<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 29, 1998
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 258,477,918 shares of its $1.00 par value Common Stock
outstanding as of September 26, 1998.
<PAGE> 2
RITE AID CORPORATION
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets August 29, 1998 and February 28, 2
1998
Condensed Consolidated Statements of Income
Thirteen Weeks Ended August 29, 1998 and August 30, 1997 3
Condensed Consolidated Statements of Income
Twenty-Six Weeks Ended August 29, 1998 and August 30, 1997 4
Condensed Consolidated Statements of Cash Flows
Twenty-Six Weeks Ended August 29, 1998 and August 30, 1997 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
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 10
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
</TABLE>
-1-
<PAGE> 3
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED AUGUST 29, 1998
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
RITE AID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
August 29, 1998 February 28, 1998
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 155,626 $ 90,968
Accounts and notes receivable 184,485 165,429
Inventories 2,998,059 3,061,211
Prepaid expenses and other current assets 79,239 60,700
----------- -----------
TOTAL CURRENT ASSETS 3,417,409 3,378,308
----------- -----------
Property, plant and equipment, at cost 3,331,046 3,061,160
Accumulated depreciation 924,652 890,011
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET 2,406,394 2,171,149
----------- -----------
Intangible assets 1,966,570 1,967,306
----------- -----------
Other assets 146,631 138,583
----------- -----------
TOTAL ASSETS $ 7,937,004 $ 7,655,346
=========== ===========
CURRENT LIABILITIES
Short-term debt and current maturities of long-term debt $ 46,365 $ 47,516
Accounts payable 908,244 1,183,892
Other current liabilities 699,533 539,523
----------- -----------
TOTAL CURRENT LIABILITIES 1,654,142 1,770,931
----------- -----------
Long-term debt and capital lease obligations, less current maturities 3,029,179 2,551,418
Other noncurrent liabilities 391,333 416,533
STOCKHOLDERS' EQUITY
Preferred stock, par value $1 per share -- --
Common stock, par value $1 per share 258,466 258,215
Additional paid-in capital 1,348,376 1,345,131
Retained earnings 1,256,295 1,313,905
Accumulated other comprehensive income (787) (787)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 2,862,350 2,916,464
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,937,004 $ 7,655,346
=========== ===========
</TABLE>
See accompanying independent auditors' review report and notes to condensed
consolidated financial statements.
-2-
<PAGE> 4
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED AUGUST 29, 1998
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 Thirteen
Weeks Ended Weeks Ended
August 29, 1998 August 30, 1997
------------- -------------
<S> <C> <C>
Sales $ 3,011,029 $ 2,634,200
Costs and expenses:
Costs of goods sold including occupancy costs 2,226,235 1,922,789
Selling, general and administrative expenses 896,638 568,167
Interest expense 42,575 41,713
------------- -------------
3,165,448 2,532,669
------------- -------------
Income\(loss) before income taxes (154,419) 101,531
Income taxes (61,766) 40,918
------------- -------------
Net income\(loss) $ (92,653) $ 60,613
============= =============
Basic earnings\(loss) per share $ (.36) $ .25
============= =============
Diluted earnings\(loss) per share $ (.36) $ .24
============= =============
Cash dividends paid per common share $ .1075 $ .10
============= =============
Basic weighted average shares 258,409,000 245,896,000
============= =============
Diluted weighted average shares 258,409,000 262,959,000
============= =============
</TABLE>
See accompanying independent auditors' review report and notes to condensed
consolidated financial statements.
