UNITED STATES

~~UNITED STATES~~

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended August 28, 2021

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

For the transition period from to

~~FORM 10-Q~~

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

~~For the quarterly period ended December 2, 2017~~

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

~~For the transition period from to~~

Commission File Number: 1-5742

RITE AID CORPORATION

(Exact name of registrant as specified in its charter)

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

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

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

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

Not Applicable

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

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

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

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes x⌧ No o◻

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 x⌧

Accelerated Filer ◻

~~Accelerated~~Non-Accelerated Filer o◻

~~Non-Accelerated Filer~~ o
~~(Do not check if a~~
~~smaller reporting company)~~

Smaller reporting company o
☐

Emerging growth company o☐

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. o◻

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

The registrant had ~~1,067,509,844~~55,771,263 shares of its $1.00 par value common stock outstanding as of ~~December 28, 2017.~~September 22, 2021.

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RITE AID CORPORATION

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	Cautionary Statement Regarding Forward-Looking Statements	3

	PART I FINANCIAL INFORMATION

ITEM 1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets as of ~~December 2, 2017~~August 28, 2021 and ~~March 4, 2017~~February 27, 2021	5
	Condensed Consolidated Statements of Operations for the Thirteen Week Periods Ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016~~August 29, 2020	6
	Condensed Consolidated Statements of Comprehensive ~~Income~~Loss for the Thirteen Week Periods Ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016~~August 29, 2020	7
	Condensed Consolidated Statements of Operations for the ~~Thirty-Nine~~Twenty-Six Week Periods Ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016~~August 29, 2020	8
	Condensed Consolidated Statements of Comprehensive ~~Income~~Loss for the ~~Thirty-Nine~~Twenty-Six Week Periods Ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016~~August 29, 2020	9
	Condensed Consolidated Statements of Stockholders’ Equity for the Thirteen and Twenty-Six Week Periods Ended August 28, 2021	10
	Condensed Consolidated Statements of Stockholders’ Equity for the Thirteen and Twenty-Six Week Periods Ended August 29, 2020	11
	Condensed Consolidated Statements of Cash Flows for the ~~Thirty-Nine~~Twenty-Six Week Periods Ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016~~August 29, 2020	1012
	Notes to Condensed Consolidated Financial Statements	1113
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations	3943
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	5259
ITEM 4.	Controls and Procedures	5360

	PART II OTHER INFORMATION

ITEM 1.	Legal Proceedings	5361
ITEM 1A.	Risk Factors	5361
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5361
ITEM 3.	Defaults Upon Senior Securities	5561
ITEM 4.	Mine Safety Disclosures	5561
ITEM 5.	Other Information	5561
ITEM 6.	Exhibits	5561

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

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●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

· ~~our high level of indebtedness;~~

· ~~our ability to make interest and principal payments on our debt and satisfy the other covenants contained in our credit facilities and other debt agreements;~~

· the continued impact of private and public third party payors reduction in prescription drug reimbursement rates and their ongoing efforts to limit access to payor networks, including through mail order;

· ~~our ability to achieve the benefits of our efforts to reduce the costs of our generic and other drugs, and our ability to achieve drug pricing efficiencies;~~

· ~~the impact of the loss of one or more major third party payor contracts;~~

· the inability to complete the remaining subsequent closings of the Sale (as defined in Note 3 below) and recognize the corresponding expected gain due to the failure to satisfy the minimal remaining conditions applicable only to the stores being transferred at such subsequent closing and other risks related to obtaining the requisite consents to the remaining subsequent closings of the Sale;

· the impact on our business, operating results and relationships with customers, suppliers, third party payors, and employees, resulting from our efforts over the past two years to consummate a significant transaction with Walgreens Boots Alliance, Inc. (“WBA”), including the fact that we did not obtain the required antitrust regulatory approvals for the contemplated merger and the original version of the asset sale agreement that was entered into following the termination of the merger;

· ~~the risk that our stock price may decline significantly if the remaining subsequent closings of the Sale are not completed;~~

· ~~our ability to refinance our indebtedness on terms favorable to us;~~

· there may be changes to our strategy in the event that the remaining subsequent closings of the Sale do not close, which may include delaying or reducing capital or other expenditures, selling assets or other operations, closing underperforming stores, attempting to restructure or refinance our debt, seeking additional capital or incurring other costs associated with restructuring our business;

· ~~our ability to improve the operating performance of our stores in accordance with our long term strategy;~~

