Rite Aid 2015 Annual Report Download - page 81

RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 28, 2015, March 1, 2014 and March 2, 2013
(In thousands, except per share amounts)
4. Income Per Share (Continued)
option, at a conversion rate of $5.50 per share or 34,621,117 shares of common stock on September 30,
2013. The Convertible Preferred Stock was redeemable by the Company for cash at 105% of the
Cumulative Preferred Stock’s $100.00 per share liquidation preference or $199,937. In an individually
negotiated exchange transaction, the Company exchanged 40,000,000 shares of its common stock, par
value of $1.00 per share, with a market value of $190,400 at the $4.76 per share closing price on
September 30, 2013, for all of the outstanding Convertible Preferred Stock. Accordingly, income
attributable to common stock holders was reduced by $25,603, or $0.03 per diluted share, the value of
the additional 5,378,883 shares of common stock issued upon conversion at the $4.76 per share closing
price.
5. Lease Termination and Impairment Charges
Impairment Charges
The Company evaluates long-lived assets for impairment whenever events or changes in
circumstances indicate that an asset group has a carrying value that may not be recoverable. The
individual operating store is the lowest level for which cash flows are identifiable. As such, the
Company evaluates individual stores for recoverability of assets. To determine if a store needs to be
tested for recoverability, the Company considers items such as decreases in market prices, changes in
the manner in which the store is being used or physical condition, changes in legal factors or business
climate, an accumulation of losses significantly in excess of budget, a current period operating or cash
flow loss combined with a history of operating or cash flow losses or a projection of continuing losses,
or an expectation that the store will be closed or sold.
The Company monitors new and recently relocated stores against operational projections and
other strategic factors such as regional economics, new competitive entries and other local market
considerations to determine if an impairment evaluation is required. For other stores, it performs a
recoverability analysis if it has experienced current-period and historical cash flow losses.
In performing the recoverability test, the Company compares the expected future cash flows of a
store to the carrying amount of its assets. Significant judgment is used to estimate future cash flows.
Major assumptions that contribute to its future cash flow projections include expected sales, gross
profit, and distribution expenses; expected costs such as payroll, occupancy costs and advertising
expenses; and estimates for other significant selling, and general and administrative expenses. Many
long-term macro-economic and industry factors are considered, both quantitatively and qualitatively, in
the future cash flow assumptions. In addition to current and expected economic conditions such as
inflation, interest and unemployment rates that affect customer shopping patterns, the Company
considers that it operates in a highly competitive industry which includes the actions of other national
and regional drugstore chains, independently owned drugstores, supermarkets, mass merchandisers,
dollar stores and internet pharmacies. Additionally, the Company takes into consideration that certain
operating stores are executing specific improvement plans which are monitored quarterly to recoup
recent capital investments, such as an acquisition of an independent pharmacy, which it has made to
respond to specific competitive or local market conditions, or have specific programs tailored towards a
specific geography or market.
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