Exhibit 99.1
INVESTORS: MEDIA:
Dave Jessick Karen Rugen
(717) 975-5750 (717) 730-7766
FOR IMMEDIATE RELEASE
RITE AID ANNOUNCES FINANCIAL RESULTS
FOR FIRST QUARTER FISCAL 2001, FISCAL 2000
AND RESTATED RESULTS FOR FISCAL 1999 AND 1998
CAMP HILL, PA, July 11, 2000--Rite Aid Corporation (NYSE, PSE: RAD) today
announced financial results for the first quarter of fiscal year 2001,
ended May 27, 2000; financial results for the fiscal year ended February
26, 2000; and restated financial results for the fiscal years ended
February 27, 1999 and February 28, 1998.
The annual financial results and related quarters, which are included in a
Form 10-K filed today with the Securities and Exchange Commission, result
from a seven-month process conducted by Rite Aid with the assistance of
Arthur Andersen LLP, in which the company's books and records were reviewed
and reconciled. Deloitte & Touche, LLP, Rite Aid's independent accounting
firm, audited the financial statements for fiscal year 2000 and audited the
restated financial statements for fiscal years 1999 and 1998. The results
of the previously announced investigation conducted at the direction of the
Audit Committee of Rite Aid's Board of Directors have also been considered
in the preparation and restatement of the financial statements.
"These financial statements reflect seven months of effort and an estimated
cost of $50 million to identify, assess and resolve the accounting issues
new management confronted when we arrived at Rite Aid in December, 1999,"
said Bob Miller, Rite Aid chairman and chief executive officer. "While we
have a lot of work ahead of us to improve our operations, I am pleased that
we now have issued our financial reports and am encouraged by the other
progress we've made to date. In addition to implementing steps to stabilize
our store operations and strengthen our vendor relationships, we've
completed a major financial restructuring to support our turnaround plan
and are now developing and implementing a variety of initiatives designed
to improve store performance.
RITE AID ANNOUNCES FINANCIAL RESULTS - PAGE 2
"While the financial results published today reflect sizable losses, a
majority of those losses are directly related to inventory accounting
adjustments and former management's overly aggressive expansion program for
the last three years. That expansion program included the acquisition of
PCS Health Systems, Inc., six separate drugstore company acquisitions
totaling 1,409 stores and the opening of 376 new and 727 relocated stores
and the closing of 818 stores," Miller continued. "Given the positive
changes in our relationships with our vendors and the dramatic reductions
we've made in our store development and acquisition programs, we should not
experience similar problems going forward. All of our acquisitions are
fully integrated into the company. As we implement our turnaround plan and
as our new and relocated stores mature, we anticipate a return to positive
cash flow and profitability over the next several years.
"I would like to thank our shareholders, creditors, vendors and employees
for their patience and support during the past seven months when no
financial reports were issued," Miller said.
FIRST QUARTER, FISCAL YEAR 2001 RESULTS
For the 13-week quarter of fiscal 2001, ended May 27, 2000, Rite Aid had
revenues of $ 3.8 billion, a net loss of $238 million and a loss per
diluted share of $0.92. This compares to revenues of $ 3.6 billion, a net
loss of $44 million and a loss per diluted share of $0.17 for the restated
first quarter of fiscal year 2000.
Drugstore same-store sales increased 6.2 percent during the quarter as
compared to the year-ago period with comparable pharmacy sales growth of
9.6 percent and a 1.4 percent increase in front-end same-store sales.
Prescription revenue accounted for 60.3 percent of drugstore sales, with
third party prescription sales representing 89.6 percent of pharmacy sales.
In last year's first quarter, prescription revenue accounted for 58.2
percent of drugstore sales and third party prescription sales represented
87.1 percent of total pharmacy sales.
Earnings before interest, taxes, depreciation and amortization and
non-recurring expenses amounted to approximately $95 million for the
quarter. During the first quarter, new management devoted substantial time
and attention on analyzing store operations, restating financial statements
and stabilizing financial conditions and liquidity.
FISCAL YEAR 2000 RESULTS
For the fiscal year ended February 26, 2000, Rite Aid had revenues of $
14.7 billion, a net loss of $1.1 billion and a loss per diluted share of
$4.45 compared to revenues of $12.8 billion, a net loss of $422 million and
a loss per diluted share of $1.64 for the restated fiscal year 1999.
