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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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|_| Soliciting Material Pursuant to ss.240.14a-12
RITE AID CORPORATION
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1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which
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Filed by Rite Aid Corporation Pursuant to Rule 14a-6(b)
Under the Securities Exchange Act of 1934
On Thursday, December 21, 2006 at 10:30 a.m. Eastern Time, Rite Aid
Corporation hosted an earnings conference call to discuss the company's
financial results for its third quarter ended December 2, 2006. The following
are excerpted portions from the transcript of the call relating to the pending
acquisition of the Brooks and Eckerd drugstore chains from The Jean Coutu
Group (PJC) Inc.
Note: The excerpts below do not contain a transcript of the entire
conference call, and the transcript excerpts may contain inaccuracies in the
reporting of the conference call. A playback of the call is available at
www.riteaid.com and should be considered the authoritative source of this
content. The playback will be available on Rite Aid's website until the
company's next conference call.
This document may contain forward-looking statements, which are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those expressed or implied in the forward-looking statements.
Factors that could cause actual results to differ materially from those
expressed or implied in such forward-looking statements include our high level
of indebtedness, our ability to make interest and principal payments on our
debt and satisfy the other covenants contained in our senior secured credit
facility and other debt agreements, our ability to improve the operating
performance of our existing stores in accordance with our long term strategy,
our ability to hire and retain pharmacists and other store personnel, the
efforts of private and public third-party payors to reduce prescription drug
reimbursements and encourage mail order, competitive pricing pressures,
continued consolidation of the drugstore industry, changes in state or federal
legislation or regulations, the outcome of lawsuits and governmental
investigations, general economic conditions and inflation, interest rate
movements, access to capital, the ability of Rite Aid to consummate the
transaction with Jean Coutu Group and realize the benefits of such transaction
and our ability to assume the senior subordinated notes. Consequently, all of
the forward-looking statements made in this press release are qualified by
these and other factors, risks and uncertainties. Readers are also directed to
consider other risks and uncertainties discussed in documents filed by the
Company with the Securities and Exchange Commission. Forward-looking
statements can be identified through the use of words such as "may", "will",
"intend", "plan", "project", "expect", "anticipate", "could", "should",
"would", "believe", "estimate", "contemplate", and "possible".
ADDITIONAL INFORMATION AND WHERE TO FIND IT
Rite Aid has filed with the Securities and Exchange Commission a proxy
statement in connection with the proposed transaction with the Jean Coutu
Group. The proxy statement has been mailed to the stockholders of Rite Aid.
STOCKHOLDERS OF RITE AID ARE ADVISED TO READ THE PROXY STATEMENT BECAUSE IT
CONTAINS IMPORTANT INFORMATION. Such proxy statement and other relevant
documents may also be obtained, free of charge, on the Securities and Exchange
Commission's website
(http://www.sec.gov) or by contacting our Secretary, Rite Aid Corporation, 30
Hunter Lane, Camp Hill, Pennsylvania 17011.
PARTICIPANTS IN THE SOLICITATION
Rite Aid and certain persons may be deemed to be participants in the
solicitation of proxies relating to the proposed transaction. The participants
in such solicitation may include Rite Aid's executive officers and directors.
Further information regarding persons who may be deemed participants is
available in Rite Aid's proxy statement filed with the Securities and Exchange
Commission in connection with the transaction.
* * *
Operator
Good morning. My name is Tina, and I will be your conference operator today.
At this time I would like to welcome everyone to the Rite Aid third quarter
results conference call. I would now like to turn the call over to Kevin
Twomey, Chief Financial Officer for Rite Aid. Mr. Twomey, you may begin your
conference.
Kevin Twomey - Rite Aid Corporation - CFO
Thank you, Tina. Season's greetings to everyone. We welcome you to our third
quarter conference call. Mary Sammons, our President and CEO, and Jim
Mastrian, our Chief Operating Officer, are also on the call with me.
Our agenda for today's call will be as follows: Mary will give an overview of
our third quarter and a brief update on where we stand with the Brooks-Eckerd
acquisition. I will then review the third quarter financial results and
discuss guidance for fiscal 2007. Mary will then comment on several recent
industry-related topics, and then we'll take questions.
Before we start, I would like to remind you that today's conference call
includes certain forward-looking statements. These forward-looking statements
are made in the context of certain risks and uncertainties that could cause
actual results to differ. Also, we will be using a non-GAAP financial measure.
The risks, uncertainties, and definition of the non-GAAP financial measure,
along with a reconciliation to the GAAP measure are described in more detail
in our SEC filings.
Finally, I remind everyone we are soliciting proxies in connection with the
acquisition of the Brooks and Eckerd stores and we have filed a proxy
statement with the SEC. You should reference the proxy statement for more
information. With that in mind, let's get started. Mary?
Mary Sammons - Rite Aid Corporation - President, CEO
Thanks, Kevin.