-3-
<PAGE> 5
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED AUGUST 29, 1998
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 Twenty-Six
Weeks Ended Weeks Ended
August 29, 1998 August 30, 1997
------------- -------------
<S> <C> <C>
Sales $ 6,043,710 $ 5,298,800
Costs and expenses:
Costs of goods sold including occupancy costs 4,428,439 3,848,340
Selling, general and administrative expenses 1,535,069 1,156,073
Interest expense 83,228 78,550
------------- -------------
6,046,736 5,082,963
------------- -------------
Income\(loss) before income taxes (3,026) 215,837
Income taxes (1,210) 86,983
------------- -------------
Net income\(loss) $ (1,816) $ 128,854
============= =============
Basic earnings\(loss) per share $ (.01) $ .52
============= =============
Diluted earnings\(loss) per share $ (.01) $ .51
============= =============
Cash dividends paid per common share $ .215 $ .20
============= =============
Basic weighted average shares 258,340,000 245,782,000
============= =============
Diluted weighted average shares 258,340,000 262,470,000
============= =============
</TABLE>
See accompanying independent auditors' review report and notes to condensed
consolidated financial statements.
-4-
<PAGE> 6
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED AUGUST 29, 1998
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 29, 1998 August 30, 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Income\(loss) before income taxes $ (3,026) $ 215,837
Depreciation and amortization 144,578 128,083
Nonrecurring and other costs 289,678 --
Changes in operating assets and liabilities (401,911) (128,808)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 29,319 215,112
--------- ---------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (332,814) (244,527)
Purchases of businesses, net of cash acquired -- (330,425)
Other investing activities (52,033) 47,464
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (384,847) (527,488)
--------- ---------
FINANCING ACTIVITIES
Net proceeds of commercial paper borrowings 496,960 381,500
Other financing activities (76,774) (68,726)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 420,186 312,774
--------- ---------
INCREASE IN CASH 64,658 398
CASH AT BEGINNING OF PERIOD 90,968 7,042
--------- ---------
CASH AT END OF PERIOD $ 155,626 $ 7,440
========= =========
</TABLE>
See accompanying independent auditors' review report and notes to condensed
consolidated financial statements.
-5-
<PAGE> 7
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED AUGUST 29, 1998
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
registrant'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 week periods ended
August 29, 1998 and August 30, 1997, are not necessarily indicative of the
results to be expected for the full year.
NOTE 2 -- EARNINGS PER SHARE
The registrant determines earnings per share in accordance with the
provisions of Statements of Financial Accounting Standards (SFAS) No. 128
"Earnings per Share". SFAS No. 128 requires dual presentation of basic and
diluted earnings per share on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic earnings per share computation to the numerator and
denominator of the diluted earnings per share computation. Basic earnings per
share excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. SFAS No. 128 requires restatement of
all prior-period earnings per share data presented.
Following is a reconciliation of the numerator and denominator of the basic
earnings per share computation to the numerator and denominator of the diluted
earnings per share computation:
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended 26 Weeks Ended 26 Weeks Ended
Amounts in thousands August 29, 1998 August 30, 1997 August 29, 1998 August 30, 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income\(loss) $ (92,653) $ 60,613 $ (1,816) $ 128,854
Interest expense-assuming dilution -- 2,077 -- 4,481
--------- --------- --------- ---------
Net income\(loss)-assuming dilution $ (92,653) $ 62,690 $ (1,816) $ 133,335
========= ========= ========= =========
Basic weighted average shares 258,409 245,896 258,340 245,782
Employee stock options-assuming dilution -- 5,335 -- 4,960
Convertible debt-assuming dilution -- 11,728 -- 11,728
--------- --------- --------- ---------
Diluted weighted average shares 258,409 262,959 258,340 262,470
========= ========= ========= =========
</TABLE>
For the thirteen and twenty-six week periods ended August 29, 1998, the assumed
conversion of potential dilutive shares would have increased diluted earnings
per share due to the net loss from continuing operations and, therefore were not
considered. All share and per share data for the quarter ended August 30, 1997,
have been restated to reflect a two-for-one stock split distributed to
shareholders on February 2, 1998.
-6-
<PAGE> 8
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED AUGUST 29, 1998
ITEM 1. FINANCIAL STATEMENTS: (CONTINUED)
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 -- RECENT ACCOUNTING PRONOUNCEMENT
The registrant adopted SFAS No. 130 "Reporting Comprehensive Income"
during the quarter ended May 30, 1998. SFAS No. 130 establishes standards for
reporting and display of comprehensive income. Comprehensive loss was $1.8
million and comprehensive income was $128.9 million for the twenty-six weeks
ended August 29, 1998 and August 30, 1997, respectively.