Drugstore same-store sales increased 7.9 percent, consisting of a 16.2
percent increase in comparable pharmacy sales and a 2.2 percent decrease in
front-end same store sales, as compared to the prior year. Prescription
revenue accounted for 58.4 percent of total drugstore sales and third party
prescription revenue was 87.8 percent of pharmacy sales. This compares to
fiscal 1999 where prescription revenue was 54.2 percent of drugstore sales
and third party prescription revenue accounted for 85.4 percent of pharmacy
sales.
RITE AID ANNOUNCES FINANCIAL RESULTS - PAGE 3
The net loss for fiscal 2000 was impacted by $480 million of inventory-
related charges, $243 million of increased interest expense, $235 million
of increases to reserves and $28 million of increased goodwill
amortization.
RESTATED FINANCIAL RESULTS FOR FISCAL 1999, 1998
The financial statements being filed today in Rite Aid's Form 10-K also
include restatements of the Company's previously reported financial
statements for fiscal year 1999, which ended February 27, 1999 and for
fiscal year 1998, which ended February 28, 1998. The total effect of the
adjustments made in the restatements on the historical financial statements
was to reduce net income by $566.2 million for fiscal 1999 and by $492.1
million for fiscal 1998. On an aggregate basis, these adjustments reduced
Rite Aid's retained earnings at February 27, 1999 by $1.6 billion.
The principal adjustments to Rite Aid's historical financial statements
relate to the following (in 000's):
<TABLE>
<CAPTION>
FOR THE
FISCAL AS OF
AS OF AND FOR THE FISCAL YEAR ENDED MARCH 2,
YEAR ENDED FEBRUARY 27,1999 FEBRUARY 28 1997
1998
------------------------------ -------------- ---------------
INCREASE INCREASE
DECREASE IN (DECREASE) (DECREASE) DECREASE IN
STOCKHOLDERS' TO RESULTS TO RESULTS STOCKHOLDERS'
EQUITY OF OF OPERATIONS EQUITY
OPERATIONS
--------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Purchase accounting.............................. $(300,767) $(133,866) $(152,060) $(14,841)
Exit costs and impairment of operating and other
assets........................................... (210,319) 44,694 (141,237) (113,776)
Accruals for operating expenses.................. (466,309) (123,143) (81,006) (262,160)
Property, plant, and equipment................... (506,210) (110,435) (246,223) (149,552)
Inventory and cost of goods sold................. (635,995) (438,799) (63,385) (133,811)
Capital leases and sale-leaseback accounting..... (55,428) (13,683) (40,667) (1,078)
Other............................................ (163,965) (28,869) (31,097) (104,626)
Income taxes..................................... 727,163 237,933 263,614 225,616
Total............................................ $(1,611,830) $(566,168) $(492,061) $(554,228)
</TABLE>
The restatements contain adjustments that fall into seven principal
accounting categories:
Purchase Accounting. The company acquired Thrifty Payless, Inc. in fiscal
1997 and Harco Inc. and K&B Inc. in fiscal 1998. Certain liabilities
associated with these acquisitions that had previously been established
have been either reduced or eliminated with a corresponding decrease in
goodwill, to correctly reflect the fair value of the assets acquired and
the liabilities assumed at the dates of acquisition.
Exit Costs and Impairment of Operating and Other Assets. The restated
financial statements reflect adjustments to appropriately recognize charges
related to store closures in the period in which the decision, and ability,
to close a store had been made. In addition, other charges not related to
exiting stores and gains from the sale of certain assets that had
previously been recorded as adjustments to the store exit liability have
been reflected as income or expense in the period in which they were
incurred or realized. Adjustments have also been made to record impairment
charges for stores and other assets in the period in which the impairment
occurred and to change the method used to evaluate assets for impairment
from a market level to an individual store level because this is the lowest
level of independent cash flows ascertainable for purposes of measuring
impairment.
RITE AID ANNOUNCES FINANCIAL RESULTS - PAGE 4
Accruals for Operating Expenses. The restated financial statements reflect
adjustments to expense certain operating costs in the period in which they
were incurred and to record a corresponding liability for those items not
paid at the end of the period. Such costs primarily consisted of payroll,
vacation pay, incentive compensations, executive retirement plans,
scheduled rent increases and certain insurance claims.
Property, Plant and Equipment. The restated financial statements reflect
adjustments to charge certain items previously capitalized to expense in
the period in which they were incurred. Such items include certain costs
for repairs and maintenance, interest and internal software development.