Good morning, everyone, and thank you for joining us today to discuss our
third quarter of fiscal 2007. We're pleased with our results as our adjusted
EBITDA improved nearly 14% year-over-year, and our strong pharmacy trends
continued with solid gains in pharmacy same-store sales and prescription count
growth. Our team also did a good job at controlling expenses. At the same time
we continued to improve our existing business, we also made tremendous
progress on our plans for the integration of the Brooks and Eckerd chains. We
will continue to focus on building on our existing trends while at the same
time effecting a smooth transition once the transaction closes. I will give
you an update on the progress of the acquisition in a moment, but first let's
talk about the quarter.
* * *
As for our new store growth program, you saw from our release that we opened
23 new and relocated stores this quarter. This was short of our third quarter
goal, and as a result we now expect to open 110 new and relocated stores this
fiscal year versus our original projection of 125. Delays in the title and
permit process caused most of the shortfall. We expect the stores that flipped
to open early in our next fiscal year. We remain very committed to our new and
relocated store program, based on our new customer role design, and it will be
exciting to also bring these new stores to the new markets we will be entering
after the acquisition closes.
* * *
Now let's talk about the Brooks - Eckerd acquisition. As you know, we took two
significant steps towards completing the transaction during the third quarter.
First, we set January 18th as the date for our special stockholder meeting to
vote on the acquisition. Our proxy was mailed to stock holders at the end of
November, and the votes are starting to come in. We expect the acquisition to
be approved because we believe stockholders understand that greater scale will
make their company more competitive, better able to take advantage of the
growth in the retail drugstore industry, and better able to withstand both
industry and competitive challenges to our business.
Rite Aid and the Jean Coutu Group also filed with the FTC for
Hart-Scott-Rodino regulatory review and received, as expected, a request for
additional information. Both companies have begun responding to what's
commonly called a "second request" and should complete all submissions next
month. So far this process has gone smoothly, and we expect it to continue
that way. As I said at the beginning of my remarks, we are well into the
planning for the integration, including working through conversion plans and
timetables and organizing our conversion team so we can begin immediately
after the close.
Our plan is to begin by converting 23 pilot stores that represent a variety of
Brooks and Eckerd store footprints within the first three months, which will
give us the chance to test and perfect all phases of the conversion process.
That includes training, systems, distribution, merchandising, and
redecorating. Because we want to ensure that stores are converted with as
little disruption as possible to both customers and associates, this pilot is
a critical piece of our integration plan. We'll also begin integrating the
Brooks and Eckerd distribution centers and expect to complete this in the
first 90 days after close. This is important so the centers can support the
planogram and merchandise mix changes for the acquired stores with all stores
expected to be converted, as we said, twelve months after the close. I will
give you more specifics on how the conversion will roll out on our next
analyst call in April.
We are also in the process of putting our field management structure in place
for the additional stores. We will add two separate operating divisions, each
headed by a Senior Vice President of Operations with seven new regions, each
headed by a regional Vice President and a regional Vice President of Pharmacy
just like the field organizational structure that exists at Rite Aid today.
This will allow us to focus on the unique needs of the acquired stores while
maintaining continuity and focus on our current business. When the integration
is completed, we will realign geographies to ensure a total integrated field
approach among all of our stores.
As members of our management team meet with more Brooks and Eckerd associates,
they continue to be impressed with their talent, dedication and
professionalism, and we look forward to having them join the Rite Aid team.
Because communication is so important during a transition like this, we
continue to update associates on the integration planning and career
opportunities with Rite Aid and are getting a very enthusiastic response.
Now I will turn it over to Kevin for more details on the quarter.
* * *
Operator
Operator, we'd now be happy to take questions.
* * *
Operator
Your next question comes from the line of Ed Kelly with Credit Suisse.
* * *
Ed Kelly - Credit Suisse - Analyst
Just one last question for you, Mary. Eckerd's front end has been a pretty
good-sized issue under Coutu, and it was already pretty bad when they acquired
it, only 26% of the mix seems pretty low. Can you just walk us through maybe
what some of the challenges have been, what your initiatives are to get front
end productivity up, and how quickly do you think you can do that? It just
seems like a huge opportunity when you run the numbers on that.
Mary Sammons - Rite Aid Corporation - President, CEO
Well, when we built our models, we did not factor in any huge increases, but
we obviously looked at their mix of sales compared to ours on the front, and
clearly there is a big gap. We are about 35% more productive on the front end
on an average store in the same areas that a Brooks Eckerd store is, so we
believe that by getting in our planogram mix, by getting in our assortment,
the businesses that we're in, being faster in introducing new items, more
current on planogram changes, our seasonal program, and our event marketing
and merchandising, kind of getting away from sort of a cherry picker
promotional strategy that we will grow their productivity on the front, but
that kind of initiative takes a little bit of time. You don't get it overnight
because you have to get your customer really seeing what you're doing and
responding to it.
Ed Kelly - Credit Suisse - Analyst
Is there any reason those stores couldn't get close to your 35%?
Mary Sammons - Rite Aid Corporation - President, CEO
No. Over time they should be able to achieve that same level of front end
sales per store.
Kevin Twomey - Rite Aid Corporation - CFO
Several of the things that Mary mentioned, Ed, are dependent upon the system
conversion and people changing their work habits and things of that nature.
