<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From _____ To _____
COMMISSION FILE NUMBER 1-5742
RITE AID CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 23-1614034
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
30 HUNTER LANE, CAMP HILL, PENNSYLVANIA 17011
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(717) 761-2633
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
SINCE LAST REPORT)
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, and (2) has been subject to such filing
requirements for the past 90 days.
X YES NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
The registrant had 124,710,688 shares of its $1.00 par value Common
Stock outstanding as of September 29, 1997
Total number of sequentially numbered pages in this filing, including
exhibits thereto: 19
<PAGE> 2
RITE AID CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets August 30, 1997 and March 1, 1997 2
Condensed Consolidated Statements of Income
Thirteen Weeks Ended August 30, 1997 and August 31, 1996 3
Condensed Consolidated Statements of Income
Twenty-Six Weeks Ended August 30, 1997 and August 31, 1996 4
Condensed Consolidated Statements of Cash Flows
Twenty-Six Weeks Ended August 30, 1997 and August 31, 1996 5
Notes to Condensed Consolidated Financial Statements 6
Independent Auditors' Review Report 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
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RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED AUGUST 30, 1997
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
RITE AID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
August 30, 1997 March 1, 1997
--------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 7,440 $ 7,042
Accounts and Notes Receivable 354,619 370,588
Inventories 2,562,076 2,336,659
Prepaid Expenses and Other Current Assets 71,912 57,210
----------- -----------
TOTAL CURRENT ASSETS 2,996,047 2,771,499
----------- -----------
Property, Plant and Equipment, at Cost 2,931,178 2,669,856
Accumulated Depreciation 885,208 773,786
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET 2,045,970 1,896,070
----------- -----------
INTANGIBLE ASSETS
Excess of Cost Over Underlying Equity in Subsidiaries (Less
Accumulated Amortization of $35,837 and $19,595) 1,560,022 1,260,777
Lease Acquisition Costs and Other Intangible Assets (Less
Accumulated Amortization of $148,856 and $132,696) 400,615 383,862
----------- -----------
TOTAL INTANGIBLE ASSETS 1,960,637 1,644,639
----------- -----------
Other Assets 93,926 104,773
----------- -----------
TOTAL ASSETS $ 7,096,580 $ 6,416,981
=========== ===========
CURRENT LIABILITIES
Short-Term Debt and Current Maturities of Long-Term Debt $ 47,354 $ 44,255
Accounts Payable 715,584 601,301
Income Taxes 83,197 18,484
Sales and Other Taxes Payable 55,714 34,985
Accrued Salaries, Wages and Other Current Liabilities 439,428 472,985
----------- -----------
TOTAL CURRENT LIABILITIES 1,341,277 1,172,010
----------- -----------
Long-Term Debt, Less Current Maturities 2,714,826 2,317,789
Capital Lease Obligations 100,128 97,863
Deferred Income Taxes 232,933 221,855
Noncurrent Liabilities 135,263 118,779
STOCKHOLDERS' EQUITY
Common Stock, Par Value $1 Per Share; Issued 129,509,169
and 129,342,043 129,509 129,342
Additional Paid-In Capital 1,369,397 1,365,771
Retained Earnings 1,179,860 1,100,185
Cumulative Pension Liability Adjustments (1,867) (1,867)
Treasury Stock, at Cost (6,532,169 Shares) (104,746) (104,746)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 2,572,153 2,488,685
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,096,580 $ 6,416,981
=========== ===========
</TABLE>
See accompanying independent auditors' review report and notes to condensed
consolidated financial statements.
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RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED AUGUST 30, 1997
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Item 1. Financial Statements: (Continued)
RITE AID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Thirteen Weeks
Ended Ended
August 30, 1997 August 31, 1996
--------------- ---------------
<S> <C> <C>
SALES $2,634,200 $1,423,076
---------- ----------
COSTS AND EXPENSES:
Costs of Goods Sold Including Occupancy Costs 1,922,789 1,050,635
Selling, General and Administrative Expenses 568,167 296,060
Interest Expense 41,713 19,412
------ ------
2,532,669 1,366,107
--------- ---------
INCOME BEFORE INCOME TAXES 101,531 56,969
Income Taxes 40,918 21,760
------ ------
NET INCOME $60,613 $35,209
======= =======
EARNINGS PER SHARE $.49 $.42
==== ====
CASH DIVIDENDS PER COMMON SHARE $.20 $.185
==== =====
AVERAGE SHARES OUTSTANDING 122,948,000 83,890,000
=========== ==========
</TABLE>
See accompanying independent auditors' review report and notes to condensed
consolidated financial statements.