NOTE 4 -- STORE CLOSING AND OTHER COSTS
During the quarter ended August 29, 1998, the registrant recorded pre-tax
charges of $289.7 million ($173.8 million after taxes) for the closing of 379
stores, to be completed by February 27, 1999, and other charges. These charges
principally relate to a strategic exit plan that includes vacating certain
markets, closing bantam East Coast stores and consolidating certain other store
locations. As of August 29, 1998, 155 stores were closed. Costs associated
with the disposal of the inventory in the closed stores only, including the use
of liquidators, amounted to $25.5 million and is included with cost of goods
sold in the statement of income.
The remaining pre-tax charges of $264.2 million are included with
selling, general and administrative expenses in the statement of income and
consist of: (i) $144.8 million for the present value of noncancellable lease
payments and related contractual obligations; (ii) $94.2 million for impairment
losses associated with land, buildings, fixtures, leasehold improvements,
prescription files, lease acquisition costs and goodwill; and (iii) $25.2
million for other costs including expenses associated with previously closed
stores. For the twenty-six week periods ended August 29, 1998 and August 30,
1997, revenues generated by the 379 stores were $247.7 million and $327.9
million, respectively, with an operating loss of $2.7 million for the current
period compared to operating income of $.5 million last year.
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
The registrant is the defendant in claims and lawsuits arising in the
ordinary course of business. In the opinion of management, these matters are
covered adequately by insurance, or if not so covered, are without merit or are
of such nature or involve such amounts as would not have a material effect on
the financial statements of the registrant if decided adversely. Additionally,
the registrant had outstanding letters of credit as of August 29, 1998 and
August 30, 1997.
NOTE 6 -- SUBSEQUENT EVENTS
On September 22, 1998, the registrant issued $200 million of remarketable
securities due October 1, 2013. The remarketable securities will bear interest
at a rate of 6% from September 22, 1998 until October 1, 2003 (the remarketing
date). Interest is payable semi-annually on April 1 and October 1 of each year
commencing April 1, 1999. The remarketable securities are subject to mandatory
tender on the remarketing date.
On October 7, 1998 the registrant announced that the Board of Directors had
declared a quarterly dividend of $.1075 per share payable October, 26, 1998 to
stockholders of record on October 19, 1998.
-7-
<PAGE> 9
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED AUGUST 29, 1998
ITEM 1. FINANCIAL STATEMENTS: (CONTINUED)
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors and Shareholders
Rite Aid Corporation
We have reviewed the condensed consolidated balance sheet of Rite Aid
Corporation and subsidiaries as of August 29, 1998, and the related condensed
consolidated statements of income for the twenty-six and thirteen week periods
ended August 29, 1998 and August 30, 1997, and the condensed consolidated
statements of cash flows for the twenty-six week periods ended August 29, 1998
and August 30, 1997. These condensed consolidated 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 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 February 28, 1998, 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 14, 1998, 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 February 28, 1998, 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 12, 1998
-8-
<PAGE> 10
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED AUGUST 29, 1998
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 29,
1998 were $3,011.0 million and $6,043.7 million, respectively, representing
increases of 14.3% and 14.1% over the same periods from the previous year.
Same-store sales for the quarter ended August 29, 1998, increased 7.8% over the
prior-year quarter reflecting a 14.7% increase in pharmacy comparable sales and
a 0.7% increase in front end same-unit sales. Same-store sales for the 26 weeks
ended August 29, 1998, rose 7.0%, consisting of a 14.0% pharmacy same-store
sales increase, and a 0.2% decline in front end same-unit sales. Prescription
sales accounted for 53.4% of drugstore sales for the quarter, and third party
prescription sales represent 85.0% of pharmacy sales. Last year, prescription
sales were 50.3% of drugstore sales, and third party prescription sales
represented 83.3% of pharmacy sales. Prescription sales for the first 26 weeks
of fiscal 1999 were 53.5% of drugstore sales compared to 50.2% for the same
period last year. During the quarter the registrant opened 43 drugstores, closed
155 outlets and enlarged or relocated 68 units. Stores in operation at
the end of the quarter totaled 3,898. Pursuant to a strategic exit plan that
includes vacating certain markets, closing bantam East Coast stores and
consolidating certain other store sites, the registrant plans to close
approximately 224 more locations by fiscal year end February 27, 1999.
