Segment Reporting

9 Months Ended

Dec. 02, 2017

Segment Reporting

Segment Reporting

13. Segment Reporting

Prior to June 24, 2015, the Company’s operations were within one reportable segment. As a result of the completion of the Acquisition, the Company has realigned its internal management reporting to reflect two reportable segments, its retail drug stores (“Retail Pharmacy”), and its pharmacy services (“Pharmacy Services”) segments, collectively the “Parent Company”.

The Retail Pharmacy segment’s primary business is the sale of prescription drugs and related consultation to its customers. Additionally, the Retail Pharmacy segment sells a full selection of health and beauty aids and personal care products, seasonal merchandise and a large private brand product line. The Pharmacy Services segment offers a full range of pharmacy benefit management services including plan design and administration, on both a transparent pass-through model and traditional model, formulary management and claims processing. Additionally, the Pharmacy Services segment offers specialty and mail order services, infertility treatment, and drug benefits to eligible beneficiaries under the federal government’s Medicare Part D program.

The Parent Company’s chief operating decision makers are its Parent Company Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Chief Operating Officer-Retail Pharmacy, and the Chief Executive Officer—Pharmacy Services, (collectively the “CODM”). The CODM has ultimate responsibility for enterprise decisions. The CODM determines, in particular, resource allocation for, and monitors performance of, the consolidated enterprise, the Retail Pharmacy segment and the Pharmacy Services segment. The Retail Pharmacy and Pharmacy Services segment managers have responsibility for operating decisions, allocating resources and assessing performance within their respective segments. The CODM relies on internal management reporting that analyzes enterprise results on certain key performance indicators, namely, revenues, gross profit, and Adjusted EBITDA.

The following table is a reconciliation of the Company’s business segments to the condensed consolidated financial statements for the thirteen and thirty-nine week periods ended December 2, 2017 and November 26, 2016:

	Retail Pharmacy		Pharmacy Services		Intersegment Eliminations (1)			Consolidated
Thirteen Week Period Ended
December 2, 2017:
Revenues	$	3,959,002	$	1,445,140	$	(50,972	)	$	5,353,170
Gross Profit	1,087,888		98,835		—			1,186,723
Adjusted EBITDA (2)	88,886		40,363		—			129,249
November 26, 2016:
Revenues	$	4,082,278	$	1,645,835	$	(59,002	)	$	5,669,111
Gross Profit	1,141,794		103,057		—			1,244,852
Adjusted EBITDA (2)	138,903		52,431		—			191,334
Thirty-Nine Week Period Ended
December 2, 2017:
Revenues	$	11,833,195	$	4,451,212	$	(149,703	)	$	16,134,704
Gross Profit	3,203,270		307,069		—			3,510,339
Adjusted EBITDA (2)	264,253		138,237		—			402,490
November 26, 2016:
Revenues	$	12,319,445	$	4,883,070	$	(178,361	)	$	17,024,154
Gross Profit	3,426,265		289,384		—			3,715,649
Adjusted EBITDA (2)	428,864		143,616		—			572,480

(1) Intersegment eliminations include intersegment revenues and corresponding cost of revenues that occur when Pharmacy Services segment customers use Retail Pharmacy segment stores to purchase covered products. When this occurs, both the Retail Pharmacy and Pharmacy Services segments record the revenue on a stand-alone basis.  In accordance with ASC 205-20, the Company reduced its intersegment eliminations to reflect the ongoing cash flows which are expected to continue between the Company and the Disposal Group of $32,438 and $97,560 for the thirteen and thirty-nine week periods ended December 2, 2017 and $32,381 and $97,301 for the thirteen and thirty-nine week periods ended November 26, 2016.  Please see Note 3 for additional information.

(2) See “Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures” in MD&A for additional details.

The following is a reconciliation of net income to Adjusted EBITDA for the thirteen and thirty-nine week periods ended December 2, 2017 and November 26, 2016:

	Thirteen Week Period Ended						Thirty-Nine Week Period Ended
	December 2, 2017			November 26, 2016			December 2, 2017			November 26, 2016
	(dollars in thousands)
Net (loss) income — continuing operations	$	(18,182	)	$	23,610		$	134,141		$	29,134
Interest expense	50,308			50,304			152,165			146,674
Income tax (benefit) expense	(16,061		)	(4,682		)	89,268			(3,824		)
Depreciation and amortization expense	95,764			101,953			292,448			304,460
LIFO charge	6,784			8,373			20,393			25,266
Lease termination and impairment charges	3,939			7,199			11,090			20,203
Walgreens Boots Alliance merger termination fee	—			—			(325,000		)	—
Other	6,697			4,577			27,985			50,567
Adjusted EBITDA	$	129,249		$	191,334		$	402,490		$	572,480

The following is balance sheet information for the Company’s reportable segments:

	Retail Pharmacy		Pharmacy Services		Eliminations (2)			Consolidated
December 2, 2017:
Total Assets	$	8,361,424	$	3,146,288	$	(167,098	)	$	11,340,614
Goodwill	43,492		1,639,355		—			1,682,847
Additions to property and equipment and intangible assets	150,043		10,974		—			161,017
March 4, 2017:
Total Assets	$	8,664,216	$	3,087,143	$	(157,607	)	$	11,593,752
Goodwill	43,492		1,639,355		—			1,682,847
Additions to property and equipment and intangible assets(1)	281,072		12,725		—			293,797

(1) Includes additions to property and equipment and intangible assets for the fifty-three week period ended March 4, 2017.

(2) As of December 2, 2017 and March 4, 2017, intersegment eliminations include netting of the Pharmacy Services segment long-term deferred tax liability of $154,119 and $140,865, respectively, against the Retail Pharmacy segment long-term deferred tax asset for consolidation purposes in accordance with ASC 740, and intersegment accounts receivable of $12,979 and $16,742, respectively, that represents amounts owed from the Pharmacy Services segment to the Retail Pharmacy segment that are created when Pharmacy Services segment customers use Retail Pharmacy segment stores to purchase covered products.