<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 May 29, 1999
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 258,907,899 shares of its $1.00 par value Common
Stock outstanding as of June 26, 1999.
<PAGE> 2
RITE AID CORPORATION
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets May 29, 1999 and February 27, 1999 2
Condensed Consolidated Statements of Income
Thirteen Weeks Ended May 29, 1999 and May 30, 1998 3
Condensed Consolidated Statements of Cash Flows
Thirteen Weeks Ended May 29, 1999 and May 30, 1998 4
Notes to Condensed Consolidated Financial Statements 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
</TABLE>
-1-
<PAGE> 3
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED MAY 29, 1999
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
RITE AID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
May 29, 1999 Feb. 27, 1999
------------ -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 71,414 $ 82,949
Accounts and notes receivable 634,601 749,606
Inventories 3,033,619 2,893,143
Prepaid expenses and other current assets 94,048 76,653
----------- -----------
TOTAL CURRENT ASSETS 3,833,682 3,802,351
----------- -----------
Property, plant and equipment, at cost 4,066,384 3,830,576
Accumulated depreciation 989,164 962,523
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET 3,077,220 2,868,053
----------- -----------
Intangible assets 3,559,144 3,547,463
----------- -----------
Other assets 207,768 203,874
----------- -----------
TOTAL ASSETS $10,677,814 $10,421,741
=========== ===========
CURRENT LIABILITIES
Short-term debt and current maturities of long-term debt $ 1,550,523 $ 1,550,211
Accounts payable 1,442,869 1,455,516
Other current liabilities 679,157 684,751
----------- -----------
TOTAL CURRENT LIABILITIES 3,672,549 3,690,478
----------- -----------
Convertible subordinated notes 649,986 649,991
Long-term debt and capital lease obligations, less current maturities 2,862,722 2,654,249
Other noncurrent liabilities 457,960 449,732
Redeemable preferred stock 29,253 23,559
STOCKHOLDERS' EQUITY
Preferred stock, par value $1 per share -- --
Common stock, par value $1 per share 258,904 258,862
Additional paid-in capital 1,360,763 1,360,219
Retained earnings 1,385,677 1,334,651
Accumulated other comprehensive income -- --
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 3,005,344 2,953,732
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,677,814 $10,421,741
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-2-
<PAGE> 4
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED MAY 29, 1999
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
May 29, 1999 May 30, 1998
------------ ------------
<S> <C> <C>
Sales $ 3,624,500 $ 3,032,681
Costs and expenses:
Costs of goods sold including occupancy costs 2,663,531 2,202,204
Selling, general and administrative expenses 726,661 649,294
Goodwill amortization expense 20,252 10,079
Interest expense 72,914 40,653
------------ ------------
3,483,358 2,902,230
------------ ------------
Income before income taxes 141,142 130,451
Income taxes 60,127 52,179
------------ ------------
Net income $ 81,015 $ 78,272
============ ============
Basic earnings per share $ .31 $ .30
============ ============
Diluted earnings per share $ .31 $ .30
============ ============
Cash dividends paid per common share $ .1150 $ .1075
============ ============
Basic weighted average shares 258,876,000 258,271,000
============ ============
Diluted weighted average shares 280,315,000 282,842,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE> 5
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED MAY 29, 1999
ITEM 1. FINANCIAL STATEMENTS: (CONTINUED)
RITE AID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Thirteen
Weeks Ended Weeks Ended
May 29, 1999 May 30, 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Income before income taxes $ 141,142 $ 130,451
Depreciation and amortization 93,537 76,892
Other 3,509 (3,447)
Changes in operating assets and liabilities (116,323) (220,773)
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 121,865 (16,877)
--------- ---------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (268,143) (200,729)
Purchases of businesses, net of cash acquired (24,503) --
Intangible assets acquired (24,728) (18,717)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (317,374) (219,446)
--------- ---------
FINANCING ACTIVITIES
Net proceeds of commercial paper borrowings 212,037 292,711
Cash dividends paid (29,964) (27,818)
Other financing activities 1,901 (7,737)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 183,974 257,156
--------- ---------
INCREASE (DECREASE) IN CASH (11,535) 20,833
CASH AT BEGINNING OF PERIOD 82,949 90,968
--------- ---------
CASH AT END OF PERIOD $ 71,414 $ 111,801
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-4-
<PAGE> 6
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED MAY 29, 1999
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 results of operations for the thirteen-week period ended May 29,
1999 are not necessarily indicative of the results to be expected for the full
year. Also, certain reclassifications have been made to the prior quarter
condensed consolidated financial statements to conform to the classifications of
the condensed consolidated financial statements for the thirteen weeks ended May
29, 1999. The results for the thirteen weeks ended May 30, 1998 have been
restated as disclosed in the company's annual report on Form 10-K for the year
ended February 27, 1999.
NOTE 2 -- EARNINGS PER SHARE
The company 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
(In thousands of dollars) May 29, 1999 May 30, 1998
------------ -------------
<S> <C> <C>
Net income $ 81,015 $ 78,272
Cumulative preferred stock dividends 565 --
-------- --------
Net income available for common stockholders $ 80,450 $ 78,272
-------- --------
Interest expense assuming dilution 5,158 5,392
-------- --------
Net income available for common stockholders assuming dilution $ 85,608 $ 83,664
======== ========
Basic weighted average shares 258,876 258,271
Employee stock options assuming dilution 3,453 6,584
Convertible debt assuming dilution 17,986 17,987
-------- --------
Diluted weighted average shares 280,315 282,842
======== ========
</TABLE>
NOTE 3 - COMPREHENSIVE INCOME
The company 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 income was
$81,015,000 and $78,272,000 for the thirteen weeks ended May 29, 1999 and May
30, 1998, respectively.
