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Presentation Final
Presentation Final
Presentation Final
Presentation Final
Presentation Final
Presentation Final
Presentation Final
Presentation Final
Presentation Final
Presentation Final
Presentation Final
Presentation Final
Presentation Final
Presentation Final
Presentation Final
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Presentation Final

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  • 1. Presented by: Antoine Collins, Craig Sears, Hermann Kablan, T. Matthew Coleman
  • 2.
    • Mission Statement
    • To be a successful chain of friendly, neighborhood drugstores. Our knowledgeable, caring associates work together to provide a superior pharmacy experience, and offer everyday products and services that help our valued customers lead healthier, happier lives.
  • 3. Overview
    • * Rite Aid 3 rd largest drugstore chain in U.S with approximately 4,800 stores in 31 states.
    • * Between 1997 and 1999, Grass and his accomplices accused of engineering a plan that forced Rite Aid to restate it’s pre-tax earnings by $2.3 billion. (Largest restatement of earnings in U.S. history)
    • * SEC alleged that the 3 “Key Players” were involved in a widespread accounting fraud in each quarter from 1997 – 1999.
  • 4. Company Timeline
    • Key Dates: 1958: Alex Grass incorporates Rack Rite Distributors, Inc. 1968: The firm makes its first public offering of stock and changes its name to Rite Aid Corporation. 1982: Rite Aid opens its 1,000th store. 1983: Revenues surpass $1 billion. 1995: Perry Drug Stores Inc. is acquired; Martin Grass succeeds his father, Alex Grass , as Rite Aid's chairman and CEO. (ousted his father as Chairman)
    • 1996: Rite Aid expands to the West Coast through a $2.3 billion deal for Thrifty PayLess Holdings, Inc. 1997: The acquisitions of K&B, Incorporated and Harco, Inc. add more than 300 stores located in the South. 1999: Pharmacy benefits manager PCS Health Systems, Inc. is acquired for $1.5 billion; Rite Aid enters into partnerships with General Nutrition Companies, Inc. and drugstore.com; the company begins restating earnings from previous years because of accounting irregularities; this, coupled with financial difficulties brought on by a huge $6.7 billion debt load, leads to the ouster of Chairman and CEO Martin Grass; Robert G. Miller is brought in from the outside as his successor. 2000: Rite Aid further restates its earnings for 1998 and 1999, revealing an additional $1.06 billion in losses; PCS Health Systems is sold off. 2002: Martin Grass and three other former Rite Aid executives are indicted on federal criminal charges stemming from the accounting scandal. 2003: Mary F. Sammons is named president and CEO; Grass pleads guilty to two criminal counts.
    • Source: http://www.fdrama.com/RiteAidHistory.html
  • 5. Key Players in the Fraud
    • Martin Grass – Former CEO
    • *Convicted of Conspiracy to Defraud and Obstruct.
    • *Sentenced to 8 years and $500,000
    • Frank M. Bergonzi – Former CFO
    • *Convicted of Filing False Financial Statements
    • *Sentenced to 28 months and Barred
    • Franklin C. Brown – Former RA Chief Counsel and Vice Chairman
    • *Convicted of Conspiracy
    • *Sentenced to 10 years, $20,000 fines and Barred
  • 6. SECURITIES AND EXCHANGE COMMISSION
    • Accounting & Auditing Enforcement Release
    • No. 1579/ June 21, 2002
    • Accounting Entries Affecting All Quarterly and Annual Financials
    • Improper Vendor Deductions - During1998 and 1999, overstated income by
    • $8 million and $28 million.
    • Stock Appreciation Rights - During1998 and 1999, understated accrued expenses by $22 million and $33 million.
    • Accounting Entries Affecting Quarterly Financial Statements Only
    • Reduction of Previously-Recorded Expenses - Q2 1998, overstated income by $9 million and reversed during Q3 1998.
    • Gross Profit Entries - Q2 1999, overstated income by $100 million. Between 1997- 2000, Gross Profit Entries recorded during Q1-Q3 were reversed
    • during Q4.
  • 7.
    • Accounting Entries Recorded in the Fourth Quarter
    • That Affected the FY 1999 Financial Statements
    • Undisclosed markdowns - During1999, overstated income by $30 million.
    • Vendor Rebates - Dec. 31, 1999, recorded reductions to AP and COGS totaling $42 million.
    • Litigation Settlement - During Q4 1999, prematurely recognized a $17 million litigation settlement, thus overstating income.
    • "Dead Deal" Expense - Accumulated dead deal expense totaled approximately $10.6 million, thus overstating income.
    • Will-Call Payables - Between 1997 and 1999 improper reversal of entries. During 1999, $6.6 million attributable to the will-call payable was repaid to the insurance carriers.
