13. Segment Reporting

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


	Retail		Pharmacy
	Pharmacy		Services		Eliminations (1)		Consolidated
December 1, 2018:
Total Assets	$	5,406,813	$	2,692,023	$	(15,878)	$	8,082,958
Goodwill		43,492		1,064,643		—		1,108,135
Additions to property and equipment and intangible assets		159,706		11,085		—		170,791
March 3, 2018:
Total Assets	$	6,089,343	$	2,954,953	$	(54,969)	$	8,989,327
Goodwill		43,492		1,377,628		—		1,421,120
Additions to property and equipment and intangible assets		199,437		15,327		—		214,764

(1)

As of December 1, 2018 and March 3, 2018, intersegment eliminations include netting of the Pharmacy Services segment long-term deferred tax liability of $0 and $38,713, respectively, against the Retail Pharmacy segment long-term deferred tax asset for consolidation purposes in accordance with ASC 740, and intersegment accounts receivable of $15,878 and $16,256, 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.

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 1, 2018 and December 2, 2017:


	Retail		Pharmacy		Intersegment
	Pharmacy		Services		Eliminations (1)		Consolidated
Thirteen Week Period Ended
December 1, 2018:
Revenues	$	3,976,719	$	1,525,837	$	(52,496)	$	5,450,060
Gross Profit		1,079,584		102,504		—		1,182,088
Adjusted EBITDA (2)		101,225		41,566		—		142,791
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)		101,699		40,363		—		142,062
Thirty-Nine Week Period Ended
December 1, 2018:
Revenues	$	11,785,996	$	4,630,410	$	(156,494)	$	16,259,912
Gross Profit		3,200,678		311,310		—		3,511,988
Adjusted EBITDA (2)		308,972		120,392		—		429,364
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)		266,777		138,237		—		405,014

(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.

(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 (loss) income to Adjusted EBITDA for the thirteen and thirty-nine week periods ended December 1, 2018 and December 2, 2017:


	Thirteen Week				Thirty-Nine Week
	Period Ended				Period Ended
	December 1,		December 2,		December 1,		December 2,
	2018		2017(a)		2018		2017(a)
	(dollars in thousands)
Net (loss) income	$	(17,250)	$	(18,182)	$	(411,325)	$	134,141
Interest expense		56,008		50,308		175,033		152,165
Income tax (benefit) expense		(1,471)		(16,061)		(117,527)		89,268
Depreciation and amortization expense		86,685		95,764		270,957		292,448
LIFO charge		5,987		6,784		19,311		20,393
Lease termination and impairment charges		2,628		3,939		52,096		11,090
Goodwill and intangible asset impairment charges		—		—		375,190		—
Loss on debt retirements, net		—		—		554		—
Merger and Acquisition-related costs		4,175		6,550		30,394		17,274
Stock based compensation expense		1,317		7,186		11,563		22,550
Inventory write-downs related to store closings		421		2,055		5,554		5,821
Litigation settlement		—		—		18,000		—
(Gain) loss on sale of assets, net		(382)		205		(11,206)		(20,623)
Walgreens Boots Alliance merger termination fee		—		—		—		(325,000)
Other		4,673		3,514		10,770		5,487
Adjusted EBITDA	$	142,791	$	142,062	$	429,364	$	405,014

(a)

During the thirty-nine week period ended December 1, 2018, the Company revised its definition of Adjusted EBITDA to no longer exclude the impact of revenue deferrals related to its customer loyalty program and further revised its disclosure by presenting certain amounts previously included within Other as separate reconciling items. Consequently, the Company revised Adjusted EBITDA for the thirteen and thirty-nine week periods ended December 2, 2017 to conform with the revised definition and present separate reconciling items previously included in Other.