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RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED AUGUST 30, 1997
- -------------------------------------------------------------------------------
Item 1. Financial Statements: (Continued)
RITE AID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended Twenty-Six Weeks Ended
August 30, 1997 August 31, 1996
---------------------- ----------------------
<S> <C> <C>
SALES $5,298,800 $2,828,378
---------- ----------
COSTS AND EXPENSES:
Costs of Goods Sold Including Occupancy Costs 3,848,340 2,084,762
Selling, General and Administrative Expenses 1,156,073 580,451
Interest Expense 78,550 37,199
Nonrecurring Costs - 16,057
--------- ------
5,082,963 2,718,469
--------- ---------
INCOME BEFORE INCOME TAXES 215,837 109,909
Income Taxes 86,983 41,984
------ ------
NET INCOME $128,854 $67,925
======== =======
EARNINGS PER SHARE $1.05 $.81
===== ====
CASH DIVIDENDS PER COMMON SHARE $.40 $.37
==== ====
AVERAGE SHARES OUTSTANDING 122,891,000 83,878,000
=========== ==========
</TABLE>
See accompanying independent auditors' review report and notes to condensed
consolidated financial statements.
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RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED AUGUST 30, 1997
- -------------------------------------------------------------------------------
Item 1. Financial Statements: (Continued)
RITE AID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
26 Weeks Ended 26 Weeks Ended
August 30, 1997 August 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES $215,837 $109,909
Adjustments to Reconcile Net Cash Provided by Operations:
Depreciation and Amortization 128,083 70,397
Accreted Interest on Long-Term Debt 10,664 6,588
Changes in Operating Assets and Liabilities, Net of Effects from Acquisitions:
(Increase) Decrease in Accounts Receivable 35,589 (4,335)
(Increase) in Inventories (125,425) (39,103)
Increase (Decrease) in Accounts Payable 35,596 (18,477)
Other (68,030) 4,284
- ---------------------------------------------------------------------------------------------------------------------------------
232,314 129,263
Income Taxes (Paid) (17,202) (16,391)
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 215,112 112,872
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of Property, Plant and Equipment (244,527) (216,309)
Purchases of Businesses, Net of Cash Acquired (330,425) (25,771)
Intangible Assets Acquired (26,811) (33,298)
Proceeds from Dispositions 67,083 -
Other 7,192 (8,794)
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH (USED IN) INVESTING ACTIVITIES (527,488) (284,172)
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net Proceeds of Commercial Paper and Other Long-Term Borrowings 358,641 207,502
Cash Dividends Paid (49,179) (31,058)
Proceeds From Sale of Stock 3,312 1,132
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 312,774 177,576
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE IN CASH 398 6,276
CASH AT BEGINNING OF PERIOD 7,042 3,131
- ---------------------------------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $7,440 $9,407
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying independent auditors' review report and notes to condensed
consolidated financial statements.
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RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED AUGUST 30, 1997
- -------------------------------------------------------------------------------
Item 1. Financial Statements: (Continued)
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1- BASIS OF PRESENTATION
The financial information included herein is unaudited. In addition, the
financial information does not include all disclosures required under generally
accepted accounting principles because certain note information included in the
Company's annual report has not been included in this report; however, such
information reflects all adjustments (consisting primarily of normal recurring
adjustments) which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods. The report of KPMG Peat
Marwick LLP, independent auditors, commenting upon their review accompanies the
condensed consolidated financial statements included in Item 1 of Part I.
The results of operations for the thirteen and twenty-six weeks ended August 30,
1997 and August 31, 1996 are not necessarily indicative of the results to be
expected for the full year.
NOTE 2- EARNINGS PER SHARE
Earnings per share were computed by dividing net income by the weighted average
number of common stock shares outstanding during the periods.