· ~~our ability to grow prescription count and realize front-end sales growth;~~

· ~~our ability to hire and retain qualified personnel;~~

· ~~decisions to close additional stores and distribution centers or undertake additional refinancing activities, which could result in charges to our operating statement;~~

· ~~our ability to manage expenses and working capital;~~

· ~~continued consolidation of the drugstore and the pharmacy benefit management (“PBM”) industries;~~

· the risk that changes in federal or state laws or regulations, including the Health Care Education Affordability Reconciliation Act, the repeal of all or part of the Patient Protection and the Affordable Care Act (or “Patient Care Act”) and any regulations enacted thereunder may occur;

· ~~the risk that provider and state contract changes may occur;~~

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

· our ability to maintain our current pharmacy services business and obtain new pharmacy services business, including maintaining renewals of expiring contracts, avoiding contract termination rights that may permit certain of our clients to terminate their contracts prior to their expiration and early price renegotiations prior to contract expirations;

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

· ~~our ability to maintain our current Medicare Part D business and obtain new Medicare Part D business, as a result of the annual Medicare Part D competitive bidding process;~~

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

· risks related to other business effects, including the effects of industry, market, economic, political or regulatory conditions, future exchange or interest rates or credit ratings, changes in tax laws, regulations, rates and policies or competitive development including aggressive promotional activity from our competitors;

· ~~the risk that we could experience deterioration in our current Star rating with the Centers of Medicare and Medicaid Services (“CMS”) or incur CMS penalties and/or sanctions;~~

· the nature, cost and outcome of pending and future litigation and other legal proceedings or governmental investigations, including any such proceedings related to the Merger or Sale and instituted against us and others;

· ~~the potential reputational risk to our business during the period in which WBA is operating the Acquired Stores (as defined below) under the Rite Aid banner;~~

· ~~the risk that the Tax Cuts and Jobs Act that was enacted on December 22, 2017 may have a negative impact on our financial results;~~

· ~~the inability to fully realize the benefits of our tax attributes despite our entry into the Tax Benefits Preservation Plan;~~

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

We undertake no obligation to update or revise the forward-looking statements included in this report, whether as a result of new information, future events or otherwise, after the date of this report. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences are discussed in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations” included herein and in our Annual Report on Form 10-K for the fiscal year ended ~~March 4, 2017~~February 27, 2021 (the “Fiscal ~~2017~~2021 10-K”), which we filed with the SEC on ~~May 3, 2017, our Quarterly Report on Form 10-Q for the thirteen weeks ended June 3, 2017 (the “First Quarter 2018 10-Q”) which we filed on July 6, 2017,~~April 27, 2021, and our Quarterly Report on Form 10-Q for the thirteen weeks ended ~~September 2, 2017 (the “Second Quarter 2018 10-Q”)~~May 29, 2021, which we filed on ~~October 5, 2017,~~July 6, 2021, as well as in ~~the “Risk~~“Part I – Item 1A. Risk Factors” ~~section~~ of the Fiscal ~~2017~~2021 10-K. ~~These documents are available on~~To the ~~SEC’s website at~~ ~~www.sec.gov~~.extent that COVID-19 adversely affects our business and financial results, it may also have the effect of heightening many of the risk factors described herein and in our Fiscal 2021 10-K.

Table of Contents

PART I. FINANCIAL INFORMATION

~~PART I. FINANCIAL INFORMATION~~

ITEM 1. Financial Statements

RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(unaudited)

December 2, 2017

March 4,
2017

ASSETS

Current assets:

Cash and cash equivalents

$
169,800

$
245,410

Accounts receivable, net

1,796,919

1,771,126

Inventories, net of LIFO reserve of $627,718 and $607,326

1,853,886

1,789,541

Prepaid expenses and other current assets

240,712

211,541

Current assets held for sale

1,868,128

1,047,670

Total current assets

5,929,445

5,065,288

Property, plant and equipment, net

1,479,214

1,526,462

Goodwill

1,682,847

1,682,847

Other intangibles, net

618,274

715,406

Deferred tax assets

1,419,544

1,505,564

Other assets

211,290

215,917

Noncurrent assets held for sale

—

882,268

Total assets

$
11,340,614

$
11,593,752

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current maturities of long-term debt and lease financing obligations

