit of which $82.0 was being used as
collateral for the Company's master lease facility (see "Commitments and
Contingencies") and as deposits with various states for the Company's self
insured workers compensation plan. Commitment fees for these standby letters of
credit range from 0.20% to 0.375% per year.
The Term Loan, revolving working capital line of credit agreement, and the
Senior Subordinated Note Indentures include various restrictions on TPI
including, among other things, (1) the payment of dividends on and redemption of
capital stock by the Company, (2) the incurrence of indebtedness by the Company
or its subsidiaries or the issuance of preferred stock by the Company's
subsidiaries, (3) certain sales of assets and capital stock, (4) the creation of
liens, (5) the Company's and its subsidiaries' ability to consolidate or merge
with or into, or to transfer all or substantially all of its assets to another
person, and (6) transactions with affiliates, including certain fees and
payments to affiliates. In addition, the Senior Subordinated Note Indenture
prohibits the incurrence of indebtedness that is subordinated to the Senior
Subordinated Notes. These restrictions are subject to a number of qualifications
or exceptions.
The Senior Subordinated Notes are general unsecured obligations of TPI.
Since bank indebtedness is secured by substantially all of the assets of TPI and
its subsidiaries, in the event of a bankruptcy, the banks would have a prior
claim on such assets. Further, the Senior Subordinated Notes are effectively
subordinated to the indebtedness of the Company's subsidiaries and are on a
parity with the Company's trade creditors.
<PAGE> 16
THRIFTY PAYLESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
The Company has an interest rate cap agreement which caps the interest rate
on $84.0 at between 8.875% and 10.125% for a three year period. As consideration
for this agreement, the Company paid $1.2 which is being amortized over the
three year period of the agreement. In addition, the Company has an interest
rate collar agreement covering $16.0 million of debt with a ceiling rate of
10.375% and a Floor rate of 8.045%.
In September 1995, the Company merged PayLess into TPI. The merger
obligated TPI to prepay $87.6 of a note payable, which was due October 1, 2004,
plus pay a prepayment premium. The prepayment of the note payable resulted in an
extraordinary after-tax loss of $11.9, having no income tax effect.
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 "Disclosures About Fair Value of Financial Instruments,"
requires disclosure of the fair value of certain financial instruments. The
estimated fair value amounts of the Company's financial instruments have been
determined by management, using market information and valuation methodologies.
Considerable judgment is required to develop the estimates of fair value, thus,
the estimates provided herein are not necessarily indicative of the amounts that
could be realized in a current market exchange. The use of different market
assumptions or valuation methodologies may have a material effect on the
estimated fair value amounts. The Company determines fair value of its long-term
notes payable based on rates currently available to the Company for debt with
similar terms and maturities. The estimated fair value for long-term notes
payable as of September 29, 1996 was $863.7 compared to the carrying value of
$822.5.
(11) EMPLOYEE BENEFIT PLANS
The Company contributed and charged to expense $4.0 , $3.4 and $1.8 in
fiscal 1996, 1995 and 1994, respectively, for collective bargained,
multi-employer pension plans. These contributions are determined in accordance
with provisions of negotiated labor contracts and generally are based on the
number of years worked.
The Company also sponsors various other retirement and savings plans which
cover a significant number of employees not covered by multi-employer pension
plans. These plans include individual accounts for each participant and specify
how contributions to the participant's account are to be determined. Company
contributions, which in some cases are discretionary, to these plans are based
on a percentage of an employee's contributions or compensation. The cost of
these plans was $15.2, $15.4 and $12.1 in fiscal 1996, 1995 and 1994,
respectively.
The Company does not provide post-employment or post-retirement medical
benefits to its management and employees.
<PAGE> 17
THRIFTY PAYLESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(12) COMMITMENTS AND CONTINGENCIES
The Company leases certain stores, distribution facilities, vehicles and
equipment with terms expiring at various dates from 1996 through 2024. Certain
of these leases are covered under a master lease facility. Certain operating
leases include contingent rentals based upon a percentage of sales over specific
amounts.
Total rent expense for each fiscal year was:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Minimum rentals............... $155.5 $141.1 $102.2
Contingent rentals............ 17.9 15.2 17.0
Sublease rental income........ (23.2) (21.6) ( 10.6)
Total..................... $150.2 $134.7 $108.6
</TABLE>
At September 29, 1996, minimum rental commitments for the next five fiscal
years and thereafter under noncancelable leases were as follows: 1997 - $136.3;
1998 - $130.0; 1999 - $121.5; 2000 - $111.8; 2001 - $101.2; and thereafter -
$1,426.0. Minimum sublease rental income to be received in the future under
operating leases totaled $76.8 at September 29, 1996.
The Company is a party to several legal proceedings and claims arising in
the normal course of business. Although the outcome of such proceedings and
claims cannot be determined with certainty, management believes that their final
outcome should not have a material adverse effect on the Company's consolidated
financial position or results of operations.