NOTE 3- RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share" (SFAS No. 128). SFAS No. 128 establishes new standards
for computing and presenting earnings per share (EPS) for entities with
publicly-held common stock. The Company is required to adopt SFAS No. 128 for
the year ending February 28, 1998. If the provisions of SFAS No. 128 had been
used to calculate EPS for the 13-week and 26-week periods ended August 30, 1997
and August 31, 1996, pro forma EPS would have been:
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended
August 30, 1997 August 31, 1996
--------------- ---------------
<S> <C> <C>
Basic Earnings Per Share $.49 $.42
====
Diluted Earnings Per Share $.48 $.41
==== ====
</TABLE>
<TABLE>
<CAPTION>
26 Weeks Ended 26 Weeks Ended
August 30, 1997 August 31, 1996
--------------- ---------------
<S> <C> <C>
Basic Earnings Per Share $1.05 $.81
=====
Diluted Earnings Per Share $1.02 $.80
===== ====
</TABLE>
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RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED AUGUST 30, 1997
- -------------------------------------------------------------------------------
Item 1. Financial Statements: (Continued)
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3- RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
In June 1997, the Financial Accounting Standards Board issued two new
pronouncements for which provisions are effective for fiscal year ending
February 27, 1999; SFAS No. 130 "Reporting Comprehensive Income" and SFAS No.
131 "Disclosures About Segments of an Enterprise and Related Information." SFAS
No. 130 establishes standards for reporting and display of comprehensive income
and is not expected to significantly impact the company. SFAS No. 131, which
requires an enterprise to report financial and descriptive information about its
reportable segments, is being evaluated by the company.
NOTE 4-ACQUISITIONS
On August 27, 1997, the company completed its acquisitions of Harco, Inc. and
K&B, Incorporated. K&B, Incorporated, based in New Orleans, LA, operates 186
stores in Louisiana, Alabama, Mississippi, Texas, Tennessee and Florida. It was
the 13th largest drugstore chain in the U.S. with sales of $580,000,000 for
fiscal year 1996. Harco, Inc. is headquartered in Tuscaloosa, AL, and operates
146 stores in Alabama, Mississippi and Florida. It was the 17th largest
drugstore chain in the U.S. with sales of $258,000,000 in fiscal year 1996. The
combined purchase price of these companies was approximately $340,000,000 and
was financed through commercial paper borrowings. The value of goodwill assigned
to acquisitions was approximately $300,000,000 using the purchase method of
accounting for business combinations. The balance sheets for Harco, Inc. and
K&B, Incorporated are included in the consolidated balance sheet of the company
as of August 30, 1997.
NOTE 5-LONG-TERM DEBT
In September 1997, the company completed the sale of $650,000,000, 5.25%
Convertible Subordinated Notes due September 15, 2002. The notes are convertible
into shares of Rite Aid Corporation common stock at any time on or after the
90th day following the last issuance of notes and prior to the close of business
on the maturity date, unless previously redeemed or repurchased, at a conversion
price of $72.275 per share (equivalent to a conversion rate of 13.836 shares per
$1,000 principal amount of notes), subject to adjustment in certain events.
Interest on the notes is payable semiannually on March 15 and September 15 of
each year, commencing on March 15, 1998. The notes may be redeemed at the option
of the company on or after September 15, 2000, in whole or in part. The proceeds
from the sale of the notes were used to refinance and repay commercial paper
previously issued by the company.
On August 29, 1997, the company announced that it intended to commence
redemption of outstanding 6.75% Zero Coupon Convertible Subordinated Notes.
Because the current market price of the common stock to be received upon
conversion exceeds the redemption price of the 6.75% notes, the company
anticipates that noteholders will convert their 6.75% Zero Coupon Convertible
Subordinated Notes to common stock prior to the redemption date. The company had
366,651 outstanding 6.75% Zero Coupon Convertible Subordinated Notes as of
August 30, 1997, with a book value of approximately $554 per note. Noteholders
converted 82,073 of the 6.75% Zero Coupon Convertible Subordinated Notes to
1,312,583 shares of common stock during the 4-week period ended September 27,
1997.
NOTE 6-SUBSEQUENT EVENT
On October 9, 1997 the company announced that the Board of Directors had
declared a quarterly dividend of $.20 per share payable October 27, 1997 to
stockholders of record on October 20, 1997.