-5-
<PAGE> 7
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED MAY 29, 1999
ITEM 1. FINANCIAL STATEMENTS: (CONTINUED)
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - BUSINESS SEGMENTS
The company operates in two business segments; i) a Retail Drug
segment, and ii) a Pharmacy Benefit Management ("PBM") segment, that includes
other managed health care services and mail-order pharmacy services. The
company's business segments are organized according to the products and services
offered to its customers. The company's dominant business segment is the
operation of retail drugstores across the United States, with pharmacy services
forming the core of the business. In addition, through its acquisition of PCS in
the fourth quarter of fiscal 1999, the company operates a PBM segment which
offers pharmacy benefit management, mail-order pharmacy services, marketing
prescription plans and selling other managed health care services to employers,
health plans and their members and government-sponsored employee benefit
programs. Prior to its acquisition of PCS, the company operated one business
segment, the Retail Drug segment.
The following table presents selected financial information for the
Retail Drug and PBM business segments:
<TABLE>
<CAPTION>
------------------------------------------------------- --------------------------------------------------
Thirteen weeks ended May 29, 1999 Thirteen weeks ended May 30, 1998
------------------------------------------------------- --------------------------------------------------
Retail PBM LIFO Consolidated Retail PBM LIFO Consolidated
(In 000's) Segment Segment Charge Totals Segment Segment Charge Totals
- -------------------------------------------------------------------- ------------------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 3,363,600 $ 260,900 $ -- $ 3,624,500 $ 3,032,681 $ -- $ -- $ 3,032,681
Net income $ 87,596 $ (1,433) $ (5,148) $ 81,015 $ 83,048 $ -- $ (4,776) $ 78,272
Total assets $ 8,456,926 $ 2,220,888 $ -- $10,677,814 $ 7,803,400 $ -- $ -- $ 7,803,400
- -------------- ----------- ----------- -------- ----------- ----------- --------- -------- -----------
</TABLE>
NOTE 5 -- RECENT ACCOUNTING PRONOUNCEMENTS
In the quarter ended May 29, 1999, the company adopted the American
Institute of Certified Public Accountants ("AICPA") Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 provides guidance concerning recognition
and measurement of costs associated with developing or acquiring computer
software for internal use. The company also adopted SOP 98-5, "Reporting on the
Costs of Start-Up Activities." SOP 98-5 provides guidance concerning the
accounting treatment of certain costs of start-up activities. Adoption of these
standards did not have a significant impact on the company's financial
statements.
In June 1998, the FASB issued SFAS No.133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS133"). SFAS 133 requires companies to
recognize all derivatives contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are met,
a derivative may be specifically designated as a hedge, the objective of which
is to match the timing of gain or loss recognition on the hedging derivative
with the recognition of (i) the changes in the fair value of the hedged asset
or liability that are attributable to the hedged risk or (ii) the earnings
effect of the hedged forecasted transaction. For a derivative not designated as
a hedging instrument, the gain or loss is recognized in income in the period of
change. SFAS 133 amends the guidance in SFAS No. 52, "Foreign Currency
Translation," to permit special accounting for a hedge of a foreign currency
forecasted transaction with a derivative. It also supersedes SFAS No. 80,
"Accounting for Futures Contracts, "SFAS No. 105, "Disclosure of Information
about Financial Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentrations of Credit Risk," and SFAS No. 119, "Disclosure
about Derivative Financial Instruments." In addition, it amends SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments," to include in SFAS No.
107 the disclosure provisions about concentrations of credit risk from SFAS No.
105. SFAS 133 is effective for financial statements for periods beginning after
June 15, 1999, however, the FASB has an exposure draft that will delay the
implementation of the SFAS until June 30, 2000. The company is studying the
provisions of SFAS 133 and has not adopted such provisions in its May 29, 1999
consolidated financial statements.
NOTE 6 -- STORE CLOSING AND OTHER COSTS
During the quarter ended August 29, 1998, the registrant recorded
pre-tax charges of $289,700,000 for the closing of 379 stores and other charges
for its retail drug segment. These charges principally related to a strategic
exit plan that included
-6-
<PAGE> 8
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED MAY 29, 1999
ITEM 1. FINANCIAL STATEMENTS: (CONTINUED)
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
vacating certain markets, closing bantam East Coast stores and consolidating
certain other store locations. The components of the pre-tax charges were
comprised of the following: (i) $25,500,000 relating to certain incremental
costs associated with the disposal of inventory, including the use of
liquidators, which were included as a component of cost of goods sold; (ii)
$144,800,000 for the present value of noncancellable lease payments and related
contractual obligations, net of estimates for sublease income; (iii) $94,200,000
for impairment losses associated with land, buildings, fixtures and leasehold
improvements, prescription files, lease acquisition costs and goodwill; and (iv)
$25,200,000 for noncancellable lease obligations and ancillary costs of stores
closed at the beginning of fiscal 1999 that were identified in conjunction with
the assessment of store closing obligations for the strategic exit plan during
fiscal 1999.
