New Rite Aid 10Q 2022 Q2 Quarterly report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 28, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-5742

RITE AID CORPORATION

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	23-1614034 (I.R.S. Employer Identification No.)

30 Hunter Lane, Camp Hill, Pennsylvania (Address of principal executive offices)	17011 (Zip Code)

Registrant’s telephone number, including area code: (717) 761-2633.

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report):

Not Applicable

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $1.00 par value		RAD		New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “Large Accelerated Filer,” “Accelerated Filer,” “Smaller Reporting Company” and “Emerging Growth Company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ⌧

Accelerated Filer ◻

Non-Accelerated Filer ◻

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange act). Yes ☐ No ⌧

The registrant had 55,771,263 shares of its $1.00 par value common stock outstanding as of September 22, 2021.

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RITE AID CORPORATION

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	Cautionary Statement Regarding Forward-Looking Statements	3

	PART I FINANCIAL INFORMATION

ITEM 1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets as of August 28, 2021 and February 27, 2021	5
	Condensed Consolidated Statements of Operations for the Thirteen Week Periods Ended August 28, 2021 and August 29, 2020	6
	Condensed Consolidated Statements of Comprehensive Loss for the Thirteen Week Periods Ended August 28, 2021 and August 29, 2020	7
	Condensed Consolidated Statements of Operations for the Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020	8
	Condensed Consolidated Statements of Comprehensive Loss for the Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020	9
	Condensed Consolidated Statements of Stockholders’ Equity for the Thirteen and Twenty-Six Week Periods Ended August 28, 2021	10
	Condensed Consolidated Statements of Stockholders’ Equity for the Thirteen and Twenty-Six Week Periods Ended August 29, 2020	11
	Condensed Consolidated Statements of Cash Flows for the Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020	12
	Notes to Condensed Consolidated Financial Statements	13
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations	43
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	59
ITEM 4.	Controls and Procedures	60

	PART II OTHER INFORMATION

ITEM 1.	Legal Proceedings	61
ITEM 1A.	Risk Factors	61
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
ITEM 3.	Defaults Upon Senior Securities	61
ITEM 4.	Mine Safety Disclosures	61
ITEM 5.	Other Information	61
ITEM 6.	Exhibits	61

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report, as well as our other public filings or public statements, include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are often identified by terms and phrases such as “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will” and similar expressions and include references to assumptions and relate to our future prospects, developments and business strategies.

Factors that could cause actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to:

●

the impact of widespread health developments, including the continued impact of the global coronavirus (“COVID-19”) pandemic, and the governmental responses thereto and the reinstitution of more stringent regulations, the changing consumer behavior and preferences (including vaccine hesitancy, the emergence of new variants and the availability and administration of pediatric and booster vaccinations), and the impact of those things on the broader economy, financial and labor markets, wages, availability and access to credit and capital, our front-end and pharmacy operations and services, supply chain, our associates and executive and administrative personnel, our third-party service providers (including suppliers, vendors and business partners), and customers. The COVID-19 pandemic may result in further shutdowns or have a negative impact on our cough, cold and flu sales. Any of these developments could result in a material adverse effect on our business, financial conditions and results of operations;

●

our ability to successfully implement our RxEvolution strategy, attract and retain a sufficient number of our target consumers, integrate operations such as Elixir and any acquisitions, implement and integrate information technology and digital services, obtain permits required for store remodels, and improve the operating performance of our stores and pharmacy benefit management (“PBM”) operations;

●

our high level of indebtedness, the ability to refinance such indebtedness on acceptable terms, and our ability to satisfy our obligations and the other covenants contained in our debt agreements;

●

the nature, cost and outcome of pending and future litigation, other legal or regulatory proceedings, or governmental investigations, including those related to Opioids, “usual and customary” pricing or other matters;

●

general competitive, economic, industry, market, political (including healthcare reform) and regulatory conditions, as well as other factors specific to the markets in which we operate;

●

the severity and resulting impact of the cough, cold and flu season;

●

the impact on retail pharmacy business as PBM payors incent or mandate movement away from retail pharmacies to PBM mail order pharmacies;

●

our ability to achieve the benefits of our efforts to reduce the costs of our generic drugs;

●

the risk that changes in federal or state laws or regulations, including to those relating to labor or wages, the Health Care Education Affordability Reconciliation Act, the repeal of all or part of the Patient Protection or the Affordable Care Act (or “ACA”), and decisions of agencies and courts including the United States Supreme Court regarding those and other matters relevant to the Company or its operations, and any regulations enacted thereunder may occur;

●

the impact of the loss of one or more major third party payor contracts and the risk that providers and state contract changes may occur;

●

the risk that we may need to take further impairment charges if our future results do not meet our expectations;

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●

our ability to sell our Centers of Medicare and Medicaid Services (“CMS”) receivable, in whole or in part, which could negatively impact our liquidity and leverage ratio if we do not consummate a sale;

●

our ability to grow prescription count, realize front-end sales growth, and improve and grow the operations of our PBM;

●

our ability to achieve cost savings and the other benefits of our organizational restructuring within our anticipated timeframe, if at all;

●

decisions to close additional stores and distribution centers or undertake additional refinancing activities, which could result in further charges;

●

our ability to manage expenses and our investments in working capital;

●

the continued impact of gross margin pressure in the PBM industry due to continued consolidation and client demand for lower prices while providing enhanced service offerings;

●

risks related to breaches of our information or payment systems or unauthorized access to confidential or personal information of our associates or customers;

●

our ability to maintain our current pharmacy services business and obtain new pharmacy services business, including maintaining renewals of expiring contracts, avoiding contract termination rights that may permit certain of our clients to terminate their contracts prior to their expiration, early price renegotiations prior to contract expirations and the risk that we cannot meet client guarantees;

●

our ability to manage our Medicare Part D Plan medical loss ratio (“MLR”) and meet the financial obligations of the plan;

●

the risk that we could experience deterioration in our current Star rating with the CMS or incur CMS penalties and/or sanctions;

●

the expiration or termination of our Medicare or Medicaid managed care contracts by federal or state governments;

●

changes in future exchange or interest rates or credit ratings, changes in tax laws, regulations, rates and policies; and

●

other risks and uncertainties described from time to time in our filings with the Securities and Exchange Commission (the “SEC”).

We undertake no obligation to update or revise the forward-looking statements included in this report, whether as a result of new information, future events or otherwise, after the date of this report. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences are discussed in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations” included herein and in our Annual Report on Form 10-K for the fiscal year ended February 27, 2021 (the “Fiscal 2021 10-K”), which we filed with the SEC on April 27, 2021, and our Quarterly Report on Form 10-Q for the thirteen weeks ended May 29, 2021, which we filed on July 6, 2021, as well as in “Part I – Item 1A. Risk Factors” of the Fiscal 2021 10-K. To the extent that COVID-19 adversely affects our business and financial results, it may also have the effect of heightening many of the risk factors described herein and in our Fiscal 2021 10-K.

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(unaudited)


	August 28,		February 27,
	2021		2021
ASSETS
Current assets:
Cash and cash equivalents	$	146,564	$	160,902
Accounts receivable, net		1,662,445		1,462,441
Inventories, net of LIFO reserve of $477,873 and $485,859		1,891,975		1,864,890
Prepaid expenses and other current assets		107,504		106,941
Current assets held for sale		24,294		—
Total current assets		3,832,782		3,595,174
Property, plant and equipment, net		1,024,091		1,080,499
Operating lease right-of-use assets		2,974,846		3,064,077
Goodwill		1,108,136		1,108,136
Other intangibles, net		315,833		340,519
Deferred tax assets		14,964		14,964
Other assets		92,938		132,035
Total assets	$	9,363,590	$	9,335,404
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt and lease financing obligations	$	6,726	$	6,409
Accounts payable		1,523,582		1,437,421
Accrued salaries, wages and other current liabilities		741,436		642,364
Current portion of operating lease liabilities		519,402		516,752
Total current liabilities		2,791,146		2,602,946
Long-term debt, less current maturities		3,114,351		3,063,087
Long-term operating lease liabilities		2,728,390		2,829,293
Lease financing obligations, less current maturities		15,723		16,711
Other noncurrent liabilities		208,695		208,213
Total liabilities		8,858,305		8,720,250
Commitments and contingencies		—		—
Stockholders’ equity:
Common stock, par value $1 per share; 75,000 shares authorized; shares issued and outstanding 55,732 and 55,143		55,732		55,143
Additional paid-in capital		5,899,795		5,897,168
Accumulated deficit		(5,426,461)		(5,313,103)
Accumulated other comprehensive loss		(23,781)		(24,054)
Total stockholders’ equity		505,285		615,154
Total liabilities and stockholders’ equity	$	9,363,590	$	9,335,404

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)


	Thirteen Week Period Ended
	August 28, 2021			August 29, 2020
Revenues	$	6,113,000		$	5,981,970
Costs and expenses:
Cost of revenues		4,867,076			4,821,625
Selling, general and administrative expenses		1,267,753			1,116,142
Facility exit and impairment charges		11,353			11,528
Interest expense		48,592			50,007
Loss (gain) on debt modifications and retirements, net		2,839			(5,274)
Loss on sale of assets, net		12,378			1,092
		6,209,991			5,995,120
Loss from continuing operations before income taxes		(96,991)			(13,150)
Income tax expense		3,310			47
Net loss from continuing operations		(100,301)			(13,197)
Net income from discontinued operations, net of tax		—			—
Net loss	$	(100,301)		$	(13,197)
Computation of loss attributable to common stockholders:
Loss from continuing operations attributable to common stockholders—basic and diluted	$	(100,301)		$	(13,197)
Income from discontinued operations attributable to common stockholders—basic and diluted		—			—
Loss attributable to common stockholders—basic and diluted	$	(100,301)		$	(13,197)
Basic and diluted loss per share:
Continuing operations	$	(1.86)		$	(0.25)
Discontinued operations	$	—	��	$	—
Net basic and diluted loss per share	$	(1.86)		$	(0.25)

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(unaudited)


	Thirteen Week Period Ended
	August 28, 2021		August 29, 2020
Net loss	$	(100,301)	$	(13,197)
Other comprehensive income:
Defined benefit pension plans:
Amortization of net actuarial losses included in net periodic pension cost, net of $0 and $0 income tax expense		123		912
Change in fair value of interest rate cap		—		115
Total other comprehensive income		123		1,027
Comprehensive loss	$	(100,178)	$	(12,170)

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)


	Twenty-Six Week Period Ended
	August 28, 2021		August 29, 2020
Revenues	$	12,273,985	$	12,009,346
Costs and expenses:
Cost of revenues		9,743,186		9,650,682
Selling, general and administrative expenses		2,513,115		2,313,289
Facility exit and impairment charges		20,184		15,281
Intangible asset impairment charges		—		29,852
Interest expense		97,713		100,554
Loss (gain) on debt modifications and retirements, net		3,235		(5,274)
Loss (gain) on sale of assets, net		5,820		(1,168)
		12,383,253		12,103,216
Loss from continuing operations before income taxes		(109,268)		(93,870)
Income tax expense (benefit)		4,090		(7,971)
Net loss from continuing operations		(113,358)		(85,899)
Net income from discontinued operations, net of tax		—		9,161
Net loss	$	(113,358)	$	(76,738)
Computation of loss attributable to common stockholders:
Loss from continuing operations attributable to common stockholders—basic and diluted	$	(113,358)	$	(85,899)
Income from discontinued operations attributable to common stockholders—basic and diluted		—		9,161
Loss attributable to common stockholders—basic and diluted	$	(113,358)	$	(76,738)
Basic and diluted (loss) income per share:
Continuing operations	$	(2.10)	$	(1.60)
Discontinued operations	$	0	$	0.17
Net basic and diluted loss per share	$	(2.10)	$	(1.43)

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(unaudited)


	Twenty-Six Week Period Ended
	August 28, 2021		August 29, 2020
Net loss	$	(113,358)	$	(76,738)
Other comprehensive income:
Defined benefit pension plans:
Amortization of net actuarial losses included in net periodic pension cost, net of $0 and $0 income tax expense		246		1,823
Change in fair value of interest rate cap		27		231
Total other comprehensive income		273		2,054
Comprehensive loss	$	(113,085)	$	(74,684)

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except per share amounts)

(unaudited)


								Accumulated
				Additional				Other
	Common Stock			Paid-In		Accumulated		Comprehensive
	Shares	Amount		Capital		Deficit		Loss		Total
BALANCE FEBRUARY 27, 2021	55,143	$	55,143	$	5,897,168	$	(5,313,103)	$	(24,054)	$	615,154
Net loss							(13,057)				(13,057)
Other comprehensive loss:
Changes in Defined Benefit Plans, net of $0 tax expense									123		123
Change in fair value of interest rate cap									27		27
Comprehensive loss											(12,907)
Exchange of restricted shares for taxes	(2)		(2)		(33)						(35)
Cancellation of restricted stock	(48)		(48)		48						—
Amortization of restricted stock balance					1,618						1,618
Stock-based compensation expense					150						150
BALANCE MAY 29, 2021	55,093		55,093		5,898,951		(5,326,160)		(23,904)		603,980
Net loss							(100,301)				(100,301)
Other comprehensive loss:
Changes in Defined Benefit Plans, net of $0 tax expense									123		123
Comprehensive loss											(100,178)
Issuance of restricted stock	823		823		(823)						—
Exchange of restricted shares for taxes	(146)		(146)		(2,040)						(2,186)
Cancellation of restricted stock	(38)		(38)		38						—
Amortization of restricted stock balance					3,519						3,519
Stock-based compensation expense	—		—		150						150
BALANCE AUGUST 28, 2021	55,732	$	55,732	$	5,899,795	$	(5,426,461)	$	(23,781)	$	505,285

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except per share amounts)

(unaudited)


								Accumulated
				Additional				Other
	Common Stock			Paid-In		Accumulated		Comprehensive
	Shares	Amount		Capital		Deficit		Loss		Total
BALANCE FEBRUARY 29, 2020	54,716	$	54,716	$	5,890,903	$	(5,222,194)	$	(48,898)	$	674,527
Net loss							(63,541)				(63,541)
Other comprehensive loss:
Changes in Defined Benefit Plans, net of $0 tax expense									911		911
Change in fair value of interest rate cap									116		116
Comprehensive loss											(62,514)
Issuance of restricted stock	19		19		(19)						—
Exchange of restricted shares for taxes	(7)		(7)		(92)						(99)
Cancellation of restricted stock	(53)		(53)		53						—
Amortization of restricted stock balance					1,725						1,725
Stock-based compensation expense					150						150
BALANCE MAY 30, 2020	54,675		54,675		5,892,720		(5,285,735)		(47,871)		613,789
Net loss							(13,197)				(13,197)
Other comprehensive loss:
Changes in Defined Benefit Plans, net of $0 tax expense									912		912
Change in fair value of interest rate cap									115		115
Comprehensive loss											(12,170)
Issuance of restricted stock	717		717		(717)						—
Exchange of restricted shares for taxes	(131)		(131)		(1,872)						(2,003)
Cancellation of restricted stock	(37)		(37)		37						—
Amortization of restricted stock balance					3,272						3,272
Stock-based compensation expense					150						150
BALANCE AUGUST 29, 2020	55,224	$	55,224	$	5,893,590	$	(5,298,932)	$	(46,844)	$	603,038

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)


	Twenty-Six Week Period Ended
	August 28, 2021		August 29, 2020
Operating activities:
Net loss	$	(113,358)	$	(76,738)
Net income from discontinued operations, net of tax		—		9,161
Net loss from continuing operations	$	(113,358)	$	(85,899)
Adjustments to reconcile to net cash provided by (used in) operating activities of continuing operations:
Depreciation and amortization		149,718		166,220
Facility exit and impairment charges		20,184		15,281
Intangible asset impairment charges		—		29,852
LIFO credit		(7,986)		(20,816)
Loss (gain) on sale of assets, net		5,820		(1,168)
Stock-based compensation expense		8,603		5,810
Loss (gain) on debt modifications and retirements, net		3,235		(5,274)
Changes in operating assets and liabilities:
Accounts receivable		(212,855)		(636,555)
Inventories		(19,096)		4,473
Accounts payable		91,324		1,948
Operating lease right-of-use assets and operating lease liabilities		(12,309)		(18,493)
Other assets		25,185		79,513
Other liabilities		101,133		(11,484)
Net cash provided by (used in) operating activities of continuing operations		39,598		(476,592)
Investing activities:
Payments for property, plant and equipment		(105,356)		(63,085)
Intangible assets acquired		(14,479)		(22,572)
Proceeds from insured loss		10,436		12,500
Proceeds from dispositions of assets and investments		4,676		5,910
Proceeds from sale-leaseback transactions		14,185		8,461
Net cash used in investing activities of continuing operations		(90,538)		(58,786)
Financing activities:
Proceeds from issuance of long-term debt		350,000		849,918
Net proceeds from revolver		250,000		650,000
Principal payments on long-term debt		(542,988)		(1,056,182)
Change in zero balance cash accounts		(844)		(26,829)
Financing fees paid for early debt redemption		(833)		(2,399)
Payments for taxes related to net share settlement of equity awards		(2,221)		(2,101)
Deferred financing costs paid		(16,512)		(14,600)
Net cash provided by financing activities of continuing operations		36,602		397,807
Cash flows from discontinued operations:
Operating activities of discontinued operations		0		(82,189)
Investing activities of discontinued operations		0		94,310
Financing activities of discontinued operations		0		0
Net cash provided by discontinued operations		0		12,121
Decrease in cash and cash equivalents		(14,338)		(125,450)
Cash and cash equivalents, beginning of period		160,902		218,180
Cash and cash equivalents, end of period	$	146,564	$	92,730

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

1. Basis of Presentation and Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and therefore do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete annual financial statements. The accompanying financial information reflects all adjustments which are of a recurring nature and, in the opinion of management, are necessary for a fair presentation of the results for the interim periods. The results of operations for the thirteen and twenty-six week periods ended August 28, 2021 are not necessarily indicative of the results to be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Rite Aid Corporation (“Rite Aid”) and Subsidiaries (together with Rite Aid, the “Company”) Fiscal 2021 10-K.