$
20,354

$
17,709

Accounts payable

1,789,456

1,613,909

Accrued salaries, wages and other current liabilities

1,258,586

1,340,947

Current liabilities held for sale

3,837,519

32,683

Total current liabilities

6,905,915

3,005,248

Long-term debt, less current maturities

2,985,700

3,235,888

Lease financing obligations, less current maturities

31,654

37,204

Other noncurrent liabilities

592,201

643,950

Noncurrent liabilities held for sale

—

4,057,392

Total liabilities

10,515,470

10,979,682

Commitments and contingencies

—

—

Stockholders’ equity:

Common stock, par value $1 per share; 1,500,000 shares authorized; shares issued and outstanding 1,067,887 and 1,053,690

1,067,887

1,053,690

Additional paid-in capital

4,846,213

4,839,854

Accumulated deficit

(5,048,182
)
(5,237,157
)
Accumulated other comprehensive loss

(40,774
)
(42,317
)
Total stockholders’ equity

825,144

614,070

Total liabilities and stockholders’ equity

$
11,340,614

$
11,593,752


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

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)

Thirteen Week Period Ended

December 2, 2017

November 26, 2016

Revenues

$
5,353,170

$
5,669,111

Costs and expenses:

Cost of revenues

4,166,447

4,424,259

Selling, general and administrative expenses

1,166,514

1,168,646

Lease termination and impairment charges

3,939

7,199

Interest expense

50,308

50,304

Loss (gain) on sale of assets, net

205

(225
)

5,387,413

5,650,183

Loss (income) from continuing operations before income taxes

(34,243
)
18,928

Income tax benefit

(16,061
)
(4,682
)
Net (loss) income from continuing operations

(18,182
)
23,610

Net income (loss) from discontinued operations, net of tax

99,213

(8,600
)
Net income

$
81,031

$
15,010

Computation of (loss) income attributable to common stockholders:

(Loss) income from continuing operations attributable to common stockholders—basic and diluted

$
(18,182
)
$
23,610

Income (loss) from discontinued operations attributable to common stockholders—basic and diluted

99,213

(8,600
)
Income attributable to common stockholders—basic and diluted

$
81,031

$
15,010

Basic (loss) income per share:

Continuing operations

$
(0.02
)
$
0.02

Discontinued operations

$
0.10

$
(0.01
)
Net basic income per share

$
0.08

$
0.01

Diluted (loss) income per share:

Continuing operations

$
(0.02
)
$
0.02

Discontinued operations

$
0.10

$
(0.01
)
Net diluted income per share

$
0.08

$
0.01


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

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME~~LOSS

(In thousands)

(unaudited)

Thirteen Week Period Ended

December 2, 2017

November 26, 2016

Net income

$
81,031

$
15,010

Other comprehensive income:

Defined benefit pension plans:

Amortization of prior service cost, net transition obligation and net actuarial losses included in net periodic pension cost, net of $342 and $451 tax expense

514

681

Total other comprehensive income

514

681

Comprehensive income

$
81,545

$
15,691


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

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)

Thirty-Nine Week Period Ended

December 2, 2017

November 26, 2016

Revenues

$
16,134,704

$
17,024,154

Costs and expenses:

Cost of revenues

12,624,365

13,308,505

Selling, general and administrative expenses

3,469,298

3,523,850

Lease termination and impairment charges

11,090

20,203

Interest expense

152,165

146,674

Walgreens Boots Alliance merger termination fee

(325,000
)
—

Gain on sale of assets, net

(20,623
)
(388
)

15,911,295

16,998,844

Income from continuing operations before income taxes

223,409

25,310

Income tax expense (benefit)

89,268

(3,824
)
Net income from continuing operations

134,141

29,134

Net income (loss) from discontinued operations, net of tax

42,257

(3,939
)
Net income

$
176,398

$
25,195

Computation of income (loss) attributable to common stockholders:

Income from continuing operations attributable to common stockholders—basic and diluted

$
134,141

$
29,134

Income (loss) from discontinued operations attributable to common stockholders—basic and diluted

42,257

(3,939
)
Income attributable to common stockholders—basic and diluted

$
176,398

$
25,195

Basic income (loss) per share:

Continuing operations

$
0.13

$
0.03

Discontinued operations

$
0.04

$
(0.01
)
Net basic income per share

$
0.17

$
0.02

Diluted income (loss) per share:

Continuing operations

$
0.13

$
0.03

Discontinued operations

$
0.04

$
(0.01
)
Net diluted income per share

$
0.17

$
0.02


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

See accompanying notes to condensed consolidated financial statements.