Cost of goods sold including occupancy costs, for the current periods, included
$25.5 million in costs resulting from the disposal of merchandise of the 155
stores that were closed during the quarter. Excluding these inventory
liquidation expenses, cost of goods sold as a percentage of sales were 73.1% for
the quarter and 72.9% for the year-to-date period compared to 72.9% and 72.7%
for the respective periods a year earlier. The registrant continues to
experience a mix shift between prescription and front-end sales and consequently
a slight decline in overall gross margins resulted for the thirteen and
twenty-six weeks ended August 29, 1998. Front-end sales to total sales declined
to 46.5% of total sales for the twenty-six weeks ended August 29, 1998 compared
to 49.8% in the prior year. In addition, pharmacy gross profit margins declined
slightly as a result of the increase in third party sales to total prescription
sales and prescription inflation. Year-to-date third party sales as a percent of
pharmacy sales were 84.8% versus 82.4% last year. 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 $5.9 million for
the quarter and $14.1 million for the twenty-six weeks ended August 29, 1998,
compared to $5.3 million and $12.3 million, respectively for the same periods
last year. The LIFO method of valuing inventory had the effect of reducing net
income $.01 per share for the 13-week period and $.03 per share for the 26-week
period ended August 29, 1998. For the comparable periods last year, the LIFO
adjustments were $.01 for the quarter and $.03 for the 26 weeks.
Selling, general and administrative expenses of $896.6 million for the quarter
and $1,535.1 million year-to-date include for both periods $264.2 million in
store closing costs and asset impairment losses related to the registrant's
strategic exit plan and other costs. Excluding these charges, operating expenses
were 21.0% of sales for the thirteen and twenty-six weeks ended August 29, 1998,
compared to 21.6% and 21.8% for the same periods last year. The favorable
decline in the current year operating expense ratio resulted from strong East
Coast same-store sales that creates expense leverage and operating efficiencies
achieved in West Coast stores. In addition, the prior year's operating expenses
included costs from integration activities and duplicative back-office functions
associated with acquisitions that contributed to an unfavorable increase in the
operating expense to sales ratio a year ago.
Interest expenses were $42.6 million for the thirteen-week period and $83.2
million for the twenty-six week period this year compared to $41.7 million and
$78.6 million for the respective periods last year. The increase in interest
expense resulted from additional borrowings for the registrant's store
development and acquisition programs coupled with greater inventory levels. The
weighted average interest rates on the company's commercial paper were
approximately 5.7% for the quarter and year-to-date periods ended August 29,
1998 and August 30, 1997, respectively.
Income tax benefits were $61.8 million for the thirteen-week period and $1.2
million for the twenty-six week period ended August 29, 1998 compared to income
tax expense of $40.9 million for the quarter and $87 million for the twenty-six
week period ended August 30, 1997. The effective income tax rate was 40.0% for
the quarter and twenty-six week periods ended August 29, 1998 compared to an
effective rate of 40.3% for the same periods a year earlier. Depreciation and
amortization expenses were $68.3 million for the quarter and $144.6 million for
the twenty-six week periods ended August 29, 1998 compared to $64 million and
$128.1 million for the comparable periods last year.
Net loss for the quarter was $92.7 million compared to net income of $60.6
million for the second quarter a year earlier. Year-to-date, net loss was $1.8
million versus net income of $128.9 million last year. The net loss amounts
reflect pre-tax charges totaling $289.7 million or $173.8 million on an after
tax basis, for store closings and asset impairments related to the registrant's
strategic exit plan and other costs.