Revenue Recognition

The following table disaggregates the Company’s revenue by major source in each segment for the thirteen and twenty-six week periods ended August 28, 2021 and August 29, 2020:


	August 28,		August 29,		August 28,		August 29,
	2021		2020		2021		2020
In thousands	(13 weeks)		(13 weeks)		(26 weeks)		(26 weeks)
Retail Pharmacy segment:
Pharmacy sales	$	2,939,656	$	2,660,462	$	5,936,700	$	5,286,005
Front-end sales		1,307,245		1,322,932		2,628,943		2,788,399
Other revenue		30,317		34,518		63,257		66,779
Total Retail Pharmacy segment		4,277,218		4,017,912		8,628,900		8,141,183
Pharmacy Services segment		1,898,213		2,038,378		3,770,495		4,015,624
Intersegment elimination		(62,431)		(74,320)		(125,410)		(147,461)
Total revenue	$	6,113,000	$	5,981,970	$	12,273,985	$	12,009,346

The Retail Pharmacy segment offered a chain-wide loyalty card program titled wellness+. Individual customers were able to become members of the wellness+ program. Members participating in the wellness+ loyalty card program earned points on a calendar year basis for eligible front-end merchandise purchases and qualifying prescription purchases. The wellness+ program was terminated as of July 1, 2020, with benefits earned as of that date available to be used through the end of calendar 2020. In December 2020, the Company granted a temporary extension of benefits to previous members that were eligible for a discount as of December 31, 2020 such that those prior members will be eligible to continue to receive that discount on purchases made through June 30, 2021 with no additional purchase requirement. New and existing customers who were not already eligible for “Gold” benefits also had the opportunity to earn additional discounts on purchases made through June 30, 2021. In June 2021, the Company granted an additional extension of benefits to certain members that were eligible for a discount as of June 30, 2021 such that those prior members will be eligible to continue to receive discounts on purchases made through December 31, 2021 with no additional purchase requirement. New and existing customers who were not already eligible for “Gold” benefits have the opportunity to earn additional discounts on purchases made through December 31, 2021.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

Prior to its termination, effective January 1, 2020, members reached specific wellness+ tiers based on points accumulated during the six calendar month periods between January 1^st and June 30^th, and July 1^st through December 31^st, which entitled such customers to certain future discounts and other benefits upon reaching that tier. For example, any customer that reaches 500 points during the six calendar month period between January 1^st and June 30^th achieves the “Gold” tier, enabling him or her to receive a 20% discount on qualifying purchases of front-end merchandise for the remaining portion of that six calendar month period and for the following six calendar months. There is also a similar “Silver” level with a lower threshold and benefit level. Prior to January 1, 2020, the wellness+ tiers were based on points accumulated for a full calendar year, and entitled such customers to wellness+ benefits for the remainder of that calendar year and also the next calendar year.

Points earned pursuant to the wellness+ program represent a performance obligation and the Company allocates revenue between the merchandise purchased and the wellness+ points based on the relative stand-alone selling price of each performance obligation. The relative value of the wellness+ points is initially deferred as a contract liability (included in other current and noncurrent liabilities). As members receive discounted front-end merchandise or when the benefit period expires, the Retail Pharmacy segment recognizes an allocable portion of the deferred contract liability into revenue. For the thirteen week period ended August 28, 2021, the Company recognized additional contract deferrals of $2,539 as a reduction of revenues. The Retail Pharmacy segment had accrued contract liabilities of $4,680 as of August 28, 2021, which is included in other current liabilities. The Retail Pharmacy segment had accrued contract liabilities of $3,754 as of February 27, 2021, which is included in other current liabilities.

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 related to the approach for intraperiod tax allocation, the recognition of deferred tax liabilities and the methodology for calculating income taxes in the interim period. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This ASU is effective for fiscal years beginning after December 15, 2020 (fiscal 2022). The Company adopted ASU 2019-12 effective February 28, 2021 and the adoption of this standard did not have a material impact on the Company’s financial position.

2. Acquisition

On December 18, 2020, pursuant to that certain stock purchase agreement, dated as of October 7, 2020, by and between the Company and Bartell Drug Company (“Bartell”), the Company acquired Bartell (the “Acquisition”), a Washington corporation, for approximately $89,724 in cash, subject to certain customary post-closing working capital adjustments. Bartell operates 67 retail drug stores and 1 distribution center in the greater Seattle, Washington area. Bartell operates as a 100 percent owned subsidiary of the Company within its Retail Pharmacy segment.

The Company financed the Acquisition with borrowings under its Senior Secured Revolving Credit Facility together with cash on hand. The closing balance sheet has not yet been finalized, and therefore, the final purchase price and related purchase price allocation of the Acquisition is subject to change.

The Company’s condensed consolidated financial statements for the thirteen and twenty-six weeks ended August 28, 2021 include Bartell’s results of operations. The Company’s financial statements reflect preliminary purchase

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

accounting adjustments in accordance with ASC 805 “Business Combinations”, whereby the purchase price was preliminarily allocated to the assets acquired and liabilities assumed based upon their estimated fair values on the Acquisition date.

The following allocation of the purchase price and the estimated transaction costs is preliminary and is based on information available to the Company’s management at the time the consolidated financial statements were prepared. Accordingly, the allocation is subject to change and the impact of such changes may be material.


Preliminary purchase price
Cash consideration	$	89,724
Total		89,724
Preliminary purchase price allocation
Cash and cash equivalents	$	3,494
Accounts receivable		24,188
Inventories		69,046
Prepaid expenses and other current assets		1,857
Total current assets		98,585
Property and equipment		28,229
Operating lease right-of-use assets		143,651
Intangible assets(1)		68,700
Other assets		1,805
Total assets acquired		340,970
Accounts payable		24,166
Accrued salaries, wages and other current liabilities		18,386
Current portion of operating lease liabilities		24,617
Total current liabilities		67,169
Long-term operating lease liabilities		124,023
Total liabilities assumed		191,192
Deferred tax liabilities recorded on purchase		12,349
Net assets acquired		137,429
Bargain purchase gain		(47,705)
Total purchase price	$	89,724

(1) Intangible assets are recorded at estimated fair value, as determined by management based on available information which includes a preliminary valuation prepared by an independent third party. The fair values assigned to identifiable intangible assets were determined through the use of the income approach, specifically the relief from royalty and the multi-period excess earnings methods. The major assumptions used in arriving at the estimated identifiable intangible asset values included management’s preliminary estimates of future cash flows, discounted at an appropriate rate of return which are based on the weighted average cost of capital for both the Company and other market participants, projected customer attrition rates, as well as applicable royalty rates for comparable assets. The useful lives for intangible assets were determined based upon the remaining useful economic lives of the

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

intangible assets that are expected to contribute directly or indirectly to future cash flows. The estimated fair value of intangible assets and related useful lives as included in the preliminary purchase price allocation include:


	Estimated Fair Value		Estimated Useful Life (In Years)
Prescription files	$	54,300	10
Tradename		14,400	Indefinite
Total	$	68,700

The Acquisition resulted in a bargain purchase gain of $47,705 primarily due to fair value adjustments related to prescription files and the tradename compared to book values. The Company believes that the bargain purchase gain was primarily the result of the decision by the Bartell stockholders to sell their interests as Bartell had been experiencing increasing borrowings under its credit agreements to meet its operating needs and increasing net losses. The agreed upon purchase price reflected the fact the seller would have needed to incur further significant debt to cover the operating costs of Bartell, which would have required amendments to its credit arrangements. With the Company’s existing infrastructure, scale and expertise, the Company believes that it has access to the necessary synergies to allow necessary operational improvements to be implemented more efficiently than the seller was capable of.

During the thirteen and twenty-six week periods ended August 28, 2021, acquisition costs of $4,591 and $8,477 were expensed as incurred. The following unaudited pro forma combined financial data gives effect to the Acquisition as if it had occurred as of March 1, 2019.

The unaudited combined pro forma results do not include any incremental cost savings that may result from the integration. The adjustments are based on information available to the Company at this time. Accordingly, the adjustments are subject to change and the impact of such changes may be material.

The unaudited combined pro forma information is for informational purposes only. The pro forma information is not necessarily indicative of what the combined company’s results actually would have been had the Acquisition been completed as of the beginning of the periods as indicated. In addition, the unaudited pro forma information does not purport to project the future results of the combined company.


	August 28,		August 29,		August 28,		August 29,
	2021		2020		2021		2020
	(13 weeks)		(13 weeks)		(26 weeks)		(26 weeks)
	Pro forma		Pro forma		Pro forma		Pro forma
Net revenues as reported	$	6,113,000	$	5,981,970	$	12,273,985	$	12,009,346
Supplemental Pro forma revenues	$	6,113,000	$	6,110,357	$	12,273,985	$	12,274,973

Net loss as reported	$	(100,301)	$	(13,197)	$	(113,358)	$	(76,738)
Supplemental Pro forma net loss	$	(100,301)	$	(22,239)	$	(113,358)	$	(92,595)

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

3. Restructuring

Beginning in fiscal 2019, the Company initiated a series of restructuring plans designed to reorganize its executive management team, reduce managerial layers, and consolidate roles. In March 2020, the Company announced the details of its RxEvolution strategy, which includes building tools to work with regional health plans to improve patient health outcomes, rationalizing SKU’s in its front-end offering to free up working capital and update its merchandise assortment, assessing its pricing and promotional strategy, rebranding its retail pharmacy and pharmacy services business, launching its Store of the Future format and further reducing SG&A and headcount, including integrating certain back office functions in the Pharmacy Services segment both within the segment and across Rite Aid. Other strategic initiatives include the expansion of the Company’s digital business, replacing and updating the Company’s financial systems to improve efficiency, movement to a common client platform at Elixir and investments in talent in sales, underwriting and operations at Elixir.

For the thirteen week period ended August 28, 2021, the Company incurred total restructuring-related costs of $9,584, which are included as a component of SG&A. These costs are as follows:


	Retail Pharmacy		Pharmacy
	segment		Services segment		Total

Restructuring-related costs
Severance and related costs associated with ongoing reorganization efforts (a)	$	—	$	495	$	495
Non-executive retention costs associated with the March 2019 reorganization (b)		—		—		—
Professional and other fees relating to restructuring activities (c)		2,584		6,505		9,089
Total restructuring-related costs	$	2,584	$	7,000	$	9,584

For the thirteen week period ended August 29, 2020, the Company incurred total restructuring-related costs of $23,186, which are included as a component of SG&A. These costs are as follows:


	Retail Pharmacy		Pharmacy
	segment		Services segment		Total

Restructuring-related costs
Severance and related costs associated with ongoing reorganization efforts (a)	$	8,049	$	2,539	$	10,588
Non-executive retention costs associated with the March 2019 reorganization (b)		281		102		383
Professional and other fees relating to restructuring activities (c)		12,111		104		12,215
Total restructuring-related costs	$	20,441	$	2,745	$	23,186

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

For the twenty-six week period ended August 28, 2021, the Company incurred total restructuring-related costs of $15,516, which are included as a component of SG&A. These costs are as follows:


	Retail Pharmacy		Pharmacy
	segment		Services segment		Total

Restructuring-related costs
Severance and related costs associated with ongoing reorganization efforts (a)	$	—	$	1,001	$	1,001
Non-executive retention costs associated with the March 2019 reorganization (b)		—		—		—
Professional and other fees relating to restructuring activities (c)		4,205		10,310		14,515
Total restructuring-related costs	$	4,205	$	11,311	$	15,516

For the twenty-six week period ended August 29, 2020, the Company incurred total restructuring-related costs of $58,921, of which $33,158 is included as a component of SG&A and $25,763 is included as a component of cost of revenues. These costs are as follows:


	Retail Pharmacy		Pharmacy
	segment		Services segment		Total

Restructuring-related costs
Severance and related costs associated with ongoing reorganization efforts (a)	$	12,608	$	2,791	$	15,399
Non-executive retention costs associated with the March 2019 reorganization (b)		1,136		(124)		1,012
Professional and other fees relating to restructuring activities (c)		16,643		104		16,747
SKU optimization charges (d)		25,763		—		25,763
Total restructuring-related costs	$	56,150	$	2,771	$	58,921

In addition, during the thirteen week period ended May 30, 2020, the Company incurred intangible asset impairment charges of $29,852 in connection with its rebranding initiatives as described in Note 11, Goodwill and Other Intangible Assets.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

A summary of activity for the twenty-six week period ended August 28, 2021 in the restructuring-related liabilities associated with the programs noted above, which is included in accrued salaries, wages and other current liabilities, is as follows:


	Severance and related				Professional and
	costs (a)		Retention costs (b)		other fees (c)		Total

Balance at February 27, 2021	$	12,657	$	—	$	2,833	$	15,490
Additions charged to expense		506		—		5,426		5,932
Cash payments		(4,826)		—		(7,636)		(12,462)
Balance at May 29, 2021	$	8,337	$	—	$	623	$	8,960
Additions charged to expense		495		—		9,089		9,584
Cash payments		(2,665)		—		(8,056)		(10,721)
Balance at August 28, 2021	$	6,167	$	—	$	1,656	$	7,823

(a)	– Severance and related costs reflect severance accruals, executive search fees, outplacement services and other similar charges associated with ongoing reorganization efforts.

(b)	– As part of its March 2019 reorganization, the Company incurred costs with the implementation of a retention plan for certain of its key associates.

(c)	– Professional and other fees include costs incurred in connection with the identification and implementation of initiatives associated with restructuring activities.

(d)	– Inventory reserve on product lines the Company is exiting and will no longer carry as part of its rebranding initiative.

The Company anticipates incurring approximately $30,000 during fiscal 2022 in connection with its continued restructuring activities.

4. Asset Sale to WBA

On September 18, 2017, the Company entered into the Amended and Restated Asset Purchase Agreement with Walgreens Boots Alliance, Inc. (“WBA”) and Walgreen Co., an Illinois corporation and 100% owned subsidiary of WBA (“Buyer”), which amended and restated in its entirety the previously disclosed Asset Purchase Agreement, dated as of June 28, 2017, by and among the Company, WBA and Buyer (the “Original Asset Purchase Agreement”). Pursuant to the terms and subject to the conditions set forth in the Amended and Restated Asset Purchase Agreement, Buyer purchased from the Company 1,932 stores (the “Acquired Stores”), 3 distribution centers, related inventory and other specified assets and liabilities related thereto for a purchase price of $4,375,000, on a cash-free, debt-free basis (the “Asset Sale” or “Sale”). The Company completed the store transfer process in March of 2018, which resulted in the transfer of all 1,932 stores and related assets to WBA, and received cash proceeds of $4,156,686. The Company sold the 3 distribution centers for cash proceeds of $218,314. The sale of the final distribution center was completed during the first quarter of fiscal 2021 and resulted in a pre-tax gain of $12,690, which was included in the results of operations and cash flows of discontinued operations during the thirteen week period ended May 30, 2020. The transfer of the final distribution center and related assets constitutes the final closing under the Amended and Restated Asset Purchase Agreement.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

The Company had agreed to provide transition services to Buyer for up to three years after the initial closing of the Sale. Under the terms of the Transition Services Agreement (“TSA”), the Company provided various services on behalf of WBA, including but not limited to the purchase and distribution of inventory and virtually all selling, general and administrative activities. In connection with these services, the Company purchased the related inventory and incurred cash payments for the selling, general and administrative activities, which, the Company billed on a cash neutral basis to WBA in accordance with terms as outlined in the TSA. Total billings for these items during the thirteen and twenty-six week periods ended August 29, 2020 were $4,162 and $35,167, respectively. The Company recorded WBA TSA fees of $388 and $1,467 during the thirteen and twenty-six week periods ended August 29, 2020, respectively, which are reflected as a reduction to selling, general and administrative expenses. On October 17, 2020, the Company and WBA mutually agreed to terminate the services under the TSA.

Based on its magnitude and because the Company exited certain markets, the Sale represented a significant strategic shift that has a material effect on the Company's operations and financial results. Accordingly, the Company has applied discontinued operations treatment for the Sale as required by Accounting Standards Codification 210-05-Discontinued Operations (ASC 205-20). In accordance with ASC 205-20, the Company reclassified the Disposal Group to assets and liabilities held for sale on its consolidated balance sheets as of the periods ended August 28, 2021 and February 27, 2021, and reclassified the financial results of the Disposal Group in its consolidated statements of operations and consolidated statements of cash flows for all periods presented. The Company also revised its discussion and presentation of operating and financial results to be reflective of its continuing operations as required by ASC 205-20.

As of August 28, 2021 and February 27, 2021, there are no assets and liabilities classified as held for sale relating to the Asset Sale to WBA.

The operating results of the discontinued operations that are reflected on the consolidated statements of operations within net income from discontinued operations are as follows:


	August 28,		August 29,		August 28,		August 29,
	2021		2020		2021		2020
	(13 weeks)		(13 weeks)		(26 weeks)		(26 weeks)
Revenues	$	—	$	—	$	—	$	174
Costs and expenses:
Cost of revenues(a)		—		—		—		8
Selling, general and administrative expenses(a)		—		—		—		871
Gain on sale of assets, net		—		—		—		(14,149)
		—		—		—		(13,270)
Income from discontinued operations before income taxes		—		—		—		13,444
Income tax expense		—		—		—		4,283
Net income from discontinued operations, net of tax	$	—	$	—	$	—	$	9,161

(a)	Cost of revenues and selling, general and administrative expenses for the discontinued operations excludes corporate overhead. These charges are reflected in continuing operations.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

The operating results reflected above do not fully represent the Disposal Group’s historical operating results, as the results reported within net income from discontinued operations only include expenses that are directly attributable to the Disposal Group.

5. Income (Loss) Per Share

Basic income (loss) per share is computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the income of the Company, subject to anti-dilution limitations.


	Thirteen Week Period Ended				Twenty-Six Week Period Ended
	August 28,		August 29,		August 28,		August 29,
	2021		2020		2021		2020
Basic and diluted loss per share:
Numerator:
Net loss from continuing operations	$	(100,301)	$	(13,197)	$	(113,358)	$	(85,899)
Net income from discontinued operations		—		—		—		9,161
Loss attributable to common stockholders— basic and diluted	$	(100,301)	$	(13,197)	$	(113,358)	$	(76,738)
Denominator:
Basic weighted average shares		53,989		53,573		53,920		53,528
Outstanding options and restricted shares, net		—		—		—		—
Diluted weighted average shares		53,989		53,573		53,920		53,528
Basic and diluted (loss) income per share:
Continuing operations	$	(1.86)	$	(0.25)	$	(2.10)	$	(1.60)
Discontinued operations		-		-		-		0.17
Net basic and diluted loss per share	$	(1.86)	$	(0.25)	$	(2.10)	$	(1.43)

Due to their antidilutive effect, 724 and 798 potential common shares related to stock options have been excluded from the computation of diluted income (loss) per share for the thirteen and twenty-six week periods ended August 28, 2021 and August 29, 2020, respectively. Also, excluded from the computation of diluted income (loss) per share for the thirteen and twenty-six week periods ended August 28, 2021 and August 29, 2020 are restricted shares of 1,574 and 1,487, respectively, which are included in shares outstanding.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

6. Facility Exit and Impairment Charges

Facility exit and impairment charges consist of amounts as follows:


	Thirteen Week Period				Twenty-Six Week Period
	Ended				Ended
	August 28,			August 29,	August 28,		August 29,
	2021		2020		2021		2020
Impairment charges	$	6,736	$	9,230	$	11,049	$	11,433
Facility exit charges		4,617		2,298		9,135		3,848
	$	11,353	$	11,528	$	20,184	$	15,281

Impairment Charges

These amounts include the write-down of long-lived assets at locations that were assessed for impairment because of management’s intention to relocate or close the location or because of changes in circumstances that indicated the carrying value of an asset may not be recoverable.

The Company utilizes the three-level valuation hierarchy for the recognition and disclosure of fair value measurements. The categorization of assets and liabilities within this hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy consist of the following:

●

Level 1—Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

●

Level 2—Inputs to the valuation methodology are quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active or inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument.

●

Level 3—Inputs to the valuation methodology are unobservable inputs based upon management’s best estimate of inputs market participants could use in pricing the asset or liability at the measurement date, including assumptions about risk.