<PAGE> 18
THRIFTY PAYLESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(13) INCOME TAXES
Income tax (expense) benefit related to continuing operations consists of
the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current income taxes:
Federal taxes.......................... $ (1.4) $ 12.1 $ 9.1
State and local taxes.................. (0.2) (1.0) 2.4
(1.6) 11.1 11.5
Deferred income taxes:
Federal taxes.......................... (23.9) (11.0) (13.8)
State and local taxes.................. (5.8) 2.7 (3.3)
(29.7) (8.3) (17.1)
$(31.3) $ 2.8 $ (5.6)
</TABLE>
The effective income tax rate (expense) benefit varied from the expected
expense (benefit), based upon application of the Federal statutory income tax
rate, as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Expected tax (expense) benefit............... $(26.4) $ 9.0 $ (4.2)
Valuation allowance for deferred tax assets . -- (6.5) --
State and local taxes, net of
federal tax effect......................... (3.9) 0.7 (1.3)
Goodwill amortization........................ (1.1) (1.0) (0.1)
Federal and state tax rate change............ -- 0.2 --
Other, net................................... 0.1 0.4 --
$(31.3) $ 2.8 $(5.6)
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets:
Accrued expenses................................. $ 64.1 $ 66.9
Property, plant and equipment.................... 7.8 19.0
Net operating loss carryforward benefit.......... 76.8 49.8
Deductible transaction costs..................... 9.8 12.1
Alternative minimum tax credit prepayment........ 1.0 1.0
Other............................................ 0.9 1.6
Total gross deferred tax assets............. 160.4 150.1
Valuation allowance for deferred tax assets...... (131.6) (98.7)
Net deferred tax assets..................... 28.8 51.4
Deferred tax liabilities:
Inventories...................................... 136.7 138.9
Debt obligations................................. 27.2 26.0
Discount on notes................................ -- 14.7
Stock of subsidiaries............................ 4.2 4.2
Other............................................ 5.3 2.3
Total gross deferred tax liabilities........ 173.4 186.1
Net deferred tax liability............. $144.6 $134.7
</TABLE>
<PAGE> 19
THRIFTY PAYLESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
The net increase in valuation allowance for fiscal 1996 of $32.9 primarily
relates to net operating loss deferred tax assets generated in fiscal 1996. The
net change in the total valuation allowances for fiscal 1995 was $20.9, $9.9 of
which related primarily to the Acquisition and $11.0 of which related to net
operating loss deferred tax assets generated in fiscal 1995. It is management's
opinion that it is more likely than not that the net deferred tax assets of
$28.8 will be realized. At September 29, 1996, the Company has federal regular
income tax and alternative tax net operating loss carryforwards for income tax
purposes of approximately $205.2 and $50.6 respectively. The net operating loss
carry-forwards expire between years 2009 and 2011.
(14) RELATED PARTY TRANSACTIONS
In connection with the 1992 Acquisition of Thrifty Corporation from Pacific
Enterprises, Thrifty Corporation sold all of the outstanding capital stock of
United Merchandising Corp. ("Big 5"), the operator of the Big 5 Sporting Goods
chain, to Big 5 Holdings, Inc. Big 5 is a wholly-owned subsidiary of Big 5
Corporation, a Delaware corporation, whose majority stockholder is GEI.
The Company has provided certain administrative support services to Big 5,
Gart and MC and was reimbursed monthly for such services. The Company was
reimbursed $0.3 and $2.2 for administrative services in 1995 and 1994,
respectively. Sublease revenues from Big 5, Gart and MC amounted to $0.4 in
1996, 1995 and 1994. Additionally, The Company is a guarantor of certain lease
obligations for Big 5, Gart and MC which leases currently require aggregate
annual rent payments of approximately $8.5.
In consideration with the Acquisition, the Company entered into a ten year
Management Services Agreement (the Agreement) with LGA for management,
consulting and financial planning services. The Agreement provided for an annual
fee of $1.0 million plus reasonable expenses. The Company paid $0.5, $0.9 and
$0.8 in 1996, 1995 and 1994, respectively to LGA under this Agreement. As part
of the Recapitalization, the General Services provision of the Agreement was
canceled. In consideration of Investment Services provided by LGA in connection
with the Recapitalization and the cancellation of the General Services provision
of the Agreement, the Company paid LGA an aggregate of $16.3 million. In 1995,
the Company paid LGA $0.45 for consulting services associated with obtaining
tranch C of the Term Loan. During 1994, the Company paid LGA $15.1 for services
related to the Acquisition. Additionally, the Company paid $5.0 to an investment
banking firm that held 6% of The Company's voting stock for its services related
to the Acquisition.
During fiscal 1994, Kmart billed the Company $20.5 for imported merchandise
and $0.4 for various administrative services, $20.4 of which was paid to Kmart
during fiscal 1995. During fiscal 1995 the Company also purchased pharmacy files
and inventories from Kmart for $0.2. In addition, pursuant to the Purchase and
Sale Agreement related to the Acquisition, the Company received $4.3 in fiscal
1995 as an adjustment of the purchase price related to income taxes.