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<PAGE> 9
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RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED AUGUST 30, 1997
- -------------------------------------------------------------------------------
Item 1. Financial Statements: (Continued)
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors
Rite Aid Corporation
Camp Hill, Pennsylvania
We have reviewed the condensed consolidated balance sheet of Rite Aid
Corporation and subsidiaries as of August 30, 1997, and the related condensed
consolidated statements of income for the twenty-six and thirteen week periods
ended August 30, 1997 and August 31, 1996, and the condensed consolidated
statements of cash flows for the twenty-six week periods ended August 30, 1997
and August 31, 1996. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Rite Aid Corporation and
subsidiaries as of March 1, 1997, and the related consolidated statements of
income, stockholders' equity and cash flows for the year then ended (not
presented herein); and in our report dated April 24, 1997, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of March 1, 1997, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
KPMG PEAT MARWICK LLP
Harrisburg, Pennsylvania
October 3, 1997
-8-
<PAGE> 10
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED AUGUST 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations:
Sales for the thirteen-week and twenty-six week periods ended August 30, 1997
were $2,634,200,000 and $5,298,800,000, respectively, representing increases of
85.1% and 87.3% over the same periods from the previous year. Same-store sales
for the Rite Aid stores increased 9.7% for the quarter, reflecting a 14.3%
increase in pharmacy comparable sales and a 4.0% increase in front-end same-unit
sales. Thrifty PayLess same-store sales increased 4.9% for the 13 weeks ended
August 30, 1997, consisting of a 12.6% increase in comparable pharmacy sales and
a 0.8% increase in front-end sales. Year-to-date, same-store sales increased
9.6% compared to 6.9% for the comparable, 26-week period last year, and Thrifty
PayLess same-store sales increased 5.0%.
Prescription sales accounted for 50.3% of drugstore sales for the quarter, and
third party prescription sales represent 83.3% of pharmacy sales. Last year,
prescription sales were 56.1% of drugstore sales, and third party prescription
sales represented 79.0% of pharmacy sales. Prescription sales for the first 26
weeks of fiscal 1998 were 50.2% of drugstore sales compared to 56.4% for the
same period last year. Year-to-date third party sales as a percent of pharmacy
sales were 82.4% versus 79.0% last year.
During the second quarter, the company added 39 drugstores, closed 28 smaller
outlets, enlarged 4 locations and relocated 48 units. Rite Aid also acquired 332
stores with the Harco and K&B acquisitions. Year-to-date totals include 67 new
stores, 57 closings, 10 expansions and 77 relocations. At the end of the second
quarter, Rite Aid operated 3,965 drugstores.
Cost of goods sold including occupancy costs, as a percentage of sales, were
72.9% for the quarter and 72.7% for the year-to-date period compared to 73.8%
and 73.7% for the respective periods a year earlier. The company uses the LIFO
inventory method that requires interim estimates of annual inflation rates.
Accordingly, costs of goods sold included a LIFO provision of $5,300,000 for the
quarter and $12,300,000 for the twenty-six weeks ended August 30, 1997, compared
to $4,700,000 and $10,600,000, respectively for the same periods last year. The
LIFO method of valuing inventory had the effect of reducing net income $.03 per
share for the 13-week period and $.06 per share for the 26-week period ended
August 30, 1997. For the comparable periods last year, the LIFO adjustments were
$.04 for the quarter and $.08 for the 26 weeks. Decreasing margins on third
party reimbursed prescription sales continued to adversely impact pharmacy gross
margins, but were more than offset by front-end gross margin improvements when
compared to the prior year. Front-end margins improved as a result of changes in
the merchandise mix and increases in retail prices. Gross margins also benefited
from a higher percentage of front-end sales to total sales of 49.8% for the
twenty-six weeks ended August 30, 1997 compared to 43.6% in the prior year. The
improvement in front-end sales to total sales was achieved through Thrifty
PayLess stores and new stores, both of which emphasize a greater front-end
merchandise mix.
Selling, general and administrative costs of $568,167,000 for the quarter and
$1,156,073,000 year-to-date were 21.6% and 21.8% of sales, respectively. This
compares to 20.8% and 21.1% for the same periods last year. Thrifty PayLess
stores operate with a greater cost structure than Rite Aid stores and are the
main reason for the period-to-period increase in the operating expense to sales
ratio. In addition, integration activities and duplicative back-office functions
associated with acquisitions contributed to the increase in the operating
expense to sales ratio. Nonrecurring costs of $16,057,000, or .6%, were included
in the twenty-six weeks ended August 31, 1996 associated with the attempted
acquisition of Revco D. S., Inc.
