New Rite Aid 10Q/A 2024 Q1 Quarterly report (amended)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

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

For the quarterly period ended June 3, 2023

☐ 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.)

PO Box 3165, Harrisburg, Pennsylvania (Address of principal executive offices)	17105 (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: None (*)

(*) On October 17, 2023, Rite Aid Corporation’s common stock, which previously traded on the New York Stock Exchange under the symbol RAD, began trading exclusively on the over-the-counter market under the symbol RADCQ. On October 31, 2023, the New York Stock Exchange filed a Form 25-NSE with the U.S. Securities and Exchange Commission and Rite Aid Corporation’s common stock was subsequently delisted from the New York Stock Exchange. On January 29, 2024, Rite Aid Corporation’s common stock was deregistered under Section 12(b) of the Securities Exchange Act of 1934, as amended.

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 55,974,015 shares of its $1.00 par value common stock outstanding as of July 22, 2024.

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EXPLANATORY NOTE

Rite Aid Corporation (“Rite Aid,” the “Company,” “we,” “us,” and “our”) is filing this Amendment No. 1 on Form 10-Q/A (this “Amendment" or “Form 10-Q/A”) to our Quarterly Report on Form 10-Q for the quarter ended June 3, 2023, which was filed with the Securities and Exchange Commission (the “SEC”) on July 11, 2023 (the “Original Form 10-Q”) to make certain changes, as described below.

Subsequent to the issuance of the Company’s consolidated financial statements as of and for the fiscal year ended March 4, 2023, management evaluated the materiality of a misstatement related to the Company’s historical accounting for closed store liabilities in accordance with changes in ASC 420, Exit or Disposal Cost Obligations. Based on their evaluation, management concluded the misstatement is not material to the Company’s previously issued consolidated financial statements as of and for each of the three fiscal years ended March 4, 2023 and each of the interim and year-to-date periods then ended, (collectively the “previously issued financial statements”).

However, due to the discovery of this error, we reevaluated the effectiveness of our internal control over financial reporting (“ICFR”) as of March 4, 2023 and identified a material weakness in our ICFR. For a more detailed description of this material weakness, refer to Part I, Item 4,“Controls and Procedures.” This Amendment therefore amends our assessment of our disclosure controls and procedures to indicate that they were not effective as of June 3, 2023 because of this material weakness.

In conjunction with filing this Amendment, we determined it was appropriate to revise the previously issued financial statements and the related notes thereto to reflect the impact of the immaterial misstatement in the periods impacted. For additional information and a more detailed discussion, refer to Note 16 Revision of Previously Issued Consolidated Financial Statements. The revised consolidated financial statements for the fiscal years ended March 4, 2023, February 26, 2022 and February 27, 2021 can be found in Item 8, “Financial Statements and Supplementary Data” of the Company’s Annual Report on Form 10K/A, filed with the SEC on July 25, 2024 (the “Fiscal 2023 10-K/A”). The revised condensed consolidated financial statements for the quarterly periods ended June 3, 2023 and May 28, 2022 are provided in Item 1 of this 10-Q/A.

The following Items of the Original Form 10-Q have been amended as set forth in this Form 10-Q/A:

●

Part I, Item 1. “Financial Statements”

●

Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results”

●

Part I, Item 4. “Controls and Procedures”

●

Part II, Item 1A. “Risk Factors.”

In addition, Part II, Item 6 “Exhibits” also has been amended to include new certifications by our Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The new certifications are attached to this Amendment as Exhibits 31.1, 31.2, and 32. The other Items of the Original Form 10-Q have not been amended and, accordingly, have not been repeated in this Amendment.

The only changes to the Original Form 10-Q are related to the matters described above. Except as described above, this Amendment does not amend, update, or change any other item or disclosure in the Original Form 10-Q and does not purport to reflect any information or event subsequent to the filing thereof. As such, this Amendment speaks only as of the date the Original Form 10-Q was filed, and the Company has not undertaken herein to amend, update, or change any information contained in the Original Form 10-Q to give effect to any event following the date of filing of the Original Form 10-Q, other than as expressly indicated in this Amendment. Accordingly, this Amendment should be read in conjunction with the Original Form 10-Q and any subsequent filing with the SEC.

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RITE AID CORPORATION

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	Explanatory Note	2
	Cautionary Statement Regarding Forward-Looking Statements	4

	PART I FINANCIAL INFORMATION

ITEM 1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets as of June 3, 2023 and March 4, 2023	7
	Condensed Consolidated Statements of Operations for the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022	8
	Condensed Consolidated Statements of Comprehensive Loss for the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022	9
	Condensed Consolidated Statements of Stockholders’ Deficit for the Thirteen Week Period Ended June 3, 2023	10
	Condensed Consolidated Statements of Stockholders’ Deficit for the Thirteen Week Period Ended May 28, 2022	11
	Condensed Consolidated Statements of Cash Flows for the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022	12
	Notes to Condensed Consolidated Financial Statements	13
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results	42
ITEM 4.	Controls and Procedures	57

	PART II OTHER INFORMATION

ITEM 1A.	Risk Factors	58
ITEM 6.	Exhibits	59

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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, such as the global coronavirus (“COVID-19”) pandemic, the changing consumer behavior and preferences (including preferred shopping locations, vaccine hesitancy and the emergence of new variants), and the impact of those factors 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 challenges including shipping delays, container and trucker shortages, port congestion and other logistics problems, our associates and executive and administrative personnel, our third-party service providers (including suppliers, vendors and business partners), and customers. In addition, continued shortages of pharmacists, pharmacy technicians and other employee turnover in the markets in which we operate, may inhibit our ability to maintain store hours at preferred levels. Any of these developments could result in a material adverse effect on our business, financial conditions and results of operations;

●

our ability to achieve the benefits of our efforts of our multi-year performance acceleration program;

●

our ability to successfully implement our strategy, attract and retain a sufficient number of our target consumers, integrate operations such as Elixir, our pharmacy benefit management (“PBM”) operations, 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 PBM operations;

●

our high level of indebtedness, the ability to improve our capital structure and refinance our indebtedness on acceptable terms (including the impact of rising interest rates, market volatility, and continuing actions by the United States Federal Reserve), and our ability to satisfy our obligations and the other covenants contained in our credit and debt agreements;

●

the nature, cost, impact and outcome of pending and future litigation, other legal or regulatory proceedings, or governmental investigations and actions, including those related to opioids, “usual and customary” pricing, government payer programs, business practices, or other matters;

●

general competitive, economic, industry, market, political (including healthcare reform) and regulatory conditions, including continued impacts of inflation or other pricing environment factors on our costs, liquidity and our ability to pass on price increases to our customers, including as a result of inflationary and deflationary pressures, a decline in consumer spending or deterioration in consumer financial position, whether due to inflation or other factors, 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 seek to reduce payments to retail pharmacies and 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 purchasing cost of our generic drugs;

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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 and 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 Rite Aid Corporation 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;

●

our ability to sell our Centers of Medicare and Medicaid Services (“CMS”) receivables, in whole or in part, and on reasonably available terms, 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, our liquidity 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 (or our vendors’) 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 and clients, 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, the risk that we cannot meet client guarantees and the impact of pricing decisions on our ability to retain our customer base;

●

our chief executive officer search process, and our ability to manage the transition to a new chief executive

officer and other management;

●

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

●

any negative impact of exiting the Medicare Part D Insurance market on our business, financial conditions and results of operations;

●

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

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●

other risks and uncertainties described from time to time in our filings with the U.S. 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” included herein and in our Fiscal 2023 10-K/A, as well as in “Part I – Item 1A. Risk Factors” of our Fiscal 2023 10-K/A. 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 2023 10-K/A.

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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)


	June 3,		March 4,
	2023		2023
ASSETS
Current assets:
Cash and cash equivalents	$	135,527	$	157,151
Accounts receivable, net		1,392,348		1,149,958
Inventories, net of LIFO reserve of $547,432 and $539,932		1,950,413		1,900,744
Prepaid expenses and other current assets		171,175		93,194
Total current assets		3,649,463		3,301,047
Property, plant and equipment, net		892,540		907,771
Operating lease right-of-use assets		2,457,110		2,497,206
Goodwill		356,436		507,936
Other intangibles, net		244,883		250,112
Deferred tax assets		12,368		12,368
Other assets		37,618		50,922
Total assets	$	7,650,418	$	7,527,362
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Current maturities of long-term debt and lease financing obligations	$	6,060	$	6,332
Accounts payable		1,505,741		1,494,611
Accrued salaries, wages and other current liabilities		756,915		709,891
Current portion of operating lease liabilities		488,712		502,403
Total current liabilities		2,757,428		2,713,237
Long-term debt, less current maturities		3,327,970		2,925,258
Long-term operating lease liabilities		2,345,277		2,372,943
Lease financing obligations, less current maturities		12,151		12,580
Other noncurrent liabilities		107,188		97,577
Total liabilities		8,550,014		8,121,595
Commitments and contingencies		—		—
Stockholders’ deficit:
Common stock, par value $1 per share; 75,000 shares authorized; shares issued and outstanding 56,708 and 56,629		56,708		56,629
Additional paid-in capital		5,918,931		5,917,964
Accumulated deficit		(6,860,383)		(6,553,974)
Accumulated other comprehensive loss		(14,852)		(14,852)
Total stockholders’ deficit		(899,596)		(594,233)
Total liabilities and stockholders’ deficit	$	7,650,418	$	7,527,362

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
	June 3, 2023		May 28, 2022
Revenues	$	5,653,162	$	6,014,583
Costs and expenses:
Cost of revenues		4,474,636		4,817,854
Selling, general and administrative expenses		1,255,223		1,217,929
Facility exit and impairment charges		19,692		41,821
Goodwill and intangible asset impairment charges		151,500		—
Interest expense		65,220		48,119
Gain on sale of assets, net		(8,193)		(29,196)
		5,958,078		6,096,527
Loss before income taxes		(304,916)		(81,944)
Income tax expense		1,493		3,497
Net loss	$	(306,409)	$	(85,441)
Computation of loss attributable to common stockholders:
Net loss attributable to common stockholders — basic and diluted	$	(306,409)	$	(85,441)

Basic and diluted loss per share	$	(5.55)	$	(1.57)

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
	June 3, 2023		May 28, 2022
Net loss	$	(306,409)	$	(85,441)
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		—		—
Change in fair value of interest rate cap		—		—
Total other comprehensive income		—		—
Comprehensive loss	$	(306,409)	$	(85,441)

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(In thousands, except per share amounts)

(unaudited)


								Accumulated
				Additional				Other
	Common Stock			Paid-In		Accumulated		Comprehensive
	Shares	Amount		Capital		Deficit		Loss		Total
BALANCE MARCH 4, 2023	56,629	$	56,629	$	5,917,964	$	(6,553,974)	$	(14,852)	$	(594,233)
Net loss							(306,409)				(306,409)
Other comprehensive loss:
Comprehensive loss											(306,409)
Issuance of restricted stock	256		256		(256)						—
Shares issued under the performance-based incentive plans	44		44		(44)						—
Exchange of restricted shares for taxes	(18)		(18)		(28)						(46)
Cancellation of restricted stock	(203)		(203)		203						—
Amortization of restricted stock balance					1,201						1,201
Amortization of performance-based incentive plans					(109)						(109)
BALANCE JUNE 3, 2023	56,708	$	56,708	$	5,918,931	$	(6,860,383)	$	(14,852)	$	(899,596)

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(In thousands, except per share amounts)

(unaudited)


								Accumulated
				Additional				Other
	Common Stock			Paid-In		Accumulated		Comprehensive
	Shares	Amount		Capital		Deficit		Loss		Total
BALANCE FEBRUARY 26, 2022	55,752	$	55,752	$	5,910,299	$	(5,834,786)	$	(15,437)	$	115,828
Net loss							(85,441)				(85,441)
Other comprehensive loss:
Comprehensive loss											(85,441)
Issuance of restricted stock	61		61		(61)						—
Exchange of restricted shares for taxes	(63)		(63)		(490)						(553)
Cancellation of restricted stock	(127)		(127)		127						—
Amortization of restricted stock balance					3,324						3,324
Stock-based compensation expense					201						201
Amortization of performance-based incentive plans					(190)						(190)
BALANCE MAY 28, 2022	55,623	$	55,623	$	5,913,210	$	(5,920,227)	$	(15,437)	$	33,169

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)


	Thirteen Week Period Ended
	June 3, 2023		May 28, 2022
Operating activities:
Net loss	$	(306,409)	$	(85,441)
Adjustments to reconcile to net cash used in operating activities:
Depreciation and amortization		65,895		70,073
Facility exit and impairment charges		19,692		41,821
Goodwill and intangible asset impairment charges		151,500		—
LIFO charge		7,500		—
Gain on sale of assets, net		(8,193)		(29,196)
Change in allowances for uncollectible accounts receivable		4,004		3,763
Stock-based compensation expense		1,081		3,334
Changes in operating assets and liabilities:
Accounts receivable		(246,838)		(104,458)
Inventories		(57,169)		(15,827)
Accounts payable		20,558		(137,572)
Operating lease right-of-use assets and operating lease liabilities		(10,857)		(14,812)
Other assets		(64,687)		751
Other liabilities		51,385		15,327
Net cash used in operating activities		(372,538)		(252,237)
Investing activities:
Payments for property, plant and equipment		(35,891)		(73,176)
Intangible assets acquired		(11,612)		(12,248)
Proceeds from dispositions of assets and investments		8,157		30,839
Net cash used in investing activities		(39,346)		(54,585)
Financing activities:
Net proceeds from revolver		400,000		291,000
Principal payments on long-term debt		(1,009)		(977)
Change in zero balance cash accounts		(8,272)		33,691
Financing fees paid for early debt redemption		(51)		—
Payments for taxes related to net share settlement of equity awards		(46)		(553)
Deferred financing costs paid		(362)		—
Net cash provided by financing activities		390,260		323,161
(Decrease) increase in cash and cash equivalents		(21,624)		16,339
Cash and cash equivalents, beginning of period		157,151		39,721
Cash and cash equivalents, end of period	$	135,527	$	56,060

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 Week Periods Ended June 3, 2023 and May 28, 2022

(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 week period ended June 3, 2023 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 2023 10-K/A.