Non-Financial Assets Measured on a Non-Recurring Basis

Long-lived non-financial assets are measured at fair value on a nonrecurring basis for purposes of calculating impairment using Level 2 and Level 3 inputs as defined in the fair value hierarchy. The fair value of long-lived assets using Level 2 inputs is determined by evaluating the current economic conditions in the geographic area for similar use assets. The fair value of long-lived assets using Level 3 inputs is determined by estimating the amount and timing of net future cash flows (which are unobservable inputs) and discounting them using a risk-adjusted rate of interest (which is Level 1). The Company estimates future cash flows based on its experience and knowledge of the market in which the store is located. Significant increases or decreases in actual cash flows may result in valuation changes. During the twenty-six week period ended August 28, 2021, long-lived assets from continuing operations with a carrying value of $11,538, primarily right-of-use assets in connection with stores or leased office spaces, were written down to their fair value of $489, resulting in an impairment charge of $11,049 of which $6,736 relates to the thirteen week period ended

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

August 28, 2021. During the twenty-six week period ended August 29, 2020, long-lived assets from continuing operations with a carrying value of $12,654, were written down to their fair value of $1,221, resulting in an impairment charge of $11,433 of which $9,230 relates to the thirteen week period ended August 29, 2020. Of the $11,433, $4,779 relates to a terminated software project and the replacement of existing software, $4,995 relates to the closure of the remaining RediClinic operations and $1,659 relates to store and corporate assets. If our actual future cash flows differ from our projections materially, certain stores that are either not impaired or partially impaired in the current period may be further impaired in future periods.

The following table presents fair values for those assets measured at fair value on a non-recurring basis at August 28, 2021 and August 29, 2020:


							Fair Values		Total
							as of		Charges
	Level 1		Level 2		Level 3		Impairment Date		August 28, 2021
Long-lived assets held for use	$	—	$	—	$	489	$	489	$	(11,049)
Long-lived assets held for sale	$	—	$	—	$	—	$	—	$	—
Total	$	—	$	—	$	489	$	489	$	(11,049)


							Fair Values		Total
							as of		Charges
	Level 1		Level 2		Level 3		Impairment Date		August 29, 2020
Long-lived assets held for use	$	—	$	—	$	1,071	$	1,071	$	(11,416)
Long-lived assets held for sale	$	—	$	150	$	—	$	150	$	(17)
Total	$	—	$	150	$	1,071	$	1,221	$	(11,433)

The above assets reflected in the caption Long-lived assets held for sale are separate and apart from the Assets to be Sold and due to their immateriality have not been reclassified to assets held for sale.

Facility Exit Charges

As part of the Company's ongoing business activities, the Company assesses stores and distribution centers for potential closure or relocation. Decisions to close or relocate stores or distribution centers in future periods would result in facility exit charges and inventory liquidation charges, as well as impairment of assets at these locations. When a store or distribution center is closed, the Company records an expense for unrecoverable costs and accrues a liability equal to the present value at current credit adjusted risk-free interest rates of any anticipated executory costs which are not included within the store or distribution center's respective lease liability under Topic 842. Other store or distribution center closing and liquidation costs are expensed when incurred.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

The following table reflects changes in the Company’s closed store liability relating to closed store and distribution center charges for new closures, changes in assumptions and interest accretion:


	Thirteen Week Period				Twenty-Six Week Period
	Ended				Ended
	August 28,		August 29,		August 28,		August 29,
	2021		2020		2021		2020
Balance—beginning of period	$	6,135	$	2,170	$	3,443	$	2,253
Provision for present value of executory costs for leases exited		—		—		1,708		—
Changes in assumptions and other adjustments		—		495		1,493		495
Interest accretion		9		—		16		—
Cash payments		(533)		(60)		(1,049)		(143)
Balance—end of period	$	5,611	$	2,605	$	5,611	$	2,605

7. Fair Value Measurements

The Company utilizes the three-level valuation hierarchy as described in Note 6, Facility Exit and Impairment Charges, for the recognition and disclosure of fair value measurements.

Financial instruments other than long-term indebtedness include cash and cash equivalents, accounts receivable and accounts payable. These instruments are recorded at book value, which we believe approximate their fair values due to their short term nature. In addition, as of August 28, 2021 and February 27, 2021, the Company has $7,023 and $7,041, respectively, of investments carried at amortized cost as these investments are being held to maturity, which are included as a component of other assets. The Company believes the carrying value of these investments approximates their fair value.

The fair value for LIBOR-based borrowings under the Company’s senior secured credit facility is estimated based on the quoted market price of the financial instrument which is considered Level 1 of the fair value hierarchy. The fair values of substantially all of the Company’s other long-term indebtedness are estimated based on quoted market prices of the financial instruments which are considered Level 1 of the fair value hierarchy. The carrying amount and estimated fair value of the Company’s total long-term indebtedness was $3,114,351 and $3,234,664, respectively, as of August 28, 2021. The carrying amount and estimated fair value of the Company's total long-term indebtedness was $3,063,087 and $3,176,322, respectively, as of February 27, 2021.

8. Income Taxes

The Company recorded an income tax expense from continuing operations of $3,310 and $47 for the thirteen week periods ended August 28, 2021 and August 29, 2020, respectively. The Company recorded an income tax expense of $4,090 and an income tax benefit from continuing operations of $7,971 for the twenty-six week periods ended August 28, 2021 and August 29, 2020, respectively. The effective tax rate for the thirteen week periods ended August 28, 2021 and August 29, 2020 was (3.4)% and (0.4)%, respectively. The effective tax rate for the twenty-six week periods ended August 28, 2021 and August 29, 2020 was (3.7)% and 8.5%, respectively. The effective tax rate for the thirteen and

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

twenty-six week periods ended August 28, 2021 was net of an adjustment of (22.9)%, and (22.4)%, respectively, to adjust the valuation allowance against deferred tax assets. The effective tax rate for the thirteen and twenty-six week periods ended August 29, 2020 was net of an adjustment of 7.6% and (8.1)%, respectively, to adjust the valuation allowance against deferred tax assets.

The Company recognizes tax liabilities in accordance with the guidance for uncertain tax positions and management adjusts these liabilities with changes in judgment as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the tax liabilities.

The Company believes that it is reasonably possible that a decrease of up to $11,851 in unrecognized tax benefits related to state exposures may be necessary in the next twelve months however management does not expect the change to have a significant impact on the results of operations or the financial position of the Company.

The Company regularly evaluates valuation allowances established for deferred tax assets for which future realization is uncertain. Management will continue to monitor all available evidence related to the net deferred tax assets that may change the most recent assessment, including events that have occurred or are anticipated to occur. The Company continues to maintain a valuation allowance against net deferred tax assets of $1,683,815 and $1,657,562, which relates to federal and state deferred tax assets that may not be realized based on the Company's future projections of taxable income at August 28, 2021 and February 27, 2021, respectively.

9. Medicare Part D

The Company offers Medicare Part D benefits through Elixir Insurance (“EI”), which has contracted with CMS to be a Prescription Drug Plan (“PDP”) and, pursuant to the Medicare Prescription Drug, Improvement and Modernization Act of 2003, must be a risk-bearing entity regulated under state insurance laws or similar statutes.

EI is a licensed domestic insurance company under the applicable laws and regulations. Pursuant to these laws and regulations, EI must file quarterly and annual reports with the National Association of Insurance Commissioners (“NAIC”) and certain state regulators, must maintain certain minimum amounts of capital and surplus under formulas established by certain states and must, in certain circumstances, request and receive the approval of certain state regulators before making dividend payments or other capital distributions to the Company. The Company does not believe these limitations on dividends and distributions materially impact its financial position. EI is subject to minimum capital and surplus requirements in certain states. The minimum amount of capital and surplus required to satisfy regulatory requirements in these states is $15,036 as of June 30, 2021. EI was in excess of the minimum required amounts in these states as of August 28, 2021.

The Company has recorded estimates of various assets and liabilities arising from its participation in the Medicare Part D program based on information in its claims management and enrollment systems. Significant estimates arising from its participation in this program include: (i) estimates of low-income cost subsidies, reinsurance amounts, and coverage gap discount amounts ultimately payable to CMS based on a detailed claims reconciliation that will occur in the following year; (ii) an estimate of amounts receivable from CMS under a risk-sharing feature of the Medicare Part D program design, referred to as the risk corridor and (iii) estimates for claims that have been reported and are in the process of being paid or contested and for our estimate of claims that have been incurred but have not yet been reported.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

On August 12, 2021, the Company entered into a receivable purchase agreement (the “August 2021 Receivable Purchase Agreement”) with Bank of America, N.A. (the “Purchaser”).

Pursuant to the terms and conditions set forth in the August 2021 Receivable Purchase Agreement, the Company sold $271,829, a portion of its calendar 2021 CMS receivable, for $258,116, of which $239,360 was received on August 12, 2021. The remaining $18,756, which is included in accounts receivable, net as of August 28, 2021, is payable to the Company, subject to final CMS claim reconciliation adjustments, upon receipt of the final remittance from CMS. In connection therewith, the Company recognized a loss of $13,713, which is included as a component of loss (gain) on sale of assets, net.

On August 12, 2021, concurrent with the August 2021 Receivable Purchase Agreement, the Company entered into an indemnity agreement (the “August 2021 Indemnity Agreement”), whereby the Company has agreed to indemnify, reimburse and hold Purchaser harmless from certain liabilities and expenses actually suffered or incurred by the Purchaser resulting from the occurrence of certain events as specified in the August 2021 Indemnity Agreement. Based on its evaluation of the August 2021 Indemnity Agreement, the Company has determined that it is highly unlikely that the events covered under the August 2021 Indemnity Agreement would occur, and consequently, the Company has not recorded any indemnification liability associated with the August 2021 Indemnity Agreement.

As of August 28, 2021 and February 27, 2021 accounts receivable, net included $71,474 and $52,718 due from the Purchaser, subject to final CMS claim reconciliation adjustments, upon receipt of the final remittance for the respective calendar years from CMS.

As of August 28, 2021, and February 27, 2021, accounts receivable, net included $203,363 and $69,800 due from CMS.

10. Manufacturer Rebates Receivables

The Pharmacy Services Segment has manufacturer rebates receivables of $590,153 and $632,267 included in Accounts receivable, net, as of August 28, 2021 and February 27, 2021, respectively.

11. Goodwill and Other Intangible Assets

There was 0 goodwill impairment charge for the twenty-six week period ended August 28, 2021. At August 28, 2021 and February 27, 2021, accumulated impairment losses for the Pharmacy Services segment was $574,712.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

The Company’s intangible assets are primarily finite-lived and amortized over their useful lives. Following is a summary of the Company’s finite-lived and indefinite-lived intangible assets as of August 28, 2021 and February 27, 2021.


	August 28, 2021								February 27, 2021
							Remaining								Remaining
							Weighted								Weighted
	Gross						Average		Gross						Average
	Carrying		Accumulated				Amortization		Carrying		Accumulated				Amortization
	Amount		Amortization		Net		Period		Amount		Amortization		Net		Period
Non-compete agreements and other(a)	$	197,241	$	(176,637)	$	20,604	3	years	$	193,916	$	(172,618)	$	21,298	3	years
Prescription files		1,032,732		(915,334)		117,398	6	years		1,023,200		(900,321)		122,879	6	years
Customer relationships(a)		388,000		(274,730)		113,270	10	years		388,000		(261,584)		126,416	11	years
CMS license		57,500		(14,222)		43,278	19	years		57,500		(13,072)		44,428	20	years
Claims adjudication and other developed software		58,985		(52,102)		6,883	1	years		58,985		(47,887)		11,098	2	years
Backlog		11,500		(11,500)		—	0	years		11,500		(11,500)		—	0	years
Total finite	$	1,745,958	$	(1,444,525)		301,433			$	1,733,101	$	(1,406,982)	$	326,119
Trademarks		14,400		—		14,400	Indefinite			14,400		—		14,400	Indefinite
Total	$	1,760,358	$	(1,444,525)	$	315,833			$	1,747,501	$	(1,406,982)	$	340,519

(a)	Amortized on an accelerated basis which is determined based on the remaining useful economic lives of the customer relationships that are expected to contribute directly or indirectly to future cash flows.

In connection with the RxEvolution initiatives previously announced on March 16, 2020, the Company rebranded its EnvisionRxOptions and MedTrak subsidiaries to its new brand name, Elixir. These trademarks qualify as Level 3 within the fair value hierarchy. Upon the implementation of the rebranding initiatives during the first quarter of fiscal 2021, the Company has determined that the carrying value exceeded the fair value and consequently the Company incurred an impairment charge of $29,852 for these trademarks, which is included within intangible asset impairment charges within the condensed consolidated statement of operations.

Amortization expense for these intangible assets and liabilities was $19,953 and $40,413 for the thirteen and twenty-six week periods ended August 28, 2021, respectively. Amortization expense for these intangible assets and liabilities was $22,695 and $47,115 for the thirteen and twenty-six week periods ended August 29, 2020, respectively. The anticipated annual amortization expense for these intangible assets and liabilities is 2022—$72,376; 2023—$60,441; 2024—$46,737; 2025—$35,443 and 2026—$24,839.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

12. Indebtedness and Credit Agreement

Following is a summary of indebtedness and lease financing obligations at August 28, 2021 and February 27, 2021:


	August 28,		February 27,
	2021		2021
Secured Debt:
Senior secured revolving credit facility due December 2023 ($0 and $850,000 face value less unamortized debt issuance costs of $0 and $14,103)	$	—	$	835,897
FILO term loan due December 2023 ($0 and $450,000 face value less unamortized debt issuance costs of $0 and $2,230)		—		447,770
Senior secured revolving credit facility due August 2026 ($1,100,000 and $0 face value less unamortized debt issuance costs of $24,740 and $0)		1,075,260		—
FILO Term Loan due August 2026 ($350,000 and $0 face value less unamortized debt issuance costs of $2,609 and $0)		347,391		—
		1,422,651		1,283,667
Second Lien Secured Debt:
7.5% senior notes due July 2025 ($600,000 face value less unamortized debt issuance costs of $7,850 and $8,876)		592,150		591,124
8.0% senior notes due November 2026 ($849,918 face value less unamortized debt issuance costs of $15,937 and $17,477)		833,981		832,441
		1,426,131		1,423,565
Guaranteed Unsecured Debt:
6.125% senior notes due April 2023 ($0 and $90,808 face value less unamortized debt issuance costs of $0 and $448)		—		90,360
		—		90,360
Unguaranteed Unsecured Debt:
7.70% notes due February 2027 ($237,386 face value less unamortized debt issuance costs of $709 and $776)		236,677		236,610
6.875% fixed-rate senior notes due December 2028 ($29,001 face value less unamortized debt issuance costs of $109 and $116)		28,892		28,885
		265,569		265,495
Lease financing obligations		22,449		23,120
Total debt		3,136,800		3,086,207
Current maturities of long-term debt and lease financing obligations		(6,726)		(6,409)
Long-term debt and lease financing obligations, less current maturities	$	3,130,074	$	3,079,798

Credit Facility

On December 20, 2018, the Company entered into a senior secured credit agreement (as amended by the First Amendment to Credit Agreement, dated as of January 6, 2020, the “Credit Agreement”; and the Credit Agreement, as further amended by the Second Amendment (as defined below), the “Amended Credit Agreement”), which Credit Agreement provided for facilities consisting of a $2,700,000 senior secured asset-based revolving credit facility (“Initial

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

Senior Secured Revolving Credit Facility”) and a $450,000 “first-in, last out” senior secured term loan facility (“Initial Senior Secured Term Loan,” and together with the Initial Senior Secured Revolving Credit Facility, collectively, the “Initial Facilities”). In December 2018, the Company used proceeds from the Initial Facilities to refinance its prior $2,700,000 existing credit agreement.

On August 20, 2021, the Company entered in to the Second Amendment to Credit Agreement (the “Second Amendment”), which, among other things, amended the Credit Agreement to provide for a $2,800,000 senior secured asset-based revolving credit facility (“Senior Secured Revolving Credit Facility”) and a $350,000 “first-in, last out” senior secured term loan facility (“Senior Secured Term Loan,” and together with the Senior Secured Revolving Credit Facility, collectively, the “Amended Facilities”) and incorporate customary “hardwired” LIBOR transition provisions. The Amended Facilities extend the Company’s debt maturity profile and provide additional liquidity. Borrowings under the Senior Secured Revolving Credit Facility bear interest at a rate per annum equal to, at the Company’s option, a base rate (determined in a customary manner) plus a margin of between 0.25% to 0.75% or (y) an adjusted LIBOR rate (determined in a customary manner) plus a margin of between 1.25% and 1.75%, in each case based upon the Average ABL Availability (as defined in the Amended Credit Agreement). Borrowings under the Senior Secured Term Loan bear interest at a rate per annum equal to, at the Company’s option, (x) a base rate (determined in a customary manner) plus a margin of 1.75% or (y) an adjusted LIBOR rate (determined in a customary manner) plus a margin of 2.75%. The Company is required to pay fees between 0.250% and 0.375% per annum on the daily unused amount of the commitments under the Senior Secured Revolving Credit Facility, depending on Average ABL Availability (as defined in the Amended Credit Agreement). The Amended Facilities are scheduled to mature on August 20, 2026 (subject to a springing maturity if certain of the Company’s existing secured notes are not refinanced or repaid prior to the date that is 91 days prior to the stated maturity thereof).

The Company’s borrowing capacity under the Senior Secured Revolving Credit Facility is based upon a specified borrowing base consisting of accounts receivable, inventory and prescription files. At August 28, 2021, the Company had $1,450,000 of borrowings outstanding under the Amended Facilities and had letters of credit outstanding under the Senior Secured Revolving Credit Facility in a face amount of $123,565, which resulted in remaining borrowing capacity under the Senior Secured Revolving Credit Facility of $1,576,435. If at any time the total credit exposure outstanding under the Senior Secured Revolving Credit Facility exceeds the borrowing base, the Company will be required to repay amounts outstanding to eliminate such shortfall.

The Amended Credit Agreement restricts the Company and all of its subsidiaries that guarantee its obligations under the Amended Facilities, the secured guaranteed notes and unsecured guaranteed notes (collectively, the “Subsidiary Guarantors”) from accumulating cash on hand in excess of $200,000 at any time when revolving loans are outstanding (not including cash located in store and lockbox deposit accounts and cash necessary to cover current liabilities). The Amended Credit Agreement also states that if at any time (other than following the exercise of remedies or acceleration of any senior obligations or second priority debt and receipt of a triggering notice by the senior collateral agent from a representative of the senior obligations or the second priority debt) either (i) an event of default exists under the Amended Facilities or (ii) the sum of the Company’s borrowing capacity under the Senior Secured Revolving Credit Facility and certain amounts held on deposit with the senior collateral agent in a concentration account is less than $275,000 for three consecutive business days or less than or equal to $200,000 on any day (a “cash sweep period”), the funds in the Company’s deposit accounts will be swept to a concentration account with the senior collateral agent and will be applied first to repay outstanding revolving loans under the Amended Facilities, and then held as collateral for the senior obligations until such cash sweep period is rescinded pursuant to the terms of the Amended Facilities.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

With the exception of EI, substantially all of Rite Aid Corporation’s 100% owned subsidiaries guarantee the obligations under the Amended Facilities, the secured guaranteed notes and unsecured guaranteed notes. The Company’s obligations under the Amended Facilities and the Subsidiary Guarantors’ obligations under the related guarantees are secured by (i) a first-priority lien on all of the Subsidiary Guarantors’ cash and cash equivalents, accounts receivable, inventory, prescription files (including eligible script lists), intellectual property (prior to the repayment of the Senior Secured Term Loan) and certain other assets arising therefrom or related thereto (including substantially all of their deposit accounts, collectively, the “ABL priority collateral”) and (ii) a second-priority lien on all of the Subsidiary Guarantors’ equipment, fixtures, investment property (other than equity interests in subsidiaries), intellectual property (following the repayment of the Senior Secured Term Loan) and all other assets that do not constitute ABL priority collateral, in each case, subject to customary exceptions and limitations. The subsidiary guarantees related to the Company’s Amended Facilities, the secured guaranteed notes and, on an unsecured basis, the unsecured guaranteed notes, are full and unconditional and joint and several. The Company has no independent assets or operations. Other than EI, the subsidiaries, including joint ventures, that do not guarantee the Amended Facilities and applicable notes, are minor.