(15) COMMON STOCK AND PREFERRED STOCK
The Company's authorized capital stock includes Preferred Stock, Class A
and Class B common shares. All classes of stock have voting rights. However,
preferred stock holders may not vote for Class B directors so long as any shares
of Class B common stock are issued and outstanding and there is more than one
class of the Corporation's common stock outstanding. Holders of Class A common
stock have the right to elect 5 out of 7 board members with holders of Class B
common stock electing the remaining members.
Pursuant to the 1992 Management Equity Plan (the "1992 Management Plan"),
the Company sold 1,800,000 shares and granted 90,000 shares of its Class A
common stock to Thrifty
<PAGE> 20
THRIFTY PAYLESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
employees ("Management Shares"). The Management Shares were subject to the
provisions of its Management Subscription and Stockholders Agreement
(the"Management Agreement") which allowed the shares to be put to the Company by
management or called by the Company under certain circumstances in the event of
termination of employment. The shares could have been put or called at $1.67 per
share, book value per share or fair market value or certain combinations
thereof, depending on the timing and circumstances of termination of employment.
In fiscal 1993, the Company acquired 836,400 shares of Class A common stock
issued under the 1992 Management plan for $1.4 and reissued 216,000 and 156,000
of such Management Shares from its treasury stock in fiscal 1993 and fiscal
1994, respectively.
In a separate but related transaction to the Acquisition, the Company
offered to repurchase and terminate up to 64% of the aggregate number of shares
of common stock and options, held by each officer or employee of the Company
prior to the Acquisition (or 100% if less than 6,000 in the aggregate) at $10.50
a share (net of the $1.67 exercise price in the case of the options). In total,
$7.6 was paid to such persons for Class A stock and $2.2 for canceled options,
exclusive of the amount attributed to the distribution to the Company's
pre-Acquisition stockholders. The remaining Class A stock retained by such
persons will no longer be subject to "puts" and "calls" and all remaining
options are fully vested.
As part of the Acquisition, the Company's pre-Acquisition common
stockholders and option holders received a distribution (or, in the case of
option holders, payments consisting of a combination of cash, Senior Notes and
Class B stock in lieu of such distribution) consisting of (1) cash of $66.3, (2)
Senior Notes with a face value of $50.0 issued at a discount of $11.9, (3) the
capital stock of Gart and MC which had a net book value of $44.6, and (4)282,035
shares of Class B stock recorded at $0.0. A total of $5.2 consisting of the $2.2
paid to management for canceled options and a $3.0 payment to management option
holders, in lieu of distribution, was charged to compensation expense in fiscal
1994. In addition, all outstanding shares of the Company's Series A - 9%
Cumulative Redeemable Preferred Stock were redeemed at an aggregate cost of
$22.9 which included payment of accrued dividends of $2.9.
Effective October 19, 1994, the Board of Directors of the Company adopted
the 1994 Management Equity Plan ("1994 Management Plan"). The 1994 Management
Plan provides for the sale to key employees shares of the Company's common stock
and for the grant to key employees, options to purchase such shares. A maximum
of 3,600,000 shares of Class A common stock and 7,200,000 shares of Class B
common stock are available for issuance under the 1994 Management Plan.
Purchases of shares are made by means of a combination of cash and recourse and
non-recourse notes. The promissory notes are secured by a pledge of all the
shares purchased by the individual, are due five years from the date of issuance
and bear interest at 8% per annum. Generally, options granted will vest in
installments of 20% per annum over a five year period.
In fiscal 1996, the Company adopted a Non-Employee Director stock option
plan. The terms of the plan include granting options to acquire 30,000 shares of
Class B stock at the initial public offering price of $14.00, subject to
vesting, to the two existing Non-Employee Directors at the effective date of the
Company's initial public offering. In addition, the terms of the plan provide
that on the date of each of the Company's annual stockholders' meeting after
January 1, 1997, each non-management director will receive options to acquire
10,000 shares of Class B stock, subject to vesting, which options will have an
exercise price equal to the market price of the Class B stock on the date such
options are granted.
<PAGE> 21
THRIFTY PAYLESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
Activity under the option plans is summarized below:
<TABLE>
<CAPTION>
Class A Class B
Stock Stock
<S> <C> <C>
Options outstanding - October 3, 1993....... 310,200 --
Options granted ........................... 99,000 --
Options exercised ......................... -- --
Options canceled .......................... (253,296) --
---------- ---------
Options outstanding - October 2, 1994 ...... 155,904 --
Options granted ........................... 980,280 1,456,440
Options exercised ......................... -- --
Options canceled .......................... -- (160,800)
---------- ---------
Options outstanding - October 1, 1995 ...... 1,136,184 1,295,640
Options granted ........................... -- 1,224,100
Options exercised ......................... -- --
Options canceled .......................... (62,328) (157,346)
---------- ---------
Options outstanding - September 29, 1996 ... 1,073,856 2,362,394
========== =========
</TABLE>
Exercise prices on outstanding options are $1.67 per share for 154,176 Class
A share options and $10.50 and $14.17 per share for fifty-percent each of the
remaining Class A share options, and $4.17 for 12,190 shares, $10.50 for 563,052
shares, $12.50 for 110,100 shares, $14.00 for 1,104,000 shares, $14.17 for
563,052 shares and $16.75 for 10,000 shares of Class B share options. At
September 29, 1996, 548,016 options for Class A shares and 518,256 options for
Class B shares were exercisable. In fiscal 1995, the Company issued 571,608
shares of Class B stock at $10.5 per share under the 1994 Management Plan,
receiving notes in the amount of $4.2, a reduction of employee benefit
obligations of $1.2, $0.4 in cash and the cancellation of $0.2 in Senior Notes.