Interest expense was $41,713,000 for the thirteen-week period and $78,550,000
for the twenty-six week period this year compared to $19,412,000 and $37,199,000
for the respective periods last year. The increase in interest expense resulted
from additional borrowings associated with the acquisition of Thrifty PayLess;
capital expenditures and incremental working capital requirements for the new,
larger prototype stores; and purchases of independent drugstores. Also
contributing to the increased expense were slightly higher weighted average
interest rates on the company's commercial paper of approximately 5.7% for the
quarter and year-to-date periods ended August 30, 1997, compared to 5.5% for the
same periods last year.
Income taxes were $40,918,000 for the thirteen-week period and $86,983,000 for
the twenty-six week period ended August 30, 1997 compared to $21,760,000 for the
quarter and $41,984,000 for the
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<PAGE> 11
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED AUGUST 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations: (Continued)
twenty-six week period ended August 31, 1996. The effective income tax rate
increased to 40.3% for the quarter and twenty-six week periods ended August 30,
1997, reflecting the increase of nondeductible intangible amortization expenses
over last year. Depreciation and amortization was $64,003,000 for the quarter
and $128,083,000 for the twenty-six week period ended August 30, 1997 compared
to $35,597,000 and $70,397,000 in the comparable periods last year.
Net income for the thirteen weeks rose 72.2% to $60,613,000 compared to
$35,209,000 in fiscal 1997. Earnings per share increased 16.7% to $.49 from $.42
for the prior year's second quarter. Year-to-date, net income increased 89.7% to
$128,854,000 compared to $67,925,000 or $1.05 per share compared to $.81 per
share. Net income last year included a charge of $9,923,000, or $.12 per share,
for costs associated with the attempted acquisition of Revco D.S., Inc.
On August 27, 1997, the company completed its acquisitions of Harco, Inc. and
K&B, Incorporated for approximately $340,000,000. The value of goodwill assigned
to acquisitions was approximately $300,000,000 using the purchase method of
accounting for business combinations. The balance sheets of Harco and K&B are
included in the consolidated financial statements as of August 30, 1997.
Working capital was $1,654,770,000 at August 30, 1997 compared to $1,056,344,000
at August 31, 1996 and the current ratios were 2.2:1 and 3.3:1, respectively.
Cash from operations is used to fund working capital requirements, fund dividend
distributions to shareholders and contribute to investing activities including
store expansion and acquisitions. The company maintains $1,250,000,000 in
revolving credit commitments to provide additional borrowing capacity and
support its commercial paper program.
In September 1997, the company sold $650,000,000, 5.25% Convertible Subordinated
Notes due September 15, 2002. Each $1,000 principal amount of notes will be
convertible into 13.836 shares ($72.275 per share conversion price) of Rite Aid
Corporation common stock pursuant to the terms of the notes. Interest on the
notes is payable semiannually beginning on March 15, 1998. The notes may be
redeemed at the option of the company on or after September 15, 2000, in whole
or in part. The proceeds from the notes were used to refinance and repay
commercial paper previously issued by the company.
On August 29, 1997, the company announced its plan to commence redemption of
outstanding 6.75% Zero Coupon Convertible Subordinated Notes ("6.75% notes").
Because the current market price of the common stock to be received upon
conversion exceeds the redemption price of the 6.75% notes, the company expects
noteholders to convert their 6.75% notes to common stock prior to the redemption
date. The company had 366,651 outstanding 6.75% notes as of August 30, 1997,
with a book value of approximately $554 per note. Noteholders converted 82,073
of the 6.75% notes to 1,312,583 shares of common stock during the 4-week period
ended September 27, 1997.
Certain statements contained herein and elsewhere in this Form 10-Q which are
not historical facts are forward-looking statements made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements address activities or events which the company
expects will or may occur in the future, such as increases in same-store sales,
increases in third-party prescription volumes, increases in the ratio of
front-end sales to total sales, increases in gross profits, decreases in the
operating expense to total sales ratio, future acquisitions, future capital
expenditures, store openings, closings, remodels, renovations, expansions and
relocations, additional distribution facilities, conversions and redemptions of
6.75% Zero Coupon Convertible Subordinated Notes and other aspects of the
company's future business and operations. The company cautions that a number of
important factors could cause actual results to differ materially from those
expressed in any forward-looking statements, whether written or oral, made by or
on behalf of the company. Such factors include, but are not limited to,
competitive pricing pressures, third party prescription reimbursement levels,
consumer preferences, regulatory changes governing pharmacy practices, general
economic conditions, inflation, merchandise supply constraints, interest rate
movements, availability of real estate, construction and start-up of drugstore
and distribution center facilities, and the effects of commercialization and
technological difficulties. Consequently, all of the forward-looking statements
made are qualified by these and other factors, risks and uncertainties.