The Amended Credit Agreement allows the Company to have outstanding, at any time, up to an aggregate principal amount of $1,500,000 in secured second priority debt, split-priority debt, unsecured debt and disqualified preferred stock in addition to borrowings under the Amended Facilities and existing indebtedness, provided that not in excess of $750,000 of such secured second priority debt, split-priority debt, unsecured debt and disqualified preferred stock shall mature or require scheduled payments of principal prior to 90 days after the latest maturity date of any Term Loan or Other Revolving Commitment (each as defined in the Amended Credit Agreement) (excluding bridge facilities allowing extensions on customary terms to at least the date that is 90 days after such date). Subject to the limitations described in the immediately preceding sentence, the Amended Credit Agreement additionally allows the Company to issue or incur an unlimited amount of unsecured debt and disqualified preferred stock so long as a Financial Covenant Effectiveness Period (as defined in the Amended Credit Agreement) is not in effect; provided, however, that certain of the Company’s other outstanding indebtedness limits the amount of unsecured debt that can be incurred if certain interest coverage levels are not met at the time of incurrence or other exemptions are not available. The Amended Credit Agreement also contains certain restrictions on the amount of secured first priority debt the Company is able to incur. The Amended Credit Agreement also allows for the voluntary repurchase of any debt or other convertible debt, so long as the Amended Facilities are not in default and the Company maintains availability under its revolver of more than $365,000.

The Amended Credit Agreement has a financial covenant that requires the Company to maintain a minimum fixed charge coverage ratio of 1.00 to 1.00 (i) on any date on which availability under the Senior Secured Revolving Credit Facility is less than $200,000 or (ii) on the third consecutive business day on which availability under the Senior Secured Revolving Credit Facility is less than $250,000 and, in each case, ending on and excluding the first day thereafter, if any, which is the 30th consecutive calendar day on which availability under the revolver is equal to or greater than $250,000. As of August 28, 2021, the Company’s fixed charge coverage ratio was greater than 1.00 to 1.00, and the Company was in compliance with the Amended Credit Agreement’s financial covenant. The Amended Credit Agreement also contains covenants which place restrictions on the incurrence of debt, the payments of dividends, the making of investments, sale of assets, mergers and acquisitions and the granting of liens.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

required payment on debt having a principal amount in excess of $50,000 or any event occurs that enables, or which with the giving of notice or the lapse of time would enable, the holder of such debt to accelerate the maturity or require the repayment, repurchase, redemption or defeasance of such debt.

Fiscal 2021 and 2022 Transactions

On June 25, 2020, the Company commenced an offer to exchange (the “June 25, 2020 Exchange Offer”) up to $750,000 aggregate principal amount of the outstanding 6.125% Notes for a combination of $600,000 8.0% Senior Secured Notes due 2026 (the “8.0% Notes”) and $145,500 cash. On July 10, 2020, the Company increased the maximum amount of 6.125% Notes that may be accepted for exchange from $750,000 to $1,125,000 and, on July 24, 2020, the Company announced that it accepted for payment $1,062,682 aggregate principal amount of the 6.125% Notes in exchange for $849,918 aggregate principal amount of 8.0% Notes and $206,373 in cash. In connection therewith, the Company recorded a gain on debt modification of $5,274 which is included in the results of operations and cash flows of continuing operations.

On April 28, 2021, the Company issued a notice of redemption for all of the 6.125% Notes that were outstanding on May 28, 2021, pursuant to the terms of the indenture of the 6.125% Notes. On May 28, 2021, the Company redeemed 100% of the remaining outstanding 6.125% Notes at par. In connection therewith, the Company recorded a loss on debt retirement of $396 which included unamortized debt issuance costs. The debt repayment and related loss on debt retirement is included in the results of operations and cash flows of continuing operations.

On August 20, 2021, the Company entered into the Second Amendment in order to, among other things, increase the aggregate principal amount of commitments under the Senior Secured Revolving Credit Facility from $2,700,000 to $2,800,000 and decrease the aggregate principal amount of loans outstanding under the Senior Secured Term Loan from $450,000 to $350,000. In connection therewith, the Company recorded a loss on debt modification and retirement of $2,839 which included unamortized debt issuance costs. The debt repayment and related loss on debt modification and retirement is included in the results of operations and cash flows of continuing operations.

Maturities

The aggregate annual principal payments of long-term debt for the remainder of fiscal 2022 and thereafter are as follows: 2022—$0; 2023—$0; 2024—$0; 2025—$0; 2026—$600,000 and $2,566,305 thereafter.

13. Leases

The Company leases most of its retail stores and certain distribution facilities under noncancelable operating and finance leases, most of which have initial lease terms ranging from 5 to 22 years. The Company also leases certain of its equipment and other assets under noncancelable operating leases with initial terms ranging from 3 to 10 years. In addition to minimum rental payments, certain store leases require additional payments based on sales volume, as well as reimbursements for taxes, maintenance and insurance. Most leases contain renewal options, certain of which involve rent increases.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

The following table is a summary of the Company’s components of net lease cost for the thirteen and twenty-six week periods ended August 28, 2021 and August 29, 2020:


	Thirteen Week Period Ended				Twenty-Six Week Period Ended
	August 28, 2021		August 29, 2020		August 28, 2021		August 29, 2020
Operating lease cost	$	168,474	$	160,898	$	337,968	$	322,764
Financing lease cost:
Amortization of right-of-use asset		920		1,093		1,931		2,224
Interest on long-term finance lease liabilities		551		643		1,119		1,332
Total finance lease costs	$	1,471	$	1,736	$	3,050	$	3,556
Short-term lease costs		996		284		2,095		437
Variable lease costs		44,148		42,681		90,186		85,129
Less: sublease income		(3,427)		(3,887)		(6,770)		(8,019)
Net lease cost	$	211,662	$	201,712	$	426,529	$	403,867

Supplemental cash flow information related to leases for the twenty-six week periods ended August 28, 2021 and August 29, 2020:


	Twenty-Six Week Period Ended
	August 28, 2021		August 29, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	$	352,532	$	339,486
Operating cash flows paid for interest portion of finance leases		1,119		1,332
Financing cash flows paid for principal portion of finance leases		2,144		2,446
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		164,128		194,843
Finance leases		0		0

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

Supplemental balance sheet information related to leases as of August 28, 2021 and February 27, 2021 (in thousands, except lease term and discount rate):


	August 28,			February 27,
	2021			2021
Operating leases:
Operating lease right-of-use asset	$	2,974,846		$	3,064,077

Short-term operating lease liabilities	$	519,402		$	516,752
Long-term operating lease liabilities		2,728,390			2,829,293
Total operating lease liabilities	$	3,247,792		$	3,346,045

Finance leases:
Property, plant and equipment, net	$	15,682		$	16,074

Current maturities of long-term debt and lease financing obligations	$	6,726		$	6,409
Lease financing obligations, less current maturities		15,723			16,711
Total finance lease liabilities	$	22,449		$	23,120
Weighted average remaining lease term
Operating leases		7.7			7.9
Finance leases		8.5			8.9

Weighted average discount rate
Operating leases		6.0	%		6.0	%
Finance leases		10.2	%		9.8	%

The following table summarizes the maturity of lease liabilities under finance and operating leases as of August 28, 2021:


	August 28, 2021
	Finance		Operating
Fiscal year	Leases		Leases (1)		Total
2022 (remaining twenty-six weeks)	$	4,374	$	349,639	$	354,013
2023		6,112		670,969		677,081
2024		3,438		612,417		615,855
2025		3,223		516,923		520,146
2026		2,670		424,875		427,545
Thereafter		13,990		1,498,102		1,512,092
Total lease payments		33,807		4,072,925		4,106,732
Less: imputed interest		(11,358)		(825,133)		(836,491)
Total lease liabilities	$	22,449	$	3,247,792	$	3,270,241

(1)	– Future operating lease payments have not been reduced by minimum sublease rentals of $37 million due in the future under noncancelable leases.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

The Company sold 2 and 4 owned and operating stores to independent third parties during the thirteen and twenty-six week period ended August 28, 2021, respectively. Net proceeds from the sales were $6,729 and $14,185 for the thirteen and twenty-six week periods ended August 28, 2021, respectively. Concurrent with these sales, the Company entered into agreements to lease the properties back from the purchasers over a minimum lease term of 15 years. The Company accounted for these leases as operating lease right-of-use assets and corresponding operating lease liabilities in accordance with the Lease Standard. The transactions resulted in a loss of $2,778 and a gain of $910 which is included in the loss (gain) on sale of assets, net for the thirteen and twenty-six week periods ended August 28, 2021, respectively. The Company has additional capacity under its outstanding debt agreements to enter into additional sale-leaseback transactions.

As of August 28, 2021, the Company has identified certain store assets which it may sell and leaseback. The carrying amount of these assets of $24,294, comprised of land, buildings and improvements, were included in the Retail Pharmacy segment, and have been reclassified from their historical balance sheet presentation to current assets held for sale. There can be no assurance if or when the Company will enter into such transactions or the final terms thereof.

During the thirteen and twenty-six week periods ended August 29, 2020, the Company sold 1 owned operating property, the Company’s Ice Cream Plant, to an independent third party. Net proceeds from the sale were $8,461. Concurrent with this sale, the Company entered into an agreement to lease the property back from the purchaser over a minimum lease term of 15 years. The Company accounted for this lease as an operating lease right-of-use asset and a corresponding operating lease liability in accordance with the Lease Standard. The transaction resulted in a gain of $6,219 which is included in the gain on sale of assets, net for the thirteen week period ended August 29, 2020.

14. Stock Options and Stock Awards

The Company recognizes share-based compensation expense over the requisite service period of the award, net of an estimate for the impact of forfeitures. Operating results for the twenty-six week periods ended August 28, 2021 and August 29, 2020 include $8,603 and $5,810, respectively, of compensation costs related to the Company’s stock-based compensation arrangements.

The Company provides certain of its associates with performance based incentive plans under which the associates will receive a certain number of shares of the Company’s common stock or cash based on the Company meeting certain financial and performance goals. If such goals are not met, no stock-based compensation expense is recognized and any recognized stock-based compensation expense is reversed. During the twenty-six week periods ended August 28, 2021 and August 29, 2020, the Company incurred expense of $3,167 and $513 related to these performance based incentive plans, respectively, which is recorded as a component of stock-based compensation expense.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

The total number and type of newly awarded grants and the related weighted average fair value for the twenty-six week periods ended August 28, 2021 and August 29, 2020 are as follows:


	August 28, 2021			August 29, 2020
	Shares	Weighted Average Fair Value		Shares	Weighted Average Fair Value
Stock options granted	—	$	N/A	—	$	N/A
Restricted stock awards granted	823	$	15.07	736	$	17.97
Total awards	823			736

Typically, stock options granted vest, and are subsequently exercisable in equal annual installments over a four-year period for employees. Restricted stock awards typically vest in equal annual installments over a three-year period.

The Company calculates the fair value of stock options using the Black-Scholes-Merton option pricing model.

As of August 28, 2021, the total unrecognized pre-tax compensation costs related to unvested stock options and restricted stock awards granted, net of estimated forfeitures and the weighted average period of cost amortization are as follows:


	August 28, 2021
	Unvested		Unvested		Unvested
	stock		restricted		performance
	options		stock		shares
Unrecognized pre-tax costs	$	1,019	$	20,701	$	23,256
Weighted average amortization period		1.8 years		2.2 years		2.2 years

15. Retirement Plans

Net periodic pension expense for the thirteen and twenty-six week periods ended August 28, 2021 and August 29, 2020, for the Company’s defined benefit plan includes the following components:


	Defined Benefit				Defined Benefit
	Pension Plan				Pension Plan
	Thirteen Week Period Ended				Twenty-Six Week Period Ended
	August 28,		August 29,		August 28,		August 29,
	2021		2020		2021		2020
Service cost	$	128	$	144	$	256	$	288
Interest cost		1,232		1,199		2,464		2,398
Expected return on plan assets		(1,313)		(1,177)		(2,626)		(2,354)
Amortization of unrecognized net loss		123		912		246		1,823
Net periodic pension expense	$	170	$	1,078	$	340	$	2,155

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

During the thirteen and twenty-six week periods ended August 28, 2021 the Company contributed $895 and $1,700 to the Defined Benefit Pension Plan. During the remainder of fiscal 2022, the Company expects to contribute $1,340 to the Defined Benefit Pension Plan.

16. Segment Reporting

The Company has 2 reportable segments, its retail drug stores (“Retail Pharmacy”), and its pharmacy services (“Pharmacy Services”) segments.

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, formulary management and claims processing. Additionally, the Pharmacy Services segment offers specialty and mail order services, and drug benefits to eligible beneficiaries under the federal government’s Medicare Part D program.

The Company’s chief operating decision makers are its Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer, (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
August 28, 2021:
Total Assets	$	6,585,772	$	2,791,141	$	(13,323)	$	9,363,590
Goodwill		43,492		1,064,644		—		1,108,136
February 27, 2021:
Total Assets	$	6,613,370	$	2,736,546	$	(14,512)	$	9,335,404
Goodwill		43,492		1,064,644		—		1,108,136

(1)

As of August 28, 2021 and February 27, 2021, intersegment eliminations include netting of the Pharmacy Services segment long-term deferred tax liability of $0 against the Retail Pharmacy segment long-term deferred tax asset for consolidation purposes in accordance with ASC 740, and intersegment accounts receivable of $13,323 and $14,512, 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.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

The following table is a reconciliation of the Company’s business segments to the consolidated financial statements for the thirteen and twenty-six week periods ended August 28, 2021 and August 29, 2020:


	Retail		Pharmacy		Intersegment
	Pharmacy		Services		Eliminations(1)		Consolidated
Thirteen Week Period Ended
August 28, 2021:
Revenues	$	4,277,218	$	1,898,213	$	(62,431)	$	6,113,000
Gross Profit		1,140,362		105,562		—		1,245,924
Adjusted EBITDA(2)		69,369		36,791		—		106,160
Additions to property and equipment and intangible assets		50,548		4,687		—		55,235
August 29, 2020:
Revenues	$	4,017,912	$	2,038,378	$	(74,320)	$	5,981,970
Gross Profit		1,061,913		98,432		—		1,160,345
Adjusted EBITDA(2)		122,340		29,263		—		151,603
Additions to property and equipment and intangible assets		42,121		4,362		—		46,483
Twenty-Six Week Period Ended
August 28, 2021:
Revenues	$	8,628,900	$	3,770,495	$	(125,410)	$	12,273,985
Gross Profit		2,310,296		220,503		—		2,530,799
Adjusted EBITDA(2)		164,283		80,754		—		245,037
Additions to property and equipment and intangible assets		111,441		8,394		—		119,835
August 29, 2020:
Revenues	$	8,141,183	$	4,015,624	$	(147,461)	$	12,009,346
Gross Profit		2,143,449		215,215		—		2,358,664
Adjusted EBITDA(2)		185,322		73,673		—		258,995
Additions to property and equipment and intangible assets		78,728		6,929		—		85,657

(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.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

The following is a reconciliation of net income (loss) to Adjusted EBITDA for the thirteen and twenty-six week periods ended August 28, 2021 and August 29, 2020:


	August 28,		August 29,		August 28,		August 29,
	2021		2020		2021		2020
	(13 weeks)		(13 weeks)		(26 weeks)		(26 weeks)
Net loss from continuing operations	$	(100,301)	$	(13,197)	$	(113,358)	$	(85,899)
Interest expense		48,592		50,007		97,713		100,554
Income tax expense (benefit)		3,310		47		4,090		(7,971)
Depreciation and amortization		73,859		87,117		149,718		166,220
LIFO credit		(3,993)		(8,750)		(7,986)		(20,816)
Facility exit and impairment charges		11,353		11,528		20,184		15,281
Intangible asset impairment charges		—		—		—		29,852
Loss (gain) on debt modifications and retirements, net		2,839		(5,274)		3,235		(5,274)
Merger and Acquisition-related costs		4,591		—		8,477		—
Stock-based compensation expense		5,792		3,936		8,603		5,810
Restructuring-related costs		9,584		23,186		15,516		58,921
Inventory write-downs related to store closings		798		1,058		1,270		1,892
Litigation settlements		34,212		—		48,212		—
Loss (gain) on sale of assets, net		12,378		1,092		5,820		(1,168)
Other		3,146		853		3,543		1,593
Adjusted EBITDA from continuing operations	$	106,160	$	151,603	$	245,037	$	258,995

17. Commitments, Contingencies and Guarantees

Legal Matters and Regulatory Proceedings

The Company is regularly involved in a variety of legal matters including arbitration, litigation (and related settlement discussions), and other claims, and is subject to regulatory proceedings including audits, inspections, inquiries, investigations, and similar actions by health care, insurance, pharmacy, tax and other governmental authorities arising in the ordinary course of its business, including, without limitation, the matters described below. The Company records accruals for outstanding legal matters and applicable regulatory proceedings when it believes it is probable that a loss has been incurred, and the amount can be reasonably estimated. The Company evaluates on a quarterly basis, developments in legal matters and regulatory proceedings that could affect the amount of any existing accrual or that warrant an accrual. If a loss contingency is not both probable and estimable, the Company typically does not establish an accrued liability. With respect to the litigation and other legal proceedings described below, the Company is unable to estimate the amount or range of reasonably possible loss due to the inherent difficulty of predicting the outcome of and uncertainties regarding such litigation and legal proceedings.

None of the Company’s accruals for outstanding legal matters or regulatory proceedings are currently material, individually or in the aggregate, to the Company’s consolidated financial position. However, during the course of any

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

proceeding, developments may result in the creation or an increase of an accrual that could be material. Additionally, unfavorable or unexpected outcomes in outstanding legal matters or regulatory proceedings could exceed any accrual and impact the Company’s financial position. Further, even if the Company is successful in its legal proceedings, the Company may incur significant costs and expenses defending itself or others that it is required to indemnify, and such costs and expenses may not be subject to or exceed reimbursement pursuant to any applicable insurance.

The Company’s contingencies are subject to significant uncertainties, many of which are beyond the Company’s control, including, among other factors: (i) the stage of any proceeding and delays in scheduling; (ii) whether class or collective action status is sought and the likelihood of a class being certified; (iii) the outcome of pending or potential appeals, motions and settlement discussions; (iv) the range and magnitude of potential damages, fines or penalties, which are often unspecified or indeterminate; (v) the impact of discovery on the matter; (vi) whether novel or unsettled legal theories are at issue or advanced; (vii) whether there are significant factual issues to be resolved; (viii) in the case of certain government agency investigations, whether a qui tam lawsuit (“whistleblower” action) has been filed and whether the government agency makes a decision to intervene in the lawsuit following investigation, and/or (viii) changes in priorities following any change in political administration at the state or federal level.