-9-
<PAGE> 11
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED AUGUST 29, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: (CONTINUED)
Working capital was $1.8 billion at August 29, 1998, compared to $1.6 billion at
February 28, 1998, and the current ratios were 2.1:1 and 1.9:1, respectively.
Operating activities provided cash of $29.3 million for the twenty-six weeks
ended August 29, 1998 compared to $215.1 million for the same period last year.
Capital expenditures for property, plant and equipment were $332.8 million in
connection with the registrant's store construction, renovation and relocation
programs. Cash was also used for dividend payments of $55.8 million. Total debt
to total capitalization was 51.8% as of August 29, 1998, compared to 47.1% at
February 28, 1998. The registrant had $1 billion in revolving credit commitments
to provide additional borrowing capacity and support its commercial paper
program as of August 29, 1998.
On September 22, 1998, the registrant issued $200 million of remarketable
securities due October 1, 2013. The remarketable securities will bear interest
at a rate of 6% from September 22, 1998 until October 1, 2003 (the remarketing
date). Interest is payable semi-annually on April 1 and October 1 of each year
commencing April 1, 1999. The remarketable securities are subject to mandatory
tender on the remarketing date.
The registrant began in 1996, a comprehensive project to convert its information
and non-information systems to be Year 2000 (Y2K) date compliant. The Y2K issue
creates risk for the registrant from unforeseen problems in its own computer
systems and from that of the systems of other companies and governmental
agencies on which the company's operations rely. The registrant has developed a
Y2K remediation plan that includes consideration of the remediation efforts of
its key customers, vendors and suppliers to identify the nature and potential
impact of issues presented by the Y2K problem on operating activities. The
remediation process includes creating an inventory of systems subject to the Y2K
problem and assessing the scope of the problem as it relates to those systems;
remediating Y2K problems; testing the systems following remediation; and using
the systems for a period of time following remediation. Total estimated Y2K
remediation costs of $12 million will be funded through operating cash flows and
expensed in the period incurred. The impact on business operations from the
failure to comply with Y2K requirements by the registrant or by any of its
business partners could be material to the registrant's results of operations.
The registrant continues to assess the possible impact and risks of noncompliant
systems. Contingency plans in the event of noncompliance are under development.
Certain statements contained herein and elsewhere in this Form 10-Q 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 that the registrant expects will or may
occur in the future. The registrant 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
registrant. Such factors include, but are not limited to, competitive pricing
pressures, third party prescription reimbursement levels, continued
consolidation of the drugstore industry, consumer preferences, regulatory
changes governing pharmacy practices, general economic conditions, inflation,
merchandise supply constraints, interest rate movements, access to capital,
availability of real estate, construction and start-up of drugstore and
distribution center facilities, and the effects of technological difficulties
including remediation of Year 2000 compliance issues. Consequently, all of the
forward-looking statements made are qualified by these and other factors, risks
and uncertainties. Investors are also directed to consider other risks and
uncertainties discussed in documents filed by the registrant with the Securities
and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The registrants major market risk exposure is changing interest rates.
Exposure to market risk for changes in interest rates relates primarily to
long-term debt obligations. The registrant primarily enters into debt
obligations to support general corporate purposes including capital expenditures
and working capital needs. The registrant's policy is to manage interest rates
through the use of a combination of commercial paper and fixed rate long-term
debt obligations. The registrant has no negative cash flow exposure due to rate
changes for fixed rate long-term debt obligations. All long-term obligations are
nontrading. There have been no material changes to market risk disclosures as
reported in the registrant's Form 10-K for the fiscal year ended February 28,
1998.