-10-
<PAGE> 12
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RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED AUGUST 30, 1997
- -------------------------------------------------------------------------------
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
Item 11. Statement re computations of per share earnings
Item 12. Statement re computations of ratios of earnings to fixed
charges
Item 15. Copy of letter from independent accountants regarding
unaudited interim financial information
Item 27. Financial Data Schedule (EDGAR Filing Only)
(b) Reports on Form 8-K
None.
-11-
<PAGE> 13
- -------------------------------------------------------------------------------
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED AUGUST 30, 1997
- -------------------------------------------------------------------------------
SIGNATURES
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 thereunto duly authorized.
RITE AID CORPORATION
(Registrant)
Date: October 9, 1997 /s/ Frank Bergonzi
- ----------------------- ----------------------------------------
Frank Bergonzi
Executive Vice President,
Chief Financial Officer
-12-
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
ITEM 11 STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS.
ITEM 12 STATEMENTS RE COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
ITEM 15 COPY OF LETTER FROM INDEPENDENT ACCOUNTANTS' REGARDING
UNAUDITED INTERIM FINANCIAL INFORMATION
ITEM 27 FINANCIAL DATA SCHEDULE (EDGAR FILING ONLY).
</TABLE>
-13-
<PAGE> 1
EXHIBIT 11
RITE AID CORPORATION AND SUBSIDIARIES
STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS
THIRTEEN WEEKS ENDED AUGUST 30, 1997 AND AUGUST 31, 1996
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
August 30, 1997 August 31, 1996
--------------- ---------------
<S> <C> <C>
EARNINGS PER COMMON SHARE - ASSUMING NO DILUTION
Net income $60,613 $35,209
======= =======
Weighted average number of common shares outstanding 122,948 83,890
======= ======
Earnings per common share - assuming no dilution $.49 $.42
==== ====
EARNINGS PER COMMON SHARE - ASSUMING FULL DILUTION (b)
Earnings
Net income $60,613 $35,209
Add after tax interest expense applicable to 6.75% 2,077 2,073
convertible debentures (a) ----- -----
Net income, as adjusted (b) $62,690 $37,282
======= =======
Common Shares
Weighted average number of common shares outstanding 122,948 83,890
Assuming conversion of 6.75% convertible debentures 5,864 5,953
Assuming exercise of options reduced by the number of
shares which could have been purchased with the proceeds
from exercise of such options 2,273 714
----- ---
Weighted average number of common shares outstanding, as 131,085 90,557
adjusted (b) ======= ======
Earnings per common share assuming full dilution (b) $.48 $.41
==== ====
</TABLE>
(a) Shown net of income taxes which were calculated at the Company's
effective tax rate.
(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> 2
EXHIBIT 11
RITE AID CORPORATION AND SUBSIDIARIES
STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS
TWENTY-SIX WEEKS ENDED AUGUST 30, 1997 AND AUGUST 31, 1996
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
August 30, 1997 August 31, 1996
--------------- ---------------
<S> <C> <C>
EARNINGS PER COMMON SHARE - ASSUMING NO DILUTION
Net income $128,854 $67,925
======== =======
Weighted average number of common shares outstanding 122,891 83,878
======= ======
Earnings per common share - assuming no dilution $1.05 $.81
===== ====
EARNINGS PER COMMON SHARE - ASSUMING FULL DILUTION (b)
Earnings
Net income $128,854 $67,925
Add after tax interest expense applicable to 6.75% 4,481 4,071
convertible debentures (a) ----- -----
Net income, as adjusted (b) $133,335 $71,996
======== =======
Common Shares
Weighted average number of common shares outstanding 122,891 83,878
Assuming conversion of 6.75% convertible debentures 5,864 5,953
Assuming exercise of options reduced by the number of
shares which could have been purchased with the proceeds
from exercise of such options 2,273 714
----- ---
Weighted average number of common shares outstanding, as 131,028 90,545
adjusted (b) ======= ======
Earnings per common share assuming full dilution (b) $1.02 $.80
===== ====
</TABLE>
(a) Shown net of income taxes which were calculated at the Company's
effective tax rate.