California Employment Litigation.

The Company is currently a defendant in several lawsuits filed in courts in California that contain allegations regarding violations of the California Business and Professions Code, various California employment laws and regulations, industry wage orders, wage-and-hour laws, rules and regulations pertaining primarily to failure to pay overtime, failure to pay premiums for missed meals and rest periods, failure to provide accurate wage statements, and failure to reimburse business expenses (the “California Cases”). Some of the California Cases purport or may be determined to be class actions or representative actions under the California Private Attorneys General Act and seek substantial damages and penalties. These single-plaintiff and multi-plaintiff California Cases in the aggregate, seek substantial damages. In June 2021, the Company agreed to settle 2 of the California Cases in which the plaintiffs brought class-based claims alleging that they and all other similarly-situated associates were not paid for time waiting for their bags to be checked. NaN set of cases involving store associates was settled for $9 million, while the other involving distribution center associates was settled for $1.75 million. On October 1, 2021, the Company agreed to settle for $12 million allegations made by a purported class of California store associates that it required such associates to purchase uniforms. These settlements remain subject to court approval. In August 2021, the Company paid approximately $8 million in connection with a single-plaintiff matter after exhausting appeals. The Company believes that it has meritorious defenses in the California Cases. The Company has aggressively defended itself and challenged the merits of the lawsuits and, where applicable, allegations that the lawsuits should be certified as class or representative actions.

Usual and Customary Litigation.

The Company is named as a defendant in a number of lawsuits, including the cases below, that allege that the Company’s retail stores overcharged for prescription drugs by not submitting the price available to members of the Rite Aid’s Rx Savings Program as the pharmacy’s usual and customary price, and related theories. The Company is defending itself against these claims.

In January 2017, qui tam plaintiff Azam Rahimi (“Relator”) filed a sealed False Claims Act (“FCA”) lawsuit in the United States District Court for the Eastern District of Michigan. The United States Attorney’s Office for the Eastern

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

District of Michigan, 18 states, and the District of Columbia declined to intervene. The unsealed lawsuit alleges that the Company failed to report its Rx Savings Program prices as its usual and customary prices under the Medicare Part D program, federal and state Medicaid programs, and other publicly funded health care programs, and that the Company is thus liable under the federal FCA and similar state statutes. On December 12, 2019, the court granted the Company’s motion to dismiss and judgment on the pleadings based upon the FCA’s public disclosure bar. The Relator filed a motion for reconsideration which was denied. The Relator appealed to the Court of Appeals for the Sixth Circuit. On June 29, 2021, the Sixth Circuit upheld the lower court's granting of the Company's motion to dismiss the federal FCA claims, leaving Relator the option of refiling the remaining state court claims.

The State of Mississippi, by and through its Attorney General, filed a lawsuit against the Company and various purported related entities on September 27, 2016 alleging the Company failed to accurately report usual and customary prices to Mississippi’s Division of Medicaid.

The Company is involved in a putative consumer class action lawsuit in the United States District Court for the Southern District of California captioned Byron Stafford v. Rite Aid Corp. A separate lawsuit, Robert Josten v. Rite Aid Corp., was consolidated with this lawsuit in November, 2019. The lawsuit contains allegations that (i) the Company was obligated to charge the plaintiffs’ insurance companies its usual and customary prices for their prescription drugs; and (ii) the Company failed to do so because the prices it reported were not equal to or adjusted to account for the prices that Rite Aid offers to uninsured and underinsured customers through its Rx Savings Program. Although a stay pending the Company’s unsuccessful attempt to compel arbitration has been lifted, the cases are now stayed pending mediation of these matters and 2 other lawsuits raising usual and customary pricing allegations filed in the United States District Court for Pennsylvania.

On February 6, 2019, Humana, Inc., filed an arbitration claim alleging that the Company improperly submitted various usual and customary overcharges by failing to report its Rx Savings Program prices as its usual and customary prices to Humana. Arbitration of the dispute is scheduled for November 2021.

The Company is a defendant in 2 consolidated lawsuits pending in the United States District Court for the District of Minnesota filed in 2020 by various Blue Cross/Blue Shield plans that operate in eight different states (North Carolina, North Dakota, Alabama, Utah, Minnesota, Oregon, Washington and New Jersey) alleging that the Company improperly submitted various usual and customary overcharges by failing to report its Rx Savings Program pricing to several Pharmacy Benefit Managers with which Rite Aid and the insurers had independent contracts.

Drug Utilization Review and Code 1 Litigation

In June 2012, qui tam plaintiff, Lloyd F. Schmuckley (“Relator”) filed a complaint under seal against the Company alleging that it failed to comply with certain requirements of California’s Medicaid program between 2007 and 2014. In June 2013, the Company was served with a Civil Investigative Demand (“CID”) by the United States Attorney’s Office for the Eastern District of California regarding (1) the Company’s Drug Utilization Review and prescription dispensing protocol; and (2) the dispensing of drugs designated as “Code 1” by the State of California. Specifically, the Relator alleged that the Company did not perform special verification and documentation for certain medications known as “Code 1” drugs. While the complaint remained under seal, the United States Department of Justice conducted an extensive investigation and ultimately declined to intervene. Although numerous states declined to intervene, in September 2017, the State of California filed a complaint in intervention. The Company filed a motion to

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

dismiss Relator’s and the State of California Department of Justice’s Bureau of Medical Fraud and Elder Abuse respective complaints in January 2018, the hearing was held on March 23, 2018. On September 5, 2018, the court issued an order denying the motion to dismiss. No trial date has been set.

Controlled Substances Litigation, Audits and Investigations

The Company, along with various other defendants, is named in multiple opioid-related lawsuits filed by counties, cities, municipalities, Native American tribes, hospitals, third-party payers, and others across the United States. In December 2017, the U.S. Judicial Panel on Multidistrict Litigation consolidated and transferred more than a thousand federal opioid-related lawsuits that name the Company as a defendant to the multi-district litigation (“MDL”) pending in the United States District Court for the Northern District of Ohio under In re National Prescription Opiate Litigation (Case No. 17-MD-2804). A significant number of similar cases that are not part of the MDL and name the Company as a defendant are also pending in state courts. The plaintiffs in these opioid-related lawsuits generally allege claims that include public nuisance and negligence theories of liability resulting from the impacts of widespread opioid abuse against defendants along the pharmaceutical supply chain, including manufacturers, wholesale distributors, and retail pharmacies.At this stage of the proceedings, the Company is not able to predict the outcome of the opioid-related lawsuits or estimate a potential range of loss regarding the lawsuits, and is defending itself against all relevant claims. From time to time, some of these cases may be settled, dismissed or otherwise terminated, and additional such cases may be filed.

The Company also has received warrants, subpoenas, CIDs, and other requests for documents and information from, and is being investigated by, the federal and state governments regarding opioids and other controlled substances. The Company has been cooperating with and responding to these investigatory inquiries.

In April 2019, the Company initiated a coverage action styled Rite Aid Corporation et al. v. ACE American Ins. Co. et al. Through this action, the Company is seeking the recovery of defense costs and future settlement and/or judgment costs for the opioid-related lawsuits. The action seeks declaratory relief with respect to the obligations of the insurers under all of the policies at issue in the action and asserts claims for breach of contract and statutory remedies against an insurer. While the Company prevailed on a partial summary judgment motion that this insurer has a past and continuing duty to reimburse defense costs for the suits in excess of a satisfied $3,000 retention, that insurer has appealed the ruling and has refused to reimburse the Company for any of its defense costs. The briefing on the insurer’s appeal has been submitted. The Delaware Supreme Court heard oral arguments in the matter on September 22, 2021.

Miscellaneous Litigation and Investigations.

The U.S. Securities and Exchange Commission (“SEC”) is investigating trading in the Company’s securities that occurred in or around January 2017, and has subpoenaed information from the Company in connection with that investigation. The Company is cooperating with the SEC in this matter. In July 2021, Elixir participated in a binding arbitration regarding a dispute with its reinsurer for years 2012 through 2014. The arbitration panel issued a majority opinion awarding Elixir approximately $5 million for years 2012 through 2013, and ordering Elixir to pay the reinsurer approximately $15.4 million in damages for breach for year 2014. The Company acquired Elixir in June 2015. The Company has received a CID and requests for information with respect to consumer protection laws.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

(Dollars and share information in thousands, except per share amounts)

(unaudited)

18. Supplementary Cash Flow Data


	Twenty-Six Week Period Ended
	August 28, 2021		August 29, 2020
Cash paid for interest(a)	$	92,701	$	88,744
Cash payments for income taxes, net(a)	$	2,206	$	6,415
Equipment financed under capital leases	$	1,698	$	428
Gross borrowings from revolver(a)	$	3,633,000	$	4,354,000
Gross repayments to revolver(a)	$	3,383,000	$	3,704,000

(a)	— Amounts are presented on a total company basis.

A significant component of cash provided by Other Liabilities of $101,133 for the twenty-six week period ended August 28, 2021 includes cash provided from an increase in accrued litigation of $34,954 and an increase in accrued payables to network pharmacies of $53,596.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations

Overview

We are a healthcare company with a retail footprint, providing our customers and communities with a high level of care and service through various programs we offer through our two reportable business segments, our Retail Pharmacy segment and our Pharmacy Services segment. We accomplish our goal of delivering comprehensive care to our customers through our retail drugstores and our PBM, Elixir. We also offer fully integrated mail-order and specialty pharmacy services through Elixir Pharmacy. Additionally, through Elixir Insurance (“EI”), Elixir also serves seniors enrolled in Medicare Part D. When combined with our retail platform, this comprehensive suite of services allows us to provide value and choice to customers, patients and payors and allows us to compete in today's evolving healthcare marketplace.

Retail Pharmacy Segment

Our Retail Pharmacy segment sells brand and generic prescription drugs and provides various other pharmacy services, as well as an assortment of front-end products including health and beauty aids, personal care products, seasonal merchandise, and a large private brand product line. Our Retail Pharmacy segment generates the majority of its revenue through the sale of prescription drugs and front-end products at our over 2,500 retail pharmacy locations across 17 states. We replenish our retail stores through a combination of direct store delivery of pharmaceutical products facilitated through our pharmaceutical Purchasing and Delivery Agreement with McKesson, and the majority of our front-end products through our network of distribution centers.

Pharmacy Services Segment

Our Pharmacy Services segment provides a fully integrated suite of PBM offerings including technology solutions, mail delivery services, specialty pharmacy, network and rebate administration, claims adjudication and pharmacy discount programs. Elixir also provides prescription discount programs and Medicare Part D insurance offerings for individuals and groups. Elixir provides services to various clients across its different lines of business, including major health plans, commercial employers, labor groups and state and local governments, representing approximately 3.2 million covered lives, including approximately 1 million covered lives through our Medicare Part D insurance offerings. Elixir continues to focus its efforts and offerings to its target market of small to mid-market employers, labor unions and regional health plans, including provider-led health plans and government sponsored Medicaid and Medicare plans.

Restructuring

Beginning in Fiscal 2019, we initiated a series of restructuring plans designed to reorganize our executive management team, reduce managerial layers, and consolidate roles. In March 2020, we announced the details of our RxEvolution strategy, which includes building tools to work with regional health plans to improve patient health outcomes, rationalizing SKU’s in our front-end offering to free up working capital and update our merchandise assortment, assessing our pricing and promotional strategy, rebranding our retail pharmacy and pharmacy services business, launching our Store of the Future format and further reducing SG&A and headcount, including integrating certain back office functions in the Pharmacy Services segment both within the segment and across Rite Aid. Other strategic initiatives include the expansion of our digital business, replacing and updating the Company’s financial systems to improve efficiency, movement to a common client platform at Elixir and investments in talent in sales, underwriting and operations at Elixir.

These and future restructuring activities are expected to provide future growth and expense efficiency benefits. There can be no assurance that our current and future restructuring charges will achieve the cost savings and remerchandising benefits in the amounts or time anticipated.

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Asset Sale to WBA

On September 18, 2017, we entered into the Amended and Restated Asset Purchase Agreement with Walgreens Boots Alliance, Inc. (“WBA”) and Walgreen Co., an Illinois corporation and 100% owned subsidiary of WBA (“Buyer”), in which the Buyer purchased from Rite Aid 1,932 stores, three distribution centers, related inventory and other specified assets and liabilities for a total purchase price of $4,375,000, on a cash-free, debt-free basis.

During the first quarter of fiscal 2021, we completed the sale of the final distribution center and related assets to WBA for proceeds of $94,289. The impact of the sale of the distribution center and related assets resulted in a pre-tax gain of $12,690, which was included in the results of operations and cash flows of discontinued operations during the thirteen week period ended May 30, 2020. The transfer of the final distribution center and related assets constitutes the final closing under the Amended and Restated Asset Purchase Agreement.

In connection with the asset sale, we agreed to provide transition services to Buyer. Under the terms of the Transition Services Agreement (“TSA”), we provided various services on behalf of WBA, including but not limited to the purchase and distribution of inventory and virtually all selling, general and administrative activities. In connection with these services, we purchased the related inventory and incurred cash payments for the selling, general and administrative activities, which, we billed on a cash neutral basis to WBA in accordance with terms as outlined in the TSA. Total billings for these items during the thirteen and twenty-six week periods ended August 29, 2020 were $4.2 million and $35.2 million, respectively. We recorded WBA TSA fees of $0.4 million and $1.5 million during the thirteen and twenty-six week periods ended August 29, 2020, respectively, which are reflected as a reduction to selling, general and administrative expenses. In conjunction with the transfer of the final distribution center during the quarter ended May 30, 2020, we have substantially completed our obligations under the TSA.

Based on its magnitude and because we exited certain markets, the Sale represented a significant strategic shift that had a material effect on our operations and financial results. Accordingly, we have applied discontinued operations treatment for the Sale as required by GAAP.

Overview of Financial Results from Continuing Operations

Our net loss from continuing operations for the thirteen week period ended August 28, 2021 was $100.3 million or $1.86 per basic and diluted share compared to a net loss of $13.2 million or $0.25 per basic and diluted share for the thirteen week period ended August 29, 2020. Our net loss from continuing operations for the twenty-six week period ended August 28, 2021 was $113.4 million or $2.10 per basic and diluted share compared to a net loss of $85.9 million or $1.60 per basic and diluted share for the twenty-six week period ended August 29, 2020. The increase in net loss for the thirteen and twenty-six week period ended August 28, 2021 was due primarily to a decrease in Adjusted EBTIDA, higher litigation settlements, a higher loss on sale of assets, and a loss on debt modifications and retirements compared to a gain on debt modifications and retirements in the prior year second quarter. These items were partially offset by lower restructuring-related costs. Additionally, the prior year first quarter includes intangible asset impairment charges associated with the rebranding of Elixir.

Our Adjusted EBITDA from continuing operations for the thirteen and twenty-six week period ended August 28, 2021 was $106.2 million or 1.7% of revenues and $245.0 million or 2.0% of revenues, respectively, compared to $151.6 million or 2.5% of revenues and $259.0 million or 2.2% of revenues, respectively, for the thirteen and twenty-six week period ended August 29, 2020. The decline in Adjusted EBITDA for the thirteen week period ended August 28, 2021, was due to a decrease in the Retail Pharmacy segment, partially offset by an increase in the Pharmacy Services segment. Adjusted EBITDA decreased $53.0 million in the Retail Pharmacy segment driven by an increase in SG&A expenses due to cycling the benefit from the prior year change to modernize our associate paid time off (PTO) plans, incremental costs from recently acquired Bartell stores and incremental payroll and marketing costs incurred to drive COVID-19 vaccines. These items were partially offset by an increase in gross profit resulting from an increase in prescription volume. Adjusted EBITDA in the Pharmacy Services segment increased $7.5 million driven by increased gross profit resulting from improvements in our discount card business and good network management, partially offset by the impact from the loss in lives and cost pressures in the Elixir Insurance business. Prior year’s Adjusted EBITDA

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was negatively impacted by a reduction in gross profit related to a change in rebate aggregator at our MedTrak subsidiary.

The decline in Adjusted EBITDA for the twenty-six week period ended August 28, 2021 was due to a decrease in the Retail Pharmacy segment, partially offset by an increase in the Pharmacy Services segment. Adjusted EBITDA decreased $21.0 million in the Retail Pharmacy segment due primarily to an increase in SG&A expenses, partially offset by an increase in gross profit. Adjusted EBITDA in the Pharmacy Services segment increased $7.1 million driven by increased gross profit resulting from improvements in our discount card business and good network management. Please see the sections entitled “Segment Analysis” and “Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures” below for additional details.

Consolidated Results of Operations-Continuing Operations

Revenues and Other Operating Data


	Thirteen Week Period Ended						Twenty-Six Week Period Ended
	August 28,			August 29,			August 28,			August 29,
	2021			2020			2021			2020

	(dollars in thousands except per share amounts)
Revenues(a)	$	6,113,000		$	5,981,970		$	12,273,985		$	12,009,346
Revenue growth		2.2	%		11.5	%		2.2	%		11.8	%
Net loss	$	(100,301)		$	(13,197)		$	(113,358)		$	(85,899)
Net loss per diluted share	$	(1.86)		$	(0.25)		$	(2.10)		$	(1.60)
Adjusted EBITDA(b)	$	106,160		$	151,603		$	245,037		$	258,995
Adjusted Net (Loss) Income (b)	$	(21,966)		$	13,536		$	(1,033)		$	11,526
Adjusted Net (Loss) Income per Diluted Share(b)	$	(0.41)		$	0.25		$	(0.02)		$	0.21

(a)

Revenues for the thirteen and twenty-six week periods ended August 28, 2021 exclude $62,431 and $125,410, respectively, of inter-segment activity that is eliminated in consolidation. Revenues for the thirteen and twenty-six week periods ended August 29, 2020 exclude $74,320 and $147,461, respectively, of inter-segment activity that is eliminated in consolidation.

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

Revenues

Revenues increased 2.2% for the thirteen and twenty-six weeks ended August 28, 2021, compared to an increase of 11.5% and 11.8% for the thirteen and twenty-six weeks ended August 29, 2020, respectively. Revenues for the thirteen week period ended August 28, 2021 were positively impacted by a $259.3 million increase in Retail Pharmacy segment revenues, partially offset by a $140.2 million decrease in Pharmacy Services segment revenues. Revenues for the twenty-six week period ended August 28, 2021 were positively impacted by a $487.7 million increase in Retail Pharmacy segment revenues, partially offset by a $245.1 million decrease in Pharmacy Services segment revenues.

Please see the section entitled “Segment Analysis” below for additional details regarding revenues.