Table of Contents

RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME~~LOSS

(In thousands)

(unaudited)

Thirty-Nine Week Period Ended

December 2, 2017

November 26, 2016

Net income

$
176,398

$
25,195

Other comprehensive income:

Defined benefit pension plans:

Amortization of prior service cost, net transition obligation and net actuarial losses included in net periodic pension cost, net of $1,026 and $1,353 tax expense

1,543

2,043

Total other comprehensive income

1,543

2,043

Comprehensive income

$
177,941

$
27,238


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

See accompanying notes to condensed consolidated financial statements.

Table of Contents

RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~STOCKHOLDERS’ EQUITY

(In ~~thousands)~~thousands, except per share amounts)

(unaudited)

Thirty-Nine Week Period Ended

December 2, 2017

November 26, 2016

Operating activities:

Net income

$
176,398

$
25,195

Net income (loss) from discontinued operations, net of tax

42,257

(3,939
)
Net income from continuing operations

$
134,141

$
29,134

Adjustments to reconcile to net cash provided by operating activities of continuing operations:

Depreciation and amortization

292,448

304,460

Lease termination and impairment charges

11,090

20,203

LIFO charge

20,393

25,266

Gain on sale of assets, net

(20,623
)
(388
)
Stock-based compensation expense

22,550

36,766

Changes in deferred taxes

98,597

6,165

Excess tax benefit on stock options and restricted stock

—

(3,809
)
Changes in operating assets and liabilities:

Accounts receivable

(19,865
)
(81,520
)
Inventories

(84,731
)
(128,568
)
Accounts payable

118,941

178,266

Other assets and liabilities, net

(148,491
)
(212,727
)
Net cash provided by operating activities of continuing operations

424,450

173,248

Investing activities:

Payments for property, plant and equipment

(140,816
)
(197,723
)
Intangible assets acquired

(20,201
)
(35,986
)
Proceeds from insured loss

3,627

—

Proceeds from dispositions of assets and investments

19,254

10,217

Net cash used in investing activities of continuing operations

(138,136
)
(223,492
)
Financing activities:

Net (payments to) proceeds from revolver

(264,080
)
280,000

Principal payments on long-term debt

(7,292
)
(12,728
)
Change in zero balance cash accounts

27,594

30,685

Net proceeds from issuance of common stock

4,416

4,412

Excess tax benefit on stock options and restricted stock

—

3,809

Payments for taxes related to net share settlement of equity awards

(4,103
)
(6,254
)
Net cash (used in) provided by financing activities of continuing operations

(243,465
)
299,924

Cash flows from discontinued operations:

Operating activities of discontinued operations

(62,294
)
(1,541
)
Investing activities of discontinued operations

189,175

(148,884
)
Financing activities of discontinued operations

(245,340
)
(3,698
)
Net cash used in discontinued operations

(118,459
)
(154,123
)
(Decrease) increase in cash and cash equivalents

(75,610
)
95,557

Cash and cash equivalents, beginning of period

245,410

124,471

Cash and cash equivalents, end of period

$
169,800

$
220,028


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

See accompanying notes to condensed consolidated financial statements.

Table of Contents

RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except per share amounts)

(unaudited)


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

See accompanying notes to condensed consolidated financial statements.

Table of Contents

RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)


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

See accompanying notes to condensed consolidated financial statements.

Table of Contents

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and ~~Thirty-Nine~~Twenty-Six Week Periods Ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016~~August 29, 2020

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

(unaudited)

1. Basis of Presentation and Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and therefore do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete annual financial statements. The accompanying financial information reflects all adjustments which are of a recurring nature and, in the opinion of management, are necessary for a fair presentation of the results for the interim periods. The results of operations for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017~~August 28, 2021 are not necessarily indicative of the results to be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Rite Aid Corporation (“Rite Aid”) and Subsidiaries (together with Rite Aid, the “Company”) Fiscal ~~2017~~2021 10-K.