-10-
<PAGE> 12
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED AUGUST 29, 1998
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits
The following are filed as exhibits to Part I of this Form 10-Q:
Exhibit 11. Statements re computations of per share earnings
Exhibit 12. Statements re computations of ratios of earnings to fixed
charges
Exhibit 15. Copy of letter from independent accountants' regarding
unaudited interim financial information
Exhibit 27. Financial Data Schedule for the quarter ended August 29,
1998 (EDGAR Filing Only)
Exhibit 27.1 Restated Financial Data Schedule for the quarter ended
August 30, 1997 (EDGAR Filing Only)
The following is filed as an exhibit to Part II of this Form 10-Q:
None
(b) Reports on Form 8-K
None.
-11-
<PAGE> 13
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED AUGUST 29, 1998
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 13, 1998 /s/ Frank Bergonzi
---------------------------------
Frank Bergonzi
Executive Vice President,
Chief Financial Officer
-12-
<PAGE> 14
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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 FOR THE QUARTER ENDED AUGUST 29, 1998
(EDGAR FILING ONLY).
ITEM 27.1 RESTATED FINANCIAL DATA SCHEDULE FOR THE QUARTER ENDED AUGUST 30,
1997 (EDGAR FILING ONLY).
-13-
<PAGE> 1
EXHIBIT 11
RITE AID CORPORATION AND SUBSIDIARIES
STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS
THIRTEEN WEEKS ENDED AUGUST 29, 1998 AND AUGUST 30, 1997 (In
Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
August 29, 1998 August 30, 1997
------------- -------------
<S> <C> <C>
Net income\(loss) $ (92,653) $ 60,613
------------- -------------
Basic weighted average shares 258,409,000 245,896,000
------------- -------------
Basic earnings\(loss) per share $ (.36) $ .25
------------- -------------
Numerator for diluted earnings per share:
Net income\(loss) $ (92,653) $ 60,613
------------- -------------
Effect of dilutive securities:
6.75% zero coupon convertible subordinated notes(a) -- 2,077
5.25% convertible subordinated notes(a)(b) -- --
------------- -------------
Net income\(loss) assuming dilution(b) $ (92,653) $ 62,690
============= =============
Denominator for diluted earnings per share:
Basic weighted average shares 258,409,000 245,896,000
Effect of dilutive securities:
Employee stock options(b) -- 5,335,000
6.75% zero coupon convertible subordinated notes -- 11,728,000
5.25% convertible subordinated notes(b) -- --
------------- -------------
Dilutive potential common shares(b) -- 17,063,000
------------- -------------
Diluted weighted average shares(b) 258,409,000 262,959,000
============= =============
Diluted earnings\(loss) per share: $ (.36) $ .24
============= =============
</TABLE>
(a) Shown net of income taxes which were calculated at the registrant's
effective tax rate.
(b) For the thirteen weeks ended August 29, 1998, the assumed conversion of
potential dilutive shares would have increased diluted earnings per share
due to the net loss from continuing operations and, therefore were not
considered.
<PAGE> 2
EXHIBIT 11
RITE AID CORPORATION AND SUBSIDIARIES
STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS
TWENTY-SIX WEEKS ENDED AUGUST 29, 1998 AND AUGUST 30, 1997
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
August 29, 1998 August 30, 1997
------------- -------------
<S> <C> <C>
Net income\(loss) $ (1,816) $ 128,854
------------- -------------
Basic weighted average shares 258,340,000 245,782,000
------------- -------------
Basic earnings\(loss) per share $ (.01) $ .52
------------- -------------
Numerator for diluted earnings per share:
Net income\(loss) $ (1,816) $ 128,854
Effect of dilutive securities:
6.75% zero coupon convertible subordinated notes(a) -- 4,481
5.25% convertible subordinated notes(a)(b) -- --
------------- -------------
Net income\(loss) assuming dilution(b) $ (1,816) $ 133,335
============= =============
Denominator for diluted earnings per share:
Basic weighted average shares 258,340,000 245,782,000
Effect of dilutive securities:
Employee stock options(b) -- 4,960,000
6.75% zero coupon convertible subordinated notes -- 11,728,000
5.25% convertible subordinated notes(b) -- --
------------- -------------
Dilutive potential common shares(b) -- 16,688,000
------------- -------------
Diluted weighted average shares(b) 258,340,000 262,470,000
============= =============
Diluted earnings\(loss) per share: $ (.01) $ .51
============= =============
</TABLE>
(a) Shown net of income taxes which were calculated at the registrant's
effective tax rate.