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Costs and Expenses


	Thirteen Week Period Ended						Twenty-Six Week Period Ended
	August 28,			August 29,			August 28,			August 29,
	2021			2020			2021			2020

	(dollars in thousands)
Cost of revenues(a)	$	4,867,076		$	4,821,625		$	9,743,186		$	9,650,682
Gross profit		1,245,924			1,160,345			2,530,799			2,358,664
Gross margin		20.4	%		19.4	%		20.6	%		19.6	%
Selling, general and administrative expenses	$	1,267,753		$	1,116,142		$	2,513,115		$	2,313,289
Selling, general and administrative expenses as a percentage of revenues		20.7	%		18.7	%		20.5	%		19.3	%
Facility exit and impairment charges		11,353			11,528			20,184			15,281
Intangible asset impairment charges		—			—			—			29,852
Interest expense		48,592			50,007			97,713			100,554
Loss (gain) on debt modifications and retirements, net		2,839			(5,274)			3,235			(5,274)
Loss (gain) on sale of assets, net		12,378			1,092			5,820			(1,168)

(a)

Cost of revenues for the thirteen and twenty-six week periods ended August 28, 2021 exclude $62,431 and $125,410, respectively, of inter-segment activity that is eliminated in consolidation. Cost of revenues for the thirteen and twenty-six week periods ended August 29, 2020 exclude $74,320 and $147,461, respectively, of inter-segment activity that is eliminated in consolidation.

Gross Profit and Cost of Revenues

Gross profit increased by $85.6 million for the thirteen week period ended August 28, 2021 compared to the thirteen week period ended August 29, 2020. Gross profit increased by $172.1 million for the twenty-six week period ended August 28, 2021 compared to the twenty-six week period ended August 29, 2020. Gross profit for the thirteen week period ended August 28, 2021 includes an increase of $78.4 million in our Retail Pharmacy segment and an increase of $7.1 million in our Pharmacy Services segment. Gross profit for the twenty-six week period ended August 28, 2021 includes an increase of $166.8 million in our Retail Pharmacy segment and an increase of $5.3 million in our Pharmacy Services segment. Gross margin was 20.4% for the thirteen week period ended August 28, 2021 compared to 19.4% for the thirteen week period ended August 29, 2020. Gross margin was 20.6% for the twenty-six week period ended August 28, 2021 compared to 19.6% for the twenty-six week period ended August 29, 2020. Please see the section entitled “Segment Analysis” for a more detailed description of gross profit and gross margin results by segment.

Selling, General and Administrative Expenses

SG&A increased by $151.6 million and $199.8 million for the thirteen and twenty-six week period ended August 28, 2021, respectively, compared to the thirteen and twenty-six week period ended August 29, 2020. The increase in SG&A for the thirteen week period ended August 28, 2021 includes an increase of $133.3 million relating to our Retail Pharmacy segment and an increase of $18.3 million relating to our Pharmacy Services segment. The increase in SG&A for the twenty-six week period ended August 28, 2021 includes an increase of $180.3 million relating to our Retail Pharmacy segment and an increase of $19.5 million relating to our Pharmacy Services segment. Please see the section entitled “Segment Analysis” below for additional details regarding SG&A.

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Facility Exit and Impairment Charges

Facility exit and impairment charges consist of amounts as follows:


	Thirteen Week				Twenty-Six Week
	Period Ended				Period Ended
	August 28,			August 29,	August 28,		August 29,
	2021		2020		2021		2020
Impairment charges	$	6,736	$	9,230	$	11,049	$	11,433
Facility exit charges		4,617		2,298		9,135		3,848
	$	11,353	$	11,528	$	20,184	$	15,281

Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations—Lease Termination and Impairment Charges” included in our Fiscal 2021 10-K for a detailed description of our impairment and lease termination methodology for fiscal 2021.

Interest Expense

Interest expense was $48.6 million and $97.7 million for the thirteen and twenty-six week period ended August 28, 2021, respectively, compared to $50.0 million and $100.6 million for the thirteen and twenty-six week period ended August 29, 2020, respectively. The weighted average interest rate on our indebtedness for the twenty-six week periods ended August 28, 2021 and August 29, 2020 was 5.1% and 4.9%, respectively.

Income Taxes

We recorded an income tax expense from continuing operations of $3.3 million and $0.05 million for the thirteen week periods ended August 28, 2021 and August 29, 2020, respectively. We recorded an income tax expense from continuing operations of $4.1 million and an income tax benefit from continuing operations of $8.0 million for the twenty-six week periods ended August 28, 2021 and August 29, 2020, respectively. The effective tax rate for the thirteen week periods ended August 28, 2021 and August 29, 2020 was (3.4)% and (0.4)%, respectively. The effective tax rate for the twenty-six week periods ended August 28, 2021 and August 29, 2020 was (3.7)% and 8.5%, respectively. The effective tax rate for the thirteen and twenty-six week periods ended August 28, 2021 was net of an adjustment of (22.9)% and (22.4)%, respectively, to adjust the valuation allowance against deferred tax assets. The effective tax rate for the thirteen and twenty-six week periods ended August 29, 2020 was net of an adjustment of 7.6% and (8.1)%, respectively, to adjust the valuation allowance against deferred tax assets.

We recognize tax liabilities in accordance with the guidance for uncertain tax positions and management adjusts these liabilities with changes in judgment as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the tax liabilities.

We believe that it is reasonably possible that a decrease of up to $11.9 million in unrecognized tax benefits related to state exposures may be necessary in the next twelve months however management does not expect the change to have a significant impact on the results of operations or the financial position of the Company.

We regularly evaluate valuation allowances established for deferred tax assets for which future realization is uncertain. We will continue to monitor all available evidence related to the net deferred tax assets that may change the most recent assessment, including events that have occurred or are anticipated to occur. We continue to maintain a valuation allowance against net deferred tax assets of $1,683.8 million and $1,657.6 million, which relates to federal and state deferred tax assets that may not be realized based on our future projections of taxable income at August 28, 2021 and February 27, 2021, respectively.

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Segment Analysis

We evaluate the Retail Pharmacy and Pharmacy Services segments’ performance based on revenue, gross profit, and Adjusted EBITDA. The following is a reconciliation of our segments to the condensed consolidated financial statements:


	Retail		Pharmacy		Intersegment
	Pharmacy		Services		Eliminations(1)		Consolidated
Thirteen Week Period Ended
August 28, 2021:
Revenues	$	4,277,218	$	1,898,213	$	(62,431)	$	6,113,000
Gross Profit		1,140,362		105,562		—		1,245,924
Adjusted EBITDA(*)		69,369		36,791		—		106,160
August 29, 2020:
Revenues	$	4,017,912	$	2,038,378	$	(74,320)	$	5,981,970
Gross Profit		1,061,913		98,432		—		1,160,345
Adjusted EBITDA(*)		122,340		29,263		—		151,603
Twenty-Six Week Period Ended
August 28, 2021:
Revenues	$	8,628,900	$	3,770,495	$	(125,410)	$	12,273,985
Gross Profit		2,310,296		220,503		—		2,530,799
Adjusted EBITDA(*)		164,283		80,754		—		245,037
August 29, 2020:
Revenues	$	8,141,183	$	4,015,624	$	(147,461)	$	12,009,346
Gross Profit		2,143,449		215,215		—		2,358,664
Adjusted EBITDA(*)		185,322		73,673		—		258,995

(1)

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

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Retail Pharmacy Segment Results of Operations

Revenues and Other Operating Data


	Thirteen Week Period Ended						Twenty-Six Week Period Ended
	August 28,			August 29,			August 28,			August 29,
	2021			2020			2021			2020

	(dollars in thousands)
Revenues	$	4,277,218		$	4,017,912		$	8,628,900		$	8,141,183
Revenue growth		6.5	%		4.4	%		6.0	%		5.6	%
Same store sales growth		2.6	%		3.5	%		2.0	%		5.1	%
Pharmacy sales growth		10.5	%		3.9	%		12.3	%		3.1	%
Same store prescription count growth, adjusted to 30-day equivalents		7.1	%		2.6	%		9.2	%		1.5	%
Same store pharmacy sales growth		5.0	%		2.3	%		6.6	%		2.3	%
Pharmacy sales as a % of total retail sales		69.2	%		66.8	%		69.3	%		65.5	%
Front-end sales (decline) growth		(1.2)	%		5.7	%		(5.7)	%		10.8	%
Same store front-end sales (decline) growth		(2.8)	%		4.6	%		(7.7)	%		9.4	%
Front-end sales as a % of total retail sales		30.8	%		33.2	%		30.7	%		34.5	%
Adjusted EBITDA(*)	$	69,369		$	122,340		$	164,283		$	185,322
Store data:
Total stores (beginning of period)		2,506			2,457			2,510			2,461
New stores		—			—			1			—
Store acquisitions		1			—			1			—
Closed stores		(6)			(7)			(11)			(11)
Total stores (end of period)		2,501			2,450			2,501			2,450
Relocated stores		—			—			—			—
Remodeled and expanded stores		—			1			6			2

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

Revenues

Revenues increased 6.5% for the thirteen weeks ended August 28, 2021 compared to an increase of 4.4% for the thirteen weeks ended August 29, 2020. The increase in revenues for the thirteen week period ended August 28, 2021 was primarily a result of an increase in same store sales and incremental sales from our recently acquired Bartell stores.

Pharmacy same store sales increased by 5.0% for the thirteen week period ended August 28, 2021 compared to an increase of 2.3% in the thirteen week period ended August 29, 2020. The increase in pharmacy same store sales is due to the increase in same store prescription count. Same store prescription count, adjusted to 30-day equivalents, increased 7.1% for the thirteen week period ended August 28, 2021 driven primarily by our COVID-19 vaccination program and increases in other acute and maintenance prescriptions.

Front-end same store sales decreased 2.8% during the thirteen week period ended August 28, 2021 compared to an increase of 4.6% during the thirteen week period ended August 29, 2020. Front-end same store sales, excluding cigarettes and tobacco products, decreased 2.4%. On a 2-year stack basis, front-end same store sales, excluding cigarettes and tobacco products, increased 3.0%, driven by increase in vitamins, color cosmetics and baby care resulting from our work to enhance the assortment in these categories.

Revenues increased 6.0% for the twenty-six weeks ended August 28, 2021 compared to an increase of 5.6% for the twenty-six weeks ended August 29, 2020. The increase in revenues for the twenty-six week period ended August 28, 2021 was primarily a result of an increase in same store sales and incremental sales from our recently acquired Bartell stores.

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Pharmacy same store sales increased by 6.6% for the twenty-six week period ended August 28, 2021 compared to an increase of 2.3% in the twenty-six week period ended August 29, 2020. The increase in pharmacy same store sales is due to the increase in same store prescription count. Same store prescription count, adjusted to 30-day equivalents, increased 9.2% for the twenty-six week period ended August 28, 2021 driven primarily by our COVID-19 vaccination program and increases in other acute and maintenance prescriptions.

Front-end same store sales decreased 7.7% during the twenty-six week period ended August 28, 2021 compared to an increase of 9.4% during the twenty-six week period ended August 29, 2020. Front-end same store sales, excluding cigarettes and tobacco products, decreased 7.2%, driven by decreases in general cleaning products, sanitizers, wipes, paper products, liquor, and over-the-counter products resulting from the pandemic driven surge in the prior year quarter.

We include in same store sales all stores that have been open at least one year. Relocated and acquired stores are not included in same store sales until one year has lapsed.

Costs and Expenses


	Thirteen Week Period Ended						Twenty-Six Week Period Ended
	August 28,			August 29,			August 28,			August 29,
	2021			2020			2021			2020

	(dollars in thousands)
Cost of revenues	$	3,136,856		$	2,955,999		$	6,318,604		$	5,997,734
Gross profit		1,140,362			1,061,913			2,310,296			2,143,449
Gross margin		26.7	%		26.4	%		26.8	%		26.3	%
FIFO gross profit(*)		1,136,369			1,053,163			2,302,310			2,122,633
FIFO gross margin(*)		26.6	%		26.2	%		26.7	%		26.1	%
Selling, general and administrative expenses	$	1,163,352		$	1,030,075			2,319,391			2,139,051
Selling, general and administrative expenses as a percentage of revenues		27.2	%		25.6	%		26.9	%		26.3	%

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

Gross Profit and Cost of Revenues

Gross profit increased $78.4 million for the thirteen week period ended August 28, 2021 compared to the thirteen week period ended August 29, 2020. The increase in gross profit was driven by higher pharmacy same stores sales, partially offset by pharmacy reimbursement rate pressures that were not fully offset by generic drug cost reductions and a decline in front end gross profit as we cycled the impact of the prior year’s COVID-19 buying surge.

Gross profit increased $166.8 million for the twenty-six week period ended August 28, 2021 compared to the twenty-six week period ended August 29, 2020. The increase in gross profit was driven by higher pharmacy same stores sales in the current year, incremental gross profit from our recently acquired Bartell stores, and cycling a prior year restructuring charge of $25.8 million related to exiting product lines as part of our rebranding initiatives. These increases were partially offset by pharmacy reimbursement rate pressures that were not fully offset by generic drug cost reductions and a decline in front end gross profit as we cycled the impact of the prior year’s COVID-19 buying surge.

Gross margin was 26.7% of sales for the thirteen week period ended August 28, 2021 compared to 26.4% of sales for the thirteen week period ended August 29, 2020. The improvement in gross margin as a percentage of revenues is due primarily to higher gross margin associated with COVID-19 vaccines. These improvements are partially offset by continued pharmacy reimbursement rate pressures that were not fully offset by generic drug cost reductions.

Gross margin was 26.8% of sales for the twenty-six week period ended August 28, 2021 compared to 26.3% of sales for the twenty-six week period ended August 29, 2020. The improvement in gross margin as a percentage of revenues is due primarily to higher gross margin associated with COVID-19 vaccines and the cycling of the prior year restructuring charge and markdowns related to the prior year’s COVID-19 buying surge. These improvements are

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partially offset by continued pharmacy reimbursement rate pressures that were not fully offset by generic drug cost reductions.

We use the last-in, first-out (“LIFO”) method of inventory valuation, which is estimated on a quarterly basis and is finalized at year end when inflation rates and inventory levels are final. Therefore, LIFO costs for interim period financial statements are estimated. LIFO credits were $4.0 million and $8.0 million for the thirteen and twenty-six week periods ended August 28, 2021, respectively, compared to LIFO credits of $8.8 million and $20.8 million for the thirteen and twenty-six week periods ended August 29, 2020, respectively. The LIFO credit in the thirteen week period ended August 28, 2021 was mostly due to the planned reduction in front-end inventory, partially offset by higher anticipated front-end inflation in fiscal 2022.

Selling, General and Administrative Expenses

SG&A expenses increased $133.3 million for the thirteen week period ended August 28, 2021 due primarily to cycling the prior year change to modernize our PTO plan, incremental costs from our recently acquired Bartell stores, costs incurred to support our COVID-19 vaccination program and litigation settlements. SG&A expenses as a percentage of revenues for the thirteen week period ended August 28, 2021 was 27.2% compared to 25.6% for the thirteen week period ended August 29, 2020. The increase is due primarily to the items noted above.

SG&A expenses increased $180.3 million for the twenty-six week period ended August 28, 2021 due primarily to cycling the prior year change to modernize our PTO plan, incremental costs from our recently acquired Bartell stores, costs incurred to support our COVID-19 vaccination program and litigation settlements, partially offset by labor savings due to the cycling of the prior year’s Hero Pay and Hero Bonus programs and the COVID-19 buying surge. SG&A expenses as a percentage of revenues for the twenty-six week period ended August 28, 2021 was 26.9% compared to 26.3% for the twenty-six week period ended August 29, 2020. The increase is due primarily to the items noted above.

Pharmacy Services Segment Results of Operations

Revenues and Other Operating Data



	Thirteen Week Period Ended						Twenty-Six Week Period Ended
	August 28,			August 29,			August 28,			August 29,
	2021			2020			2021			2020

	(dollars in thousands)
Revenues	$	1,898,213		$	2,038,378		$	3,770,495		$	4,015,624
Revenue (decline) growth		(6.9)	%		29.1	%		(6.1)	%		27.7	%
Adjusted EBITDA(*)	$	36,791		$	29,263		$	80,754		$	73,673

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

Revenues

Revenues decreased $140.2 million for the thirteen week period ended August 28, 2021 compared to the thirteen week period ended August 29, 2020. Revenues decreased $245.1 million for the twenty-six week period ended August 28, 2021 compared to the twenty-six week period ended August 29, 2020. The decrease in revenues was primarily the result of a decrease in membership in the PBM business and a decrease in Elixir Insurance membership.

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Costs and Expenses



	Thirteen Week Period Ended						Twenty-Six Week Period Ended
	August 28,			August 29,			August 28,			August 29,
	2021			2020			2021			2020

	(dollars in thousands)
Cost of revenues	$	1,792,651		$	1,939,946		$	3,549,992		$	3,800,409
Gross profit		105,562			98,432			220,503			215,215
Gross margin		5.6	%		4.8	%		5.8	%		5.4	%
Selling, general and administrative expenses	$	104,401		$	86,067			193,724			174,238
Selling, general and administrative expenses as a percentage of revenues		5.5	%		4.2	%		5.1	%		4.3	%

Gross Profit and Cost of Revenues

Gross profit increased $7.1 million for the thirteen week period ended August 28, 2021 compared to the thirteen week period ended August 29, 2020. The increase in gross profit is primarily due to improvements in our discount card business and good network management, partially offset by the impact from the loss in lives and cost pressures in the Elixir Insurance business.

Gross profit increased $5.3 million for the twenty-six week period ended August 28, 2021 compared to the twenty-six week period ended August 29, 2020. The increase in gross profit is primarily due to improvements in our discount card business and good network management, partially offset by the impact from the loss in lives and cost pressures in the Medicare Part D business. Additionally, the prior year’s gross profit was negatively impacted by a change in rebate aggregator at our MedTrak subsidiary.

Gross margin was 5.6% of sales for the thirteen week period ended August 28, 2021 compared to 4.8% of sales for the thirteen week period ended August 29, 2020. The improvement in gross margin is due primarily to improvements in our discount card business and good network management, partially offset by an increase in the medical loss ratio tied to our Medicare Part D business.

Gross margin was 5.8% of sales for the twenty-six week period ended August 28, 2021 compared to 5.4% of sales for the twenty-six week period ended August 29, 2020. The improvement in gross margin is due primarily to improvements in our discount card business and good network management, partially offset by an increase in the medical loss ratio tied to our Medicare Part D business.

Selling, General and Administrative Expenses

SG&A expenses increased $18.3 million for the thirteen week period ended August 28, 2021 compared to the thirteen week period ended August 29, 2020 due primarily to increased litigation settlements, restructuring charges and higher discount card program costs, partially offset by further consolidation of administrative functions. SG&A expenses as a percentage of revenue was 5.5% for the thirteen week period ended August 28, 2021 compared to 4.2% for the thirteen week period ended August 29, 2020. The increase in the thirteen week period selling, general and administrative expenses as a percentage of revenues is due primarily to the items noted above and the loss of sales volume.

SG&A expenses increased $19.5 million for the twenty-six week period ended August 28, 2021 compared to the twenty-six week period ended August 29, 2020 due primarily to increased litigation settlements, restructuring charges and higher discount card program costs, partially offset by further consolidation of administrative functions. SG&A expenses as a percentage of revenue was 5.1% for the twenty-six week period ended August 28, 2021 compared to 4.3% for the twenty-six week period ended August 29, 2020. The increase in the twenty-six week period selling, general and administrative expenses as a percentage of revenues is due primarily to the items noted above and the loss of sales volume.