Revenue Recognition

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


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

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

Table of Contents

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(unaudited)

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

~~On November 27, 2017,~~Points earned pursuant to the wellness+ program represent a performance obligation and the Company ~~announced that it~~allocates revenue between the merchandise purchased and the wellness+ points based on the relative stand-alone selling price of each performance obligation. The relative value of the wellness+ points is initially deferred as a contract liability (included in other current and noncurrent liabilities). As members receive discounted front-end merchandise or when the benefit period expires, the Retail Pharmacy segment recognizes an allocable portion of the deferred contract liability into revenue. For the thirteen week period ended August 28, 2021, the Company recognized additional contract deferrals of $2,539 as a reduction of revenues. The Retail Pharmacy segment had completed the pilot closing and first subsequent closing under the previously announced Amended and Restated Asset Purchase Agreement (the “Amended and Restated Asset Purchase Agreement” or the “Sale”), datedaccrued contract liabilities of $4,680 as of ~~September 18, 2017, by and among the Company, WBA and Walgreen Co., an Illinois corporation and wholly owned direct subsidiary~~August 28, 2021, which is included in other current liabilities. The Retail Pharmacy segment had accrued contract liabilities of WBA (“Buyer”). Based on its magnitude and because the Company is exiting certain markets, the Sale represents a significant strategic shift that has a material effect on the Company’s operations and financial results. Accordingly, the Company has applied discontinued operations treatment for the Sale as required by Accounting Standards Codification 210-05 — ~~Discontinued Operations~~ ~~(ASC 205-20). In accordance with ASC 205-20, the Company reclassified the assets and liabilities to be sold, including~~ 1,932 stores (the “Acquired Stores”), three (3) distribution centers, related inventory and other specified assets and liabilities related thereto (collectively the “Assets to be Sold” or “Disposal Group”) to assets and liabilities held for sale on its condensed consolidated balance sheets$3,754 as of ~~the periods ended December 2, 2017 and March 4, 2017, and reclassified the financial results of the Disposal Group~~February 27, 2021, which is included in its condensed consolidated statements of operations and condensed consolidated statements of cash flows for all periods presented. Additionally, corporate support activities related to the Disposal Group were not reclassified to discontinued operations. Please see additional information as provided in Note 3 Asset Sale to WBA.other current liabilities.

Recently Adopted Accounting Pronouncements

In ~~March 2016,~~December 2019, the FASB issued ASU ~~No. 2016-09,~~2019-12, ~~Compensation—Stock Compensation,~~Simplifying the Accounting for Income Taxes (Topic ~~718): Improvements to Employee Share-Based Payment Accounting~~740)~~, which amends~~. This ASU simplifies the accounting for income taxes by removing certain ~~aspects of share-based payments~~exceptions to ~~employees~~the general principles in ~~ASC~~ Topic ~~718,~~ ~~Compensation — Stock Compensation~~~~. The new guidance eliminates the accounting for any excess tax benefits and deficiencies through equity and requires all excess tax benefits and deficiencies~~740 related to ~~employee share-based compensation arrangements to be recorded in~~ the ~~income statement. This aspect of the new guidance is required to be applied prospectively. The new guidance also requires (i.) the presentation of excess~~approach for intraperiod tax benefits on the statement of cash flows as an operating activity rather than a financing activity, a change which may be applied prospectively or retrospectively and (ii.) the presentation of employee taxes paid when an employer withholds shares for tax withholding purposes on the statement of cash flows as a financing activity, a change which must be applied retrospectively. The new guidance further provides an accounting policy election to account for forfeitures as they occur rather than utilizing the estimated amount of forfeitures at the time of issuance. The Company adopted this new guidance effective March 5, 2017. The primary impact of adoption was (i.) the modified retrospective recognition of the cumulative amount of previously unrecognized excess tax benefits as an opening balance sheet adjustment and (ii.)allocation, the recognition of ~~excess~~deferred tax ~~benefits~~liabilities and the methodology for calculating income taxes in the income statement on a prospective basis, rather than equity. As a result, the Company (i.) increased the deferred tax asset and reduced accumulated deficit by $12,577 as of the beginning of the thirty-nine weeks ended December 2, 2017, and (ii.) the Company recognized a discrete income tax expense of $10,186 in income tax expense for the thirty-nine weeks ended December 2, 2017.interim period. The ~~Company~~amendments also ~~elected to adopt the cash flow presentation of the excess tax benefits prospectively commencing in the first quarter of fiscal 2018. The retrospective~~improve consistent application of ~~cash paid on employees’ behalf related to shares withheld~~and simplify GAAP for ~~tax purposes resulted in an increase to “Net cash provided~~other areas of Topic 740 by ~~operating activities”~~clarifying and a decrease to “Net cash provided by financing activities” of $6,254 for the thirty-nine weeks ended November 26, 2016. The Company’s stock-based compensation expense continues to reflect estimated