The adjustments also include increases in depreciation expense to reverse
the effects of retroactive changes made to the useful lives of certain
assets and to depreciate assets misclassified as construction in-progress.
Inventory and Cost of Goods Sold. The restated financial statements reflect
adjustments to inventory and cost of goods sold primarily to reverse
unearned vendor allowances previously recorded as a reduction to cost of
goods sold; to correctly apply the retail method of accounting; establish
obsolescence reserves, recognize certain selling costs including
promotional markdowns and shrink in the period in which they were incurred;
recognize for inventory purchases in the appropriate periods and reflect
vendor allowances in the inventory balances.
Lease Obligations. The restated financial statements reflect adjustments to
recognize sale-leaseback transactions for certain stores as financing
transactions. Such transactions had previously been accounted for as sales,
and the leasebacks were accounted for as operating leases. The adjustment
to correct these items resulted in the reversal of the asset sales and the
establishment of lease obligations. In addition, adjustments were made to
record certain leases that had previously been accounted for as operating
leases. These adjustments resulted in an increase in assets and capital
lease obligations of $1.1 billion and $1.1 billion at February 26, 2000.
Income Taxes. The restated financial statements were adjusted to properly
reflect the federal and state tax effect of all restatement adjustments. In
addition, certain adjustments were made to the accrued Federal income tax
payable and the deferred income tax accounts to expense items in the proper
period and reflect the tax benefit of the exercise of non-qualified stock
options as a component of other comprehensive income.
STATUS OF SEC FILINGS
Today Rite Aid is filing with the Securities and Exchange Commission its
Annual Report on Form 10-K for the fiscal year ended February 26, 2000 and
its Quarterly Report on Form 10-Q for the fiscal quarter ended November 27,
1999 and will file its Quarterly Report for the fiscal quarter ended May
27, 2000 within the next five days. The Form 10-K includes the audited
financial statements for fiscal 2000, audited and restated financial
statements for fiscal years 1999 and 1998 and unaudited restated financial
statements for six of the eight fiscal quarters of fiscal 1999 and 2000.
RITE AID ANNOUNCES FINANCIAL RESULTS - PAGE 5
The Company said that it did not file restated financial statements for
fiscal 1997, as it had previously announced it would, because given the
substantial time, effort and expense devoted over the last seven months to
review, assess, reconcile, prepare and audit financial statements for
fiscal 2000, 1999 and 1998, it believes it would require an unreasonable
effort and expense to conduct a similar process to restate fiscal 1997.
This press release may contain forward-looking statements, which are
subject to certain risks and uncertainties that could cause actual results
to differ materially from those expressed or implied in the forward-looking
statements. Factors that could cause actual results to differ materially
from those expressed or implied in such forward-looking statements include
our high level of indebtedness and our ability to refinance our substantial
debt obligations which mature in August and September 2002, our ability to
make interest and principal payments on our debt and satisfy the other
covenants contained in our credit facilities and other debt agreements, our
ability to improve the operating performance of our existing stores, and,
in particular, our new and relocated stores in accordance with our new
management's long term strategy, the outcomes of pending lawsuits and
governmental investigations, both civil and criminal, involving our
financial reporting and other matters, the sale of PCS Health Systems, Inc.
, which we are currently negotiating but which may not be consummated,
competitive pricing pressures, continued consolidation of the drugstore
industry, third-party prescription reimbursement levels, regulatory changes
governing pharmacy practices, general economic conditions and inflation,
interest rate movements, access to capital and merchandise supply
constraints, and our failure to develop, implement and maintain reliable
and adequate internal accounting systems and controls. Consequently, all of
the forward-looking statements made in this press release are qualified by
these and other factors, risks and uncertainties. Readers are also directed
to consider other risks and uncertainties discussed in documents filed by
the Company with the Securities and Exchange Commission.
Rite Aid is one of the nation's leading drugstore chains with annual
revenues of over $14 billion and approximately 3,800 stores in 30 states
and the District of Columbia. Rite Aid owns PCS Health Systems, Inc., which
provides pharmacy benefit management programs and services that can help
improve patient health and reduce health care costs. Rite Aid also owns
approximately 18 percent of drugstore.com, a leading online source for
health, beauty and pharmacy products. Information about Rite Aid, including
corporate background and press releases, can be found at the company's Web
site at www.RITEAID.com.
