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Rite Aid Corp. Reports Operating Results (10-Q)

July 06, 2010 | About:
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10qk

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Rite Aid Corp. (RAD) filed Quarterly Report for the period ended 2010-05-29.

Rite Aid Corp. has a market cap of $816.64 million; its shares were traded at around $0.92 with and P/S ratio of 0.03. RAD is in the portfolios of Louis Moore Bacon of Moore Capital Management, LP, Jim Simons of Renaissance Technologies LLC, George Soros of Soros Fund Management LLC, Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

Pharmacy same store sales decreased by 0.9% in the thirteen week period ended May 29, 2010 compared to the thirteen week period ended May 30, 2009. The decrease was primarily driven by a same store prescription decline of 1.7%, which was impacted by an increase in 90-day prescriptions and continued reimbursement rate pressure, in both government and private third party payor plans, an approximate 1.4% negative impact from new generic introductions and a weaker allergy and flu season in this year's first quarter compared to the comparable period last year which benefitted from an anticipated outbreak of H1N1 influenza.

Gross margin was 26.8% of sales for the thirteen week period ended May 29, 2010 compared to 27.2% of sales for the thirteen week period ended May 30, 2009 due to lower pharmacy and front-end gross margin. The decrease in gross margin was due primarily to a reduction in reimbursement rates, from both government and private third party payors, fewer new generics and fewer cost reductions on existing generics. The year over year decline in pharmacy margin as a percent of sales was approximately 1.0% better than last quarter. The pharmacy margin pressure slowed as we began to cycle the more significant reductions in maximum allowable costs (MAC) of new generics which occurred last year. Front end gross margin was lower due to decreased sales, but was essentially flat as a percentage of sales.

Our senior secured credit facility includes a $1.175 billion revolving credit facility. Borrowings under this revolving credit facility bear interest at LIBOR plus 4.25% (with a minimum LIBOR of 3.00%), if we choose to make LIBOR borrowings, or at Citibank's base rate plus 3.25% (with a minimum base rate of 4.00%). The interest rate can fluctuate between LIBOR plus 4.25% and LIBOR plus 4.75%, based upon the amount of revolver availability, as defined in the senior credit facility. We are required to pay fees between 0.75% and 1.00% per annum on the daily unused amount of the revolving credit facility, depending on the amount of revolver availability. Amounts drawn under this credit facility become due and payable in September 2012.

In July 2008, we issued a senior secured term loan (Tranche 3 Term Loan) of $350.0 million under our existing senior secured credit facility. The Tranche 3 Term Loan was issued at a discount of 90% of par. The Tranche 3 Term Loan matures on June 4, 2014 and bears interest at LIBOR (with a minimum LIBOR rate of 3.00%) plus 3.00%, if we choose to make LIBOR borrowings, or at Citibank's base rate (with a minimum base rate of 4.00%) plus 2.00%. We must make mandatory prepayments of the Tranche 3 Term Loan with the proceeds of asset dispositions (subject to certain limitations), with a portion of any excess cash flow generated by us (as defined in the senior secured credit facility) and with the proceeds of certain issuances of equity and debt (subject to certain exceptions). If at any time total debt outstanding under the senior secured credit facility exceeds the borrowing base, prepayment of the Tranche 3 Term Loan may also be required.

In June 2009, we issued a senior secured term loan (the "Tranche 4 Term Loan") of $525.0 million under our existing secured credit facility. In October 2009, we issued an additional $125.0 million under the Tranche 4 Term Loan. The Tranche 4 Term Loan matures on June 10, 2015 and bears interest at a rate per annum equal to, at our option, either (a) an adjusted LIBOR rate (with a LIBOR floor of 3.00% per annum) plus 6.50% or (b) Citibank's base rate (with a floor of 4.00% per annum) plus 5.50%. We must make mandatory prepayments of the Tranche 4 Term Loan with the proceeds of certain asset dispositions (subject to certain limitations), with a portion of any excess cash flow generated by us (as defined in the senior secured credit facility) and with the proceeds of certain issuances of equity and debt (subject to certain exceptions). If at any time total debt outstanding under the senior secured credit facility exceeds the borrowing base, prepayment of the Tranche 4 Term Loan may also be required. All prepayments of the Tranche 4 Term Loan occurring on or prior to the third anniversary of the initial borrowing of the Tranche 4 Term Loan are subject to a prepayment premium in an amount equal to (i) 5.0% of the principal amount prepaid if such prepayment occurs on or prior to the first anniversary of such borrowing, (ii) 3.0% of the principal amount prepaid if such prepayment occurs on or prior to the second anniversary of such borrowing and (iii) 1.0% of the principal amount prepaid if such prepayment occurs on or prior to the third anniversary of such borrowing.

During the thirteen week period ended May 29, 2010, we spent $40.6 million on capital expenditures, consisting of $13.2 million related to new store construction, store relocation and store remodel projects, $22.0 million related to backstage, infrastructure and maintenance requirements, and $5.4 million related to the purchase of prescription files from independent pharmacists. We plan to make total capital expenditures of approximately $250.0 million during fiscal 2011, consisting of approximately 33% related to new store construction, store relocation and remodels, 20% related to prescription file purchases and 47% related to backstage, infrastructure and maintenance requirements. Management expects that these capital expenditures will be financed primarily with cash flow from operating activities.

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