~~forfeitures. None of the other provisions in this new guidance had a material impact on the Company’s condensed consolidated financial statements.~~

~~Recently Issued Accounting Pronouncements Not Yet Adopted~~

~~In May 2015, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~.amending existing guidance. This ASU removes inconsistencies, complexities and allows transparency and comparability of revenue transactions across entities, industries, jurisdictions and capital markets by providing a single comprehensive principles-based model with additional disclosures regarding uncertainties. The principles-based revenue recognition model has a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchangeeffective for ~~those goods or services. In August 2015, the FASB issued ASU 2015-14,~~ ~~Revenue from Contracts with Customers (Topic 606)~~~~, an update to ASU 2014-09. This ASU amends ASU 2014-09 to defer the effective date by one year for annual reporting periods~~fiscal years beginning after December 15, ~~2017~~2020 (fiscal ~~2019)~~2022). Subsequently, the FASB has also issued accounting standards updates which clarify the guidance. Early adoption is permitted for annual reporting periods beginning after December 15, 2016 (fiscal 2018). In transition, the ASU may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company ~~does~~adopted ASU 2019-12 effective February 28, 2021 and the adoption of this standard did not intend to early adopt the new standard. The Company assembled a cross functional team to identify the population of contracts with customers, for both its Retail Pharmacy and Pharmacy Services segments, and evaluate them under the provisions of ASU 2014-09. The Company intends to adopt the new standard on a modified retrospective basis. Under this implementation method, the Company will recognize the cumulative effect of initially applying the new guidance as an adjustment to the opening retained earnings balance for the annual reporting period of initial application. While the Company is continuing its assessment of all of the potential impacts of the new standard, it does not expect the implementation of the standard to have a material impact on the Company’s ~~consolidated financial position, results of operations or cash flow.~~

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases, (Topic 842)~~, which is intended to improve financial reporting around leasing transactions. The ASU affects all companies and other organizations that engage in lease transactions (both lessee and lessor) that lease assets such as real estate and manufacturing equipment. This ASU will require organizations that lease assets—referred to as “leases”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. ASU No. 2016-02 is effective for fiscal years and interim periods within those years beginning January 1, 2019 (fiscal 2020). During its November 29, 2017 meeting, the FASB tentatively decided to amend certain aspects of the new leasing standard. The tentative amendments include a provision to allow entities to elect not to restate comparative periods in the period of adoption when transitioning to the new standard. The Company believes that the new standard will have a material impact on its financial position. ~~The Company is currently evaluating the impact this standard implementation will have on its results of operations and cash flows.~~

~~In January 2017, the FASB issued ASU No. 2017-04,~~ ~~Intangibles—Goodwill and Other, (Topic 350): Simplifying the Test for Goodwill Impairment~~, which is intended to simplify the subsequent measurement and impairment of goodwill. The ASU simplifies the complexity of evaluating goodwill for impairment by eliminating the second step of the impairment test, which compares the implied fair value of a reporting unit’s goodwill to the carrying amount of that goodwill. Instead, the ASU requires entities to compare the fair value of a reporting unit to its carrying amount in order to determine the amount of goodwill impairment recognized. ASU No. 2017-04 is effective for fiscal years and interim periods within those years beginning after December 15, 2019 (fiscal 2020). Early adoption of all the amendments for ASU 2017-04 is permitted. Amendments must be applied prospectively. The Company is in process of assessing the impact of the adoption of ASU No. 2017-04 on its financial position, results of operations and cash flows.