During the third quarter of 1999, the company reevaluated certain
planned store closings and made the determination to keep certain of those
stores open. The liability associated with the stores designated to remain open
was approximately $7,300,000, which was reversed in the third quarter.
During the fourth quarter of fiscal 1999, the accrued liability for the
1999 exit plan was reduced by $27,500,000 as a result of favorable store lease
terminations and closing costs. The company also reduced the accrued liability
by $21,900,000 as a result of revisions to the 1999 store exit plan assumptions
based on favorable store lease termination experience. At February 27, 1999,
the remaining accrued liability relating to the strategic exit plan was
approximately $69,100,000. In addition, during 1999, the company increased the
accrued liability for stores closed prior to 1999 by $42,800,000. The remaining
liability at February 27, 1999 for these stores, which were not a part of the
strategic exit plan, was $67,612,000. Including the remaining accrued liability
related to the strategic exit plan, the total accrued liability for closed
stores at February 27, 1999 was $136,712,000.
During the first quarter of fiscal 2000, the company recorded a charge
for stores closed during the quarter of $17,890,000, which consisted of: (i)
$14,057,000 for the present value of noncancellable lease obligations and
related contractual obligations, and (ii) $3,833,000 for impairment losses
associated with lease acquisition costs, leasehold improvements and furniture
and fixtures. The company also made the determination to keep certain other
stores open which were a part of the strategic exit plan to close 379 stores
which resulted in a favorable adjustment of $10,994,000 for a net pre-tax
charge to income for the first quarter of approximately $6,896,000. During the
quarter, the company also utilized $17,177,000 for lease terminations, lease
payments and other ancillary costs, and increased the reserve by $1,331,000 for
stores which the Company does not intend to operate that were acquired in the
Edgehill acquisition. The accrued liability for closed stores, including the
charge taken in fiscal 1999 for the strategic exit plan as well as the accrued
liability for previously closed stores was $123,929,000 at May 29, 1999.
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
On March 12, 1999 the company announced that the preliminary estimate
for fully diluted earnings per share for the fourth quarter of fiscal 1999
would be approximately $0.30 to $0.32 as compared to the then existing First
Call analyst's consensus estimates of $0.52 per share. Subsequent to the March
12 announcement, several purported class action lawsuits were commenced against
the company, Martin Grass, Chairman, Chief Executive Officer and a director,
Timothy Noonan, President, Chief Operating Officer and a director, Franklin
Brown, Vice Chairman and a director, and Frank Bergonzi, Senior Executive Vice
President and Chief Financial Officer in the United States District Court for
the Eastern District of Pennsylvania. The plaintiffs in these suits allege that
the company failed to make prompt public disclosure of matters mentioned in its
March 12 announcement that affected results for the fourth quarter and seek to
recover damages on behalf of all purchasers of the company's common stock
between December 14, 1998 and March 11, 1999. On April 18, 1999, the court
approved a stipulation among counsel that, among other things, provided for
consolidation of these suits. The company intends to deny the material
allegations in these complaints and to defend these actions vigorously.
In May 1999, a shareholder filed a complaint in the United States
District court for the Eastern District of Pennsylvania derivatively and on
behalf of the company against the same officers and directors named in the class
action lawsuits and also directors Alex Grass, Philip Neivert, Gerald Tsai,
Leonard I. Green and Nancy A. Lieberman. The complaint alleges essentially the
same wrongful acts as are alleged in the class action lawsuits and charges the
defendants with mismanagement, waste of corporate resources and breach of
fiduciary duty. The complaint also alleges that certain of the transactions
discussed in the Current Report on Form 8-k filed by the company on February 9,
1999 constituted mismanagement, waste of corporate resources and breach of
fiduciary duty. The plaintiffs seek indemnity and contribution on behalf of the
company from the individual defendants. Management believes that the resolution
of these actions will not have a material effect on the company's financial
position, results of operation or liquidity.
-7-
<PAGE> 9
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED MAY 29, 1999
ITEM 1. FINANCIAL STATEMENTS: (CONTINUED)
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The company also has outstanding letters of credit as of May 29, 1999.
In addition, the company is the defendant in claims and lawsuits arising in the
ordinary course of business. In the opinion of management, these matters are
covered adequately by insurance, or if not so covered, are without merit or are
of such nature or involve such amounts as would not have a material effect on
the financial statements of the company if decided adversely. The company,
regardless of insurance coverage, does not believe it has a material, estimable,
and probable liability in regard to these claims and lawsuits as of May 29,
1999. The company guarantees certain lease obligations for stores and
properties sold to others.
NOTE 8 -- SUBSEQUENT EVENTS
In June 1999, the company signed a ten-year agreement with General
Nutrition Centers, Inc. and drugstore.com that will result in a 25.3% ownership
in drugstore.com, for a cash investment of $7,600,000 as well as other marketing
commitments and obligations.
Also in June 1999, the company sold its interest in Diversified
Prescription Delivery LLC ("DPD"), a mail-order pharmacy unit joint venture it
had started with Diversified Pharmaceutical Services, Inc. in October 1996. The
company received proceeds of $25,000,000 and other consideration for its
interest in DPD, which the company had accounted for using the equity method of
accounting. The income statement impact of this transaction is not expected to
be material.