(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
EXHIBIT 12
RITE AID CORPORATION AND SUBSIDIARIES
STATEMENTS RE COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
TWENTY-SIX WEEKS ENDED AUGUST 30, 1997 AND
YEARS ENDED MARCH 1, 1997, MARCH 2, 1996,
MARCH 4, 1995, FEBRUARY 26, 1994 AND
FEBRUARY 27, 1993
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Twenty-Six Year Year Year Year Year
Weeks Ended Ended Ended Ended Ended Ended
August 30, March 1, March 2, March 4, February 26, February 27,
1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges
Interest Expense $78,550 $96,473 $68,341 $42,300 $28,683 $29,387
Interest Portion(1)
of Net Rental Expense 51,953 66,067 52,080 40,424 40,427 37,659
------ ------ ------ ------ ------ ------
Fixed Charges Before
Capitalized Interest 130,503 162,540 120,421 82,724 69,110 67,046
Capitalized Interest 1,676 1,897 1,948 373 217 445
----- ----- ----- --- --- ---
Total Fixed Charges $132,179 $164,437 $122,369 $83,097 $69,327 $67,491
======== ======== ======== ======= ======= =======
Earnings
Income Before Extra-
ordinary Loss and
Income Taxes $215,837 $258,927 (3) $256,202 $231,464 $45,670 (2) $200,569
Fixed Charges
Before Capitalized
Interest 130,503 162,540 120,421 82,724 69,110 67,046
------- ------- ------- ------ ------ ------
Total Adjusted
Earnings $346,340 $421,467 $376,623 $314,188 $114,780 $267,615
======== ======== ======== ======== ======== ========
Ratio of Earnings
to Fixed Charges 2.62 2.56 3.08 3.78 1.66 3.97
==== ==== ==== ==== ==== ====
</TABLE>
(1) The interest portion of the net rental expense is estimated to be equal
to one-third of the minimum rental expense for the period.
(2) Income before extraordinary loss and income taxes for fiscal year 1994
includes a $149,196,000 one-time, pre-tax provision for corporate
restructuring and other charges.
(3) Income before extraordinary loss and income taxes for fiscal year 1997
includes a $68,057,000 one-time, pre-tax charge for nonrecurring and
other charges.
<PAGE> 1
EXHIBIT 15
RITE AID CORPORATION AND SUBSIDIARIES
COPY OF LETTER FROM INDEPENDENT ACCOUNTANTS'
REGARDING UNAUDITED INTERIM FINANCIAL INFORMATION
Rite Aid Corporation
Camp Hill, Pennsylvania
Ladies and Gentlemen:
Re: Registration Statements No. 333-08071; No. 333-21207
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated October 3, 1997 related to our
review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the
meaning of Sections 7 and 11 of the Act.
Very truly yours,
/s/ KPMG PEAT MARWICK LLP
Harrisburg, PA
October 3, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
RITE AID CORPORATION AND SUBSIDIARIES
FINANCIAL DATA SCHEDULE (EDGAR Filing Only)
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> AUG-30-1997
<CASH> 7,440
<SECURITIES> 0
<RECEIVABLES> 366,242
<ALLOWANCES> 11,623
<INVENTORY> 2,562,076
<CURRENT-ASSETS> 2,996,047
<PP&E> 2,931,178
<DEPRECIATION> 885,208
<TOTAL-ASSETS> 7,096,580
<CURRENT-LIABILITIES> 1,341,277
<BONDS> 2,714,826
0
0
<COMMON> 129,509
<OTHER-SE> 2,442,644
<TOTAL-LIABILITY-AND-EQUITY> 7,096,580
<SALES> 5,298,800
<TOTAL-REVENUES> 5,298,800
<CGS> 3,848,340
<TOTAL-COSTS> 3,848,340
<OTHER-EXPENSES> 1,156,073
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,550
<INCOME-PRETAX> 215,837
<INCOME-TAX> 86,983
<INCOME-CONTINUING> 128,854
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 128,854
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.02
</TABLE>