Revenue Recognition

The following table disaggregates the Company’s revenue by major source in each segment for the thirteen week periods ended June 3, 2023 and May 28, 2022:


	June 3,		May 28,
	2023		2022
In thousands	(13 weeks)		(13 weeks)
Retail Pharmacy Segment:
Pharmacy sales	$	3,296,974	$	3,053,449
Front-end sales		1,167,345		1,261,206
Other revenue		28,010		30,701
Total Retail Pharmacy Segment		4,492,329		4,345,356
Pharmacy Services Segment		1,196,154		1,725,857
Intersegment elimination		(35,321)		(56,630)
Total revenue	$	5,653,162	$	6,014,583

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. Beginning in December 2020, the Company granted temporary extensions of benefits to certain previous members that were eligible for a discount as of the end of each previous 6 month period such that those prior members were eligible to continue to receive that discount on purchases made through the subsequent 6 months with no additional purchase requirement. New and existing customers who were not already eligible for program benefits also had the opportunity to earn additional discounts on purchases made through each 6 month period. A final extension was granted on December 31, 2021 through February 26, 2022 at which point all discounts were terminated.

A new loyalty program, Rite Aid Rewards, was initiated on February 27, 2022. Customers that enroll in the new program earn points for each dollar spent on front of store purchases as well as for eligible pharmacy prescriptions. Points can then be converted into a “Rite Aid Rewards” coupon that can be tendered as payment in a future purchase. Each point is worth $0.002. Customers must accumulate 1,000 points and create an online account in order to convert

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

earned points to a “Rite Aid Rewards” coupon. Unused/unconverted points expire after 90 days. Unredeemed “Rite Aid Rewards” coupons expire 30 days after conversion from points earned.

Points earned pursuant to the Rite Aid Rewards program represent a performance obligation. The value of unredeemed Rite Aid Rewards points is deferred as a contract liability (included in other current liabilities). As members redeem points in the form of a Rite Aid Rewards coupon or when points or unredeemed Rite Aid Rewards coupons expire, the Retail Pharmacy Segment recognizes the redeemed/expired portion of the deferred contract liability into revenue. For the thirteen week period ended June 3, 2023, the Company recognized $177 of deferred contract liability into revenue. The Retail Pharmacy Segment had accrued contract liabilities of $1,853 and $2,030 as of June 3, 2023 and March 4, 2023, respectively.

Recently Adopted Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedients and exceptions for applying Generally Accepted Accounting Principles (“GAAP”) to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another rate affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of Interbank Offered Rates (“IBORs”) and, particularly, the risk of cessation of LIBOR, regulators have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. This ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. In January 2021, the FASB issued ASU 2021-01, which adds implementation guidance to the above ASU to clarify certain optional expedients and exceptions in Topic 848. The Company adopted ASU 2020-04 effective December 1, 2022 and the adoption of this standard did not have a material impact on the Company’s financial position, results of operations and cash flows.

2. 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 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 the enterprise. Other strategic initiatives include the expansion of the Company’s digital business, replacing and updating the Company’s financial systems to improve efficiency, and movement to a common client platform at Elixir. In April 2022, the Company announced further strategic initiatives to reduce costs through the closure of unprofitable stores, reduce corporate administration expenses, improve efficiencies in worked payroll and other store labor costs, engage in a comprehensive review of purchasing and other business processes in both the Retail Pharmacy and Pharmacy Services Segments in order to identify areas of opportunity, as well as expense reductions at the Pharmacy Services Segment. In December 2022, the Company announced a new multi-year performance acceleration program, which allows it to fast-track initiatives that will improve sales, script volume and operating margins, and free up cash. The Company is partnering with a leading consulting firm

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

that has worked with several Fortune 150 firms to execute the turnaround model. This program has given the Company visibility into the profitability opportunities it can drive over the next three years by focusing on improvements and growth in its core businesses. These and future restructuring activities, including those designed to enhance the Company’s liquidity and capital structure, are expected to provide future growth opportunities, expense efficiency benefits, and potentially reduce its leverage. The Company has engaged in and, at any given time, may further engage in strategic alternatives to recapitalize, refinance or otherwise optimize its capital structure. Any such review or contingency planning could ultimately result in the Company’s pursuing one or more significant corporate transactions or other remedial measures. There can be no assurance as to when or whether the Company will determine to implement any such action, whether such actions will be successful, or the effects the failure to take action may have on its business, including the Company’s ability to achieve its operational, strategic, and financial goals. Additionally, there can be no assurance that the Company’s current and future restructuring charges will achieve the cost savings and remerchandising benefits in the amounts or time anticipated.

For the thirteen week period ended June 3, 2023, the Company incurred total restructuring-related costs of $78,130, 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)	$	440	$	—	$	440
Professional and other fees relating to restructuring activities^(b)		76,029		1,661		77,690
Total restructuring-related costs	$	76,469	$	1,661	$	78,130

For the thirteen week period ended May 28, 2022, the Company incurred total restructuring-related costs of $22,646, 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)	$	11,288	$	616	$	11,904
Professional and other fees relating to restructuring activities^(b)		6,083		4,659		10,742
Total restructuring-related costs	$	17,371	$	5,275	$	22,646

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

A summary of activity for the thirteen week period ended June 3, 2023 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)		other fees ^(b)		Total

Balance as of March 4, 2023	$	7,658	$	42,154	$	49,812
Additions charged to expense		440		77,690		78,130
Cash payments		(2,738)		(33,962)		(36,700)
Balance as of June 3, 2023	$	5,360	$	85,882	$	91,242

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

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

The Company anticipates incurring approximately $155,000 during fiscal 2024 in connection with its continued restructuring activities.

3. Loss Per Share

Basic 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 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
	June 3,		May 28,
	2023		2022
Basic and diluted loss per share:
Numerator:
Net loss attributable to common stockholders — basic and diluted	$	(306,409)	$	(85,441)
Denominator:
Basic and diluted weighted average shares		55,179		54,348

Basic and diluted loss per share	$	(5.55)	$	(1.57)

Due to their antidilutive effect, 29 and 700 potential shares related to stock options have been excluded from the computation of diluted loss per share for the thirteen week periods ended June 3, 2023 and May 28, 2022, respectively. Also, excluded from the computation of diluted loss per share for the thirteen week periods ended June 3, 2023 and May 28, 2022 are restricted shares of 1,510 and 1,247, 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 Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

4. Facility Exit and Impairment Charges

Facility exit and impairment charges consist of amounts as follows:


	Thirteen Week Period
	Ended
	June 3,		May 28,
	2023		2022
Impairment charges	$	11,738	$	35,036
Facility exit charges		7,954		6,785
	$	19,692	$	41,821

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 thirteen week period ended June 3, 2023, long-lived assets with a carrying value of $11,738, primarily right-of-use assets in connection with stores or leased office spaces, were written down to their fair value of $0, resulting in an impairment charge of $11,738. During the thirteen week period ended May 28, 2022, long-lived assets with a carrying value of $39,228, primarily right-of-use assets in connection with leased office spaces, were written down to their fair value of

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

$4,192, resulting in an impairment charge of $35,036. 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 June 3, 2023 and May 28, 2022:


							Fair Values		Total
							as of		Charges
	Level 1		Level 2		Level 3		Impairment Date		June 3, 2023
Long-lived assets held for use	$	—	$	—	$	—	$	—	$	(11,738)
Long-lived assets held for sale	$	—	$	—	$	—	$	—	$	—
Total	$	—	$	—	$	—	$	—	$	(11,738)


							Fair Values		Total
							as of		Charges
	Level 1		Level 2		Level 3		Impairment Date		May 28, 2022
Long-lived assets held for use	$	—	$	4,192	$	—	$	4,192	$	(35,036)
Long-lived assets held for sale	$	—	$	—	$	—	$	—	$	—
Total	$	—	$	4,192	$	—	$	4,192	$	(35,036)

The above assets reflected in the caption ‘Long-lived assets held for sale’ have not been reclassified to assets held for sale due to their immateriality.

Facility Exit Charges

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 inventory liquidation charges, as well as impairment of assets at these locations. When a store or distribution center is closed, the Company records executory costs for leases, as well as other store or distribution center closing and liquidation costs, when incurred.

The Company calculates the liability for facility exit or disposal cost obligations to include long-term contract termination costs and costs related to the disposal of long-lived assets.

The following table reflects the accrued facility exit charges:


	Thirteen Week Period
	Ended
	June 3,		May 28,
	2023		2022
Balance—beginning of period	$	2,228	$	1,892
Provision for facility exit charges		155		—
Changes in assumptions and other adjustments		—		—
Interest accretion		—		—
Cash payments		(464)		(36)
Balance—end of period	$	1,919	$	1,856

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

5. Fair Value Measurements

The Company utilizes the three-level valuation hierarchy as described in Note 4, 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 June 3, 2023 and March 4, 2023, the Company has $4,640 and $7,457, respectively, of investments carried at amortized cost as these investments are being held to maturity, which are included as a component of prepaid expenses and other current assets. The Company believes the carrying value of these investments approximates their fair value.

The fair value for Secured Overnight Financing Rate (“SOFR”) 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 $3,327,970 and $2,676,269, respectively, as of June 3, 2023. The carrying amount and estimated fair value of the Company's total long-term indebtedness was $2,925,258 and $2,368,328, respectively, as of March 4, 2023.

6. Income Taxes

The Company recorded an income tax expense of $1,493 and $3,497 for the thirteen week periods ended June 3, 2023 and May 28, 2022, respectively. The effective tax rate for the thirteen week periods ended June 3, 2023 and May 28, 2022 was (0.5)% and (4.3)%, respectively. The effective tax rate for the thirteen week periods ended June 3, 2023 May 28, 2022 was net of an adjustment of (27.6)% and (37.5)%, 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 $4,001 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 material 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 $1,720,476 and $1,636,461, 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 June 3, 2023 and March 4, 2023, respectively.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

7. 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 $5,249 as of March 31, 2023. EI was in excess of the minimum required amounts in these states as of June 3, 2023.

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.

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 and the remainder was received in fiscal 2023 upon 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 during the thirteen week period ended August 28, 2021.

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.

On January 24, 2022, the Company entered into a receivable purchase agreement (the “January 2022 Receivable Purchase Agreement”) with Purchaser.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

Pursuant to the terms and conditions set forth in the January 2022 Receivable Purchase Agreement, the Company sold $400,680, a portion of its calendar 2021 CMS receivable, for $387,035, of which $359,388 was received on January 24, 2022 and the remainder was received in fiscal 2023 upon final remittance from CMS. In connection therewith, the Company recognized a loss of $13,645, which is included as a component of loss (gain) on sale of assets, net during the thirteen week period ended February 26, 2022.

On January 24, 2022, concurrent with the January 2022 Receivable Purchase Agreement, the Company entered into an indemnity agreement (the “January 2022 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 January 2022 Indemnity Agreement. Based on its evaluation of the January 2022 Indemnity Agreement, the Company has determined that it is highly unlikely that the events covered under the January 2022 Indemnity Agreement would occur, and consequently, the Company has not recorded any indemnification liability associated with the January 2022 Indemnity Agreement.

On October 13, 2022, the Company entered into a receivable purchase agreement (the “October 2022 Receivable Purchase Agreement”) with Purchaser.