-8-
<PAGE> 10
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED MAY 29, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
RESULTS OF OPERATIONS
Sales for the thirteen-week period ended May 29, 1999 were $3,624.5
million compared to $3,032.7 million in the same period last year, representing
an increase of 19.5%. Included in total sales for the period were revenues
attributable to PCS Health Systems, Inc. of $260.9 million. Same-store sales for
the quarter ended May 29, 1999, increased 10.0% as compared to the year-ago
period reflecting a 16.2% increase in pharmacy comparable sales and a 2.6%
increase in front-end same-unit sales, which are all non-pharmacy sales.
Prescription sales accounted for 58.2% of drugstore sales for the quarter,
compared to 53.5% last year. Third party prescription sales, which represent
prescription sales that are paid by a person or entity other than the recipient
of the prescribed pharmaceutical and are generally subject to negotiated
reimbursement rates in conjunction with a pharmacy benefit plan, were 87.1% of
pharmacy sales compared to 84.6% last year. During the quarter the company added
or acquired 52 drugstores, closed 20 smaller outlets and expanded or relocated
52 units. Stores in operation at the end of the quarter totaled 3,853.
As a percentage of sales, cost of goods sold including occupancy costs
were 73.5% for the thirteen-week period ended May 29, 1999, compared to 72.6%
for the same period in the previous year. The company continues to experience a
mix shift between prescription and front-end sales at its retail drugstores, and
consequently, a decline in overall gross margins resulted for the thirteen-week
period ended May 29, 1999, because prescription gross margins are lower than
front-end gross margins. Also impacting gross margins were increases in
occupancy costs. Front-end sales to total sales declined to 41.8% of sales for
the thirteen weeks ended May 29, 1999 compared to 46.5% in the prior year. Also,
front-end shrinkage expense increased $1.0 million from the prior year to $13.5
million or .40% of total drugstore sales. Pharmacy gross profit margins
increased slightly when compared to the same period in the prior year, despite
an increase in third party sales to total prescription sales. 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 $9.0
million for the thirteen weeks ended May 29, 1999, compared to $8.0 million in
the same period last year. The LIFO method of valuing inventory had the effect
of reducing net income $ .02 per diluted share for the 13-week periods ended May
29, 1999 and May 30, 1998.
Selling, general and administrative expenses, excluding closed store
expenses were $719.8 million or 19.8% of sales for the quarter, compared to
$649.3 million or 21.5% of sales for the comparable period last year. The
favorable decline in the current year operating expense ratio resulted from
strong East Coast same-store sales that creates expense leverage.
Goodwill amortization expenses increased to $20.3 million for the
thirteen weeks ended May 29, 1999 compared to $10.1 million last year. The
increase in goodwill amortization is directly attributable to the acquisition
of PCS, which occurred in January 1999. Whereas the thirteen weeks ended May
30, 1998 contained no goodwill amortization for PCS, the quarter ended May 29,
1999 had goodwill amortization expenses of approximately $10.3 million. The
company's balance sheet as of May 29, 1999 includes goodwill amounting to
approximately 29.1% of total assets and 103.4% of stockholders' equity.
Approximately 52.2% or $1.6 billion of this goodwill resulted from the
acquisition of PCS. The company has determined that the useful life of goodwill
recorded with the PCS acquisition is no less than 40 years, and accordingly,
that goodwill is being amortized over a 40-year period. There is risk that this
determination will prove to have been incorrect and the company will be
amortizing this goodwill over too long a period. If this occurs, the company's
earnings this year, and in the years following will have been overstated, and,
in later years, the company will be burdened with a continuing charge to
earnings without a corresponding benefit to income. If management determines in
a later year that the company is no longer receiving the benefit of this
goodwill, the company may have to write off the remaining goodwill in that
year, resulting in a reduction in earnings for that fiscal year. The company
reviewed the anticipated cash flows and other factors when considering the cost
the company was willing to incur to purchase PCS and concluded that anticipated
future cash flows associated with the intangible assets acquired would continue
indefinitely. Additionally, management has found no persuasive evidence that
any material portion of these intangible assets will be depleted in less than
40 years, however, no assurance can be given that this determination will prove
to be correct. The goodwill recorded with the PCS acquisition was based on the
company's preliminary purchase price allocation. The final purchase price
allocation is subject to change based upon any appraisals or evaluations,
although any potential changes are not expected to be material.
During the quarter ended May 29, 1999, the company recorded a net store
closing charge of $6.9 million. Included in the charge were total pre-tax
expenses for stores closed during the quarter of $17.9 million that included
asset write-offs of lease acquisition costs, leasehold improvements and
furniture and fixtures of $3.8 million. The remaining charge of $14.1 million
was to accrue for the present value of noncancellable lease obligations and
related contractual obligations at the stores that were closed. These charges
were partially offset by a favorable adjustment of $11.0 million to the accrued
liability from the strategic
-9-
<PAGE> 11
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED MAY 29, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS: (CONTINUED)
exit plan to close 379 stores recorded in fiscal 1999. The company made
the determination to keep certain stores open from the exit plan that resulted
in the pre-tax adjustment. During the quarter, the company also utilized $17.2
million for lease terminations, lease payments and ancillary costs, and
increased the reserve $1.3 million for stores which the company does not
intend to operate that were acquired in the Edgehill acquisition. The accrued
liability for closed stores, including the charge taken in fiscal 1999 for the
strategic exit plan as well as the accrued liability for previously closed
stores was $123.9 million at May 29, 1999.