(b) For the twenty-six weeks ended August 29, 1998, the assumed conversion of
potential dilutive shares would have increased diluted earnings per share
due to the net loss from continuing operations and, therefore were not
considered.
<PAGE> 1
EXHIBIT 12
RITE AID CORPORATION AND SUBSIDIARIES
STATEMENTS RE COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
QUARTER ENDED AUGUST 29, 1998 AND
YEARS ENDED FEBRUARY 28, 1998, MARCH 1, 1997, MARCH 2, 1996, MARCH 4, 1995, AND
FEBRUARY 26, 1994
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Quarter Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
August 29, Feb. 28, March 1, March 2, March 4, Feb. 26,
1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges
Interest Expense $ 83,228 $ 159,752 $ 96,473 $ 68,341 $ 42,300 $ 28,683
Interest Portion(1)
of Net Rental
Expense 66,993 111,943 66,067 52,080 40,424 40,427
--------- --------- --------- --------- --------- ---------
Fixed Charges Before
Capitalized Interest 150,221 271,695 162,540 120,421 82,724 69,110
Capitalized Interest 3,843 3,834 1,897 1,948 373 217
--------- --------- --------- --------- --------- ---------
Total Fixed Charges $ 154,064 $ 275,529 $ 164,437 $ 122,369 $ 83,097 $ 69,327
========= ========= ========= ========= ========= =========
Earnings
Income\(Loss) Before
Extraordinary Loss
and Income Taxes $ (3,026)(4) $ 530,041 $ 258,927(3) $ 256,202 $ 231,464 $ 45,670(2)
Fixed Charges Before
Capitalized Interest 150,221 271,695 162,540 120,421 82,724 69,110
--------- --------- --------- --------- --------- ---------
Total Adjusted
Earnings $ 147,195 $ 801,736 $ 421,467 $ 376,623 $ 314,188 $ 114,780
========= ========= ========= ========= ========= =========
Ratio of Earnings to
Fixed Charges .96 2.91 2.56 3.08 3.78 1.66
========= ========= ========= ========= ========= =========
</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.
(4) Loss before extraordinary loss and income taxes for twenty-six weeks ended
August 29, 1998 includes a $289,678,000 one-time, pre-tax charge for
nonrecurring and other charges.
<PAGE> 1
EXHIBIT 15
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: No. 333-39699
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated October 12, 1998 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,
KPMG PEAT MARWICK LLP
Harrisburg, Pennsylvania
October 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FORM 10-Q
QUARTERLY REPORT FOR THE QUARTER ENDED AUGUST 29, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-27-1999
<PERIOD-END> AUG-29-1998
<CASH> 155,626
<SECURITIES> 0
<RECEIVABLES> 197,479
<ALLOWANCES> 12,994
<INVENTORY> 2,998,059
<CURRENT-ASSETS> 3,417,409
<PP&E> 3,331,046
<DEPRECIATION> 924,652
<TOTAL-ASSETS> 7,937,004
<CURRENT-LIABILITIES> 1,654,142
<BONDS> 3,029,179
0
0
<COMMON> 258,466
<OTHER-SE> 2,603,884
<TOTAL-LIABILITY-AND-EQUITY> 7,937,004
<SALES> 6,043,710
<TOTAL-REVENUES> 6,043,710
<CGS> 4,428,439
<TOTAL-COSTS> 4,428,439
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 83,228
<INCOME-PRETAX> (3,026)
<INCOME-TAX> (1,210)
<INCOME-CONTINUING> (1,816)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,816)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FORM 10-Q
QUARTERLY REPORT FOR THE QUARTER ENDED AUGUST 30, 1997, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<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> 0
<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> .52
<EPS-DILUTED> .51
</TABLE>