In fiscal 1996, the Company issued 18,000 shares of Class B stock at $10.5 per
share, receiving notes in the amount of $0.2.
In fiscal 1996 the Company issued a warrant to purchase 75,000 Class B
common shares to an outside consultant at $14.00 per share. The warrant was
exercisable upon issuance.
In conjunction with the issuance of the Senior Subordinated Notes, 1,710,000
shares of Class B stock were issued to note holders. As consideration for these
shares, the Company received $32.0.
As part of the 1992 Acquisition, the Company issued a warrant to PE to
purchase 1,789,998 shares of the Company's common stock at $1.67 per share and
133,332 shares of the Company's Series A - 9% Cumulative redeemable Preferred
Stock at $16.67 per share. In connection with the Acquisition, this warrant was
canceled for cash consideration of $10.3 and the release of certain
indemnification claims against PE.
<PAGE> 22
THRIFTY PAYLESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(16) SUBSEQUENT EVENT
On December 12, 1996, the Company was merged into Rite Aid Corporation
(Rite Aid), ("the Merger"). Pursuant to the Merger, each share of the Company's
common stock was converted into a right to receive 0.65 shares of common stock
of Rite Aid. In addition, all outstanding options and the warrant for the
Company's common stock vested and converted to rights to receive cash for the
difference between the respective exercise price of the underlying option or
warrant and 65 percent of the closing price of Rite Aid's common stock at
December 12, 1996. At the effective time of the Merger, the 1994 Management
Equity Plan and the Non-Employee Director Stock Option Plan were terminated.
In connection with the Merger, the Company's obligation under its
outstanding term loan and revolving working capital line of credit agreement
(approximately $718.1 in aggregate principal at December 12, 1996), and the
conversion of outstanding options and the warrant into cash ($46.3), were paid
for by Rite Aid with the Company realizing an inter-company debt obligation to
Rite Aid.
As a result of the Merger, the Company is obligated to offer to
repurchase all outstanding 12 1/4% Senior Subordinate Notes due 2004 (the "Sub
Debt") at 101% of the principal amount thereof (the Event Risk Price").
However, prior to the announcement of the Merger, the Sub Debt traded at prices
above the Event Risk Price and since that announcement, the Sub Debt has
generally traded at higher levels. On December 23, 1996 a subsidiary of Rite
Aid made an offer to purchase the Sub Debt for cash at a price per $1,000 in
Note principal to be determined by reference to a fixed spread of 35 basis
points over the yield (on a date three business days prior to the expiration of
the offer) of the 7% U.S. Treasury Note due April 15, 1999, plus accrued and
unpaid interest on the Notes. In connection with the offer, the Rite Aid
subsidiary is also soliciting consents to amend the Indenture pursuant to which
the Sub Debt was issued, which amendments would eliminate substantially all of
the covenants, and certain events of default, in the Indenture, other than
covenants (and related defaults) to pay interest and principal on the Sub Debt
when due.
<PAGE> 23
THRIFTY PAYLESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(17) QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Annual
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
FOR THE 52 WEEK PERIOD ENDED
SEPTEMBER 29, 1996
Net sales...................... $ 1,307.1 $ 1,123.1 $ 1,213.4 $ 1,155.3 $ 4,798.9
Gross profit................... 360.8 290.9 318.1 311.6 1,281.4
Net income (loss) from
continuing operations to
common shareholders........... $ 24.7 $ (10.4) $ 9.8 $ 19.9 $ 44.0
Earnings (loss) from
continuing operations per
Class A and B common share.... $ 0.70 $ (0.30) $ 0.18 $ 0.33 $ 0.95
FOR THE 52 WEEK PERIOD ENDED
OCTOBER 1, 1995
Net sales...................... $ 1,301.5 $ 1,098.0 $ 1,172.7 $ 1,086.6 $ 4,658.8
Gross profit................... 363.7 286.5 312.6 283.0 1,245.8
Net income (loss) from
continuing operations to
common shareholders........... $ 17.6 $ (12.2) $ (1.4) $ (26.8) $ (22.8)
Earnings (loss) from
continuing operations per
Class A and B common share.... $ 0.50 $ (0.35) $ (0.04) $ (0.76) $ (0.65)
FOR THE 52 WEEK PERIOD ENDED
OCTOBER 2, 1994 (A)
Net sales...................... $ 556.6 $ 497.5 $ 1,024.4 $ 1,084.8 $ 3,163.3
Gross profit................... 141.3 129.0 275.8 306.1 852.2
Net income (loss) from
continuing operations to
common shareholders........... $ 5.9 $ (3.3) $ 1.1 $ 1.7 $ 5.4
Earnings (loss) from
continuing operations per
Class A and B common share.... $ 0.31 $ (0.20) $ 0.03 $ 0.05 $ 0.20
</TABLE>
- --------------------------
(A) Fiscal 1994 net income (loss) and earning amounts are net of preferred stock
accretion.