Interest expense increased to $72.9 million for the quarter, compared
to $40.7 million last year. The increase in interest expense resulted from
higher weighted average borrowings this year compared to the same period last
year. The higher borrowings this year are the result of the acquisition of PCS
in the fourth quarter as well as borrowings related to the store development
program last year, and additional borrowings during the quarter to complete
store development and acquisition projects that were already underway at the end
of fiscal 1999. The weighted average interest rates on the company's
commercial paper were approximately 5.0% for the quarter ended May 29, 1999,
compared to 5.7% last year.
Income taxes were $60.1 million for the quarter ended May 29, 1999
compared to $52.2 million last year. The effective income tax rate was 42.6%
for the quarter, compared to an effective rate of 40.3% for the same period
last year. The increase in the effective tax rate is attributable to the
increase in non-deductible amortization expenses resulting from the goodwill
recorded in the PCS acquisition. Because of the impact of non-deductible
goodwill, the effective tax rate could change due to changes in assumptions on
income. Depreciation and amortization expenses were $93.5 million for the
period ended May 29, 1999 compared to $76.9 million for the comparable period
last year. The increase in these expenses is attributable to increases in
goodwill amortization as well as the increase in property, plant and equipment,
including the increases resulting from the store development program.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $161.1 million at May 29, 1999, compared to $111.9
million at February 27, 1999, and the current ratios were 1.0:1. For both
periods, the company has classified $1.5 billion of commercial paper borrowings
as current, representing the borrowings related to the purchase of PCS.
Currently, the company intends to refinance on a long-term basis this amount
during fiscal 2000 with $700.0 million of mandatory convertible preferred
stock and $800.0 million of a two-year note. The company cautions that there
can be no assurance that it will be able to successfully complete these
transactions.
Operating activities provided cash of $121.9 million for the quarter
ended May 29, 1999. Last year, operating activities consumed cash of $16.9
million. Cash provided by operating activities was positively impacted by
approximately $306.3 million of cash provided by PCS operations. Negatively
impacting cash provided by operating activities were increases in prepaid
expenses and inventories coupled with reductions in accounts payable and other
current liabilities, including cash payments related to the company's closed
stores. The company's fiscal 1999 strategic exit plan as well as the stores
closed during the first quarter of fiscal 2000 will have a negative effect on
future cash flows for closed locations with remaining noncancellable leases.
Payments for lease terminations, as well as monthly payments on lease
obligations and ancillary expenses resulted in cash payments of $17.2 million
for the quarter. Excluding lease terminations which cannot readily be
determined, the company currently expects to fund approximately $35.0 million of
the closed store liability during the remainder of fiscal 2000.
Capital expenditures for property, plant and equipment were $268.1
million in connection with the company's store construction, renovation and
relocation projects that were already underway at the beginning of the first
quarter. Other investing activity included the purchase of the Edgehill
drugstore chain, which resulted in cash expenditures of $24.5 million. Cash was
also used for dividend payments of $30.0 million. Total debt to total
capitalization was 62.5% as of May 29, 1999, compared to 62.0% at February 27,
1999.
The company has a $1.0 billion revolving credit commitment that expires
in July 2001 and a $1.3 billion revolving credit facility that expires in
October 1999 to provide additional borrowing capacity and to support its
commercial paper program as of May 29, 1999. The company entered into the $1.3
billion facility to support commercial paper borrowings used to complete the
acquisition of PCS. Interest rates on each facility are based upon various money
market rate options selected by
-10-
<PAGE> 12
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED MAY 29, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS: (CONTINUED)
the company at the time of the borrowing. Each credit facility has per annum
fees, irrespective of usage. In June 1999, the company's short term debt
ratings of P-2 and A-2 were reaffirmed by both Moody's Investors Service
("Moody's") and Standard & Poor's ("S&P"). Its long-term rating of Baa1 was
also reaffirmed by Moody's, however, its long-term rating was lowered by S&P to
BBB from BBB+. This had the effect of increasing the facility fees that the
company pays on its credit agreements that support its commercial paper
issuances. The $1.0 billion facility pays per annum fees of 15 basis points, up
from 12 basis points at February 27, 1999, and the $1.3 billion facility pays
per annum fees of 12 basis points, up from 10 basis points. The company
maintains at all times unused long-term revolving credit agreement commitments
at least equal to the principal amount of its outstanding commercial paper that
the company intends to carry on a long-term basis.
In June 1999 the company received proceeds of $300.0 million from one
of its banks for a demand note with the usual terms and conditions. Proceeds
from the note were used to repay commercial paper previously issued by the
company.
YEAR 2000
The Company began in 1996, a comprehensive project to convert the
company's information technology ("IT") and non-information technology
("non-IT") systems to be Year 2000 (Y2K) date compliant. The Y2K issue creates
risk to the company 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 company has developed a Y2K remediation plan
to assess the compliance of its IT and non-IT systems, as well as consideration
of the remediation efforts of key customers, vendors, suppliers, financial
institutions and governmental agencies (collectively referred to as "business
partners") 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. To date, the company has completed the initial
assessment phase of all its IT systems, giving highest priority to those
systems that are considered critical to the company's operations. Of these
systems, approximately 54% have been remediated, tested and determined
compliant or have been replaced or retired. An additional 20% have been
remediated and are in the testing phase or are ready to be system tested. The
remaining 26% are in various stages of remediation activity. Through the end of
June 1999, all systems that had been designated as critical were either
determined compliant or were in the final testing phase for certain
applications. These systems included certain applications within the pharmacy
dispensing system, warehouse management system, third party applications and
certain other applications. Currently, the company anticipates that final
system testing of these applications will be completed by October 1999. The
company anticipates all other systems to be compliant by November of 1999.