Pursuant to the terms and conditions set forth in the October 2022 Receivable Purchase Agreement, the Company sold $195,487, a portion of its calendar 2022 CMS receivable, for $180,405, of which $166,917 was received on October 13, 2022. The remaining $13,488, which is included in accounts receivable, net as of June 3, 2023, 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 $15,082, which was included as a component of (gain) loss on sale of assets, net during the thirteen-week period ended November 26, 2022.

On October 13, 2022, concurrent with the October 2022 Receivable Purchase Agreement, the Company entered into an indemnity agreement (the “October 2022 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 October 2022 Indemnity Agreement. Based on its evaluation of the October 2022 Indemnity Agreement, the Company has determined that it is highly unlikely that the events covered under the October 2022 Indemnity Agreement would occur, and consequently, the Company has not recorded any indemnification liability associated with the October 2022 Indemnity Agreement.

During the thirteen-week period ended November 26, 2022, the Company incurred additional fees of $1,937, which were included as a component of (gain) loss on sale of assets, net related to the sale of the 2021 CMS receivable to Bank of America. The additional fees were incurred due to a CMS delay in settling the 2021 receivable.

On February 3, 2023, the Company entered into a receivable purchase agreement (the “February 2023 Receivable Purchase Agreement”) with Purchaser.

Pursuant to the terms and conditions set forth in the February 2023 Receivable Purchase Agreement, the Company sold $278,390, a portion of its calendar 2022 CMS receivable, for $261,771, of which $242,562 was received on February 3, 2023. The remaining $19,209, which is included in accounts receivable, net as of June 3, 2023, is payable to the Company, subject to final CMS claim reconciliation adjustments, upon receipt of the final remittance from CMS.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

In connection therewith, the Company recognized a loss of $16,619, which is included as a component of (gain) loss on sale of assets, net during the fourteen-week period ended March 4, 2023.

On February 3, 2023, concurrent with the February 2023 Receivable Purchase Agreement, the Company entered into an indemnity agreement (the “February 2023 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 February 2023 Indemnity Agreement. Based on its evaluation of the February 2023 Indemnity Agreement, the Company has determined that it is highly unlikely that the events covered under the February 2023 Indemnity Agreement would occur, and consequently, the Company has not recorded any indemnification liability associated with the February 2023 Indemnity Agreement.

During the fourteen-week period ended March 4, 2023, the company incurred additional fees of $2,573, which are included as a component of (gain) loss on sale of assets, net related to the sale of the 2021 CMS receivable to Bank of America. The additional fees were incurred due to a CMS delay in settling the 2021 receivable.

As of June 3, 2023 and March 4, 2023 accounts receivable, net included $32,697 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 June 3, 2023, and March 4, 2023, accounts receivable, net included $136,070 and $45,201 due from CMS.

The Inflation Reduction Act of 2022 contains several provisions affecting Medicare, which will take effect over various periods of time from 2023 to 2029. Based on the Company’s current analysis of the provisions, it does not believe that this legislation will have a material impact on the financial statements.

On June 4, 2023, the Company decided to exit the Medicare Part D Individual Insurance market, effective January 1, 2024. As of June 3, 2023, Elixir Insurance operated in eleven markets, with approximately 274,000 Medicare Part D Individual members. The Company expects to service its exiting members in the 2023 plan year through December 31, 2023.

8. Manufacturer Rebates Receivables

The Pharmacy Services Segment has manufacturer rebates receivables due directly from manufacturers and from our rebate aggregator of $417,746 and $357,699 included in accounts receivable, net of an allowance for uncollectible rebates of $11,025 and $8,680, as of June 3, 2023 and March 4, 2023, respectively.

9. Goodwill and Other Intangible Assets

Goodwill and indefinite-lived assets, such as certain trademarks acquired in connection with acquisition transactions, are not amortized, but are instead evaluated for impairment on an annual basis at the end of the fiscal year, or more frequently if events or circumstances indicate it may be more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill, the Company performs a quantitative goodwill

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

impairment test. The fair value estimates used in the quantitative impairment test are calculated using an average of the income and market approaches. The income approach is based on the present value of future cash flows of each reporting unit, while the market approach is based on certain multiples of selected guideline public companies or selected guideline transactions. The approaches, which qualify as Level 3 within the fair value hierarchy, incorporate a number of market participant assumptions including future growth rates, discount rates, income tax rates and market activity in assessing fair value and are reporting unit specific. If the carrying amount exceeds the reporting unit’s fair value, the Company recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. In addition, the Company considers the income tax effect of any tax deductible goodwill when measuring a goodwill impairment loss.

During the thirteen week period ended June 3, 2023, the Company completed a qualitative goodwill impairment assessment, at which time it was determined after evaluating results, events, and circumstances that were not known in prior quarters that a quantitative assessment was necessary for the Pharmacy Services Segment. The quantitative assessment concluded that the carrying amount of the Pharmacy Services Segment exceeded its fair value principally due to projected performance at EI. Unfavorable drug costs and utilization trends that became apparent during the thirteen week period ended June 3, 2023, resulted in an unfavorable MLR which also increased the projected working capital needs of the business and subsequently contributed to the decision to exit the Individual Part D market, effective January 1, 2024. This resulted in goodwill impairment charges of $151,500 for the thirteen week period ended June 3, 2023.

The goodwill related to the Pharmacy Services Segment is at risk of future impairment if the fair value of this segment, and its associated assets, decrease in value due to further declines in its operating results or an inability to execute management’s business strategies. Future cash flow estimates are, by their nature, subjective, and actual results may differ materially from the Company's estimates. If the Company's ongoing cash flow projections are not met or if market factors utilized in the impairment test deteriorate, including an unfavorable change in the terminal growth rate or the weighted-average cost of capital, the Company may have to record impairment charges in future periods.

As of June 3, 2023 and March 4, 2023, accumulated impairment losses for the Pharmacy Services Segment was $1,326,412 and $1,174,912, respectively.


	Retail		Pharmacy
	Pharmacy		Services		Total
Balance, March 4, 2023		43,492		464,444		507,936
Goodwill impairment		—		(151,500)		(151,500)
Balance, June 3, 2023	$	43,492	$	312,944	$	356,436

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022

(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 June 3, 2023 and March 4, 2023.


	June 3, 2023								March 4, 2023
							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)	$	205,249	$	(184,911)	$	20,338	3	years	$	201,919	$	(182,957)	$	18,962	3	years
Prescription files		1,035,505		(934,114)		101,391	5	years		1,029,665		(928,478)		101,187	5	years
Customer relationships^(a)		388,000		(310,842)		77,158	8	years		388,000		(306,139)		81,861	9	years
CMS license		57,500		(25,904)		31,596	3	years		57,500		(23,798)		33,702	4	years
Claims adjudication and other developed software		58,985		(58,985)		—	0	years		58,985		(58,985)		—	0	years
Total finite	$	1,745,239	$	(1,514,756)		230,483			$	1,736,069	$	(1,500,357)	$	235,712
Trademarks		14,400		—		14,400	Indefinite			14,400		—		14,400	Indefinite
Total	$	1,759,639	$	(1,514,756)	$	244,883			$	1,750,469	$	(1,500,357)	$	250,112

(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.

Amortization expense for these intangible assets and liabilities was $17,133 and $20,626 for the thirteen week periods ended June 3, 2023 and May 28, 2022, respectively. The anticipated annual amortization expense for these intangible assets and liabilities is 2024—$63,486; 2025—$52,554; 2026—$42,028; 2027—$35,018 and 2028—$27,538.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

10. Indebtedness and Credit Agreement

Following is a summary of indebtedness and lease financing obligations as of June 3, 2023 and March 4, 2023:


	June 3,		March 4,
	2023		2023
Secured Debt:
Senior secured revolving credit facility due August 2026 ($1,600,000 and $1,200,000 face value less unamortized debt issuance costs of $14,626 and $16,117)		1,585,374		1,183,883
FILO Term Loan due August 2026 ($400,000 face value less unamortized debt issuance costs of $1,936 and $2,090)		398,064		397,910
		1,983,438		1,581,793
Second Lien Secured Debt:
7.500% senior secured notes due July 2025 ($320,002 face value less unamortized debt issuance costs of $2,257 and $2,529)		317,745		317,473
8.000% senior secured notes due November 2026 ($849,918 face value less unamortized debt issuance costs of $10,489 and $11,259)		839,429		838,659
		1,157,174		1,156,132
Unguaranteed Unsecured Debt:
7.70% notes due February 2027 ($185,691 face value less unamortized debt issuance costs of $373 and $398)		185,318		185,293
6.875% fixed-rate senior notes due December 2028 ($2,046 face value less unamortized debt issuance costs of $6 and $6)		2,040		2,040
		187,358		187,333
Lease financing obligations		18,211		18,912
Total debt		3,346,181		2,944,170
Current maturities of long-term debt and lease financing obligations		(6,060)		(6,332)
Long-term debt and lease financing obligations, less current maturities	$	3,340,121	$	2,937,838

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 “Prior Credit Agreement”; and the Credit Agreement, as further amended by the Second Amendment (as defined below), the “Prior Amended Credit Agreement”), which provided for facilities consisting of a $2,700,000 senior secured asset-based revolving credit facility and a $450,000 “first-in, last-out” senior secured term loan facility, the proceeds of which were used in December 2018 to refinance its prior $2,700,000 existing credit agreement.

On August 20, 2021, the Company entered into the Second Amendment to Credit Agreement (the “Second Amendment”), which, among other things, amended the Prior Credit Agreement to provide for a $2,800,000 senior secured asset-based revolving credit facility (the “Prior Senior Secured Revolving Credit Facility”) and a $350,000 “first-in, last-out” senior secured term loan facility (“Prior Senior Secured Term Loan” and together with the Prior Senior Secured Revolving Credit Facility, collectively, the “Prior Amended Facilities”). The Prior Amended Facilities extended the Company’s debt maturity profile and provided additional liquidity. Borrowings under the Prior Senior Secured

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

Revolving Credit Facility bore 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 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 Prior Amended Credit Agreement). Borrowings under the Prior Senior Secured Term Loan bore 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%.

On December 1, 2022, the Company entered into the Third Amendment to Credit Agreement (the “Third Amendment”), which, among other things, amended the Prior Amended Credit Agreement (the Prior Amended Credit Agreement, as modified by the Third Amendment, the “Existing Credit Agreement”) to provide for a $2,850,000 senior secured asset-based revolving credit facility (the “Existing Senior Secured Revolving Credit Facility”) and a $400,000 “first-in, last-out” senior secured term loan facility (the “Existing Senior Secured Term Loan” and, together with the Existing Senior Secured Revolving Credit Facility, collectively, the “Existing Facilities”), replaced the LIBOR rate with a Term SOFR-based rate as the applicable benchmark for the Existing Facilities, included COVID-19 vaccines in the borrowing base under the Existing Senior Secured Revolving Credit Facility, subject to limitations and conditions as specified in the Existing Credit Agreement, and increased the interest rate applicable to loans under the Existing Senior Secured Term Loan to (x) a base rate (determined in a customary manner) plus a margin of 2.00% or (y) an adjusted Term SOFR-based rate (determined in a customary manner) plus a margin of 3.00%.

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 Existing Senior Secured Revolving Credit Facility, depending on Average ABL Availability (as defined in the Existing Credit Agreement). The Existing 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 Existing Senior Secured Revolving Credit Facility is based upon a specified borrowing base consisting of accounts receivable, inventory and prescription files. As of June 3, 2023, the Company had approximately $2,000,000 of borrowings outstanding under the Existing Facilities and had letters of credit outstanding under the Existing Senior Secured Revolving Credit Facility in a face amount of approximately $208,198, which resulted in remaining borrowing capacity under the Existing Senior Secured Revolving Credit Facility of $1,041,802. If at any time the total credit exposure outstanding under the Existing Senior Secured Revolving Credit Facility exceeds the borrowing base, the Company will be required to repay amounts outstanding to eliminate such shortfall.

The Existing Credit Agreement restricts the Company and all of its subsidiaries including the subsidiaries that guarantee its obligations under the Existing Facilities and the secured 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 Existing 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 Existing Facilities or (ii) availability under the Existing Senior Secured Revolving Credit Facility is less than or equal to $283,250 for three consecutive business days or less than or equal to $206,000 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

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

first to repay outstanding revolving loans under the Existing Facilities, and then held as collateral for the senior obligations until such cash sweep period is rescinded pursuant to the terms of the Existing Facilities.

With the exception of EI, substantially all of the Company’s 100% owned subsidiaries guarantee the obligations under the Existing Facilities and the secured guaranteed notes. The Company’s obligations under the Existing 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 Existing 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 Existing 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 Existing Facilities and the secured 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 Existing Facilities and applicable notes, are minor.

The Existing 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 Existing 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 Existing 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 Existing 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 Existing 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 Existing Credit Agreement also contains certain restrictions on the amount of secured first priority debt the Company is able to incur. The Existing Credit Agreement also allows for the voluntary repurchase of any debt or other convertible debt, so long as the Existing Facilities are not in default and the Company maintains availability under its revolver of more than $375,950.