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Liquidity and Capital Resources

General

We have two primary sources of liquidity: (i) cash provided by operating activities and (ii) borrowings under our revolving credit facility. Our principal uses of cash are to provide working capital for operations, to service our obligations to pay interest and principal on debt and to fund capital expenditures. Total liquidity as of August 28, 2021 was $1,690.5 million, which consisted of revolver borrowing capacity of $1,576.4 million and invested cash of $114.1 million.

Credit Facilities

On December 20, 2018, we entered into a senior secured credit agreement (as amended by the First Amendment to Credit Agreement, dated as of January 6, 2020, the “Credit Agreement”; and the Credit Agreement, as further amended by the Second Amendment (as defined below), the “Amended Credit Agreement”), which Credit Agreement provided for facilities consisting of a $2.7 billion senior secured asset-based revolving credit facility (“Initial Senior Secured Revolving Credit Facility”) and a $450.0 million “first-in, last out” senior secured term loan facility (“Initial Senior Secured Term Loan,” and together with the Initial Senior Secured Revolving Credit Facility, collectively, the “Initial Facilities”). In December 2018, we used proceeds from the Initial Facilities to refinance our prior $2.7 billion existing credit agreement.

On August 20, 2021, we entered in to the Second Amendment to Credit Agreement (the “Second Amendment”), which, among other things, amended the Credit Agreement to provide for a $2.8 billion senior secured asset-based revolving credit facility (“Senior Secured Revolving Credit Facility”) and a $350 million “first-in, last out” senior secured term loan facility (“Senior Secured Term Loan,” and together with the Senior Secured Revolving Credit Facility, collectively, the “Amended Facilities”) and incorporate customary “hardwired” LIBOR transition provisions. The Amended Facilities extend our debt maturity profile and provide additional liquidity. Borrowings under the Senior Secured Revolving Credit Facility bear interest at a rate per annum equal to, at our option, (x) a base rate (determined in a customary manner) plus a margin of between 0.25% to 0.75% or (y) an adjusted LIBOR rate (determined in a customary manner) plus a margin of between 1.25% and 1.75%, in each case based upon the Average ABL Availability (as defined in the Amended Credit Agreement). Borrowings under the Senior Secured Term Loan bear interest at a rate per annum equal to, at our option, of (x) a base rate (determined in a customary manner) plus a margin of 1.75% or (y) an adjusted LIBOR rate (determined in a customary manner) plus a margin of 2.75%. We are required to pay fees between 0.250% and 0.375% per annum on the daily unused amount of the commitments under the Senior Secured Revolving Credit Facility, depending on Average ABL Availability. The Amended Facilities are scheduled to mature on August 20, 2026 (subject to a springing maturity if certain of our existing secured notes are not refinanced or repaid prior to the date that is 91 days prior to the stated maturity thereof).

Our borrowing capacity under the Senior Secured Revolving Credit Facility is based upon a specified borrowing base consisting of accounts receivable, inventory and prescription files. At August 28, 2021, we had approximately $1,450.0 million of borrowings outstanding under the Amended Facilities and had letters of credit outstanding under the Senior Secured Revolving Credit Facility in a face amount of approximately $123.6 million, which resulted in remaining borrowing capacity under the Senior Secured Revolving Credit Facility of $1,576.4 million. If at any time the total credit exposure outstanding under the Senior Secured Revolving Credit Facility exceeds the borrowing base, we will be required to repay amounts outstanding to eliminate such shortfall.

The Amended Credit Agreement restricts us and all of our subsidiaries, including the subsidiaries that guarantee our obligations under the Amended Facilities, the secured guaranteed notes and unsecured guaranteed notes (collectively, the “Subsidiary Guarantors”) from accumulating cash on hand in excess of $200.0 million at any time when revolving loans are outstanding (not including cash located in our store and lockbox deposit accounts and cash necessary to cover our current liabilities). The Amended Credit Agreement also states that if at any time (other than following the exercise of remedies or acceleration of any senior obligations or second priority debt and receipt of a triggering notice by the senior collateral agent from a representative of the senior obligations or the second priority debt) either (i) an event of default exists under the Amended Facilities or (ii) the sum of our borrowing capacity under our Senior Secured

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Revolving Credit Facility and certain amounts held on deposit with the senior collateral agent in a concentration account is less than $275.0 million for three consecutive business days or less than or equal to $200.0 million on any day (a “cash sweep period”), the funds in our deposit accounts will be swept to a concentration account with the senior collateral agent and will be applied first to repay outstanding revolving loans under the Amended Facilities, and then held as collateral for the senior obligations until such cash sweep period is rescinded pursuant to the terms of the Amended Facilities.

Our obligations under the Amended Facilities and the Subsidiary Guarantors’ obligations under the related guarantees are secured by (i) a first-priority lien on all of the Subsidiary Guarantors’ cash and cash equivalents, accounts receivable, inventory, prescription files (including eligible script lists), intellectual property (prior to the repayment of the Senior Secured Term Loan) and certain other assets arising therefrom or related thereto (including substantially all of their deposit accounts, collectively, the “ABL priority collateral”) and (ii) a second-priority lien on all of the Subsidiary Guarantors’ equipment, fixtures, investment property (other than equity interests in subsidiaries), intellectual property (following the repayment of the Senior Secured Term Loan) and all other assets that do not constitute ABL priority collateral, in each case, subject to customary exceptions and limitations.

The Amended Credit Agreement allows us to have outstanding, at any time, up to an aggregate principal amount of $1.5 billion in secured second priority debt, split-priority debt, unsecured debt and disqualified preferred stock in addition to borrowings under the Amended Facilities and other existing indebtedness, provided that not in excess of $750.0 million of such secured second priority debt, split-priority debt, unsecured debt and disqualified preferred stock shall mature or require scheduled payments of principal prior to 90 days after the latest maturity date of any Term Loan or Other Revolving Commitment (each as defined in the Amended Credit Agreement) (excluding bridge facilities allowing extensions on customary terms to at least the date that is 90 days after such date). Subject to the limitations described in the immediately preceding sentence, the Amended Credit Agreement additionally allows us to issue or incur an unlimited amount of unsecured debt and disqualified preferred stock so long as a Financial Covenant Effectiveness Period (as defined in the Amended Credit Agreement) is not in effect; provided, however, that certain of our other outstanding indebtedness limits the amount of unsecured debt that can be incurred if certain interest coverage levels are not met at the time of incurrence or other exemptions are not available. The Amended Credit Agreement also contains certain restrictions on the amount of secured first priority debt we are able to incur. The Amended Credit Agreement also allows for the voluntary repurchase of any debt or other convertible debt, so long as the Amended Facilities are not in default and we maintain availability under our revolver of more than $365.0 million.

The Amended Credit Agreement has a financial covenant that requires us to maintain a minimum fixed charge coverage ratio of 1.00 to 1.00 (i) on any date on which availability under the Senior Secured Revolving Credit Facility is less than $200.0 million or (ii) on the third consecutive business day on which availability under the Senior Secured Revolving Credit Facility is less than $250.0 million and, in each case, ending on and excluding the first day thereafter, if any, which is the 30th consecutive calendar day on which availability under the revolver is equal to or greater than $250.0 million. As of August 28, 2021, our fixed charge coverage ratio was greater than 1.00 to 1.00, and we were in compliance with the Amended Credit Agreement’s financial covenant. The Amended Credit Agreement also contains covenants which place restrictions on the incurrence of debt, the payments of dividends, the making of investments, sale of assets, mergers and acquisitions and the granting of liens.

The Amended Credit Agreement provides for customary events of default including nonpayment, misrepresentation, breach of covenants and bankruptcy. It is also an event of default if we fail to make any required payment on debt having a principal amount in excess of $50.0 million or any event occurs that enables, or which with the giving of notice or the lapse of time would enable, the holder of such debt to accelerate the maturity or require the repayment repurchase, redemption or defeasance of such debt.

The indentures that govern our guaranteed unsecured notes and our guaranteed secured notes contain restrictions on the amount of additional secured and unsecured debt that we may incur. As of August 28, 2021, we had the ability to (i) draw the full amount under our revolving credit facility, or (ii) incur additional secured debt. In addition, we have the ability to enter into certain sale and leaseback transactions. The ability to issue additional unsecured debt under the indenture is generally governed by an interest coverage ratio test. As of August 28, 2021, we had the ability to issue additional secured and unsecured debt under the indentures governing our unguaranteed unsecured notes.

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Guarantor Summarized Financial Information

Certain of our subsidiaries, which are listed on Exhibit 22 to this Quarterly Report on Form 10-Q, have guaranteed our obligations under the 6.125% Notes and the 7.500% Notes (collectively, the "Guaranteed Notes"). As discussed in Note 12 to the condensed consolidated financial statements, the Guaranteed Notes were issued by us, as the parent company, and are guaranteed by substantially all of the parent company’s consolidated subsidiaries (the “guarantors” or “Subsidiary Guarantors”) except for EI (the “non-guarantor”). The parent company and guarantors are referred to as the “obligor group”. The Subsidiary Guarantors fully and unconditionally and jointly and severally guarantee the Guaranteed Notes. The 6.125% Notes and the obligations under the related guarantees are unsecured. The 7.500% Notes and the obligations under the related guarantees are secured by (i) a first-priority lien on all of the Subsidiary Guarantors’ equipment, fixtures, investment property (other than equity interests in subsidiaries), intellectual property (following the repayment of the Senior Secured Term Loan) and other collateral to the extent it does not constitute ABL priority collateral (as defined below), and (ii) a second-priority lien on all of the Subsidiary Guarantors’ cash and cash equivalents, accounts receivables, payment intangibles, inventory, prescription files (including eligible script lists) and, intellectual property (prior to the repayment of the Senior Secured Term Loan) (collectively, the “ABL priority collateral”), which, in each case, also secure the Amended Facilities.

Under certain circumstances, subsidiaries may be released from their guarantees without consent of the note holders. Our subsidiaries conduct substantially all of our operations and have significant liabilities, including trade payables. If the subsidiary guarantees are invalid or unenforceable or are limited by fraudulent conveyance or other laws, the registered debt will be structurally subordinated to the substantial liabilities of our subsidiaries.

Condensed Combined Financial Information

The following tables include summarized financial information of the obligor group. Investments in and the equity in the earnings of EI, which is not a member of the obligor group, have been excluded. The summarized financial information of the obligor group is presented on a combined basis with intercompany balances and transactions between entities in the obligor group eliminated. The obligor group’s amounts due to/from and transactions with EI have been presented in separate line items, if material.


	August 28,		February 27,
In millions	2021		2021
Due from EI	$	166.8	$	96.1
Other current assets		3,608.3		3,431.8
Total current assets	$	3,775.1	$	3,527.9

Operating lease right-of-use assets	$	2,974.8	$	3,064.1
Goodwill		1,108.1		1,108.1
Other noncurrent assets		1,455.9		1,604.2
Total noncurrent assets	$	5,538.8	$	5,776.4

Due to EI	$	—	$	—
Other current liabilities		2,753.7		2,579.9
Total current liabilities	$	2,753.7	$	2,579.9

Long-term debt less current maturities	$	3,114.4	$	3,063.1
Long-term operating lease liabilities		2,728.4		2,829.3
Other noncurrent liabilities		212.3		216.9
Total noncurrent liabilities	$	6,055.1	$	6,109.3

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	Thirteen Week Period Ended		Twenty-Six Week Period Ended
In millions	August 28, 2021		August 28, 2021
Revenues (a)	$	5,968.3	$	11,987.3
Cost of revenues (b)		4,720.0		9,456.1
Gross profit		1,248.3		2,531.2

Net (loss) income from continuing operations		(75.4)		8.9
Net income from discontinued operations		—		—
Net loss	$	(75.4)	$	8.9

Net loss attributable to Rite Aid	$	(100.3)	$	(113.4)

(a)

Includes $(4.9) million and $17.3 million of revenues generated from the non-guarantor for the thirteen and twenty-six week periods ended August 28, 2021, respectively.

(b)

Includes $(5.0) million and $17.2 million of cost of revenues incurred in transactions with the non-guarantor for the thirteen and twenty-six week periods ended August 28, 2021, respectively.

Net Cash Provided by/Used in Operating, Investing and Financing Activities

Cash provided by operating activities was $39.6 million compared to cash used in operating activities of $476.6 million for the twenty-six week periods ended August 28, 2021 and August 29, 2020, respectively. Operating cash flow was positively impacted by the timing of payments to Elixir’s pharmacy network and increases in litigation and other operating expense accruals, partially offset by growth in our CMS receivable during the twenty-six week period ended August 28, 2021. The improvement in cash provided by operating activities compared to the prior year is due primarily to the acceleration of the sale of our CMS receivable, and changes in operating assets and liabilities due to timing.

Cash used in investing activities was $90.5 million and $58.8 million for the twenty-six week periods ended August 28, 2021 and August 29, 2020, respectively. Cash used for the purchase of property, plant, and equipment was higher than the prior year due to signage costs associated with our store rebranding activities in the current year. During the twenty-six week period ended August 28, 2021, we remodeled six stores, spent $14.5 million on prescription file purchases, received proceeds of $14.2 million from sale-leaseback transactions and received proceeds of $10.4 million associated with insurance claims.

Cash flow provided by financing activities was $36.6 million and $397.8 million for the twenty-six week periods ended August 28, 2021 and August 29, 2020, respectively. Cash used in financing activities for the twenty-six weeks ended August 28, 2021 reflects the amendment and extension of our Senior Secured Revolving Credit Facility and Senior Secured Term Loan and incremental revolver borrowings, partially offset by the repayment of our 6.125% Notes.

Capital Expenditures

During the thirteen and twenty-six week periods ended August 28, 2021 and August 29, 2020 capital expenditures were as follows:



	Thirteen Week Period Ended				Twenty-Six Week Period Ended
	August 28,		August 29,		August 28,		August 29,
	2021		2020		2021		2020

New store construction, store relocation and store remodel projects	$	25,667	$	9,964	$	58,960	$	16,696
Technology enhancements, improvements to distribution centers and other corporate requirements		20,525		24,662		46,396		46,389
Purchase of prescription files from other retail pharmacies		9,043		11,857		14,479		22,572
Total capital expenditures	$	55,235	$	46,483	$	119,835	$	85,657

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Future Liquidity

We are highly leveraged. Our high level of indebtedness could: (i) limit our ability to obtain additional financing; (ii) limit our flexibility in planning for, or reacting to, changes in our business and the industry; (iii) place us at a competitive disadvantage relative to our competitors with less debt; (iv) render us more vulnerable to general adverse economic and industry conditions, including those resulting from COVID-19; and (v) require us to dedicate a substantial portion of our cash flow to service our debt. Based upon our current levels of operations, we believe that cash flow from operations together with available borrowings under the revolver and other sources of liquidity will be adequate to meet our requirements for working capital, debt service, capital expenditures and other strategic investments at least for the next twelve months. Based on our liquidity position, which we expect to remain strong, we do not expect to be subject to the minimum fixed charge covenant in the Amended Facilities in the next twelve months. We will continue to assess our liquidity position and potential sources of supplemental liquidity in light of our operating performance, and other relevant circumstances, and we may evaluate alternative sources of liquidity, including further opportunities related to any receivable due to us from CMS, sale and leaseback transactions, and other transactions to optimize our asset base. From time to time, we may seek additional deleveraging or refinancing transactions, including entering into transactions to exchange debt for shares of common stock or other debt securities (including additional secured debt), issuance of equity (including preferred stock and convertible securities), repurchase or redemption of outstanding indebtedness, or seek to refinance our outstanding debt (including the Amended Facilities) or may otherwise seek transactions to reduce interest expense and extend debt maturities. We may also look to make additional investments in our business to further our strategic objectives, including targeted acquisitions. Any of these transactions could impact our financial results.

Critical Accounting Policies and Estimates

For a description of the critical accounting policies that require the use of significant judgments and estimates by management, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations—Critical Accounting Policies and Estimates” included in our Fiscal 2021 10-K, which we filed with the SEC on April 27, 2021.

Factors Affecting Our Future Prospects

For a discussion of risks related to our financial condition, operations and industry, refer to “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations” included in our Fiscal 2021 10-K.

Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures

In addition to net income (loss) determined in accordance with GAAP, we use certain non-GAAP measures, such as “Adjusted EBITDA”, in assessing our operating performance. We believe the non-GAAP measures serve as an appropriate measure in evaluating the performance of our business. We define Adjusted EBITDA as net income (loss) excluding the impact of income taxes, interest expense, depreciation and amortization, LIFO adjustments (which removes the entire impact of LIFO, and effectively reflects the results as if we were on a FIFO inventory basis), charges or credits for facility closing and impairment, goodwill and intangible asset impairment charges, inventory write-downs related to store closings, gains or losses on debt modifications and retirements, and other items (including stock-based compensation expense, merger and acquisition-related costs, non-recurring litigation settlements, severance, restructuring-related costs and costs related to facility closures and gain or loss on sale of assets). We reference this particular non-GAAP financial measure frequently in our decision-making because it provides supplemental information that facilitates internal comparisons to the historical periods and external comparisons to competitors. In addition, incentive compensation is primarily based on Adjusted EBITDA and we base certain of our forward-looking estimates on Adjusted EBITDA to facilitate quantification of planned business activities and enhance subsequent follow-up with comparisons of actual to planned Adjusted EBITDA.

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The following is a reconciliation of our net income (loss) to Adjusted EBITDA for the thirteen and twenty-six week periods ended August 28, 2021 and August 29, 2020:


	Thirteen Week Period Ended				Twenty-Six Week Period Ended
	August 28,		August 29,		August 28,		August 29,
	2021		2020		2021		2020

	(dollars in thousands)
Net loss from continuing operations	$	(100,301)	$	(13,197)	$	(113,358)	$	(85,899)
Interest expense		48,592		50,007		97,713		100,554
Income tax expense (benefit)		3,310		47		4,090		(7,971)
Depreciation and amortization		73,859		87,117		149,718		166,220
LIFO credit		(3,993)		(8,750)		(7,986)		(20,816)
Facility exit and impairment charges		11,353		11,528		20,184		15,281
Intangible asset impairment charges		—		—		—		29,852
Loss (gain) on debt modifications and retirements, net		2,839		(5,274)		3,235		(5,274)
Merger and Acquisition‑related costs		4,591		—		8,477		—
Stock-based compensation expense		5,792		3,936		8,603		5,810
Restructuring-related costs		9,584		23,186		15,516		58,921
Inventory write-downs related to store closings		798		1,058		1,270		1,892
Litigation settlements		34,212		—		48,212		—
Loss (gain) on sale of assets, net		12,378		1,092		5,820		(1,168)
Other		3,146		853		3,543		1,593
Adjusted EBITDA from continuing operations	$	106,160	$	151,603	$	245,037	$	258,995

The following is a reconciliation of our net income (loss) from continuing operations to Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share for the thirteen and twenty-six week periods ended August 28, 2021 and August 29, 2020. Adjusted Net Income (Loss) is defined as net income (loss) excluding the impact of amortization expense, merger and acquisition-related costs, non-recurring litigation settlements, gains or losses on debt modifications and retirements, LIFO adjustments (which removes the entire impact of LIFO, and effectively reflects the results as if we were on a FIFO inventory basis), goodwill and intangible asset impairment charges, and restructuring-related costs. We calculate Adjusted Net Income (Loss) per Diluted Share using our above-referenced definition of

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Adjusted Net Income (Loss). We believe Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share are useful indicators of our operating performance over multiple periods.