2. Acquisition

On ~~June 24, 2015,~~December 18, 2020, pursuant to that certain stock purchase agreement, dated as of October 7, 2020, by and between the Company and Bartell Drug Company (“Bartell”), the Company acquired ~~TPG VI Envision BL, LLC and Envision Topco Holdings, LLC (“EnvisionRx”), pursuant to the terms of an agreement (“Agreement”) dated February 10, 2015~~Bartell (the “Acquisition”)~~. EnvisionRx, which has been rebranded as EnvisionRxOptions (“EnvisionRx” or “EnvisionRxOptions”)~~, is a ~~full-service pharmacy services provider. EnvisionRx provides both transparent~~Washington corporation, for approximately $89,724 in cash, subject to certain customary post-closing working capital adjustments. Bartell operates 67 retail drug stores and traditional pharmacy benefit manager (“PBM”) service options through its EnvisionRx and MedTrak PBMs, respectively. EnvisionRx also offers fully integrated mail-order and specialty pharmacy services through EnvisionPharmacies; access to1 distribution center in the nation’s largest cash pay infertility discount drug program via Design Rx; an innovative claims adjudication software platform in Laker Software; and a national Medicare Part D prescription drug plan through Envision Insurance Company’s (“EIC”) EnvisionRx Plus Silver product for the low income auto-assign market and its Clear Choice product for the chooser market. EnvisionRx is headquartered in Twinsburg, Ohio andgreater Seattle, Washington area. Bartell operates as a 100 percent owned subsidiary of the ~~Company.~~Company within its Retail Pharmacy segment.

~~Pursuant to the terms of the Agreement, as consideration for the Acquisition, the Company paid $1,882,211 in cash and issued 27,754 shares of Rite Aid common stock.~~ The Company financed ~~the cash portion of~~ the Acquisition with borrowings under its ~~Amended and Restated~~ Senior Secured Revolving Credit Facility together with cash on hand. The closing balance sheet has not yet been finalized, and therefore, the ~~net proceeds from the April 2, 2015 issuance of $1,800,000 aggregate principal amount of 6.125% senior notes due 2023 (the “6.125% Notes”). The consideration associated with the common~~

~~stock was $240,907 based on a stock~~final purchase price ~~of $8.68 per share, representing the closing~~and related purchase price allocation of the ~~Company’s common stock on the closing date of the Acquisition.~~Acquisition is subject to change.

The Company’s condensed consolidated financial statements for the thirteen and ~~thirty-nine week periods~~twenty-six weeks ended ~~December 2, 2017 and November 26, 2016~~August 28, 2021 include ~~EnvisionRx~~Bartell’s results of operations (please see Note 13 Segment Reporting for the Pharmacy Services segment results included within the condensed consolidated financial statements for the thirteen and thirty-nine week periods ended December 2, 2017 and November 26, 2016, which reflects the results of EnvisionRx).operations. The Company’s ~~condensed consolidated~~ financial statements reflect preliminary purchase

Table of Contents

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(unaudited)

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

~~During fiscal 2017, the Company finalized the valuation of the identifiable assets acquired and the liabilities assumed.~~

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

Final purchase price

Cash consideration

$
1,882,211

Stock consideration

240,907

Total

$
2,123,118

Final purchase price allocation

Cash and cash equivalents

$
103,834

Accounts receivable

892,678

Inventories

7,276

Prepaid expenses and other current assets

13,386

Total current assets

1,017,174

Property and equipment

13,196

Intangible assets(1)

646,600

Goodwill

1,639,355

Other assets

7,219

Total assets acquired

3,323,544

Accounts payable

491,672

Reinsurance funds held

381,225

Other current liabilities(2)

215,770

Total current liabilities

1,088,667

Other long term liabilities(3)

111,759

Total liabilities assumed

1,200,426

Net assets acquired

$
2,123,118


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

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

Table of Contents

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(unaudited)

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

Estimated
Fair Value

Estimated
Useful Life
(In Years)

Customer relationships

$
465,000

17

CMS license

57,500

25

Claims adjudication and other developed software

59,000

7

Trademarks

20,100

10

Backlog

11,500

3

Trademarks

33,500

Indefinite

Total

$
646,600


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

~~(2)~~ ~~Other current liabilities includes $116,057~~The Acquisition resulted in a bargain purchase gain of $47,705 primarily due to ~~TPG under~~fair value adjustments related to prescription files and the ~~terms~~tradename compared to book values. The Company believes that the bargain purchase gain was primarily the result of the ~~Agreement, representing~~decision by the ~~amounts due~~Bartell stockholders to ~~EnvisionRx from CMS, less corresponding amounts due~~sell their interests as Bartell had been experiencing increasing borrowings under its credit agreements to ~~various reinsurance providers under certain reinsurance programs, for CMS activities~~meet its operating needs and increasing net losses. The agreed upon purchase price reflected the fact the seller would have needed to incur further significant debt to cover the operating costs of Bartell, which would have required amendments to its credit arrangements. With the Company’s existing infrastructure, scale and expertise, the Company believes that ~~relate~~it has access to the ~~year~~necessary synergies to allow necessary operational improvements to be implemented more efficiently than the seller was capable of.