RITE AID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
THIRTEEN WEEKS ENDED MAY 29, 1999
MAY 27,2000 (AS RESTATED)
---------------------- -----------------------
<S> <C> <C>
REVENUES $3,775,505 $3,626,142
COSTS AND EXPENSES:
Cost of goods sold, including occupancy costs 2,926,270 2,754,207
Selling, general and
administrative expenses....................... 872,686 776,605
Goodwill amortization......................... 15,095 14,208
Interest expense.............................. 171,811 97,361
Store closing, impairment and other charges... 15,879 28,238
---------------------- -----------------------
4,001,741 3,670,619
---------------------- -----------------------
Income (loss) before income taxes......... (226,236) (44,477)
INCOME TAXES (BENEFIT)........................... 11,312 (697)
---------------------- -----------------------
Net income (loss)......................... $(237,548) $(43,780)
====================== =======================
</TABLE>
RITE AID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FEBRUARY 27, FEBRUARY 28,
FEBRUARY 26, 1999 1998
2000 (AS RESTATED) (AS RESTATED)
---------------- --------------------- ---------------------
<S> <C> <C> <C>
REVENUES $14,681,442 $12,782,890 $11,533,423
COSTS AND EXPENSES:
Cost of goods sold, including occupancy costs 11,412,774 9,743,835 8,603,318
Selling, general and administrative expenses 3,632,170 3,144,134 2,783,134
Goodwill amortization 56,832 29,227 26,480
Store closing, impairment and other charges 163,185 192,551 148,560
Interest expense 520,336 277,226 209,152
Share of loss from equity investment 11,893 448 1,886
---------------- --------------------- ---------------------
15,797,190 13,387,421 11,772,530
---------------- --------------------- ---------------------
Loss before income taxes (1,115,748) (604,531) (239,107)
INCOME TAXES EXPENSE (BENEFIT) 8 (182,049) (52,916)
---------------- --------------------- ---------------------
Loss before cumulative effect of accounting
change (1,115,756) (422,482) (186,191)
Cumulative effect of accounting change, net
of income tax benefit of $18,200 (27,300) -- --
---------------- --------------------- ---------------------
Net loss $ (1,143,056) $ (422,482) $ (186,191)
================ ===================== =====================
BASIC AND DILUTED LOSS PER SHARE
Loss before cumulative effect of accounting change $(4.34) $(1.64) $(0.74)
Cumulative effect of accounting change, net $(0.11) $-- $--
---------------- --------------------- ---------------------
Net loss $(4.45) $(1.64) $(0.74)
================ ===================== =====================
</TABLE>
<TABLE>
<CAPTION>
RITE AID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEAR ENDED FEBRUARY 26, 2000
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
FISCAL YEAR 1999 FISCAL YEAR 1998
AS REPORTED AS REPORTED
IN 1999 RESTATEMENT IN 1999 RESTATEMENT
FORM 10-K ADJUSTMENTS AS RESTATED FORM 10-K ADJUSTMENTS AS RESTATED
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<S> <C> <C> <C> <C> <C> <C>
REVENUES $12,731,900 $50,990 $12,782,890 $11,375,105 $ 158,318 $11,533,423
COSTS AND EXPENSES:
Costs of goods sold,
including occupancy
costs 9,396,432 347,403 9,743,835 8,290,888 312,430 8,603,318
Selling, general and
administrative expenses 2,639,739 504,843 3,144,582 2,375,636 409,384 2,785,020
Goodwill amortization 44,090 (14,863) 29,227 36,452 (9,972) 26,480
Interest expense 194,733 82,493 277,226 159,752 49,400 209,152
Store closing,
impairment and other
charges 257,336 (64,785) 192,551 148,560 148,560
------------------------------------------------------------------------------
12,532,330 855,091 13,387,421 10,862,728 909,802 11,772,530
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Income (loss)
before income taxes 199,570 (804,101) (604,531) 512,377 (751,484) (239,107)
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INCOME TAXES............... 55,884 (237,933) (182,049) 206,507 (259,423) (52,916)
------------------------------------------------------------------------------
Net income (loss).. $143,686 $(566,168) $(422,482) $305,870 $(492,061) $(186,191)
==============================================================================
BASIC AND DILUTED EARNINGS
(LOSS) PER SHARE.......
$0.55 $(2.19) $(1.64) $1.22 $(1.96) $(0.74)
</TABLE>
