Rite Aid 2016 Annual Report Download - page 37

As a result of the Acquisition, and the related addition of the Pharmacy Services segment, we now
refer to our cost of goods sold as our cost of revenues, as these costs are now inclusive of the cost of
prescription drugs sold through the Pharmacy Services segment’s retail pharmacy network under
contracts where it is the principal.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a full service pharmacy retail healthcare company, providing our customers and
communities with the highest level of care and service through various programs we offer through our
two reportable business segments, our Retail Pharmacy segment and our new Pharmacy Services
segment. We accomplish our goal of delivering comprehensive care to our customers through our 4,561
retail drugstores, 78 RediClinic walk-in retail health clinics and transparent and traditional EnvisionRx
and MedTrak pharmacy benefit managers with over 4.0 million plan members. We also offer fully
integrated mail-order and specialty pharmacy services through Orchard Pharmaceutical Services.
Additionally through EIC, EnvisionRx also serves one of the fastest-growing demographics in
healthcare: seniors enrolled in Medicare Part D. When combined with our retail platform, this
comprehensive suite of services allows us to provide additional value and broader choice to customers,
patients and payors and allows us to succeed in today’s evolving healthcare marketplace.
We currently have two reportable business segments: Retail Pharmacy and Pharmacy Services.
Retail Pharmacy Segment
Our Retail Pharmacy segment sells brand and generic prescription drugs, as well as an assortment
of front-end products including health and beauty aids, personal care products, seasonal merchandise,
and a large private brand product line. Our Retail Pharmacy segment generates the majority of its
revenue through the sale of prescription drugs and front-end products at our 4,561 retail locations. In
addition, the Retail Pharmacy segment includes 78 RediClinic walk-in retail clinics, of which 43 are
located within Rite Aid retail stores in the Baltimore/Washington D.C, Philadelphia and Seattle
markets.
Pharmacy Services Segment
Our Pharmacy Services segment, which was acquired on June 24, 2015 through our acquisition of
EnvisionRx, provides a full range of pharmacy benefit services. The Pharmacy Services segment
provides both transparent and traditional pharmacy benefit management (‘‘PBM’’) options through its
EnvisionRx and MedTrak PBMs, respectively. EnvisionRx also offers fully integrated mail-order and
specialty pharmacy services through Orchard Pharmaceutical Services; access to the nation’s largest
cash pay infertility discount drug program via Design Rx; an innovative claims adjudication software
platform in Laker Software; and a national Medicare Part D prescription drug plan through EIC’s
EnvisionRx Plus product offering. The segment’s clients are primarily employers, insurance companies,
unions, government employee groups, health plans, Managed Medicaid plans, Medicare plans, other
sponsors of health benefit plans and individuals throughout the United States.
Pending Merger with Walgreens Boots Alliance, Inc.
On October 27, 2015, we entered into the Merger Agreement with WBA, and Victoria Merger
Sub. Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Victoria
Merger Sub will merge with and into Rite Aid, with Rite Aid surviving the Merger as a 100 percent
owned direct subsidiary of WBA. On February 4, 2016, the proposal to adopt the Merger Agreement
was approved by holders of approximately 74% of our outstanding common stock entitled to vote as of
the record date of the special meeting. Completion of the Merger is subject to various closing
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