To date, the company has compiled a comprehensive inventory of its
non-IT systems and business partners. The company's non-IT systems include
those systems containing embedded chip technology commonly found in buildings
and equipment connected with a building's infrastructure. The company has also
assessed the potential risks associated with key business partners and their
own Y2K compliant programs. Although there can be no assurance that the company
will not be adversely affected, the company continues to monitor the progress
of its key business partners and is continually assessing the need to enact
contingency plans to minimize the risks associated with those partners who will
not be Y2K compliant. This includes assessing the need to locate alternative
vendors or service providers. Currently, 52% of the non-IT systems and business
partners have been determined compliant. The remaining 48% have not been
determined compliant to date, however, this does include those business
partners who have indicated they will be compliant before the Year 2000. The
majority of the remaining non-compliant systems are equipment at the stores
that need to be updated. The company has been following a developed solution
with its business partners and currently, these systems are scheduled to be
updated throughout the remainder of the year.
The impact on business operations from the company's failure to comply
with Y2K requirements, or by the failure of any of our business partners could
be material to the company's future results of operations, liquidity and
capital resources. The most reasonably likely worst case scenario includes, but
is not limited to, disruption of store operations, the inability to communicate
with key third party vendors, service providers, customers and financial
institutions, as well as pharmacy system or point-of-sale failure. This could
result in the temporary inability to properly stock our stores, bill and
receive payment on third party receivables, as well as limiting access to
capital resources necessary to fund operating and other investing activities.
Although there can be no assurance that the company will correctly identify and
resolve all Y2K related issues, the company's remediation efforts are
progressing in accordance with established timetables. Additionally,
contingency plans in the event of non-compliant systems have been completed for
certain critical areas while other areas are in various stages of development.
These contingency plans include, but are not limited to, off-line prescription
fill, off-line point-of-sale mode or paper processing at the stores and other
manual processing where computer systems have failed or are not reliable. The
various contingency plans in place, or under development, would be utilized in
the event that operations are adversely affected by the Y2K problem, despite
the company's best efforts or due to events outside of our control. Total
estimated Y2K remediation costs of $12.0 million will be funded through
operating cash flows and expensed in the period incurred, of which,
approximately $7.4 million has been incurred to date. Total Y2K remediation
costs are based upon management's best estimate and are subject to change as
additional information becomes available.
-11-
<PAGE> 13
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED MAY 29, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS: (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In the quarter ended May 29, 1999, the company adopted the American
Institute of Certified Public Accountants ("AICPA") Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 provides guidance concerning recognition
and measurement of costs associated with developing or acquiring computer
software for internal use. The company also adopted SOP 98-5, "Reporting on the
Costs of Start-Up Activities." SOP 98-5 provides guidance concerning the costs
of start-up activities. Adoption of these standards did not have a significant
impact on the company's financial statements.
In June 1998, the FASB issued SFAS No.133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS133"). SFAS 133 requires companies to
recognize all derivatives contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are met,
a derivative may be specifically designated as a hedge, the objective of which
is to match the timing of gain or loss recognition on the hedging derivative
with the recognition of (i) the changes in the fair value of the hedged asset
or liability that are attributable to the hedged risk or (ii) the earnings
effect of the hedged forecasted transaction. For a derivative not designated as
a hedging instrument, the gain or loss is recognized in income in the period of
change. SFAS 133 amends the guidance in SFAS No. 52, "Foreign Currency
Translation," to permit special accounting for a hedge of a foreign currency
forecasted transaction with a derivative. It also supersedes SFAS No. 80,
"Accounting for Futures Contracts, "SFAS No. 105, "Disclosure of Information
about Financial Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentrations of Credit Risk," and SFAS No. 119, "Disclosure
about Derivative Financial Instruments." In addition, it amends SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments," to include in SFAS No.
107 the disclosure provisions about concentrations of credit risk from SFAS No.
105. SFAS 133 is effective for financial statements for periods beginning after
June 15, 1999, however, the FASB has an exposure draft that will delay the
implementation of the SFAS until June 30, 2000. The company is studying the
provisions of SFAS 133 and has not adopted such provisions in its May 29, 1999
consolidated financial statements.
REVIEW BY THE SECURITIES AND EXCHANGE COMMISSION
In connection with the review by the Securities and Exchange Commission
of a Registration Statement relating to debt securities previously sold by the
company, the company is discussing with the staff certain accounting matters. As
a result of those discussions and the company's review, the company made
adjustments to its financial statements for fiscal years 1997 and 1998. While
the company made all adjustments it considered necessary, additional adjustments
may result before the review process is completed. The company does not believe
that any such potential restatement will have a material effect on its financial
condition.