The Existing 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 Existing Senior Secured Revolving Credit Facility is less than $206,000 or (ii) on the third consecutive business day on which availability under the Existing Senior Secured Revolving Credit Facility is less than $257,500 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 $257,500. As of June 3, 2023, the availability under the Existing Senior Secured Revolving Credit Facility was at a level that did not trigger the Existing Credit Agreement’s financial covenant. The Existing 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 Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

The Existing Credit Agreement provides for customary events of default including nonpayment, misrepresentation, breach of covenants and bankruptcy. It is also an event of default if the Company fails to make any 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 2023 and 2024 Transactions

On June 13, 2022, the Company commenced a series of cash tender offers to purchase up to $150,000 aggregate principal amount of the Company’s 7.500% Senior Secured Notes due 2025 (the “7.500% Notes”), 8.000% Senior Secured Notes due 2026 (the “8.000% Notes”), 7.70% Notes due 2027 (the “7.70% Notes”) and 6.875% Notes due 2028 (the “6.875% Notes”), subject to prioritized acceptance levels, a subcap of $100,000 with respect to the 7.500% Notes and proration. On June 29, 2022, pursuant to an early settlement, the Company purchased an aggregate principal amount of $114,942 of its 7.500% Notes, $51,695 aggregate principal amount of its 7.70% Notes and $26,955 aggregate principal amount of its 6.875% Notes. In connection therewith, the Company recorded a gain on debt retirement of $41,312, which included unamortized debt issuance costs. The debt repayment and related gain on debt retirement is included in the results of operations and cash flows during the second quarter of fiscal 2023.

On November 3, 2022, the Company announced the commencement of a cash tender offer to purchase up to $200,000 aggregate purchase price (not including any accrued and unpaid interest) of the Company’s 7.500% Notes, subject to proration. On November 30, 2022, pursuant to an early settlement, the Company purchased an aggregate principal amount of $160,497 of its 7.500% Notes and on December 9, 2022, pursuant to the final settlement, the Company purchased an additional aggregate principal amount of $4,559 of its 7.500% Notes. In connection therewith, the Company recorded a gain on debt retirement of $38,978, which includes unamortized debt issuance costs. The debt repayment and related gain on debt retirement is included in the results of operations and cash flows during the third quarter of fiscal 2023.

On December 1, 2022, the Company entered into the Third Amendment in order to, among other things, increase the aggregate principal amount of commitments under the Existing Senior Secured Revolving Credit Facility from $2,800,000 to $2,850,000 and increase the aggregate principal amount of loans outstanding under the Existing Senior Secured Term Loan from $350,000 to $400,000. As a result of the Third Amendment, the Company has increased its liquidity by $100,000. In connection therewith, the Company recorded a loss on debt modification and retirement of $148, which includes unamortized debt issuance costs. The related loss on debt modification and retirement is included in the results of operations and cash flows during the fourth quarter of fiscal 2023.

Maturities

The aggregate annual principal payments of long-term debt for the remainder of fiscal 2024 and thereafter are as follows: 2024—$0; 2025—$0; 2026—$320,002; 2027—$3,035,609; 2028—$0 and $2,046 thereafter.

11. 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

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

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.

The following table is a summary of the Company’s components of net lease cost for the thirteen week periods ended June 3, 2023 and May 28, 2022:


	Thirteen Week Period Ended
	June 3, 2023		May 28, 2022
Operating lease cost	$	152,672	$	159,845
Financing lease cost:
Amortization of right-of-use asset		819		809
Interest on long-term finance lease liabilities		467		501
Total finance lease costs	$	1,286	$	1,310
Short-term lease costs		(776)		457
Variable lease costs		46,233		42,645
Less: sublease income		(2,737)		(3,223)
Net lease cost	$	196,678	$	201,034

Supplemental cash flow information related to leases for the thirteen week periods ended June 3, 2023 and May 28, 2022:


	Thirteen Week Period Ended
	June 3, 2023		May 28, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	$	160,367	$	175,414
Operating cash flows paid for interest portion of finance leases		467		501
Financing cash flows paid for principal portion of finance leases		996		945
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		77,412		57,986
Finance leases		—		—

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

Supplemental balance sheet information related to leases as of June 3, 2023 and March 4, 2023 (in thousands, except lease term and discount rate):


	June 3,			March 4,
	2023			2023
Operating leases:
Operating lease right-of-use asset	$	2,457,110		$	2,497,206

Short-term operating lease liabilities	$	488,712		$	502,403
Long-term operating lease liabilities		2,345,277			2,372,943
Total operating lease liabilities	$	2,833,989		$	2,875,346

Finance leases:
Property, plant and equipment, net	$	13,064		$	13,576

Current maturities of long-term debt and lease financing obligations	$	6,060		$	6,332
Lease financing obligations, less current maturities		12,151			12,580
Total finance lease liabilities	$	18,211		$	18,912
Weighted average remaining lease term
Operating leases		7.4			7.5
Finance leases		8.3			8.0

Weighted average discount rate
Operating leases		7.0	%		6.5	%
Finance leases		10.6	%		9.0	%

The following table summarizes the maturity of lease liabilities under finance and operating leases as of June 3, 2023:


	June 3, 2023
	Finance		Operating
Fiscal year	Leases		Leases⁽¹⁾		Total
2024 (remaining thirty-nine weeks)	$	6,506	$	502,374	$	508,880
2025		4,003		602,909		606,912
2026		2,198		479,513		481,711
2027		1,500		446,677		448,177
2028		1,500		373,347		374,847
Thereafter		10,548		1,211,362		1,221,910
Total lease payments		26,255		3,616,182		3,642,437
Less: imputed interest		(8,044)		(782,193)		(790,237)
Total lease liabilities	$	18,211	$	2,833,989	$	2,852,200

(1)	– Future operating lease payments have not been reduced by minimum sublease rentals of $22 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 Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

During the thirteen week periods ended June 3, 2023 and May 28, 2022, the Company did not enter into any sale-leaseback transactions.

The Company has additional capacity under its outstanding debt agreements to enter into additional sale-leaseback transactions.

12. Retirement Plans

Net periodic pension expense (income) for the thirteen week periods ended June 3, 2023 and May 28, 2022, for the Company’s defined benefit plan includes the following components:


	Defined Benefit
	Pension Plan
	Thirteen Week Period Ended
	June 3,		May 28,
	2023		2022
Service cost	$	73	$	107
Interest cost		1,581		1,264
Expected return on plan assets		(1,474)		(1,402)
Net periodic pension expense	$	180	$	(31)

The Company is not required to make any contributions to its company-sponsored pension plans in fiscal 2024 but may make contributions to the extent such contributions are beneficial to the Company. The Company did not make any contributions to its company-sponsored pension plans in the first quarter of fiscal 2024.

13. Segment Reporting

The Company has two reportable segments, Retail Pharmacy Segment and Pharmacy Services Segment.

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 Financial Officer and several other members of the Executive Leadership Team, (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.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

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


	Retail		Pharmacy
	Pharmacy		Services		Eliminations⁽¹⁾		Consolidated
June 3, 2023:
Total Assets	$	5,762,566	$	1,897,726	$	(9,874)	$	7,650,418
Goodwill		43,492		312,944		—		356,436
March 4, 2023:
Total Assets	$	5,487,845	$	2,049,107	$	(9,590)	$	7,527,362
Goodwill		43,492		464,444		—		507,936

(1)

As of June 3, 2023 and March 4, 2023, intersegment eliminations include intersegment accounts receivable of $9,874 and $9,590, respectively, that represents amounts owed from the Pharmacy Services Segment to the Retail Pharmacy Segment that are created when Pharmacy Services Segment customers use Retail Pharmacy Segment stores to purchase covered products.

The following table is a reconciliation of the Company’s business segments to the consolidated financial statements for the thirteen week periods ended June 3, 2023 and May 28, 2022:


	Retail		Pharmacy		Intersegment
	Pharmacy		Services		Eliminations⁽¹⁾		Consolidated
Thirteen Week Period Ended
June 3, 2023:
Revenues	$	4,492,329	$	1,196,154	$	(35,321)	$	5,653,162
Gross Profit		1,086,863		91,663		—		1,178,526
Adjusted EBITDA⁽²⁾		70,049		21,666		—		91,715
Depreciation and amortization		55,469		10,426		—		65,895
LIFO charge		7,500		—		—		7,500
Stock-based compensation expense		723		358		—		1,081
Additions to property and equipment and intangible assets		40,439		7,064		—		47,503
May 28, 2022:
Revenues	$	4,345,356	$	1,725,857	$	(56,630)	$	6,014,583
Gross Profit		1,097,357		99,372		—		1,196,729
Adjusted EBITDA⁽²⁾		73,682		26,448		—		100,130
Depreciation and amortization		56,108		13,965		—		70,073
LIFO charge		—		—		—		—
Stock-based compensation expense		3,102		232		—		3,334
Additions to property and equipment and intangible assets		78,551		6,873		—		85,424

(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 Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

The following is a reconciliation of net loss to Adjusted EBITDA for the thirteen week periods ended June 3, 2023 and May 28, 2022:


	June 3,		May 28,
	2023		2022
	(13 weeks)		(13 weeks)
Net loss	$	(306,409)	$	(85,441)
Interest expense		65,220		48,119
Income tax expense		1,493		3,497
Depreciation and amortization		65,895		70,073
LIFO charge		7,500		—
Facility exit and impairment charges		19,692		41,821
Goodwill and intangible asset impairment charges		151,500		—
Stock-based compensation expense		1,081		3,334
Restructuring-related costs		78,130		22,646
Inventory write-downs related to store closings		2,057		7,955
Litigation and other contractual settlements		11,050		18,271
Gain on sale of assets, net		(8,193)		(29,196)
Other		2,699		(949)
Adjusted EBITDA	$	91,715	$	100,130

14. 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), audits by counter parties under our contracts, 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. Substantial damages are sought from the Company in virtually all of these matters, even if a specific amount is not specified. 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. Unless specifically noted otherwise, 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 at the current stage of 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 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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

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 may exceed reimbursement pursuant to any applicable insurance. Such proceedings may also require significant attention of management.

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 including findings made by juries; (viii) the exercise of discretion in enforcement actions including 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; (ix) changes in priorities following any change in political administration at the state or federal level; and/or (x) the impact, results and settlements of similar claims made against competitors and other industry participants. Additionally, the Company may determine that a settlement is in its best interest, even if it believes that it has meritorious defenses and has not previously accrued for the matter.

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 the classification of certain positions as exempt from overtime requirements, failure to pay premiums for missed meals and rest periods, failure to provide accurate wage statements, and failure to reimburse business expenses (collectively, 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. In August 2022, the Company agreed to settle a putative class action regarding reimbursement for cell phone and mileage expenses for shift supervisors and managers/assistant managers for $1.29 million, and a putative wage and hour class action brought on behalf of drivers and other ice cream plant associates for $0.8 million. These settlements are subject to court approval.

The Company has also reached an agreement in principle to resolve a putative employment collective and class action filed in federal court in New York, which raises similar allegations in addition to others about the payment frequency for certain employees (the “New York Case”). In December 2022, the parties reached an agreement in principle to resolve the individual plaintiff’s claims as well as those of the class, resulting in the federal court issuing an order of judgment and a new matter filed in New York state court, which the parties have agreed to resolve for $6.45 million. The parties have finalized a settlement agreement, which will be subject to court approval and allows the Company to terminate the agreement if certain participation thresholds are not met.

The Company has aggressively defended itself and challenged the merits of these employment lawsuits and, where applicable, allegations that the lawsuits should be certified as class or representative actions.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

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.

The Company is a defendant 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 for pre-trial purposes. 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 offered to uninsured and underinsured customers through its Rx Savings Program. The Company is defending itself in a second putative class action lawsuit against similar pricing allegations filed in the United States District Court for the Eastern District of Pennsylvania, where the Company has appealed to the United States Court of Appeals for the Third Circuit the denial of a motion to compel arbitration as to one of the named plaintiffs.

On February 6, 2019, Humana, Inc., filed a claim pursuant to a binding arbitration provision of the parties’ agreement 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. An arbitration hearing was held in this matter in November 2021.

On April 22, 2022, the arbitrator issued an Opinion and Final Award against the Company for breach of contract awarding Humana $122.6 million, which includes $40.7 million in prejudgment interest (the “Arbitration Award”). The Company continues to believe that the Arbitration Award contains a number of significant factual and legal errors. On June 20, 2022, the Company both opposed Humana’s effort to confirm the Arbitration Award and petitioned the United States District Court for Western District of Kentucky for vacatur of the Arbitration Award, as is its right under the Federal Arbitration Act (“FAA”). As such, the Company has determined that it is not probable that a loss has occurred.