<PAGE> 24
Item 7. (b) Pro forma financial information
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
Introduction to pro forma condensed consolidated financial data.
The following Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the 39 weeks ended November 30, 1996 and the fiscal year ended
March 2, 1996 present unaudited pro forma operating results for the Company as
if the Thrifty PayLess Merger and the other transactions described in the next
paragraph (the "Pro Forma Transactions") had occurred as of the beginning of the
periods presented. The following Unaudited Pro Forma Condensed Consolidated
Balance Sheet presents the unaudited pro forma financial condition of the
Company as if the Pro Forma Transactions had occurred as of November 30, 1996.
The excess of the purchase price of Thrifty PayLess over the net identifiable
assets and liabilities of Thrifty PayLess is reported as goodwill. The carrying
values of Thrifty PayLess' net assets are assumed to equal their fair values for
purposes of these unaudited pro forma condensed consolidated financial
statements unless indicated otherwise in the Notes to Unaudited Pro Forma
Condensed Consolidated Financial Data. These values are subject to revision
following the results of any appraisals after consummation of the Thrifty
PayLess Merger and related transactions.
The Pro Forma Transactions are: (i) the Thrifty PayLess Merger, which is
accounted for under the purchase method of accounting; (ii) the establishment
by the Company of a new credit facility (the "Credit Facility") with a
syndicate of commercial banks that provides for loans in the aggregate amount
of $1.0 billion (which loan commitment was reduced to $500.0 million in January
1997); (iii) the payment of $817.7 million of outstanding Thrifty PayLess debt,
the conversion of outstanding Thrifty PayLess stock options into cash upon
consummation of the Thrifty PayLess Merger (estimated at $46.3 million) and the
payment of certain fees and expenses relating to the Thrifty PayLess Merger
(estimated at $30.0 million), through the issuance by the Company of commercial
paper and subsequently repaid through the issuance of the securities, each as
more fully described in the accompanying Notes to Unaudited Pro Forma Condensed
Consolidated Financial Data; and (iv) the planned disposition of all 270 of
Rite Aid stores in Alabama, Florida, Georgia and North and South Carolina (the
"Southeast Dispositions"), the divestiture of Bi-Mart subsequent to the Thrifty
PayLess Merger and other adjustments described in the accompanying Notes to
Unaudited Pro Forma Condensed Consolidated Financial Data. While the pro forma
adjustments are based upon certain assumptions the Company considered
reasonable in the circumstances, final amounts will differ from those set forth
in the following unaudited pro forma condensed consolidated financial data.
The unaudited pro forma condensed consolidated financial data does not reflect
any synergies expected to be realized after the Thrifty PayLess Merger (because
their realization cannot be assured) or costs related to the Southeast
Dispositions (as such costs are non-recurring). The accompanying Notes to
Unaudited Pro Forma Condensed Consolidated Financial Data describe other
adjustments related to the Thrifty PayLess Merger.
THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA IS PRESENTED FOR
INFORMATIONAL PURPOSES ONLY AND IS NOT NECESSARILY INDICATIVE OF THE OPERATING
RESULTS OR FINANCIAL POSITION THAT WOULD HAVE OCCURRED HAD THE THRIFTY PAYLESS
MERGER AND OTHER TRANSACTIONS DESCRIBED HEREIN BEEN CONSUMMATED AT THE DATES
INDICATED, NOR IS IT NECESSARILY INDICATIVE OF THE FUTURE OPERATING RESULTS OR
FINANCIAL POSITION OF THE COMPANY FOLLOWING THE THRIFTY PAYLESS MERGER.
The unaudited pro forma condensed consolidated financial data should be read in
conjunction with each of the consolidated financial statements of the Company
and Thrifty PayLess and the related notes thereto contained in (i) the Company's
Annual Report on Form 10-K for the year ended March 2, 1996, (ii) the Company's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1996, and
(iii) Thrifty PayLess' audited financial statements for the year ended
September 29, 1996, which are included herein.
<PAGE> 25
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 39 WEEKS ENDED NOVEMBER 30, 1996
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
RITE AID THRIFTY PAYLESS
39 WEEKS ENDED 39 WEEKS ENDED
NOVEMBER 30, SEPTEMBER 29, PRO FORMA PRO FORMA
1996 1996 ADJUSTMENTS COMBINED
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales................. $ 4,313.0 $ 3,491.8 $ -- $ 7,804.8
Cost of goods sold,
including occupancy
costs.................... 3,185.5 2,571.2 -- 5,756.7
Selling, general and
administrative
expenses................. 883.1 808.8 16.9(a) 1,708.8
Interest expense.......... 57.9 79.5 (30.0)(b) 108.2
0.8(c)
Nonrecurring charge
related to
the attempted
acquisition of Revco
D.S. Inc................. 16.1 -- -- 16.1
--------------- --------------- --------------- ---------------
4,142.6 3,459.5 (12.3) 7,589.8
--------------- --------------- --------------- ---------------
Income (loss) from
continuing operations
before income taxes(1)... 170.4 32.3 12.3 215.0
Income taxes (benefit).... 65.1 13.0 11.2(d) 89.3
--------------- --------------- --------------- ---------------
Net income (loss)(1)...... $ 105.3 $ 19.3 $ 1.1 $ 125.7
=============== =============== =============== ===============
Average shares
outstanding.............. 83,891,000 59,502,000 (20,826,000)(k) 122,567,000
Earnings (loss) per
share(1)................. $ 1.26 $ 0.32 $ -- $ 1.03
=============== =============== =============== ===============
</TABLE>
- - --------
(1) For Thrifty PayLess, excludes extraordinary loss from early extinguishment
of debt.
