Rite Aid 2014 Annual Report Download - page 33

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(2) These charges are related to new stores (open at least 3 years) and relocated stores (relocated in
the last 2 years) and significant strategic remodels (remodeled in the last year) that did not meet
their recoverability test during the current period. These stores have not met our original return on
investment projections and have a historical loss of at least 2 years. Their future cash flow
projections do not recover their current carrying value. Of this total, 1, 14 and 19 stores for fiscal
years 2014, 2013 and 2012, respectively have been fully impaired.
(3) These charges are related to the remaining active stores that did not meet the recoverability test
during the current period. These stores have a historical loss of at least 2 years. Their future cash
flow projections do not recover their current carrying value. Of this total, 14, 43 and 43 stores for
fiscal years 2014, 2013 and 2012, respectively have been fully impaired.
The primary drivers of our impairment charges are each store’s current and historical operating
performance and the assumptions that we make about each store’s operating performance in future
periods. Projected cash flows are updated based on the next year’s operating budget which includes the
qualitative factors noted above. We are unable to predict with any degree of certainty which individual
stores will fall short or exceed future operating plans. Accordingly, we are unable to describe future
trends that would affect our impairment charges, including the likely stores and their related asset
values that may fail their recoverability test in future periods.
To the extent that actual future cash flows differ from our projections materially, because of the
reasons discussed above, certain stores that are either not impaired or partially impaired in the current
period may be further impaired in future periods. A 100 basis point decrease in our future sales
assumptions as of March 1, 2014 would have resulted in an additional fiscal 2014 impairment charge of
$0.8 million. A 100 basis point increase in our future sales assumptions as of March 1, 2014 would have
reduced the fiscal 2014 impairment charge by $0.7 million. Changes in our discount rate of 50 basis
points would not have a material impact on the total impairment recorded in fiscal 2014.
Lease Termination Charges: Charges to close a store, which principally consist of continuing lease
obligations, are recorded at the time the store is closed and all inventory is liquidated, pursuant to the
guidance set forth in ASC 420, ‘‘Exit or Disposal Cost Obligations.’’ We calculate our liability for
closed stores on a store-by-store basis. The calculation includes the discounted effect of future
minimum lease payments and related ancillary costs, from the date of closure to the end of the
remaining lease term, net of estimated cost recoveries that may be achieved through subletting
properties or through favorable lease terminations. We evaluate these assumptions each quarter and
adjust the liability accordingly. As part of our ongoing business activities, we assess stores and
distribution centers for potential closure and relocation. Decisions to close or relocate stores or
distribution centers in future periods would result in lease termination charges for lease exit costs and
liquidation of inventory, as well as impairment of assets at these locations.
In fiscal 2014, 2013 and 2012, we recorded lease termination charges of $28.2 million, $46.0 million
and $48.1 million, respectively. These charges related to changes in future assumptions, interest
accretion and provisions for 15 stores in fiscal 2014, 14 stores in fiscal 2013 and 23 stores in fiscal 2012.
Of the approximate 40 store closures for fiscal 2015, we anticipate 15 will require a store lease closing
provision.
Interest Expense
In fiscal 2014, 2013, and 2012, interest expense was $424.6 million, $515.4 million and
$529.3 million, respectively. The reduction in interest expense in fiscal 2014 compared to fiscal 2013 is
primarily the result of refinancing during the fourth quarter of fiscal 2013 and the first and second
quarters of fiscal 2014. The reduction in interest expense in fiscal 2013 compared to fiscal 2012 is
primarily due to one less week in fiscal 2013.
The annual weighted average interest rates on our indebtedness in fiscal 2014, 2013 and 2012 were
6.4%, 7.1% and 7.4%, respectively.
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