The FAA, as interpreted and applied by federal courts, permits vacatur when, among other things, an arbitrator’s decision: (1) is irreconcilable with the terms of a contract between the parties; (2) rests on a plain legal error that manifests disregard for the law; or (3) incorporates a refusal to consider pertinent, material evidence. Similarly, the FAA, as interpreted and applied by federal courts, permits modification of an arbitrator’s decision to correct an evident material miscalculation of figures. Although the Company cannot make any assurances of success in its efforts, it is the Company’s view that the errors in the Arbitration Award support both vacatur and modification under the FAA, the effect of either of which could be to set aside the Arbitration Award or reduce or eliminate the damages provided for in the Arbitration Award.

Argument on Humana’s petition to confirm the Arbitration Award and Rite Aid’s motion for vacatur of the Arbitration Award was held May 10, 2023 and we await the court’s decision. Depending on the court’s determination, it is possible that one or both parties may appeal the decision, or seek other remedies.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

The Company is a defendant in two 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 to several Pharmacy Benefit Managers, all but one of which are not owned by plaintiffs, with which Rite Aid and the insurers had independent contracts. On May 22, 2023, the Company won a defense verdict in the jury trial of a lawsuit filed in Delaware state court in 2019 by multiple Centene entities alleging that the Company overcharged for prescriptions by improperly reporting usual and customary prices. The Centene entities have filed a motion seeking a new trial. The Company is defending a similar lawsuit filed in 2022 by WellCare in Florida state court.

Drug Utilization Review and Code 1 Litigation

In June 2012, qui tam plaintiff, Loyd 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’s Department of Justice’s Bureau of Medical Fraud and Elder Abuse filed a complaint in intervention. The Company filed a motion to dismiss Relator’s and the State of California’s respective complaints in January 2018, and the hearing was held on March 23, 2018. On September 5, 2018, the court issued an order denying the motion to dismiss. Substantial damages are sought from the Company in this matter. No trial date has been set and as discovery continues, the parties have participated in and are expected to continue to participate in a mediation process, although there is no expected date or terms for any potential resolution of this matter.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

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 (“JPML”) 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. On June 1, 2022, the JPML ordered that newly filed cases will no longer be transferred to the MDL. The plaintiffs in these opioid-related lawsuits generally allege claims that include, without limitation, 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 in which it remains a defendant 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.

As previously disclosed, on December 13, 2022, a qui tam complaint filed by three former Rite Aid pharmacy personnel (Andrew White, Mark Rosenberg, and Ann Wegelin) (collectively, “qui tam Relators”) was unsealed by the federal District Court for the Northern District of Ohio in an order that also directed the United States Department of Justice to file within 90 days a complaint intervening or partially intervening in the Second Amended Complaint (the “Complaint”). On February 23, 2023, the following states, which were listed in the Complaint, declined to intervene: Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Louisiana, Maryland, Massachusetts, Michigan, Nevada, New Hampshire, New Jersey, New York, North Carolina, Oklahoma, Rhode Island, Tennessee, Texas, Vermont, Virginia, Washington and the District of Columbia. California subsequently did not intervene. On March 13, 2023, the United States Department of Justice filed its complaint in the federal District Court for the Northern District of Ohio against Rite Aid (“DOJ’s Complaint”) alleging violations of the federal False Claims Act and Controlled Substances Act related to the dispensing of controlled substances, primarily opioids. DOJ’s Complaint seeks damages under the False Claims Act, civil penalties under the Controlled Substances Act, damages in connection with alleged payment by mistake (on behalf of Federal Healthcare Programs), and damages in connection with alleged unjust enrichment. The Company has filed a motion to dismiss DOJ’s Complaint.

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 settlement and/or judgment costs that may be paid for the opioid-related lawsuits. The action seeks declaratory relief with respect to the obligations of the insurers under the policies at issue in the action and asserts claims for breach of contract and statutory remedies against one of these insurers. Although the trial court determined on the Company’s motion for partial summary judgment that this insurer was obligated to reimburse the Company for its defense costs, on January 10, 2022, the Delaware Supreme Court reversed the trial court’s order and ruled that the insurer had no duty to defend the first MDL

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

suits set for trial based on the specific allegations at issue in those cases. The matter has been remanded to the lower court for further proceedings.

Miscellaneous Litigation and Investigations.

Following the Company’s response to a 2020 CID from the Federal Trade Commission (“FTC”) with respect to consumer protection laws, the Company is seeking to negotiate a resolution with the FTC. The allegations relate to certain business practices that the Company has not engaged in for nearly three years, and the Company currently believes that any resolution of that CID would not likely require a monetary payment. During the course of the Company’s discussions with the FTC Staff in connection with its response to that CID, the FTC Staff also requested certain information from the Company related to compliance with the Company’s 2010 FTC Consent Order. The Company cooperated with the request, however, the FTC Staff informed the Company that absent an agreed resolution, it would recommend that the FTC file a complaint against the Company for violation of the Consent Order, including a request for a monetary payment and other relief. The FTC has now combined the two matters and is seeking a single resolution of both, such that discussions related to one matter may affect the ability to resolve the other. The Company is evaluating both matters, including a potential agreed resolution, although no assurance can be given that the matter will be resolved to the parties’ mutual satisfaction, or that a resolution will not include a monetary payment, and that the payment will not be material.

The Company has received CIDs from the Department of Justice related to the Medicare Part D plan sponsored by a subsidiary of the Company. The Company is also defending a lawsuit asserting numerous claims based on allegations surrounding the Company’s use of a certain font including in the Company’s rebranded logo. The Company is defending a putative class action it has removed to federal court in California regarding alleged privacy breaches.

The Company is defending a putative shareholder class action currently captioned Page v. Rite Aid Corporation et al., filed in the United States District Court for the Eastern District of Pennsylvania. The matter names Rite Aid Corporation and certain executives individually as defendants and raises claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 related to alleged misstatements and omissions concerning the growth of Elixir’s PBM services businesses. The matter remains in early stages, but the Company intends to aggressively defend against the allegations and challenge their merit. The Company is also defending a putative shareholder class action currently captioned Holland v. Rite Aid Corporation et al., filed in the United States District Court for the Northern District of Ohio. The matter names Rite Aid Corporation and certain former and current executives individually as defendants and raises claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 related to the DOJ’s Complaint and alleged misstatements and omissions concerning the Company’s risk for regulatory action and litigation related to controlled substances practices. This matter is also in early stages, but the Company intends to aggressively defend against the allegations and challenge their merit.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

15. Supplementary Cash Flow Data


	Thirteen Week Period Ended
	June 3, 2023		May 28, 2022
Cash paid for interest	$	34,452	$	11,230
Cash payments for income taxes, net	$	1,006	$	13,290
Equipment financed under capital leases	$	321	$	—
Gross borrowings from revolver	$	829,000	$	860,000
Gross repayments to revolver	$	429,000	$	569,000

Significant components of cash provided by Other Liabilities of $51,385 for the thirteen week period ended June 3, 2023 include cash provided from an increase in accruals for interest, fees related to the Company’s multi-year performance acceleration program, and litigation matters.

Cash used in Other Assets of $64,687 for the thirteen week period ended June 3, 2023 is comprised primarily of prepaid rent.

16. Revision of Previously Issued Consolidated Financial Statements

Subsequent to the issuance of the Company’s consolidated financial statements as of and for the fiscal year ended March 4, 2023, management evaluated the materiality of a misstatement in accordance with the U.S. SEC Staff’s Accounting Bulletin Nos. 99, Materiality (“SAB 99”) and 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). The misstatement pertains to the Company’s historical accounting for closed store liabilities. Based on their evaluation, management concluded the misstatement is not material to the Company’s previously issued consolidated financial statements as of and for each of the three fiscal years ended March 4, 2023 and each of the interim and year-to-date periods then ended, (collectively the “previously issued financial statements”). However, as prescribed by SAB 108, in conjunction with the re-issuance of the Company’s previously issued financial statements, the misstatement has been corrected as an immaterial revision of the accompanying condensed consolidated financial statements as of and for each of the thirteen week periods ended June 3, 2023 and May 28, 2022 and the related notes hereto. A summary of the nature of the misstatement and its impact on the Company’s previously issued financial statements is summarized as follows.

The Company adopted ASC 842, Leases, (“ASC 842”) on the first day of fiscal year 2020 under the alternative transition method as permissible under ASC 842. As part of this adoption, the Company elected the practical expedients, as permitted under the transition guidance, which included, among other things, the ability to carry forward existing lease classifications. Based on this election, the Company appropriately eliminated the majority of its closed store and lease exit liabilities as of the date of adoption, which had been accrued in accordance with ASC 420, Exit or Disposal Cost Obligations, (“ASC 420”). Moreover, due to the Company’s practical expedients election, variable costs, consisting primarily of real estate taxes and common area maintenance expenses, associated with store closures that occur subsequent to the adoption of ASC 842 may no longer be accrued under ASC 420, but rather recognized as expense as they are incurred.

Due to an oversight in their evaluation of an amendment to ASC 420 as a result of the adoption of ASC 842, management determined that the Company incorrectly continued to accrue estimated costs associated with store closures

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

as a liability subsequent to the date of adoption, rather than recognize the costs as they are incurred. The impact of the misstatement resulted in an overstatement of these costs, which have historically been classified within Facility exit and impairment charges in the Company’s Condensed Consolidated Statements of Operations, and an overstatement of store closure liabilities, which have historically been classified within Accrued salaries, wages and other current liabilities (current portion) and Other noncurrent liabilities (long-term portion) in the Company’s Condensed Consolidated Balance Sheets.

A summary of revisions to the Company’s previously reported financial statements is presented below.

As of and for the thirteen week period ended June 3, 2023


	Previously				As
(In 000’s, except per share amounts )	Reported		Adjustment		Revised
Balance Sheet:
Accrued salaries, wages, and other current liabilities	$	772,058	$	(15,143)	$	756,915
Total current liabilities		2,772,571		(15,143)		2,757,428
Other noncurrent liabilities		139,897		(32,709)		107,188
Total liabilities		8,597,866		(47,852)		8,550,014
Accumulated deficit		(6,908,235)		47,852		(6,860,383)
Total stockholders’ (deficit) equity		(947,448)		47,852		(899,596)

Statements of Operations and Comprehensive Loss:
Facility exit and impairment charges	$	20,001	$	(309)	$	19,692
Loss before income taxes		(305,225)		309		(304,916)

Net loss		(306,718)		309		(306,409)
Comprehensive loss		(306,718)		309		(306,409)
Basic and diluted loss per share		(5.56)		0.01		(5.55)


Statement of Cash Flows:
Net loss	$	(306,718)	$	309	$	(306,409)

Facility exit and impairment charges		20,001		(309)		19,692

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen Week Periods Ended June 3, 2023 and May 28, 2022

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

(unaudited)

As of and for the thirteen week period ended May 28, 2022


	Previously				As
(In 000’s, except per share amounts)	Reported		Adjustment		Revised
Balance Sheet:
Accrued salaries, wages, and other current liabilities	$	787,591	$	(13,560)	$	774,031
Total current liabilities		2,828,237		(13,560)		2,814,677
Other noncurrent liabilities		162,457		(27,985)		134,472
Total liabilities		8,558,149		(41,545)		8,516,604
Accumulated deficit		(5,961,772)		41,545		(5,920,227)
Total stockholders’ (deficit) equity		(8,376)		41,545		33,169

Statements of Operations and Comprehensive Loss:
Facility exit and impairment charges	$	66,571	$	(24,750)	$	41,821
Loss before income taxes		(106,694)		24,750		(81,944)

Net loss		(110,191)		24,750		(85,441)
Comprehensive loss		(110,191)		24,750		(85,441)
Basic and diluted loss per share		(2.03)		0.46		(1.57)


Statement of Cash Flows:
Net loss	$	(110,191)	$	24,750	$	(85,441)

Facility exit and impairment charges		66,571		(24,750)		41,821

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

The Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations set forth below gives effect to the revision of our previously issued condensed consolidated financial statements for each of the thirteen week periods ended June 3, 2023 and May 28, 2022 to correct an error in the periods impacted. For additional information and a detailed discussion of the revision and recast, refer to Note 16 Revision of Previously Issued Consolidated Financial Statements included in Part I Item 1.