See the accompanying Notes to Unaudited Pro Forma Condensed Consolidated
Financial Data.
<PAGE> 26
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MARCH 2, 1996
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THRIFTY PAYLESS
RITE AID 52 WEEKS ENDED
52 WEEKS ENDED DECEMBER 31, PRO FORMA PRO FORMA
MARCH 2, 1996 1995 ADJUSTMENTS COMBINED
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales.................. $ 5,446.0 $ 4,664.5 $ -- $ 10,110.5
Cost of goods sold,
including occupancy
costs..................... 4,017.4 3,435.1 -- 7,452.5
Selling, general and
administrative
expenses.................. 1,104.1 1,100.7 22.5(a) 2,227.3
Interest expense........... 68.3 139.5 (71.6)(b) 137.2
1.0(c)
--------------- --------------- --------------- ---------------
5,189.8 4,675.3 (48.1) 9,817.0
--------------- --------------- --------------- ---------------
Income (loss) from
continuing operations
before income taxes(1)... 256.2 (10.8) 48.1 293.5
Income taxes.............. 97.3 5.0 27.0(d) 129.3
--------------- --------------- --------------- ---------------
Net income (loss)(1)...... $ 158.9 $ (15.8) $ 21.1 $ 164.2
=============== =============== =============== ===============
Average shares outstand-
ing...................... 83,808,000 59,502,000 (20,826,000)(k) 122,484,000
Earnings (loss) per
share(1)................. $ 1.90 $ (0.27) -- $ 1.34
=============== =============== =============== ===============
</TABLE>
- - --------
(1) For Thrifty PayLess, excludes extraordinary loss from early extinguishment
of debt.
See the accompanying Notes to Unaudited Pro Forma Condensed Consolidated
Financial Data.
<PAGE> 27
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF NOVEMBER 30, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
RITE AID THRIFTY PAYLESS ADJUSTMENTS
NOVEMBER 30, SEPTEMBER 29, PRO FORMA FOR PRO FORMA
1996 1996 ADJUSTMENTS DISPOSITIONS(N) COMBINED
------------ --------------- ----------- --------------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash ..................... $ 8.7 $ 5.6 $ -- $ (2.0) $ 12.3
Accounts receivable,
net ..................... 261.9 106.9 -- (18.8) 350.0
Inventories .............. 1,345.1 1,160.0 28.0 (e) (164.2) 2,368.9
Other current assets ..... 41.0 33.1 -- (2.5) 71.6
Current assets,
dispositions ............ -- -- -- 187.5 187.5
-------- -------- -------- -------- --------
Total current assets ..... 1,656.7 1,305.6 28.0 -- 2,990.3
-------- -------- -------- -------- --------
Property, plant &
equipment, net .......... 1,214.1 557.4 123.0 (l) (63.2) 1,831.3
Intangible assets, net.... 376.9 130.9 1,012.3 (f) (6.6) 1,513.5
Other noncurrent assets... 99.2 51.1 8.9 (g) (3.0) 166.5
(18.3)(g)
28.6 (h)
Noncurrent assets,
dispositions ............ -- -- 7.7 (h) 72.8 80.5
-------- -------- -------- -------- --------
Total assets ........... $3,346.9 $2,045.0 $1,190.2 $ -- $6,582.1
======== ======== ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Short-term debt and
current maturities of
long-term debt .......... $ 65.0 $ 28.1 $ (28.1)(i) $ -- $ 65.0
Accounts payable ......... 310.3 366.9 -- (35.6) 641.6
Other current
liabilities and
deferred taxes .......... 157.9 418.5 24.0 (j) (20.7) 684.7
105.0 (m)
Other current
liabilities,
dispositions ............ -- -- -- 56.3 56.3
-------- -------- -------- -------- --------
Total current
liabilities ........... 533.2 813.5 100.9 -- 1,447.6
-------- -------- -------- -------- --------
Long-term debt, net ...... 1,536.8 794.4 76.3 (i) (5.4) 2,430.2
28.1 (i)
Deferred taxes ........... 113.9 (36.3) 10.8 (h) (13.6) 103.4
28.6 (h)
Other long-term
liabilities ............. -- 73.8 -- -- 73.8
Noncurrent liabilities,
dispositions ............ -- -- 7.7 (h) 19.0 26.7
Common stock ............. 90.4 0.6 38.1 (k) -- 129.1
Additional paid-in
capital ................. 63.2 503.1 795.6 (k) -- 1,361.9
Retained earnings ........ 1,114.6 (93.8) 93.8 (k) -- 1,114.6
Cumulative pensions
liability adjustments (0.4) -- -- -- (0.4)
Treasury stock ........... (104.8) (10.3) 10.3 (k) -- (104.8)
-------- -------- -------- -------- --------
Total stockholders'
equity ................ 1,163.0 399.6 937.8 -- 2,500.4
-------- -------- -------- -------- --------
Total liabilities and
stockholders' equity ..... $3,346.9 $2,045.0 $1,190.2 $ -- $6,582.1
======== ======== ======== ======== ========
</TABLE>
See the accompanying Notes to Unaudited Pro Forma Condensed Consolidated
Financial Data.
