Rite Aid 2016 Annual Report Download - page 6

Pharmacy Services Segment—EnvisionRx, a 100 percent owned subsidiary of Rite Aid, is a national,
full-service pharmacy benefit management (‘‘PBM’’) provider that also offers a broad range of
pharmacy-related services. In addition to its transparent and traditional PBM offerings through the
EnvisionRx and MedTrak PBMs, EnvisionRx also offers fully integrated mail-order and specialty
pharmacy services through Orchard Pharmaceutical Services. Through its Envision Insurance Company,
EnvisionRx also serves one of the fastest-growing demographics in healthcare: seniors enrolled in
Medicare Part D. In addition, Envision Rx, through its state of the art Laker Software, performs
prescription adjudication services for its own as well as other PBM’s.
Merger Agreement—On October 27, 2015, Walgreens Boots Alliance, Inc. (NYSE: WBA) and Rite
Aid announced that they had entered into a definitive agreement under which Walgreens Boots
Alliance would acquire all outstanding shares of Rite Aid for $9.00 per share in cash, for a total
enterprise value of approximately $17.2 billion, including acquired net debt. On February 4, 2016, Rite
Aid stockholders voted at a special meeting to approve the adoption of the Agreement and Plan of
Merger. The merger, which is expected to be completed in the second half of calendar 2016, is subject
to the satisfaction of certain remaining customary closing conditions as set forth in the Merger
Agreement and discussed in detail in the definitive proxy statement filed with the U.S. Securities and
Exchange Commission by Rite Aid on December 21, 2015. Additionally, the Merger Agreement limits
our ability to incur indebtedness for borrowed money and issue additional capital stock among other
things. Upon completion of the merger, Rite Aid will be a 100% owned subsidiary of Walgreens Boots
Alliance, and is expected to initially operate under the Rite Aid brand name.
We believe that joining together with Walgreens Boots Alliance will enhance our ability to meet
the health and wellness needs of Rite Aid customers while also delivering significant value for
shareholders. Together with Walgreens Boots Alliance, we can continue building upon our recent
success through access to increased capital that will enhance our store base and expand our
opportunities as part of the first global, pharmacy-led health and wellbeing enterprise.
Our headquarters are located at 30 Hunter Lane, Camp Hill, Pennsylvania 17011, and our
telephone number is [phone]. Our common stock is listed on the New York Stock Exchange
under the trading symbol of ‘‘RAD.’’ We were incorporated in 1968 and are a Delaware corporation.
Industry Trends
The rate of pharmacy sales growth in the United States has slowed in recent years, driven by a
decline in new blockbuster drugs, a longer FDA approval process, drug safety concerns, higher copays
and an increase in the use of generic (non-brand name) drugs, which are less expensive but generate
higher gross margins. However, we expect prescription usage to continue to grow in the coming years
due to the aging U.S. population, increased life expectancy, ‘‘baby boomers’’ continuing to become
eligible for the federally funded Medicare prescription program and new drug therapies. Furthermore,
we expect that the Patient Protection and Affordable Care Act will continue to have a positive impact
on our business as more Americans gain health insurance and prescription drug coverage. Additionally,
rising U.S. healthcare costs and the shortage of primary care physicians are creating opportunities for
pharmacists and drugstores to play a more active role in driving positive health outcomes for patients.
Services such as immunizations, medication therapy management, chronic condition management,
clinics, health coaching and medication compliance counseling extend our efforts well beyond filling
prescriptions. We believe that offerings such as these will gain additional momentum in a rapidly
changing healthcare environment.
In terms of our traditional drug dispensing business, generic prescription drugs continue to help
lower overall costs for customers and third party payors. We believe the utilization of existing generic
pharmaceuticals will continue to increase. The gross profit from a generic drug prescription in the retail
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