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 2,200 retail pharmacy locations across 17 states and through our e-commerce platform available at www.riteaid.com. 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 1.5 million covered lives, including approximately 0.3 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 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 the enterprise. Other strategic initiatives include the expansion of our digital business, replacing and updating our financial systems to improve efficiency, and movement to a common client platform at Elixir. In April 2022, we announced further strategic initiatives

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to reduce costs through the closure of unprofitable stores, reduce corporate administration expenses, improve efficiencies in worked payroll and other store labor costs, engage in a comprehensive review of purchasing and other business processes in both the Retail Pharmacy and Pharmacy Services Segments in order to identify areas of opportunity, as well as expense reductions at the Pharmacy Services Segment. In December 2022, we announced a new multi-year performance acceleration program, which allows us to fast-track initiatives that will improve sales, script volume and operating margins, and free up cash. We are partnering with a leading consulting firm that has worked with several Fortune 150 firms to execute the turnaround model. This program has given us visibility into the profitability opportunities we can drive over the next three years by focusing on improvements and growth in our core businesses. These and future restructuring activities, including those designed to enhance our liquidity and capital structure, are expected to provide future growth opportunities, expense efficiency benefits, as well as potentially reduce our level of corporate leverage. We have engaged in and, at any given time, may further engage in strategic alternatives to recapitalize, refinance or otherwise optimize our capital structure. Any such review or contingency planning could ultimately result in our pursuing one or more significant corporate transactions or other remedial measures. There can be no assurance as to when or whether we will determine to implement any such action, whether such actions will be successful, or the effects the failure to take action may have on our business, including our ability to achieve our operational, strategic, and financial goals. Additionally, 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.

Impact of COVID-19

In March 2020, the outbreak of COVID-19 caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization. The COVID-19 pandemic has severely impacted the economies of the United States and other countries around the world.

The COVID-19 pandemic had an impact on our operating results for the thirteen week periods ended June 3, 2023 and May 28, 2022 and will continue to have an impact on several factors underlying our operating results and liquidity in fiscal 2024. Those factors include the number of individuals that receive a COVID-19 vaccine or booster; demand for COVID-19 testing; the timing and extent to which elective procedures return to pre-pandemic levels; the demand for flu and other immunizations and the length and severity of the upcoming cough, cold and flu season.

Overview of Financial Results

Our net loss for the thirteen week period ended June 3, 2023 was $306.4 million or $5.55 per basic and diluted share compared to a net loss of $85.4 million or $1.57 per basic and diluted share for the thirteen week period ended May 28, 2022. The increase in net loss for the thirteen week period ended June 3, 2023 was due primarily to a non-cash charge to write down Elixir goodwill, which was driven by performance in EI’s Individual Part D Plan and our decision to exit the Individual Part D market beginning in January 2024. Other factors contributing to the higher net loss were higher restructuring-related charges, a lower gain on sale of assets, higher interest expense, and a decrease in Adjusted EBITDA. These items were partially offset by decreased facility exit and impairment charges.

Our Adjusted EBITDA for the thirteen week period ended June 3, 2023 was 91.7 million or 1.6% of revenues compared to $100.1 million or 1.7% of revenues for the thirteen week period ended May 28, 2022. The decrease in Adjusted EBITDA for the thirteen week period ended June 3, 2023 was due to declines in both the Retail Pharmacy Segment and the Pharmacy Services Segment. Adjusted EBITDA decreased $3.6 million in the Retail Pharmacy Segment due primarily to a decrease in Adjusted EBITDA gross profit of $8.4 million, partially offset by decreased Adjusted EBITDA selling, general and administrative expenses of $4.8 million. Adjusted EBITDA in the Pharmacy Services Segment decreased $4.8 million due primarily to the decline in revenues associated with lower Elixir Prescription Drug Plan (“PDP”) membership and lost commercial clients and an increase in the MLR at EI, partially offset by improved procurement economics and reductions in selling, general and administrative expenses (“SG&A”).

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.

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Consolidated Results of Operations

Revenues and Other Operating Data


	Thirteen Week Period Ended
	June 3,			May 28,
	2023			2022

	(dollars in thousands except per share amounts)
Revenues^(a)	$	5,653,162		$	6,014,583
Revenue decline		(6.0)	%		(2.4)	%
Net loss	$	(306,409)		$	(85,441)
Net loss per diluted share	$	(5.55)		$	(1.57)
Adjusted EBITDA^(b)	$	91,715		$	100,130
Adjusted Net Loss^(b)	$	(39,797)		$	(21,272)
Adjusted Net Loss per Diluted Share^(b)	$	(0.72)		$	(0.39)

(a)	Revenues for the thirteen week periods ended June 3, 2023 and May 28, 2022 exclude $35,321 and $56,630, 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 decreased 6.0% for the thirteen weeks ended June 3, 2023, compared to a decrease of 2.4% for the thirteen weeks ended May 28, 2022. Revenues for the thirteen week period ended June 3, 2023 were impacted by a $529.7 million decrease in Pharmacy Services Segment revenues partially offset by a $147.0 million increase in Retail Pharmacy Segment revenues.

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

Costs and Expenses


	Thirteen Week Period Ended
	June 3,			May 28,
	2023			2022

Cost of revenues^(a)	$	4,474,636		$	4,817,854
Gross profit		1,178,526			1,196,729
Gross margin		20.8	%		19.9	%
Selling, general and administrative expenses	$	1,255,223		$	1,217,929
Selling, general and administrative expenses as a percentage of revenues		22.2	%		20.2	%
Facility exit and impairment charges		19,692			41,821
Goodwill and intangible asset impairment charges		151,500			—
Interest expense		65,220			48,119
Gain on sale of assets, net		(8,193)			(29,196)

(a)

Cost of revenues for the thirteen week periods ended June 3, 2023 and May 28, 2022 exclude $35,321 and $56,630, respectively, of inter-segment activity that is eliminated in consolidation.

Gross Profit and Cost of Revenues

Gross profit decreased by $18.2 million for the thirteen week period ended June 3, 2023 compared to the thirteen week period ended May 28, 2022. Gross profit for the thirteen week period ended June 3, 2023 includes a decrease of $10.5 million in our Retail Pharmacy Segment and a decrease of $7.7 million in our Pharmacy Services

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Segment. Gross margin was 20.8% for the thirteen week period ended June 3, 2023 compared to 19.9% for the thirteen week period ended May 28, 2022. 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 $37.3 million for the thirteen week period ended June 3, 2023, compared to the thirteen week period ended May 28, 2022. The increase in SG&A for the thirteen week period ended June 3, 2023 includes an increase of $55.4 million relating to our Retail Pharmacy Segment, partially offset by a decrease of $18.1 million relating to our Pharmacy Services Segment. Please see the section entitled “Segment Analysis” below for additional details regarding SG&A.

Facility Exit and Impairment Charges

Facility exit and impairment charges consist of amounts as follows:


	Thirteen Week
	Period Ended
	June 3,		May 28,
	2023		2022
Impairment charges	$	11,738	$	35,036
Facility exit charges		7,954		6,785
	$	19,692	$	41,821

Please refer to “Management’s Discussion and Analysis of Financial Condition and Results—Facility Exit and Impairment Charges” included in our Fiscal 2023 10-K/A for a detailed description of our impairment and lease termination methodology.

Goodwill and Intangible Asset Impairment Charges

During the thirteen week period ended June 3, 2023, we completed a qualitative goodwill impairment assessment, at which time it was determined after evaluating results, events, and circumstances that were not known in prior quarters that a quantitative assessment was necessary for the Pharmacy Services Segment. The quantitative assessment concluded that the carrying amount of the Pharmacy Services Segment exceeded its fair value principally due to projected performance at EI. Unfavorable drug costs and utilization trends that became apparent during the thirteen week period ended June 3, 2023, resulted in an unfavorable MLR which also increased the projected working capital needs of the business and subsequently contributed to the decision to exit the Individual Part D market, effective January 1, 2024. This resulted in goodwill impairment charges of $151.5 million for the thirteen week period ended June 3, 2023.

Interest Expense

Interest expense was $65.2 million and $48.1 million for the thirteen week periods ended June 3, 2023 and May 28, 2022, respectively. The weighted average interest rate on our indebtedness for the thirteen week periods ended June 3, 2023 and May 28, 2022 was 7.4% and 5.6%, respectively.

Income Taxes

We recorded an income tax expense of $1.5 million and $3.5 million for the thirteen week periods ended June 3, 2023 and May 28, 2022, respectively. The effective tax rate for the thirteen week periods ended June 3, 2023 and May 28, 2022 was (0.5)% and (4.3)%, respectively. The effective tax rate for the thirteen week periods ended June 3, 2023 and May 28, 2022 was net of an adjustment of (27.6)% and (37.5)%, 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

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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 $4.0 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 material impact on our results of operations or the financial position.

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 $1,720.5 million and $1,636.5 million, which relates to federal and state deferred tax assets that may not be realized based on our future projections of taxable income at June 3, 2023 and March 4, 2023, respectively.

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
June 3, 2023:
Revenues	$	4,492,329	$	1,196,154	$	(35,321)	$	5,653,162
Gross Profit		1,086,863		91,663		—		1,178,526
Adjusted EBITDA^(*)		70,049		21,666		—		91,715
May 28, 2022:
Revenues	$	4,345,356	$	1,725,857	$	(56,630)	$	6,014,583
Gross Profit		1,097,357		99,372		—		1,196,729
Adjusted EBITDA^(*)		73,682		26,448		—		100,130

(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
	June 3,			May 28,
	2023			2022

	(dollars in thousands)
Revenues	$	4,492,329		$	4,345,356
Revenue growth (decline)		3.4	%		(0.1)	%
Same store sales growth		8.4	%		4.6	%
Pharmacy sales growth		8.0	%		1.9	%
Same store prescription count growth, adjusted to 30-day equivalents		4.7	%		0.9	%
Same store pharmacy sales growth		13.3	%		6.6	%
Pharmacy sales as a % of total retail sales		73.9	%		70.8	%
Front-end sales decline		(7.4)	%		(4.6)	%
Same store front-end sales decline		(4.4)	%		(0.5)	%
Front-end sales as a % of total retail sales		26.1	%		29.2	%
Adjusted EBITDA^(*)	$	70,049		$	73,682
Store data:
Total stores (beginning of period)		2,309			2,450
New stores		2			—
Store acquisitions		—			—
Closed stores		(27)			(89)
Total stores (end of period)		2,284			2,361
Relocated stores		—			1
Remodeled and expanded stores		—			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 3.4% for the thirteen weeks ended June 3, 2023 compared to a decrease of 0.1% for the thirteen weeks ended May 28, 2022. The increase in revenues for the thirteen week period ended June 3, 2023 was driven by an increase in both acute and maintenance prescriptions, partially offset by a reduction in COVID-19 vaccine and testing revenue as well as store closures.

Pharmacy same store sales increased 13.3% for the thirteen week period ended June 3, 2023 compared to an increase of 6.6% in the thirteen week period ended May 28, 2022. 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 4.7% for the thirteen week period ended June 3, 2023 driven primarily by an increase in non-COVID same store prescriptions of 7.4%, with same store maintenance prescriptions increasing 7.6% and other same store acute prescriptions increasing 6.8%. The pharmacy sales increase was also driven by the increase in sales of Ozempic and other weight-loss drugs, which have both a high sales and cost per script.

Front-end same store sales decreased 4.4% during the thirteen week period ended June 3, 2023 compared to a decrease of 0.5% during the thirteen week period ended May 28, 2022. Front-end same store sales, excluding cigarettes and tobacco products, decreased 3.8%. Front-end same store sales were driven by decreases in alcohol, diagnostic and upper respiratory care, general merchandise, such as toys and electronics, consumables (dairy and grocery), and beauty.

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.

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Costs and Expenses


	Thirteen Week Period Ended
	June 3,			May 28,
	2023			2022

	(dollars in thousands)
Cost of revenues	$	3,405,466		$	3,247,999
Gross profit		1,086,863			1,097,357
Gross margin		24.2	%		25.3	%
FIFO gross profit^(*)		1,094,363			1,097,357
FIFO gross margin^(*)		24.4	%		25.3	%
Selling, general and administrative expenses		1,172,573			1,117,214
Selling, general and administrative expenses as a percentage of revenues		26.1	%		25.7	%

(*) 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 decreased $10.5 million for the thirteen week period ended June 3, 2023 compared to the thirteen week period ended May 28, 2022. The decrease in gross profit was driven by the decline in front-end sales, COVID-19 vaccinations and testing, and increased shrink expense. These items were partially offset by an increase in prescriptions sold, better than expected recovery rates, and the impact of generic drug settlements.

Gross margin was 24.2% of sales for the thirteen week period ended June 3, 2023 compared to 25.3% of sales for the thirteen week period ended May 28, 2022. The decline in gross margin as a percentage of revenues is due primarily to the reduction in COVID-19 vaccinations and testing.

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 charge was $7.5 million for the thirteen week period ended June 3, 2023, compared to LIFO charge of $0 for the thirteen week period ended May 28, 2022. The LIFO charge for the thirteen week period ended June 3, 2023 was mostly due to higher anticipated front-end inflation in fiscal 2024.