<PAGE> 28
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL DATA
BASIS OF CONSOLIDATION
Thrifty PayLess' most recent audited fiscal year data, included in this Form
8-K, is for the year ended September 29, 1996. For purposes of the Unaudited
Pro Forma Condensed Consolidated Statement of Operations for the fiscal year
ended March 2, 1996, the Company's historical information is from the fiscal
year ended March 2, 1996, and the results of operations for Thrifty PayLess are
for the 52 weeks ended December 31, 1995. For purposes of the interim Unaudited
Pro Forma Condensed Consolidated Statement of Operations for the 39 weeks ended
November 30, 1996, the results of operations for the 39-week period ended
November 30, 1996 were used for the Company, and the results of operations for
the 39-week period ended September 29, 1996 were used for Thrifty PayLess.
As a result of its planned installation of standardized store systems in all
Thrifty PayLess locations, and combining and standardizing various
administrative support functions such as marketing, advertising, accounting and
management information systems, the Company's management expects to operate the
combined operations of the Company and Thrifty PayLess with a more efficient
overhead expense structure than each of the two entities operating on a
stand-alone basis. The Company also expects to achieve cost reductions as a
result of increased purchasing power derived from the combination of the two
companies. However, for purposes of the Unaudited Pro Forma Condensed
Consolidated Statements of Operations, these and other potential synergies in
overhead expenses have not been reflected because their realization cannot be
assured.
DETERMINATION AND ALLOCATION OF PURCHASE PRICE
At the effective time of the Thrifty PayLess Merger, all of the outstanding
shares of Thrifty PayLess Common Stock were converted into the Company's Common
Stock at the exchange ratio of 0.65 shares of the Company's Common Stock for
each outstanding share of Thrifty PayLess Common Stock. The following table sets
forth the purchase price (in millions) based on an assumed $34.58 per share
market value, which amount is the average closing price for the Company's Common
Stock over a reasonable period of time before and after the two companies
reached agreement on the purchase price and the proposed transaction was
announced on October 14, 1996.
<TABLE>
<S> <C>
Market value of shares of the Company's Common Stock issued in the
Thrifty PayLess Merger................ ........................... $1,337.4
Transaction costs................................................. 30.0
Payment for outstanding Thrifty PayLess stock options............. 46.3
--------
Pro forma purchase price........................................ $1,413.7
========
</TABLE>
The Thrifty PayLess Merger will be accounted for as a purchase. The
preliminary allocation of the pro forma purchase price by the Company is as
follows (in millions):
<TABLE>
<S> <C>
Pro forma purchase price........................................... $1,413.7
Equity acquired.................................................... (399.6)
--------
Unallocated pro forma purchase price........................... $1,014.1
========
Pro forma purchase price allocation
Fixed assets..................................................... $ 123.0
Merger liabilities............................................... (105.0)
Inventory........................................................ 28.0
Goodwill......................................................... 1,012.3
Other............................................................ (44.2)
--------
Total.......................................................... $1,014.1
========
</TABLE>
<PAGE> 29
PRO FORMA ADJUSTMENTS
(a) Amortization of the estimated goodwill relating to the Thrifty PayLess
Merger of $1,012.3 million over a 40-year period ($1,012.3 million / 40
= $25.3 million). The historical goodwill reflected on the Thrifty PayLess
balance sheet was being amortized over a 15-year period at $3.9 million per
year. The remaining balance of $45 million of goodwill will be
reconstituted as new goodwill and amortized over a 40-year period ($45
million / 40 = $1.1 million). Accordingly, the pro forma incremental charge
to goodwill is $22.5 million ($25.3 million + $1.1 million - $3.9 million).
The pro forma adjustment for the 39-week period ended November 30, 1996
represents three-fourths of the annualized pro forma adjustment amount.
(b) Reflects the net pro forma additional interest expense on the Company's
total borrowings and the reversal of Thrifty PayLess' historical debt
discount and fee amortization. The pro forma additional Company's
borrowings consist of $350 million of 6.7% five-year notes; $350 million of
7.125% ten-year notes; and $300 million of 7.7% 30-year debentures.