RISKS AND UNCERTAINTIES IN THE FUTURE
Certain statements contained in this Form 10-Q for the period ended May
29, 1999, that 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 that the company expects will or may occur in the future. 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, 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, including the company's plans to refinance the
-12-
<PAGE> 14
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED MAY 29, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS: (CONTINUED)
commercial paper issued in the PCS acquisition, actual results of the company's
closed store locations compared to the assumptions utilized to accrue the
related liability, availability of real estate, construction and start-up of
drugstore and distribution center facilities, the effect of adoption of new
accounting pronouncements, the effects, if any, that may result from discussions
with the staff of the Securities and Exchange Commission, and the effects of
technological difficulties including successful completion of Year 2000
conversion activities. 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 company with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Increases in interest rates would increase the company's interest
expense, which would adversely affect cash flow and the results of operations.
As of May 29, 1999, the company has $1,995.2 million in commercial paper that
bears interest at a floating rate and is supported by committed lines of credit.
The company's future earnings, cash flow and fair values relevant to financial
instruments are dependent upon prevalent market rates. Market risk is the risk
of loss from adverse changes in market prices and interest rates. The company
enters into debt obligations to support general corporate purposes including
capital expenditures, acquisitions and working capital needs. The company's
policy is to manage interest rates through the use of a combination of
commercial paper and fixed-rate long-term obligations.
If the market rates of interest of the company's variable-rate debt
changed by 10% (approximately 50 basis points) the company's annual interest
expense would change by approximately $10.0 million, assuming the amount of
commercial paper outstanding remains at $1,995.2 million, the balance at May 29,
1999. A change in interest rates generally does not impact future earnings and
cash flow for fixed-rate debt instruments, but as fixed-rate debt matures and if
additional debt is acquired to fund the debt repayment, future earnings and cash
flow may be impacted by changes in interest rates. This impact would be realized
in the periods subsequent to the periods when the debt matures. 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 27, 1999.
-13-
<PAGE> 15
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED MAY 29, 1999
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the company's Form 10-K filed with the Securities and Exchange
Commission, the company discussed legal proceedings regarding certain
shareholder complaints filed against the company. There have been no material
developments in these proceedings during the first quarter of fiscal year 2000.
For a description of the legal proceedings applicable under this item, reference
is made to the company's Form 10-K for fiscal year 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
On June 30, 1999, the company held its annual meeting of stockholders.
The following directors were elected as members of the Board at the meeting:
Timothy J. Noonan (Term to expire in 2002)
Nancy A. Lieberman (Term to expire in 2002)
Leonard N. Stern (Term to expire in 2002)
The following directors' terms of office continued after the meeting:
Alex Grass (Term to expire in 2001)
Philip Neivert (Term to expire in 2001)
Gerald Tsai, Jr. (Term to expire in 2001)
William J. Bratton (Term to expire in 2000)
Franklin C. Brown (Term to expire in 2000)
Martin L. Grass (Term to expire in 2000)
Preston Robert Tisch (Term to expire in 2000)
The votes cast for the election of the directors named above were as
follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------
For Against Withheld
<S> <C> <C> <C>
Timothy J. Noonan 217,953,136 -- 3,395,774
Nancy A. Lieberman 217,954,347 -- 3,394,563
Leonard N. Stern 217,953,238 -- 3,395,672
----------------------------------------------------------------
</TABLE>
In addition to the election of directors, a shareholder proposal was
also voted upon. The proposal would have required the company to prepare a
report, at reasonable cost, which would have included the following:
1.) A chart identifying employees by sex and race in each of the
nine major EEOC defined job categories for 1996, 1997 and
1998, listing actual numbers and percentages in each category.
2.) A summary description of any Affirmative Action policies and
programs to improve performance, including job categories
where women and persons of color are underutilized.
3.) A general description of how the Company publicizes its
affirmative actions policies and programs to merchandise
suppliers and service providers.
4.) A description of any policies and programs directing the
purchase of goods and services to minority and/or female owned
business enterprises.
5.) A report on any material litigation in which the Company is
involved concerning race, gender or the physically challenged.
The shareholder proposal was defeated by a vote of 169,604,946 against
the proposal, 12,566,688 votes for the proposal with 7,505,720 votes withheld.
-14-
<PAGE> 16
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED MAY 29, 1999
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 27. Financial Data Schedule for the quarter ended May
29, 1999 (EDGAR Filing Only)
Exhibit 27.1 Restated Financial Data Schedule for the quarter
ended May 30, 1998 (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
-15-
<PAGE> 17
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED MAY 29, 1999
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: July 13, 1999 /s/ Joseph S. Speaker
- -------------------------------- --------------------------
Joseph S. Speaker
Senior Vice President and
Chief Accounting Officer
-16-
<PAGE> 18
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 27 FINANCIAL DATA SCHEDULE FOR THE QUARTER ENDED MAY 29, 1999
(EDGAR FILING ONLY).
ITEM 27.1 RESTATED FINANCIAL DATA SCHEDULE FOR THE QUARTER ENDED
MAY 30, 1998 (EDGAR FILING ONLY).