Selling, General and Administrative Expenses

SG&A expenses increased $55.4 million for the thirteen week period ended June 3, 2023 due primarily to higher restructuring-related charges. SG&A expenses as a percentage of revenues for the thirteen week period ended June 3, 2023 was 26.1% compared to 25.7% for the thirteen week period ended May 28, 2022. The increase is due primarily to the item noted above.

Pharmacy Services Segment Results of Operations

Revenues and Other Operating Data



	Thirteen Week Period Ended
	June 3,			May 28,
	2023			2022

	(dollars in thousands)
Revenues	$	1,196,154		$	1,725,857
Revenue decline		(30.7)	%		(7.8)	%
Adjusted EBITDA^(*)	$	21,666		$	26,448

(*) 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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Revenues

Revenues decreased $529.7 million for the thirteen week period ended June 3, 2023 compared to the thirteen week period ended May 28, 2022. The known loss of a large commercial client and the decline in Elixir Individual Part D Insurance membership driven by change in our pricing strategy are the largest drivers of the decline. The enterprise impact of the Elixir Insurance membership changes was $345.3 million. The remaining revenue decrease primarily driven by the loss of the large commercial client was $184.4 million.

Costs and Expenses



	Thirteen Week Period Ended
	June 3,			May 28,
	2023			2022

	(dollars in thousands)
Cost of revenues	$	1,104,491		$	1,626,485
Gross profit		91,663			99,372
Gross margin		7.7	%		5.8	%
Selling, general and administrative expenses		82,650			100,715
Selling, general and administrative expenses as a percentage of revenues		6.9	%		5.8	%

Gross Profit and Cost of Revenues

Gross profit decreased $7.7 million for the thirteen week period ended June 3, 2023 compared to the thirteen week period ended May 28, 2022. The decrease in gross profit is primarily due to the decline in revenues associated with lost clients, as noted above, and an increase in the MLR at EI, partially offset by improved procurement economics.

Gross margin was 7.7% of sales for the thirteen week period ended June 3, 2023 compared to 5.8% of sales for the thirteen week period ended May 28, 2022. The increase in gross margin is due primarily to improved procurement economics and the change in business mix as we continue to reposition our business.

Selling, General and Administrative Expenses

SG&A expenses decreased $18.1 million for the thirteen week period ended June 3, 2023 compared to the thirteen week period ended May 28, 2022 due primarily to further consolidation of administrative functions as well as reductions in cost structure to support the lower membership base. SG&A expenses as a percentage of revenue was 6.9% for the thirteen week period ended June 3, 2023 compared to 5.8% for the thirteen week period ended May 28, 2022. The increase in the thirteen week period selling, general and administrative expenses as a percentage of revenues is due primarily to the loss of sales volume.

Liquidity and Capital Resources

General

We have two primary sources of liquidity: (i) cash provided by operating activities and (ii) borrowings under our Existing Senior Secured 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 June 3, 2023 was $1,151.2 million, which consisted of revolver borrowing capacity of $1,041.8 million and invested cash of $109.4 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 “Prior Credit Agreement”; and the Credit Agreement, as further

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amended by the Second Amendment (as defined below), the “Prior Amended Credit Agreement”), which provided for facilities consisting of a $2.7 billion senior secured asset-based revolving credit facility and a $450.0 million “first-in, last out” senior secured term loan facility, the proceeds of which were used in December 2018 to refinance our prior $2.7 billion existing credit agreement.

On August 20, 2021, we entered into the Second Amendment to Credit Agreement (the “Second Amendment”), which, among other things, amended the Prior Credit Agreement to provide for a $2.8 billion senior secured asset-based revolving credit facility (the “Prior Senior Secured Revolving Credit Facility”) and a $350.0 million “first-in, last-out” senior secured term loan facility (“Prior Senior Secured Term Loan” and together with the Prior Senior Secured Revolving Credit Facility, collectively, the “Prior Amended Facilities”). The Prior Amended Facilities extended our debt maturity profile and provided additional liquidity. Borrowings under the Prior Senior Secured Revolving Credit Facility bore 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 Prior Amended Credit Agreement). Borrowings under the Prior Senior Secured Term Loan bore interest at a rate per annum equal to, at our 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%.

On December 1, 2022, we entered into the Third Amendment to Credit Agreement (the “Third Amendment”), which, among other things, amended the Prior Amended Credit Agreement (the Prior Amended Credit Agreement, as modified by the Third Amendment, the “Existing Credit Agreement”) to provide for a $2.85 billion senior secured asset-based revolving credit facility (the “Existing Senior Secured Revolving Credit Facility”) and a $400.0 million “first-in, last-out” senior secured term loan facility (the “Existing Senior Secured Term Loan” and, together with the Existing Senior Secured Revolving Credit Facility, collectively, the “Existing Facilities”), replaced the LIBOR rate with a Term SOFR-based rate as the applicable benchmark for the Existing Facilities, included COVID-19 vaccines in the borrowing base under the Existing Senior Secured Revolving Credit Facility, subject to limitations and conditions as specified in the Existing Credit Agreement, and increased the interest rate applicable to loans under the Existing Senior Secured Term Loan to (x) a base rate (determined in a customary manner) plus a margin of 2.00% or (y) an adjusted Term SOFR-based rate (determined in a customary manner) plus a margin of 3.00%.

We are required to pay fees between 0.250% and 0.375% per annum on the daily unused amount of the commitments under the Existing Senior Secured Revolving Credit Facility, depending on Average ABL Availability (as defined in the Existing Credit Agreement). The Existing 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 Existing Senior Secured Revolving Credit Facility is based upon a specified borrowing base consisting of accounts receivable, inventory and prescription files. As of June 3, 2023, we had approximately $2,000.0 million of borrowings outstanding under the Existing Facilities and had letters of credit outstanding under the Existing Senior Secured Revolving Credit Facility in a face amount of approximately $208.2 million, which resulted in remaining borrowing capacity under the Existing Senior Secured Revolving Credit Facility of $1,041.8 million. If at any time the total credit exposure outstanding under the Existing Senior Secured Revolving Credit Facility exceeds the borrowing base, we will be required to repay amounts outstanding to eliminate such shortfall.

The Existing Credit Agreement restricts us and all of our subsidiaries, including the subsidiaries that guarantee our obligations under the Existing Facilities, the secured guaranteed notes and unsecured 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 store and lockbox deposit accounts and cash necessary to cover our current liabilities). The Existing 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 Existing Facilities or (ii) availability under the Existing Senior Secured Revolving Credit Facility is less than or equal to $283.3 million for three consecutive business days or less than or equal to $206.0 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

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will be applied first to repay outstanding revolving loans under the Existing Facilities, and then held as collateral for the senior obligations until such cash sweep period is rescinded pursuant to the terms of the Existing Facilities.

With the exception of EI, substantially all of our 100% owned subsidiaries guarantee the obligations under the Existing Facilities and the secured guaranteed notes. Our obligations under the Existing 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 Existing 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 Existing 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 our Existing Facilities and the secured guaranteed notes are full and unconditional and joint and several. We have no independent assets or operations. Other than EI, the subsidiaries, including joint ventures, that do not guarantee the Existing Facilities and applicable notes, are minor.

The Existing 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 Existing Facilities and 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 Existing 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 Existing 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 Existing 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 Existing Credit Agreement also contains certain restrictions on the amount of secured first priority debt we are able to incur. The Existing Credit Agreement also allows for the voluntary repurchase of any debt or other convertible debt, so long as the Existing Facilities are not in default and we maintain availability under the Existing Senior Secured Revolving Credit Facility of more than $375.95 million.

The Existing 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 Existing Senior Secured Revolving Credit Facility is less than $206.0 million or (ii) on the third consecutive business day on which availability under the Existing Senior Secured Revolving Credit Facility is less than $257.5 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 $257.5 million. As of June 3, 2023, the availability under the Existing Senior Secured Revolving Credit Facility was at a level that did not trigger the Existing Credit Agreement’s financial covenant. The Existing 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 Existing 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 secured notes contain restrictions on the amount of additional secured and unsecured debt that we may incur. As of June 3, 2023, we had the ability to draw the full amount of our Existing Senior Secured Revolving Credit Facility and enter into certain sale and leaseback transactions. In addition to certain specified debt baskets, we have the ability to incur additional indebtedness should we then satisfy a fixed charge coverage ratio. We also have certain limitations in our unguaranteed unsecured notes on the amount of secured debt that we may incur. We have additional debt incurrence capacity under such indentures.

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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 7.500% Notes and the 8.000% Notes (collectively, the "Guaranteed Notes"). As discussed in Note 10 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 7.500% Notes, the 8.000% 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 Existing 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 Existing Senior Secured Term Loan) (collectively, the “ABL priority collateral”), which, in each case, also secure the Existing 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.


	June 3,		March 4,
In millions	2023		2023
Due from EI	$	100.7	$	18.0
Other current assets		3,458.1		3,184.5
Total current assets	$	3,558.8	$	3,202.5

Operating lease right-of-use assets	$	2,457.1	$	2,497.2
Goodwill		356.4		507.9
Other noncurrent assets		1,213.6		1,256.0
Total noncurrent assets	$	4,027.1	$	4,261.1

Due to EI	$	—	$	—
Other current liabilities		2,701.0		2,657.5
Total current liabilities	$	2,701.0	$	2,657.5

Long-term debt less current maturities	$	3,328.0	$	2,925.3
Long-term operating lease liabilities		2,345.3		2,372.9
Other noncurrent liabilities		111.3		102.2
Total noncurrent liabilities	$	5,784.6	$	5,400.4

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	Thirteen Week Period Ended
In millions	June 3, 2023
Revenues^(a)	$	5,588.0
Cost of revenues^(b)		4,404.0
Gross profit		1,184.0

Net loss	$	(295.8)

Net loss attributable to Rite Aid	$	(306.4)

(a)

Includes $14.8 million of revenues generated from the non-guarantor for the thirteen week period ended June 3, 2023.

(b)

Includes $14.7 million of cost of revenues incurred in transactions with the non-guarantor for the thirteen week period ended June 3, 2023.

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

Cash used in operating activities was $372.5 million and $252.2 million for the thirteen week periods ended June 3, 2023 and May 28, 2022, respectively. Operating cash flow was negatively impacted by increases in rebates receivable, the build of the CMS receivable and prepaid rent. These amounts were partially offset by lower manufacturer rebates receivables.

Cash used in investing activities was $39.3 million and $54.6 million for the thirteen week periods ended June 3, 2023 and May 28, 2022, respectively. During the thirteen week period ended June 3, 2023, we spent $35.9 million on the purchase of property, plant and equipment, $11.6 million on prescription file buys and received proceeds of $8.2 million from the sale of assets and investments.

Cash flow provided by financing activities was $390.3 million and $323.2 million for the thirteen week periods ended June 3, 2023 and May 28, 2022, respectively. Cash provided by financing activities for the thirteen weeks ended June 3, 2023 reflects incremental revolver borrowings, partially offset by the change in our zero balance accounts due to timing of payments.

Capital Expenditures

During the thirteen week periods ended June 3, 2023 and May 28, 2022 capital expenditures were as follows:



	Thirteen Week Period Ended
	June 3,		May 28,
	2023		2022

New store construction, store relocation and store remodel projects	$	4,448	$	11,775
Technology enhancements, improvements to distribution centers and other corporate requirements		31,443		61,401
Purchase of prescription files from other retail pharmacies		11,612		12,248
Total capital expenditures	$	47,503	$	85,424

The Company anticipates incurring approximately $175,000 of capital expenditures during fiscal 2024.

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; a decline in the overall economy,

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and the current rising interest rate environment, and (v) require us to dedicate a substantial portion of our cash flow to service our debt. Additionally, we currently expect continued pressure on consumer spending and supply chain challenges. Based upon our current levels of operations, we believe that cash flow from operations together with available borrowings under the Existing Senior Secured Revolving Credit Facility 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 sufficient, 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, the success of our turnaround efforts and other relevant circumstances, and we may evaluate alternative sources of liquidity (particularly in light of the current market volatility), and other transactions to optimize our capital structure and 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 (such as we have done pursuant to various tender offers), or may otherwise seek transactions to reduce interest expense, extend debt maturities and improve our capital structure. We may also look to make additional investments in our business to further our strategic objectives, including targeted acquisitions, the performance acceleration program, technology investments or other transactions to optimize our asset base. Any of these transactions could impact our financial results, including additional changes or realization of cancellation of indebtedness-income. As a result of the current market volatility and rising interest rate environment, we cannot assure you whether any of such transactions will be consummated, whether we will achieve the benefits of any such transaction, or whether our cost of capital will increase, any of which could have an impact on our future liquidity.

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 — Critical Accounting Policies and Estimates” included in our Fiscal 2023 10-K/A.

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” included in our Fiscal 2023 10-K/A.

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 exit 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 and other contractual settlements, severance, restructuring-related costs, costs related to facility closures, gain or loss on sale of assets, the gain or loss on Bartell acquisition, and the change in estimate related to manufacturer rebate receivables). 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.