	Thirteen Week Period Ended				Twenty-Six Week Period Ended
	August 28,		August 29,		August 28,		August 29,
	2021		2020		2021		2020

	(dollars in thousands)
Net loss	$	(100,301)	$	(13,197)	$	(113,358)	$	(85,899)
Add back - Income tax expense (benefit)		3,310		47		4,090		(7,971)
Loss before income taxes		(96,991)		(13,150)		(109,268)		(93,870)
Adjustments:
Amortization expense		19,953		22,695		40,413		47,115
LIFO credit		(3,993)		(8,750)		(7,986)		(20,816)
Intangible asset impairment charges		—		—		—		29,852
Loss (gain) on debt modifications and retirements, net		2,839		(5,274)		3,235		(5,274)
Merger and Acquisition‑related costs		4,591		—		8,477		—
Restructuring-related costs		9,584		23,186		15,516		58,921
Litigation settlements		34,212		—		48,212		—
Adjusted (loss) income before income taxes		(29,805)		18,707		(1,401)		15,928
Adjusted income tax (benefit) expense (a)		(7,839)		5,171		(368)		4,402
Adjusted net (loss) income		(21,966)	$	13,536	$	(1,033)	$	11,526
Net loss per diluted share	$	(1.86)	$	(0.25)	$	(2.10)	$	(1.60)
Adjusted net (loss) income per diluted share	$	(0.41)	$	0.25	$	(0.02)	$	0.21

(a)	The fiscal year 2022 and 2021 annual effective tax rates, calculated using a federal rate plus a net state rate that excluded the impact of state NOL’s, state credits and valuation allowance, was used for the thirteen and twenty-six weeks ended August 28, 2021 and August 29, 2020, respectively.

In addition to Adjusted EBITDA, Adjusted Net (Loss) Income and Adjusted Net (Loss) Income per Diluted Share, we occasionally refer to several other Non-GAAP measures, on a less frequent basis, in order to describe certain components of our business and how we utilize them to describe our results. These measures include but are not limited to Adjusted EBITDA Gross Margin and Gross Profit (gross margin/gross profit excluding non-Adjusted EBITDA items), Adjusted EBITDA SG&A (SG&A expenses excluding non-Adjusted EBITDA items), FIFO Gross Margin and FIFO Gross Profit (gross margin/gross profit before LIFO charges), and Free Cash Flow (Adjusted EBITDA less cash paid for interest, rent on closed stores, capital expenditures, restructuring-related costs and the change in working capital).

We include these non-GAAP financial measures in our earnings announcements in order to provide transparency to our investors and enable investors to better compare our operating performance with the operating performance of our competitors including with those of our competitors having different capital structures. Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share or other non-GAAP measures should not be considered in isolation from, and are not intended to represent an alternative measure of, operating results or of cash flows from operating activities, as determined in accordance with GAAP. Our definition of these non-GAAP measures may not be comparable to similarly titled measurements reported by other companies.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Our future earnings, cash flow and fair values relevant to financial instruments are dependent upon prevalent market rates. Market risk is the risk of loss from adverse changes in market prices and interest rates. Our major market risk exposure is changing interest rates. Increases in interest rates would increase our interest expense. We enter into debt obligations to support capital expenditures, acquisitions, working capital needs and general corporate purposes. Our policy is to manage interest rates through the use of a combination of variable-rate credit facilities, fixed-rate long-term obligations and derivative transactions.

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The table below provides information about our financial instruments that are sensitive to changes in interest rates. The table presents principal payments and the related weighted average interest rates by expected maturity dates as of August 28, 2021.


																						Fair Value at
	2022			2023			2024			2025			2026			Thereafter			Total			August 28, 2021

	(Dollars in thousands)
Long-term debt, including current portion, excluding financing lease obligations
Fixed Rate	$	—		$	—		$	—		$	—		$	600,000		$	1,116,305		$	1,716,305		$	1,784,664
Average Interest Rate		0.00	%		0.00	%		0.00	%		0.00	%		7.50	%		7.91	%		7.76	%
Variable Rate	$	—		$	—		$	—		$	—		$	—		$	1,450,000		$	1,450,000		$	1,450,000
Average Interest Rate		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		1.95	%		1.95	%

Our ability to satisfy interest payment obligations on our outstanding debt will depend largely on our future performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors beyond our control. If we do not have sufficient cash flow to service our interest payment obligations on our outstanding indebtedness and if we cannot borrow or obtain equity financing to satisfy those obligations, our business and results of operations could be materially adversely affected. We cannot be assured that any replacement borrowing or equity financing could be successfully completed.

The interest rate on our variable rate borrowings, which include our revolving credit facility and our term loan facility, are based on LIBOR. If the market rates of interest for LIBOR changed by 100 basis points as of August 28, 2021, our annual interest expense would change by approximately $14.5 million.

A change in interest rates does not have an impact upon our future earnings and cash flow for fixed-rate debt instruments. As fixed-rate debt matures, however, and if additional debt is acquired to fund the debt repayment, future earnings and cash flow may be affected by changes in interest rates. This effect would be realized in the periods subsequent to the periods when the debt matures. Increases in interest rates would also impact our ability to refinance existing maturities on favorable terms.

ITEM 4. Controls and Procedures

(a) Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective.

(b) Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

The information in response to this item is incorporated herein by reference to Note 17, Commitments, Contingencies and Guarantees, of the Consolidated Condensed Financial Statements of this Quarterly Report.

ITEM 1A. Risk Factors

In addition to the information set forth in this Quarterly Report, you should carefully consider the factors discussed in “Part I — Item 1A. Risk Factors” in our Fiscal 2021 10-K, which could materially affect our business, financial condition or future results.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Repurchases of Equity Securities. The table below is a listing of repurchases of common stock during the second quarter of fiscal 2022.


	Total			Total Number of Shares	Maximum Number of
	Number of	Average		Purchased as Part of	Shares that may yet be
	Shares	Price Paid		Publicly Announced	Purchased under the
Fiscal period:	Repurchased	Per Share		Plans or Programs	Plans or Programs
May 30, 2021 to June 26, 2021	2	$	20.14	—	—
June 27 to July 24, 2021	103	$	14.63	—	—
July 25 to August 28, 2021	41	$	15.33	—	—

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

Not applicable.

ITEM 6. Exhibits

(a)

The following exhibits are filed as part of this report.


Exhibit Numbers		Description	Incorporation By Reference To
2.1	**	Amended and Restated Asset Purchase Agreement, dated September 18, 2017, among Rite Aid Corporation, Walgreens Boots Alliance, Inc. and Walgreen Co.	Exhibit 2.1 to Form 8-K, filed on September 19, 2017
2.2		Receivable Purchase Agreement, dated as of February 19, 2020, by and between Envision Insurance Company and Part D Receivable Trust 2020-1 (Series A)	Exhibit 2.1 to Form 8-K, filed on February 21, 2020
2.3		Indemnity Agreement, dated as of February 19, 2020 by and between Rite Aid Corporation and Part D Receivable Trust 2020-1 (Series A)	Exhibit 2.2 to Form 8-K, filed on February 21, 2020
3.1		Amended and Restated Certificate of Incorporation	Exhibit 3.1 to Form 8-K, filed on April 18, 2019

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Exhibit Numbers	Description	Incorporation By Reference To
3.2	Amended and Restated By-Laws	Exhibit 3.1 to Form 8-K, filed on April 17, 2020
4.1	Indenture, dated as of August 1, 1993, between Rite Aid Corporation, as issuer, and Morgan Guaranty Trust Company of New York, as trustee, related to the Company’s 7.70% Notes due 2027	Exhibit 4A to Registration Statement on Form S-3, File No. 033-63794, filed on June 3, 1993
4.2	Supplemental Indenture, dated as of February 3, 2000, between Rite Aid Corporation and U.S. Bank Trust National Association (as successor trustee to Morgan Guaranty Trust Company of New York) to the Indenture dated as of August 1, 1993, between Rite Aid Corporation and Morgan Guaranty Trust Company of New York, relating to the Company’s 7.70% Notes due 2027	Exhibit 4.1 to Form 8-K filed on February 7, 2000
4.3	Indenture, dated as of December 21, 1998, between Rite Aid Corporation, as issuer, and Harris Trust and Savings Bank, as trustee, related to the Company’s 6.875% Notes due 2028	Exhibit 4.1 to Registration Statement on Form S-4, File No. 333-74751, filed on March 19, 1999
4.4	Supplemental Indenture, dated as of February 3, 2000, between Rite Aid Corporation and Harris Trust and Savings Bank to the Indenture, dated December 21, 1998, between Rite Aid Corporation and Harris Trust and Savings Bank, related to the Company’s 6.875% Notes due 2028	Exhibit 4.4 to Form 8-K, filed on February 7, 2000
4.5	Indenture, dated as of April 2, 2015, among Rite Aid Corporation, as issuer, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., related to the Company’s 6.125% Senior Notes due 2023	Exhibit 4.1 to Form 8-K, filed on April 2, 2015
4.6	Supplemental Indenture, dated as of August 23, 2018, among Rite Aid Corporation, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., to the Indenture, dated as of April 2, 2015, among Rite Aid Corporation, as issuer, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., related to the Company’s 6.125% Senior Notes due 2023	Exhibit 4.1 to Form 8-K filed on August 23, 2018
4.7	Supplemental Indenture, dated as of February 8, 2019, among Rite Aid Corporation, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., to the Indenture, dated as of April 2, 2015, among Rite Aid Corporation, as issuer, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., related to the Company’s 6.125% Senior Notes due 2023	Exhibit 4.9 to Form 10-K filed on April 25, 2019
4.8	Indenture, dated as of February 5, 2020, among Rite Aid Corporation, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., related to the Company’s 7.500% Senior Secured Notes due 2025	Exhibit 4.1 to Form 8-K filed on February 5, 2020
4.9	Description of the Company’s securities registered pursuant to Section 12 of the Securities Exchange Act of 1934	Exhibit 4.9 to Form 10-K filed on April 27, 2020
4.10	Indenture, dated as of July 27, 2020, among Rite Aid Corporation, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., related to the Company’s 8.000% Senior Secured Notes due 2026	Exhibit 4.1 to Form 8-K filed on July 27, 2020

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Exhibit Numbers		Description	Incorporation By Reference To
4.11		Supplemental Indenture, dated as of July 9, 2020, among Rite Aid Corporation, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., to the Indenture, dated as of April 2, 2015, among Rite Aid Corporation, as issuer, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., related to the Company’s 6.125% Senior Notes due 2023	Exhibit 4.3 to Form 8-K filed on July 27, 2020
4.12		Supplemental Indenture, dated as of August 27, 2021, among Rite Aid Corporation, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., to the Indenture, dated as of February 5, 2020, related to the Company’s 7.500% Senior Secured Notes due 2025	Filed herewith
4.13		Supplemental Indenture, dated as of July 27, 2021, among Rite Aid Corporation, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., to the Indenture, dated as of July 27, 2020, related to the Company’s 8.000% Senior Secured Notes due 2026	Filed herewith
10.1	†	2010 Omnibus Equity Plan	Exhibit 10.1 to Form 8-K, filed on June 25, 2010
10.2	†	Amendment No. 1, dated September 21, 2010, to the 2010 Omnibus Equity Plan	Exhibit 10.7 to Form 10-Q, filed on October 7, 2010
10.3	†	Amendment No. 2, dated January 16, 2013, to the 2010 Omnibus Equity Plan	Exhibit 10.8 to Form 10-K, filed on April 23, 2013
10.4	†	2012 Omnibus Equity Plan	Exhibit 10.1 to Form 8-K, filed on June 25, 2012
10.5	†	Amendment No. 1, dated January 16, 2013, to the 2012 Omnibus Equity Plan	Exhibit 10.10 to Form 10-K, filed on April 23, 2013
10.6	†	2014 Omnibus Equity Plan	Exhibit 10.1 to Form 8-K, filed on June 23, 2014
10.7	†	Form of Award Agreement	Exhibit 10.2 to Form 8-K, filed on May 15, 2012
10.8	†	Executive Incentive Plan for Officers of Rite Aid Corporation	Exhibit 10.1 to Form 8-K, filed on February 24, 2012
10.9	†	Employment Agreement by and between Rite Aid Corporation and Jocelyn Konrad dated as of August 18, 2015	Exhibit 10.1 to Form 10-Q, filed on January 6, 2016
10.10		Credit Agreement, dated as of December 20, 2018, among Rite Aid Corporation, the lenders from time to time party thereto and Bank of America, N.A., as administrative agent and collateral agent.	Exhibit 10.1 to Form 8-K, filed on December 20, 2018
10.11		First Amendment to Credit Agreement, dated as of January 6, 2020, among Rite Aid Corporation, the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent.	Exhibit 10.1 to Form 8-K, filed on January 7, 2020
10.12		Second Amendment Credit Agreement, dated as of August 20, 2021, among Rite Aid Corporation, the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent	Exhibit 9.01 to Form 8-K, filed on August 23, 2021

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Exhibit Numbers		Description	Incorporation By Reference To
10.13		Amended and Restated Collateral Trust and Intercreditor Agreement, including the related definitions annex, dated as of June 5, 2009, among Rite Aid Corporation, each subsidiary named therein or which becomes a party thereto, Wilmington Trust Company, as collateral trustee, Citicorp North America, Inc., as senior collateral processing agent, The Bank of New York Trust Company, N.A., as trustee under the 2017 7.5% Note Indenture (as defined therein) and The Bank of New York Mellon Trust Company, N.A., as trustee under the 2016 10.375% Note Indenture (as defined therein), and each other Second Priority Representative and Senior Representative which becomes a party thereto	Exhibit 10.3 to Form 8-K, filed on June 11, 2009
10.14	†	Amendment to Employment Agreement by and between Rite Aid Corporation and Jocelyn Z. Konrad, dated as of March 12, 2019	Exhibit 10.32 to Form 10-Q, filed on July 11, 2019
10.15	†	Amendment to Employment Agreement by and between Rite Aid Corporation and Matthew C. Schroeder, dated as of March 12, 2019	Exhibit 10.33 to Form 10-Q, filed on July 11, 2019
10.16	†	Amendment to Employment Agreement by and between Rite Aid Corporation and Brian Hoover, dated as of March 12, 2019	Exhibit 10.34 to Form 10-Q, filed on July 11, 2019
10.17	†	Amendment to Employment Agreement by and between Rite Aid Corporation and Brian Hoover, dated as of December 5, 2017	Exhibit 10.35 to Form 10-Q, filed on July 11, 2019
10.18	†	Amendment to Employment Agreement by and between Rite Aid Corporation and Brian Hoover, dated as of August 10, 2016	Exhibit 10.36 to Form 10-Q, filed on July 11, 2019
10.19	†	Employment Agreement by and between Rite Aid Corporation and Brian Hoover, dated as of January 1, 2001	Exhibit 10.37 to Form 10-Q, filed on July 11, 2019
10.20	†*	Eleventh Amendment to Supply Agreement by and between Rite Aid Corporation and McKesson Corporation, dated as of February 28, 2019	Exhibit 10.38 to Form 10-Q, filed on July 11, 2019
10.21	†**	Employment Agreement by and between Rite Aid Corporation and Heyward Donigan, dated August 8, 2019	Exhibit 10.1 to Form 8-K, filed on August 12, 2019
10.22	†	Employment Inducement Award Agreement by and between Rite Aid Corporation and Heyward Donigan, dated August 12, 2019	Exhibit 10.2 to Form 8-K, filed on August 12, 2019
10.23	†	Employment Agreement dated October 2, 2019 by and between Rite Aid Corporation and James Peters	Exhibit 10.1 to Form 8-K, filed on October 2, 2019
10.24	†	Employment Agreement by and between Rite Aid Corporation and James J. Comitale, dated as of October 26, 2015	Exhibit 10.41 to Form 10-K filed on April 27, 2020
10.25	†	Amendment to Employment Agreement by and between James J. Comitale, dated November 6, 2019	Exhibit 10.42 to Form 10-K filed on April 27, 2020
10.26	†	Employment Agreement by and between Rite Aid Corporation and Jessica Kazmaier, dated as of March 12, 2019	Exhibit 10.43 to Form 10-K filed on April 27, 2020
10.27	†	Amendment to Employment Agreement by and between Jessica Kazmaier, dated November 6, 2019	Exhibit 10.44 to Form 10-K filed on April 27, 2020
10.28	†	Employment Agreement by and between Justin Mennen, dated as of December 7, 2018	Exhibit 10.45 to Form 10-K filed on April 27, 2020
10.29	†	Amendment to Employment Agreement by and between Justin Mennen, dated November 6, 2019	Exhibit 10.46 to Form 10-K filed on April 27, 2020
10.30	†	Employment Agreement by and between Rite Aid Corporation and Andre Persaud, dated as of January 28, 2020	Exhibit 10.47 to Form 10-K filed on April 27, 2020

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Exhibit Numbers		Description	Incorporation By Reference To
10.31	†	Employment Agreement by and between RxOptions, LLC and Dan Robson, dated as of December 12, 2019	Exhibit 10.48 to Form 10-K filed on April 27, 2020
10.32	†	Separation Agreement by and between Rite Aid Corporation and James C. Comitale, as of May 21, 2020	Exhibit 10.45 to Form 10-Q filed on July 2, 2020
10.33	†	Employment Agreement by and between Rite Aid Corporation and Paul D. Gilbert, as of July 29, 2020	Exhibit 10.46 to Form 10-Q filed on October 6, 2020
10.34	†*	Separation Agreement by and between Rite Aid Corporation and Dan Robson, as of January 27, 2021	Exhibit 10.32 to Form 10-K filed on April 27, 2021
10.35	†	Rite Aid Corporation Amended and Restated 2020 Omnibus Equity Plan	Appendix B-1 to Schedule 14A (Definitive Proxy Statement) filed on May 20, 2021
10.36	†	Form Award Agreement (Executive) under the Rite Aid Corporation 2020 Omnibus Equity Plan	Exhibit 10.2 to Form 8-K filed on July 8, 2020
10.37	†	Form Award Agreement (Non-employee Director) under the Rite Aid Corporation 2020 Omnibus Equity Plan	Exhibit 10.3 to Form 8-K filed on July 8, 2020
22		List of Subsidiary Guarantors	Filed herewith
31.1		Certification of CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended	Filed herewith
31.2		Certification of CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended	Filed herewith
32		Certification of CEO and CFO pursuant to 18 United States Code, Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.	Filed herewith
101.SCH		XBRL Taxonomy Extension Schema Document.	Filed herewith
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.	Filed herewith
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.	Filed herewith
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.	Filed herewith
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.	Filed herewith
104		Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.	Filed herewith

* Confidential portions of this Exhibit were redacted pursuant to Item 601(b)(10) of Regulation S-K and Rite Aid Corporation agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule and/or exhibit upon request.

** Certain schedules and exhibits to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K and Rite Aid Corporation agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule and/or exhibit upon request.

† Management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Date: October 5, 2021	RITE AID CORPORATION

	By:	/s/ MATTHEW C. SCHROEDER
		Matthew C. Schroeder
		Executive Vice President and Chief Financial Officer

Date: October 5, 2021	By:	/s/ BRIAN T. HOOVER
		Brian T. Hoover
		Senior Vice President and Chief Accounting Officer

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New Rite Aid (RADCQ) 10-Q2022 Q2 Quarterly report

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