Ed Kelly - Credit Suisse - Analyst
Improving service levels, all that stuff?
Mary Sammons - Rite Aid Corporation - President, CEO
Right. It is the combination of all of it. That's why you want to give it time
to really take hold.
* * *
Operator
Your next question comes from the line of John Heinbockel with Goldman Sachs.
* * *
John Heinbockel - Goldman Sachs - Analyst
Finally, when you think about the remodel effort at the Eckerd stores, how is
that going to play out in terms of prioritizing the actual remodels? Will
there be more clustering of stores geographically or doing it by their
performance levels - how will that shake out?
Mary Sammons - Rite Aid Corporation - President, CEO
We have built a pretty detailed plan already as to how we would bring groups
of stores on, and I mentioned the 23 pilot stores first so that we have first
hand experience with each of the different kind of prototype versions of the
store. And then we will begin working out around the distribution centers that
have converted, so that will be sort of like the first condition, that the
Brooks Eckerd distribution center that supports the group of stores will have
to convert. And that's why getting all of the distribution centers converted
in that first 90 days is important because then we can begin to spread the
effort out around all the distribution centers so that we can better balance
the workload for our supervisors out in the field. And that's important, too,
because you don't want to totally disrupt a whole district at one time either.
Kevin Twomey - Rite Aid Corporation - CFO
John, there is a difference between what we call installing the decor package
and making it look and feel like a Rite Aid versus a remodel. The remodeling
is going to be spread out over several years, but the first twelve months
after close, we're going to install the decor package and the paint and powder
and make it look and feel like a Rite Aid in all the stores.
John Heinbockel - Goldman Sachs - Analyst
With the remodel, will you try to cluster into old Philadelphia stores or will
it be spread out?
Mary Sammons - Rite Aid Corporation - President, CEO
We have not built the plan for that beyond the first twelve months, John, but
we will do that as we get through the process of understanding what
consolidation we'll end up doing or what divestitures there will be, and then
we will also plot in our plans for relocations as well as new stores in an
area and build our remodel program around that.
* * *
Operator
Your next question comes from the line of Steve Chick with J.P. Morgan.
* * *
Steve Chick - JP Morgan - Analyst
Second thing. Just with your cap-ex guidance, I think you shifted some new
stores falling into next year, but your cap-ex guidance I think stays the
same. Are you still going to spend the $450 to $500 million in anticipation of
opening the stores up next year or is it just a timing thing?
Kevin Twomey - Rite Aid Corporation - CFO
It is, Steve, and also there is some cap-ex in front of the acquisition in
order for us to keep things going as smoothly as possible. We're going to be
making some capital expenditures before closing.
* * *
Operator
Your next question comes from the line of Karen Miller with Bear Stearns.
* * *
Karen Miller - Bear Stearns - Analyst
Kevin, maybe you could tell me this. Jean Coutu has requested a definitive
resolution regarding the transfer of the 8.5% subordinated notes. Would this
impede closing the transaction if the courts don't decide and you guys are
ready to close and you receive all the other green lights from your
shareholders as well as any antitrust issues?
Kevin Twomey - Rite Aid Corporation - CFO
No, we're not going to let anything get in the way of closing the transaction
as soon as we can.
Karen Miller - Bear Stearns - Analyst
Okay. So you plan to proceed even if there hasn't been a judgment yet?
Kevin Twomey - Rite Aid Corporation - CFO
We're requesting the expeditious treatment of this thing, and we're
approaching it in a way so that all uncertainty is removed before we close,
Karen.
Mary Sammons - Rite Aid Corporation - President, CEO
We anticipate the suit and any appeal being resolved prior to closing.
Karen Miller - Bear Stearns - Analyst
Okay. Great. Thanks. That's helpful.
* * *
Operator
Your final question comes from the line of Reid Kim with Merrill Lynch.
Reid Kim - Merrill Lynch - Analyst
Thanks. Just on the timing of the transaction, once you get shareholder
approval (assuming you get it), will you go out with your financing proposal
pretty soon thereafter?
Kevin Twomey - Rite Aid Corporation - CFO
Yes. Once we know the closing, about three weeks before the closing we'll be
asking for credit ratings, and then probably as soon as they get out there,
we'll hit the road which will be probably two weeks or so before the closing,
and be raising the money.
Reid Kim - Merrill Lynch - Analyst
If for any reason the court took its time to get back to Jean Coutu about the
determination on the 8.5s, would you put things off a little bit to wait for
that or would you just go ahead?
Kevin Twomey - Rite Aid Corporation - CFO
We don't want to speculate about the court doing this or doing that. It is
just going to proceed as it does.
Mary Sammons - Rite Aid Corporation - President, CEO
We still anticipate that it is going to get resolved prior to closing.
* * *
Kevin Twomey - Rite Aid Corporation - CFO
Happy holidays, everybody. Thanks for the interest.
Mary Sammons - Rite Aid Corporation - President, CEO
Thank you very much.
Operator
Thank you. This concludes today's Rite Aid third quarter results conference
call. You may now disconnect.