United States Securities and Exchange Commission Form
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ፤ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Fiscal Year Ended March 4, 2017 OR អ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Transition Period From To Commission File Number 1-5742 RITE AID CORPORATION (Exact name of registrant as specified in its charter) Delaware 23-1614034 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 30 Hunter Lane, Camp Hill, Pennsylvania 17011 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: (717) 761-2633 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, $1.00 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ፤ No អ Indicate by check mark if the registrant is not required to file reports pursuant to section 13 or section 15(d) of the Exchange Act. Yes អ No ፤ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ፤ No អ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ፤ No អ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. អ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of ‘‘Large Accelerated Filer,’’ ‘‘Accelerated Filer,’’ ‘‘Smaller Reporting Company’’ and ‘‘Emerging Growth Company’’ in Rule 12b-2 of the Exchange Act. Large Accelerated Filer ፤ Accelerated Filer អ Non-Accelerated Filer អ Smaller reporting company អ (Do not check if a Emerging growth company អ smaller reporting company) If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. អ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes អ No ፤ The aggregate market value of the voting and non-voting common stock of the registrant held by non-affiliates of the registrant based on the closing price at which such stock was sold on the New York Stock Exchange on August 27, 2016 was approximately $7,769,703,679. For purposes of this calculation, only executive officers and directors are deemed to be affiliates of the registrant. As of April 17, 2017 the registrant had outstanding 1,053,663,926 shares of common stock, par value $1.00 per share. DOCUMENTS INCORPORATED BY REFERENCE Portions of the proxy statement for the registrant’s annual meeting of stockholders to be held on or before July 17, 2017 are incorporated by reference into Part III. TABLE OF CONTENTS Page Cautionary Statement Regarding Forward-Looking Statements .......................... 3 PA RT I ITEM 1. Business ...................................................... 6 ITEM 1A. Risk Factors ................................................... 15 ITEM 1B. Unresolved Staff Comments ....................................... 28 ITEM 2. Properties ..................................................... 28 ITEM 3. Legal Proceedings ............................................... 31 ITEM 4. Mine Safety Disclosures .......................................... 34 PA RT I I ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .................................... 35 ITEM 6. Selected Financial Data ........................................... 37 ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations .................................................. 38 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk ................ 64 ITEM 8. Financial Statements and Supplementary Data .......................... 65 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ................................................... 65 ITEM 9A. Controls and Procedures .......................................... 65 ITEM 9B. Other Information .............................................. 68 PART III ITEM 10. Directors, Executive Officers and Corporate Governance .................. 69 ITEM 11. Executive Compensation .......................................... 69 ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ........................................... 69 ITEM 13. Certain Relationships and Related Transactions, and Director Independence .... 69 ITEM 14. Principal Accountant Fees and Services ............................... 69 PA RT I V ITEM 15. Exhibits and Financial Statement Schedule ............................. 70 SIGNATURES ............................................................ 154 2 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This report, as well as our other public filings or public statements, include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward- looking statements are often identified by terms and phrases such as ‘‘anticipate,’’ ‘‘believe,’’ ‘‘intend,’’ ‘‘estimate,’’ ‘‘expect,’’ ‘‘continue,’’ ‘‘should,’’ ‘‘could,’’ ‘‘may,’’ ‘‘plan,’’ ‘‘project,’’ ‘‘predict,’’ ‘‘will’’ and similar expressions and include references to assumptions and relate to our future prospects, developments and business strategies. Factors that could cause actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to: • our high level of indebtedness; • our ability to make interest and principal payments on our debt and satisfy the other covenants contained in our credit facilities and other debt agreements; • the continued impact of private and public third party payors reduction in prescription drug reimbursement rates and their ongoing efforts to limit access to payor networks, including through mail order; • our ability to achieve the benefits of our efforts to reduce the costs of our generic and other drugs, and our ability to achieve drug pricing efficiencies; • the inability to complete the proposed Merger (as defined below), due to the failure to obtain stockholder approval to adopt the Merger Agreement (as defined below) or failure to satisfy the remaining conditions to the completion of the Merger, including receipt of required regulatory approvals and other risks related to obtaining the requisite consents to the Merger; • the inability to complete the proposed Sale (as defined below) to a wholly owned subsidiary of Fred’s, Inc. (NASDAQ: FRED) (‘‘Fred’s’’) due to the failure to satisfy the conditions to the completion of the Sale, including receipt of required regulatory approvals, and other risks related to obtaining the requisite consents to the Sale; • the likelihood that, if the Merger is completed, the per share merger consideration would be $6.50 per share as a result of divestitures required to complete the Merger; • the continuing effect of the pending Merger or Sale, including the effect of the announcement of the Amendment (as defined below), on our business relationships (including, without limitation, customers and suppliers), operating results and business generally, and the risk that there may be a material adverse change of Rite Aid as a result of uncertainty surrounding the transaction; • our ability to continue to improve the operating performance of our stores in accordance with our long term strategy; • our ability to maintain or grow prescription count and realize front-end sales growth; • our ability to hire and retain qualified personnel; • decisions to close additional stores and distribution centers or undertake additional refinancing activities (subject to the limitations in the Merger Agreement), which could result in charges to our operating statement; • our ability to manage expenses and working capital; • continued consolidation of the drugstore and the pharmacy benefit management (‘‘PBM’’) industries; 3 • the risk that changes in federal or state laws or regulations, including the Health Care Education Affordability Reconciliation Act, the repeal of all or part of the Patient Protection and the Affordable Care Act (or ‘‘Patient Care Act’’) and any regulations enacted thereunder may occur; • the risk that provider