    • Inventory Shrink - During 1999, income was overstated by $13.8 million due to improper accounting.
  • 8. SECURITIES AND EXCHANGE COMMISSION
    • Accounting & Auditing Enforcement Release
    • No. 1580/ June 21, 2002
    • Timothy J. Noonan - Director, President, COO (3/95-12/99), CEO (10/15/99-12/5/99)
    • Participated in activities that caused Rite Aid to overstate its net income by understating AP and GOGS.
    • Was aware that Rite Aid improperly inflated the quantities and dollar value of damaged and outdated products reported to the deduct venders through Up-charging.
  • 9. SECURITIES AND EXCHANGE COMMISSION
    • Accounting & Auditing Enforcement Release
    • No. 1581/ June 21, 2002
    • Martin Grass – CEO Franklin Brown - Vice-Chairman & Chief Legal Officer
    • Alleged that the executives conducted a wide-ranging accounting fraud scheme that resulted in the significant inflation of Rite Aid’s net income from May 1997 until Oct. 2000. Cumulative write down of pretax income was $2.3 billion.
    • Concealed Related Party Transactions that Benefited Grass. Rite Aid paid a total of $3.6 million for real estate for Grass that was not disclosed. Grass repaid $2.9 million after press reports raised questions about the transactions.
    • Grass falsely told a lender that a stock pledge was approved by the finance committee of the board of directors in order to fulfill a condition of getting a loan. Grass arranged for the creation of false minutes documenting the finance committee meeting and the results of the meeting. Grass then signed the false minutes.
  • 10. SECURITIES AND EXCHANGE COMMISSION
    • Accounting & Auditing Enforcement Release
    • No. 1581/ June 21, 2002
    • Frank Bergonzi - CFO
    • Alleged that the executives conducted a wide-ranging accounting fraud scheme that resulted in the significant inflation of Rite Aid’s net income from May 1997 until Oct. 2000. Cumulative write down of pretax income was $2.3 billion.
    • Specifically charged with instructing Rite Aid’s accounting department to make improper accounting entries in the general ledger that lead to Vender-Related Accounting Irregularities and Other Major Accounting Irregularities.
    • Rite Aid was charged with accounting fraud in AAER No. 1579 because of the Accounting Irregularities that were recorded by Bergonzi.
  • 11. Governance Issues
    • *Tone at the Top was highly unethical
    • *Very Aggressive –Risky investment strategy
    • *KPMG stated that Rite Aid’s internal controls were severely inadequate.
    • *KPMG received significant questionable consulting fees from Rite Aid.
    • *Class Action lawsuit against KPMG regarding these consulting fees from Rite Aid.
  • 12. Rite Aid after the Fraud
    • *In 2004, Rite Aid agreed to pay $7 million to settle allegations that the company had submitted false prescription claims to United States government health insurance programs.
    • *At the end of 2007, Rite Aid’s stock price was trading at under $3 per share.
    • *At the end of 2008, Rite Aid’s stock was trading for less than $1 per share.
    • *In 2008, Rite Aid in danger of being removed from the New York Stock Exchange.
    • *In 2009, class action lawsuit filed against Rite Aid Corporation by its salaried California Store Managers for failing to pay overtime and denying them meals and breaks. The action settled for $6.9 million
  • 13. 20 Year Stock History Comparison
  • 14.
    • http:// www.google.com/search?hl=en&rls=com.microsoft%3Aen-us%3AIE-SearchBox&rlz=1I7TSNA_enUS398US398&biw=1291&bih=515&tbm=isch&sa=1&q=rite+aid+LOGO&btnG=Search&aq=f&aqi=g1&aql=&oq =
    • http://www.sec.gov/news/press/2002-92.htm
    • http://www.sec.gov/litigation/admin/34-46099.htm
    • http://www.sec.gov/litigation/litreleases/lr17577.htm
    • http://www.cbsnews.com/stories/2003/06/18/national/main559152.shtml
    • http://www.pennlive.com/midstate/index.ssf/2010/09/ex-rite_aid_officials_franklin.html
    • http://www.sec.gov/litigation/admin/34-46100.htm
    • http://findarticles.com/p/articles/mi_qn4183/is_20020624/ai_n10051153/
    • http://www.sec.gov/litigation/litreleases/lr19409.htm
    • http://www.fdrama.com/RiteAidHistory.html
    • http://articles.latimes.com/2002/jun/22/business/fi-riteaid22
    • http://blogs.wsj.com/health/2008/10/17/rite-aid-faces-delisting/
    • http://en.wikipedia.org/wiki/Rite_Aid
    • http://www.scribd.com/doc/37881547/Rite-Aid-Investor-Alert-9-21-2010
    References
  • 15.
    • Questions?

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