Rite Aid Looks to Reassure Investors
Rite Aid Looks to Reassure Investors
Jun. 26, 2002
%mlink(STRY:; PHOTO:HX101-062602; AUDIO:%)
HARRISBURG, Pa. (AP) _ Rite Aid Corp., facing its shareholders Wednesday after accounting irregularities led to the indictment of former executives, tried to reassure investors that the company was on the right path.
Mary Sammons, president and chief operating officer of the nation's third largest drugstore chain, said the company had reduced long-term debt by $2.5 billion, improved its cash flow and strengthened its portfolio by closing 168 unprofitable stores and opening, acquiring or improving dozens of others during the year that ended March 2.
``Rite Aid is a stronger company today than it was a year ago,'' Sammons said.
Shareholders showed a mixture of skepticism due to the indictments and hope that the current managers, including Bob Miller, chairman and chief executive officer since December 1999, are turning the company around.
``Mr. Miller has given me hope. I believe he's an honest man,'' said Justine Burmeister of Toms River, N.J.
But Burmeister and her husband, William, both retirees in their 70s, also echoed other shareholders' anger over an accounting scheme allegedly perpetuated by previous managers, which forced an earnings restatement that increased company losses in the mid-1990s by a record $1.6 billion.
``We don't need al-Qaida to ruin this country. We've got our own corporate executives doing that,'' said Edward Ziober, 60, a Camp Hill neighbor of Rite Aid who owns 4,000 shares of its stock.
Rite Aid's stock, which peaked at more than $50 a share in early 1999, just as the accounting scandal was coming to light, closed at $2.52 Wednesday on the New York Stock Exchange, down 13 cents.
On Friday, federal prosecutors unveiled a 37-count indictment charging Martin Grass, Rite Aid's former CEO and the son of its founder; former chief counsel Franklin Brown; and former chief financial officer Franklyn Bergonzi with securities fraud, conspiracy and other offenses. Eric Sorkin, the current executive vice president for pharmacy services, also was named in the indictment and was promptly suspended.
The most pointed criticism of Rite Aid's present management came during discussion of a proposal to ask the board to establish a policy of trying to appoint only ``independent'' directors to serve on key committees.
At the urging of the board, shareholders soundly defeated the proposal, but only after proponents argued that it is unwise to give managers too much control over board decisions.
``I cannot understand, with the travails of Rite Aid, why you want to be so parochial,'' said Henry Young, 70, a retired Harrisburg newspaper editor who owns 10,000 shares.
Shareholders also demanded explanations for $5.6 million in loans and payments that Rite Aid made to Miller, Sammons and several other top executives to offset taxes owed on restricted stock that they received as part of their 2001 compensation.
The executives agreed not to sell any of the stock to avoid disrupting a $1.9 billion refinancing deal that was crucial to Rite Aid's future, even though the stock price was rising at the time, Miller said. While such stock is often sold to cover the taxes, doing so last year might have been misinterpreted as a sign of trouble within the company, he said. The executives later surrendered the stock to repay the money.
``No senior employee made one penny on this transaction,'' Miller said.
Also Wednesday, Rite Aid named Robert Sari, 46, as senior vice president, general counsel, and secretary; and Chris Hall, 37, as executive vice president and chief financial officer.