We present these non-GAAP financial measures in order to provide transparency to our investors because they are measures that management uses to assess both management performance and the financial performance of our

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operations and to allocate resources. In addition, management believes that these measures may assist investors with understanding and evaluating our initiatives to drive improved financial performance and enables investors to supplementally compare our operating performance with the operating performance of our competitors including with those of our competitors having different capital structures. While we have excluded certain of these items from historical non-GAAP financial measures, there is no guarantee that the items excluded from non-GAAP financial measures will not continue into future periods. For instance, we expect to continue to experience charges for facility exit and impairment charges and inventory write-downs related to store closures as we continue to complete a multi-year strategic initiative designed to improve overall performance. We also expect to continue to experience and report restructuring-related charges associated with continued execution of our strategic initiatives.

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, including companies in our industry.

The following is a reconciliation of our net income (loss) to Adjusted EBITDA for the thirteen week periods ended June 3, 2023 and May 28, 2022:


	Thirteen Week Period Ended
	June 3,		May 28,
	2023		2022

Net loss	$	(306,409)	$	(85,441)
Interest expense		65,220		48,119
Income tax expense		1,493		3,497
Depreciation and amortization		65,895		70,073
LIFO charge		7,500		—
Facility exit and impairment charges		19,692		41,821
Goodwill and intangible asset impairment charges		151,500		—
Stock-based compensation expense		1,081		3,334
Restructuring-related costs		78,130		22,646
Inventory write-downs related to store closings		2,057		7,955
Litigation and other contractual settlements		11,050		18,271
Gain on sale of assets, net		(8,193)		(29,196)
Other		2,699		(949)
Adjusted EBITDA	$	91,715	$	100,130

The following is a reconciliation of our net income (loss) to Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share for the thirteen week periods ended June 3, 2023 and May 28, 2022. Adjusted Net Income (Loss) is defined as net income (loss) excluding the impact of amortization expense, merger and acquisition-related costs, non-recurring litigation and other contractual 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, restructuring-related costs, and the loss on Bartell acquisition. We calculate Adjusted Net Income (Loss) per Diluted Share using our above-referenced definition of 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. Adjusted Net Income (Loss) per Diluted Share is calculated using our above-referenced definition of Adjusted Net Income (Loss):

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	Thirteen Week Period Ended
	June 3,		May 28,
	2023		2022

Net loss	$	(306,409)	$	(85,441)
Add back - Income tax expense		1,493		3,497
Loss before income taxes		(304,916)		(81,944)
Adjustments:
Amortization expense		17,133		20,626
LIFO charge		7,500		—
Goodwill and intangible asset impairment charges		151,500		—
Restructuring-related costs		78,130		22,646
Litigation and other contractual settlements		11,050		18,271
Adjusted loss before income taxes		(39,603)		(20,401)
Adjusted income tax expense ^(a)		194		871
Adjusted net loss	$	(39,797)	$	(21,272)
Net loss per diluted share	$	(5.55)	$	(1.57)
Adjusted net loss per diluted share	$	(0.72)	$	(0.39)

(a)	The fiscal year 2024 and 2023 adjustments to the income tax provision include adjustments to the GAAP basis tax provision commensurate with non-GAAP adjustments and certain discrete tax items, when applicable, was used for the thirteen weeks ended June 3, 2023 and May 28, 2022, 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).

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ITEM 4. Controls and Procedures

(a) Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 3, 2023. Based on such evaluation, at the time the Original Report was filed, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 3, 2023, to provide reasonable assurance that information to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and (ii) accumulated and communicated to management, including our principal executive and principal financial officers or persons performing similar functions, as appropriate to allow timely decisions regarding disclosure. Subsequent to that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of June 3, 2023, because of the material weaknesses in our internal control over financial reporting discussed below.

Previously Reported Material Weaknesses in Internal Control over Financial Reporting

As reported in our 2023 Form 10-K/A, we did not maintain effective internal control over financial reporting as of May 1, 2023, as a result of material weaknesses in the control environment and control activities areas. Refer to our 2023 Form 10-K/A for a description of our material weaknesses.

Remediation

As more fully discussed in the Fiscal 2023 Form 10K/A, to remediate the material weakness referenced above, the Company has implemented or plans to implement the remediation initiatives described in Part II, Item 9A of the Fiscal 2023 Form 10K/A, and will continue to evaluate the remediation and plans to implement additional measures in the future.

(b) Changes in Internal Control over Financial Reporting

Other than as described above in connection with our material weaknesses discussed above, there were no changes in our internal control over financial reporting that occurred during the quarter ended June 3, 2023 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 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 2023 Form 10-K/A, which could materially affect our business, financial condition or future results.

We have identified a material weakness in our internal control over financial reporting and determined that our disclosure controls and procedures were not effective as of June 3, 2023. Failure to remediate the material weakness or any other material weaknesses that we identify in the future could result in material misstatements in our financial statements or cause us to fail to meet our periodic reporting obligations.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, our management is required to report on, and our independent registered public accounting firm is required to attest to, the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for management to determine the adequacy of our internal control over financial reporting are complex and require significant documentation and testing if a deficiency is identified. Annually, we perform activities that include reviewing, documenting, and testing our internal control over financial reporting. If we fail to maintain the adequacy of our internal control over financial reporting, we will not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Any failure to achieve and maintain an effective internal control environment could result in materially misstated consolidated financial statements and a failure to meet our reporting obligations.

Subsequent to the issuance of the Company’s consolidated financial statements as of and for the fiscal year ended March 4, 2023, management evaluated the materiality of a misstatement related to the Company’s historical accounting for closed store liabilities in accordance with changes in ASC 420, Exit or Disposal Cost Obligations. Based on their evaluation, management concluded the misstatement is not material to the Company’s previously issued consolidated financial statements as of and for each of the three fiscal years ended March 4, 2023 and each of the interim and year-to-date periods then ended.

Due to the discovery of this error, we reevaluated the effectiveness of our disclosure controls and procedures and internal control over financial reporting and identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. For further discussion of the material weakness, see Part II, Item 9A, “Controls and Procedures” of our Fiscal 2023 10-K/A. In conjunction with filing this Amendment, we determined to revise the previously issued financial statements and the related notes thereto included in the Original Form 10-Q to reflect the impact of the error in the periods impacted. For additional information and a detailed discussion of the revision, refer to Note 16 Revision of Previously Issued Consolidated Financial Statements.

Management is actively engaged in the planning for, and implementation of, remediation efforts to address our material weakness. However, we may not be successful in promptly remediating the material weaknesses identified by management or be able to identify and remediate additional control deficiencies, including material weaknesses, in the future. Our management may also be unable to conclude in future periods that our disclosure controls and procedures are effective due to the effects of various factors, which may, in part, include unremedied material weaknesses in internal control over financial reporting. Any failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting, including due to a failure to remediate the material weakness or the discovery or occurrence of any additional material weaknesses in our internal control over financial reporting in the future, could adversely affect our ability to prepare financial statements within required time periods and record, process and report financial information accurately, which could result in material misstatements in our financial statements, cause us to fail to meet our reporting and financial obligations, negatively impact the price of our common stock, limit our liquidity and access to capital markets, adversely affect our business, harm our reputation or subject us to litigation or investigations requiring management resources and payment of legal and other expenses. In addition, our internal control over

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financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

ITEM 6. Exhibits

(a)

The following exhibits are filed as part of this report.


Exhibit Numbers	Description	Incorporation By Reference To
2.1	Receivable Purchase Agreement, dated as of August 12, 2021, by and between Envision Insurance Company and Part D Receivable Trust 2020-1 (Series D)	Exhibit 2.1 to Form 8-K, filed on August 13, 2021
2.2	Indemnity Agreement, dated as of August 12, 2021 by and between Rite Aid Corporation and Part D Receivable Trust 2020-1 (Series D)	Exhibit 2.2 to Form 8-K, filed on August 13, 2021
2.3	Receivable Purchase Agreement, dated as of January 24, 2022 February 19, 2020, by and between Envision Insurance Company and Part D Receivable Trust 2020-1 (Series E)	Exhibit 2.1 to Form 8-K, filed on January 24, 2022
2.4	Indemnity Agreement, dated as of January 24, 2022 by and between Rite Aid Corporation and Part D Receivable Trust 2020-1 (Series D)	Exhibit 2.2 to Form 8-K, filed on January 24, 2022
2.5	Receivable Purchase Agreement, dated as of October 13, 2022, by and between Elixir Insurance Company and Part D Receivable Trust 2020-1 (Series F)	Exhibit 2.1 Filed to Form 8-K, filed on October 14, 2022
2.6	Indemnity Agreement, dated as of October 13, 2022 by and between Rite Aid Corporation and Part D Receivable Trust 2020-1 (Series F)	Exhibit 2.2 Filed to Form 8-K, filed on October 14, 2022
2.7	Receivable Purchase Agreement, dated as of February 3, 2023, by and between Elixir Insurance Company and Part D Receivable Trust 2020-1 (Series G)	Exhibit 2.1 Filed to Form 8-K, filed on February 3, 2023
2.8	Indemnity Agreement, dated as of February 3, 2023, by and between Rite Aid Corporation and Part D Receivable Trust 2020-1 (Series G)	Exhibit 2.2 to Form 8-K, filed on February 3, 2023
3.1	Amended and Restated Certificate of Incorporation	Exhibit 3.1 to Form 10-K, filed on April 23, 2014
3.2	Certificate of Amendment to the Amended and Restated Certificate of Incorporation	Exhibit 3.1 to Form 8-K, filed on April 18, 2019
3.3	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

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Exhibit Numbers		Description	Incorporation By Reference To
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 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
4.6		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
4.7		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
4.8		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	Exhibit 4.12 to Form 10-Q filed on October 5, 2021
4.9		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 July 27, 2020, related to the Company’s 8.000% Senior Secured Notes due 2026	Exhibit 4.13 to Form 10-Q filed on October 5, 2021
4.10		Supplemental Indenture, dated as of March 31, 2022, 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	Exhibit 4.10 to Form 10-Q, filed on July 6, 2022
4.11		Supplemental Indenture, dated as of March 31, 2022, 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	Exhibit 4.11 to Form 10-Q, filed on July 6, 2022
4.12		Supplemental Indenture, dated as of September 19, 2022, 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	Exhibit 4.12 to Form 10-Q, filed on January 4, 2023
4.13		Supplemental Indenture, dated as of September 19, 2022, 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	Exhibit 4.13 to Form 10-Q, filed on January 4, 2023
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

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Exhibit Numbers		Description	Incorporation By Reference To
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 to 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
10.13		Third Amendment to Credit Agreement, dated as of December 1, 2022, 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/A, filed on December 6, 2022
10.14		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
10.15	†	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

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Exhibit Numbers		Description	Incorporation By Reference To
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 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
10.24	†	Amendment to Employment Agreement by and between Jessica Kazmaier, dated as of November 6, 2019	Exhibit 10.44 to Form 10-K filed on April 27, 2020
10.25	†	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
10.26	†	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
10.27	†	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
10.28	†	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
10.29	†	Rite Aid Corporation Amended and Restated 2020 Omnibus Equity Plan, as amended	Appendix B-1 to Schedule 14A (Definitive Proxy Statement) filed on June 10, 2022
10.30	†	Rite Aid Corporation Amended and Restated 2020 Omnibus Equity Plan	Appendix B-1 to Schedule 14A (Definitive Proxy Statement) filed on May 20, 2021
10.31	†	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
10.32	†	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
10.33	†	Offer Letter, by and between Rite Aid Corporation and Steven K. Bixler dated September 11, 2022	Exhibit 10.1 to Form 8-K, filed on September 12, 2022
10.34	†	Separation Agreement by and between Rite Aid Corporation and Heyward Donigan dated January 7, 2023	Exhibit 10.1 to Form 8-K filed on January 9, 2023
10.35	†	Offer Letter by and between Rite Aid Corporation and Elizabeth “Busy” Burr dated January 7, 2023	Exhibit 10.2 to Form 8-K filed on January 9, 2023
10.36	†	Letter Agreement with Matthew Schroeder dated as of April 28, 2023	Exhibit 10.36 to Form 10-Q filed on July 11, 2023
10.37	†	Letter Agreement with Justin Mennen dated as of April 28, 2023	Exhibit 10.37 to Form 10-Q filed on July 11, 2023
22		List of Subsidiary Guarantors	Exhibit 22 to Form 10-Q filed on July 11, 2023
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

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Exhibit Numbers	Description	Incorporation By Reference To
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: July 25, 2024	RITE AID CORPORATION

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

Date: July 25, 2024	By:	/s/ STEVEN BIXLER
		Steven Bixler
		Senior Vice President and Chief Accounting Officer

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New Rite Aid (RADCQ) 10-Q/A2024 Q1 Quarterly report (amended)

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