-17-
<PAGE> 1
EXHIBIT 11
RITE AID CORPORATION AND SUBSIDIARIES
STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS
THIRTEEN WEEKS ENDED MAY 29, 1999 AND MAY 30, 1998
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
May 29, 1999 May 30, 1998
------------ -------------
<S> <C> <C>
Net income available for common stockholders $ 80,450 $ 78,272
------------ ------------
Basic weighted average shares 258,876,000 258,271,000
------------ ------------
Basic earnings per share $ .31 $ .30
------------ ------------
Numerator for diluted earnings per share:
Net income $ 81,015 $ 78,272
Cumulative dividends on preferred stock 565 --
------------ ------------
Net income available for common stockholders $ 80,450 $ 78,272
------------ ------------
Effect of dilutive securities:
5.25% convertible subordinated notes (a) 5,158 5,392
------------ ------------
Net income assuming dilution $ 85,608 $ 83,664
============ ============
Denominator for diluted earnings per share:
Basic weighted average shares 258,876,000 258,271,000
Effect of dilutive securities:
Employee stock options 3,453,000 6,584,000
5.25% convertible subordinated notes 17,986,000 17,987,000
------------ ------------
Dilutive potential common shares 21,439,000 24,571,000
------------ ------------
Diluted weighted average shares 280,315,000 282,842,000
============ ============
Diluted earnings per share: $ .31 $ .30
============ ============
</TABLE>
(a) Shown net of income taxes that were calculated at the registrant's
effective tax rate.
<PAGE> 1
EXHIBIT 12
RITE AID CORPORATION AND SUBSIDIARIES
STATEMENTS RE COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
THIRTEEN WEEKS ENDED MAY 29, 1999 AND
YEARS ENDED FEBRUARY 27, 1999, FEBRUARY 28, 1998, MARCH 1, 1997,
MARCH 2, 1996 AND MARCH 4, 1995
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
13 Weeks Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
May 29, Feb. 27, Feb. 28, March 1, March 2, March 4,
1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges
Interest expense $ 72,914 $194,733 $159,752 $ 96,473 $ 68,341 $ 42,300
Interest portion of net rental expense (1) 40,688 136,478 111,943 66,067 52,080 40,424
-------- -------- -------- -------- -------- --------
Fixed charges before capitalized interest and
preferred stock dividend requirement 113,602 331,211 271,695 162,540 120,421 82,724
Preferred stock dividend requirement (2) 984 1,299 -- -- -- --
Capitalized interest 2,094 9,212 3,834 1,897 1,948 373
-------- -------- -------- -------- -------- --------
Total fixed charges $116,680 $341,722 $275,529 $164,437 $122,369 $ 83,097
======== ======== ======== ======== ======== ========
Earnings
Income before extraordinary loss and income
taxes $141,142 $199,570(4) $512,377 $261,125(3) $256,202 $231,464
Fixed charges before capitalized interest and
preferred stock dividend requirement 113,602 331,211 271,695 162,540 120,421 82,724
-------- -------- -------- -------- -------- --------
Total adjusted earnings $254,744 $530,781 $784,072 $423,665 $376,623 $314,188
======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges 2.18 1.55 2.85 2.58 3.08 3.78
======== ======== ======== ======== ======== ========
</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) The preferred stock dividend requirement is computed as the pre-tax
earnings that would be required to cover preferred stock dividends.
(3) Income before extraordinary loss and income taxes for fiscal year 1997
includes a $62,562,000 pre-tax charge for nonrecurring and
other charges.
(4) Income before extraordinary loss and income taxes for fiscal year 1999
includes a $282,810,000 charge for store closing and other charges.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FORM 10-Q
QUARTERLY REPORT FOR THE QUARTER ENDED MAY 29, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-26-2000
<PERIOD-END> MAY-29-1999
<CASH> 71,414
<SECURITIES> 0
<RECEIVABLES> 653,046
<ALLOWANCES> 18,445
<INVENTORY> 3,033,619
<CURRENT-ASSETS> 3,833,682
<PP&E> 4,066,384
<DEPRECIATION> 989,164
<TOTAL-ASSETS> 10,677,814
<CURRENT-LIABILITIES> 3,672,549
<BONDS> 3,512,708
29,253
0
<COMMON> 258,904
<OTHER-SE> 2,746,440
<TOTAL-LIABILITY-AND-EQUITY> 10,677,814
<SALES> 3,624,500
<TOTAL-REVENUES> 3,624,500
<CGS> 2,663,531
<TOTAL-COSTS> 2,663,531
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72,914
<INCOME-PRETAX> 141,142
<INCOME-TAX> 60,127
<INCOME-CONTINUING> 81,015
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 81,015
<EPS-BASIC> .31
<EPS-DILUTED> .31
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FORM 10-Q
QUARTERLY REPORT FOR THE QUARTER ENDED MAY 30, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-27-1999
<PERIOD-END> MAY-30-1998
<CASH> 111,801
<SECURITIES> 0
<RECEIVABLES> 195,170
<ALLOWANCES> 13,106
<INVENTORY> 2,995,546
<CURRENT-ASSETS> 3,376,442
<PP&E> 3,232,607
<DEPRECIATION> 926,844
<TOTAL-ASSETS> 7,803,400
<CURRENT-LIABILITIES> 1,570,681
<BONDS> 2,834,031
0
0
<COMMON> 258,347
<OTHER-SE> 2,701,789
<TOTAL-LIABILITY-AND-EQUITY> 7,803,400
<SALES> 3,032,681
<TOTAL-REVENUES> 3,032,681
<CGS> 2,202,204
<TOTAL-COSTS> 2,202,204
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,653
<INCOME-PRETAX> 130,451
<INCOME-TAX> 52,179
<INCOME-CONTINUING> 78,272
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78,272
<EPS-BASIC> .30
<EPS-DILUTED> .30
</TABLE>
