Rite Aid 2016 Annual Report Download - page 38

conditions, including but not limited to (i) the expiration or earlier termination of the waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (ii) the absence of any
law or order prohibiting the Merger, and (iii) the absence of a material adverse effect on us, as defined
in the Merger Agreement. Under the terms of the Merger Agreement, at the effective time of the
Merger, each share of our common stock, par value $1.00 per share, issued and outstanding
immediately prior to the effective time (other than shares owned by (i) WBA, Victoria Merger Sub or
Rite Aid (which will be cancelled), (ii) stockholders who have properly exercised and perfected
appraisal rights under Delaware law, or (iii) any direct or indirect 100 percent owned subsidiary of Rite
Aid or WBA (which will be converted into shares of common stock of the surviving corporation)) will
be converted into the right to receive $9.00 per share in cash, without interest.
We, WBA and Victoria Merger Sub have each made customary representations, warranties and
covenants in the Merger Agreement, including, among other things, that (i) we and our subsidiaries will
continue to conduct our business in the ordinary course consistent with past practice between the
execution of the Merger Agreement and the closing of the Merger and (ii) we will not solicit proposals
relating to alternative transactions to the Merger or engage in discussions or negotiations with respect
thereto, subject to certain exceptions. Additionally, the Merger Agreement limits our ability to incur
indebtedness for borrowed money and issue additional capital stock, among other things. We currently
anticipate that the Merger will close in the second half of calendar 2016.
Overview of Financial Results
Net Income: Our net income for fiscal 2016 was $165.5 million or $0.16 per basic and diluted
share compared to net income for fiscal 2015 of $2,109.2 million or $2.17 per basic and $2.08 per
diluted share. The operating results for fiscal 2016 include the operating results of EnvisionRx
subsequent to the June 24, 2015 acquisition date. The decline in our operating results was driven
primarily by the prior year reduction of the deferred tax asset valuation allowance of $ 1,841.3 million,
or $1.80 per diluted share for fiscal 2015, which is further described in the ‘‘Income Taxes’’ section
below. Also contributing to the decline was higher depreciation and amortization related to our
acquisition of EnvisionRx and our increased capital spending, higher interest expense to fund the
acquisition of EnvisionRx, higher LIFO charges, loss on debt retirements and transaction costs related
to our acquisition of EnvisionRx and our pending Merger with WBA. These items were partially offset
by an increase in Adjusted EBITDA.
Adjusted EBITDA: Our Adjusted EBITDA for fiscal 2016 was $1,402.3 million or 4.6 percent of
revenues, compared to $1,322.8 million or 5.0 percent of revenues for fiscal year 2015. Adjusted
EBITDA for fiscal 2016 includes the Adjusted EBITDA of EnvisionRx subsequent to the June 24, 2015
acquisition date. The increase in Adjusted EBITDA was driven primarily by Pharmacy Services segment
Adjusted EBITDA of $101.4 million, partially offset by a decrease in Adjusted EBITDA of
$21.9 million by the Retail Pharmacy segment. The decrease in the Retail Pharmacy segment Adjusted
EBITDA was driven primarily by higher selling, general and administrative expenses and a decrease in
pharmacy gross profit, partially offset by an increase in front end gross profit. Please see the section
entitled ‘‘Segment Analysis’’ below for additional details regarding gross profit.
Revenues: Our revenue growth for fiscal 2016 was 15.9% compared to revenue growth of 3.9%
for fiscal 2015. Revenues for fiscal 2016 include revenues of $4,103.5 million, relating to our Pharmacy
Services segment. Fiscal 2016 revenues for our Retail Pharmacy segment were positively impacted by an
increase in same store sales and same store prescription count, partially offset by a negative impact
from generic introductions, lower reimbursement rates and store closings. In addition, revenues for
fiscal 2016 excludes $232.8 million of inter-segment activity that is eliminated in consolidation.
Gross Profit: Our gross profit was positively impacted by $230.8 million of gross profit relating to
our Pharmacy Services segment and an increase of $18.7 million from our Retail Pharmacy segment.
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