(c) Reflects pro forma amortization of estimated financing fees for the Credit
Facility of $0.2 million and debt issuance costs of the Offered Debt
Securities of approximately $8.7 million amortized over the estimated five-,
ten- and 30-year lives of the respective debt issuances ($2.3 million at
five years, $2.8 million at 10 years and $3.6 million at 30 years). The pro
forma adjustment for the 39-weeks ended November 30, 1996 represents
three-fourths of the annualized pro forma adjustment amount.
The pro forma combined interest expense reflects the difference between the
interest rates currently available to the Company and the historical rates
of interest paid by Thrifty PayLess.
(d) Income taxes have been calculated based on the Company's effective statutory
rate for the respective periods. Amortization of goodwill is not deductible
for tax purposes.
(e) Reflects the pro forma adjustment to value the inventory at fair market
value. The Company believes the adjusted carrying values represent
estimated selling prices of merchandise inventories less the sum of costs
of disposal and a reasonable profit allowance. This value is subject to
revisions pending completion of physical inventories.
(f) Records pro forma purchase price allocation to goodwill for excess of
purchase price over net assets and direct costs of the transaction,
primarily financial advisory and legal fees. Based on the purchase of all of
the outstanding shares of Thrifty PayLess Common Stock (approximately
59,502,000 shares) converted into the Company's Common Stock at an exchange
ratio of 0.65 (approximately 38,676,000 shares) valued at a market price of
$34.58 for the Company's Common Stock.
(g) Records the estimated $8.9 million in financing fees for the Credit Facility
and issuance of $1,000.0 million of securities (see Note (b)) and removes
Thrifty PayLess' unamortized debt issue costs of $18.3 million.
<PAGE> 30
(h) Reclassifies the Thrifty PayLess historical net deferred tax assets and
records the deferred tax impact of the fair value adjustment to inventory.
(i) The pro forma adjustment to indebtedness reflects borrowings of $76.3
million related to conversion of outstanding Thrifty PayLess stock options
and the payment of certain fees and expenses related to the Thrifty PayLess
merger. In addition, current maturities of long-term debt are adjusted to
reflect the changes in capitalization.
(j) Records pro forma premium on assumed purchase of Sub Debt.
(k) Records the issuance of 38,676,000 shares of the Company's Common Stock at
$34.58 per share at the 0.65 exchange ratio and the elimination of Thrifty
PayLess' equity accounts.
(l) Records the fair value adjustments for Thrifty PayLess' fixed assets.
(m) The Company estimates that expenses associated with closing Thrifty PayLess'
corporate headquarters, severance and retention costs of employees, and
other merger costs will be $105 million. These costs will be recorded as a
liability assumed in the Thrifty PayLess Merger. There can be no assurance,
however, that the amount of such charges will not increase as the Company's
integration plan is further developed and more accurate estimates become
available.
(n) The pro forma adjustments for the Southeast Dispositions and expected
Bi-Mart divestiture represent the reclassification of the Company's stores
being divested in Alabama, Georgia, Florida, North Carolina and South
Carolina, and the proposed divestiture of the Thrifty PayLess' Bi-Mart
stores. The table below presents the balances for the respective
dispositions. The Company estimates that it will receive approximately $200
million from the sale of stores in the Southeast Dispositions and between
$60 to $80 million from the sale of Thrifty PayLess' Bi-Mart stores.
<TABLE>
<CAPTION>
BI-
RITE AID MART TOTAL
-------- ------ -------
<S> <C> <C> <C>
ASSETS
Cash.......................................... $ (2.0) $ -- $ (2.0)
Accounts receivable........................... (13.1) (5.7) (18.8)
Inventories................................... (83.8) (80.4) (164.2)
Other current assets.......................... (1.3) (1.2) (2.5)
------- ------ -------
Total current assets........................ $(100.2) $(87.3) $(187.5)
======= ====== =======
Property and equipment, net................... $ (53.2) $(10.0) $ (63.2)
Intangible assets, net........................ (6.6) -- (6.6)
Other noncurrent assets....................... -- (3.0) (3.0)
------- ------ -------
Total noncurrent assets..................... $ (59.8) $(13.0) $ (72.8)
======= ====== =======
LIABILITIES
Accounts payable.............................. $ (3.3) $(32.3) $ (35.6)
Other current liabilities and deferred taxes.. (4.0) (16.7) (20.7)
------- ------ -------
Total current liabilities................... $ (7.3) $(49.0) $ (56.3)
======= ====== =======
Long-term debt................................ $ (0.6) $ (4.8) $ (5.4)
Deferred taxes................................ (21.3) 7.7 (13.6)
------- ------ -------
Total noncurrent liabilities................ $ (21.9) $ 2.9 $ (19.0)
======= ====== =======
</TABLE>
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Certified Public Accountants
The Board of Directors
Thrifty PayLess Holdings, Inc.:
We consent to the inclusion of our report dated December 3, 1996, except note
16 which is as of December 23, 1996, with respect to the consolidated balance
sheets of Thrifty PayLess Holdings, Inc. and subsidiaries as of September 29,
1996 and October 1, 1995, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the years in the
three-year period ended September 29, 1996, which report appears in the Form
8-K of Rite Aid Corporation.
/s/ KPMG PEAT MARWICK LLP
Portland, Oregon
January 9, 1997