During the thirteen and twenty-six week periods ended ~~December 31, 2014. This liability was satisfied with a payment~~August 28, 2021, acquisition costs of $4,591 and $8,477 were expensed as incurred. The following unaudited pro forma combined financial data gives effect to ~~TPG on November 5, 2015.~~

~~(3)~~ ~~Primarily relates to deferred tax liabilities.~~the Acquisition as if it had occurred as of March 1, 2019.

The ~~above goodwill represents future economic benefits expected to be recognized~~unaudited combined pro forma results do not include any incremental cost savings that may result from the ~~Company’s expansion into~~integration. The adjustments are based on information available to the Company at this time. Accordingly, the adjustments are subject to change and the impact of such changes may be material.

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


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

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

Table of Contents

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(unaudited)

3. Restructuring

Beginning in fiscal 2019, the Company initiated a series of restructuring plans designed to reorganize its executive management team, reduce managerial layers, and consolidate roles. In March 2020, the Company announced the details of its RxEvolution strategy, which includes building tools to work with regional health plans to improve patient health outcomes, rationalizing SKU’s in its front-end offering to free up working capital and update its merchandise assortment, assessing its pricing and promotional strategy, rebranding its retail pharmacy and pharmacy services ~~market, as well as expected future synergies~~business, launching its Store of the Future format and ~~operating efficiencies from combining operations with EnvisionRx. Goodwill resulting from the Acquisition of $1,639,355 has been allocated to~~further reducing SG&A and headcount, including integrating certain back office functions in the Pharmacy Services segment both within the segment and across Rite Aid. Other strategic initiatives include the expansion of the Company’s digital business, replacing and updating the Company’s financial systems to improve efficiency, movement to a common client platform at Elixir and investments in talent in sales, underwriting and operations at Elixir.

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


	Retail Pharmacy		Pharmacy
	segment		Services segment		Total

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

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


	Retail Pharmacy		Pharmacy
	segment		Services segment		Total

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

Table of Contents

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(unaudited)

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


	Retail Pharmacy		Pharmacy
	segment		Services segment		Total

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

For the twenty-six week period ended August 29, 2020, the Company incurred total restructuring-related costs of $58,921, of which ~~$1,368,657~~$33,158 is ~~deductible~~included as a component of SG&A and $25,763 is included as a component of cost of revenues. These costs are as follows:


	Retail Pharmacy		Pharmacy
	segment		Services segment		Total

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

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

Table of Contents

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(unaudited)

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


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

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

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

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

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

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

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

3.4. Asset Sale to WBA

~~Termination of Merger Agreement with WBA~~

On June 28, 2017, Rite Aid, WBA and Victoria Merger Sub, Inc. entered into a Termination Agreement (the “Merger Termination Agreement”) under which the parties agreed to terminate the Merger Agreement. The Merger Termination Agreement provides that WBA would pay to Rite Aid a termination fee in the amount of $325,000, which was received on June 30, 2017.

~~Entry Into Amended and Restated Asset Purchase Agreement with WBA~~

On September 18, 2017, the Company entered into the Amended and Restated Asset Purchase Agreement with Walgreens Boots Alliance, Inc. (“WBA”) and Walgreen Co., an Illinois corporation and 100% owned subsidiary of WBA ~~and Buyer,~~(“Buyer”), which amended and restated in its entirety the previously disclosed Asset Purchase Agreement, ~~(the “Original APA”),~~ dated as of June 28, 2017, by and among the Company, WBA and ~~Buyer.~~Buyer (the “Original Asset Purchase Agreement”). Pursuant to the terms and subject to the conditions set forth in the Amended and Restated Asset Purchase Agreement, Buyer ~~will purchase~~purchased from the Company 1,932 stores (the “Acquired Stores”), ~~three (3)~~3 distribution centers, related inventory and other specified assets and liabilities related thereto ~~(collectively the “Assets to be Sold” or “Disposal Group”)~~ for a purchase price of ~~approximately $4.375 billion,~~$4,375,000, on a cash-free, debt-free basis (the “Asset Sale” or “Sale”).

The Company ~~announced on September 19, 2017 that the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), expired with respect to the Sale.~~ ~~On November 27, 2017, the Company announced that it had~~ completed the ~~pilot~~store transfer process in March of 2018, which resulted in the transfer of all 1,932 stores and related assets to WBA, and received cash proceeds of $4,156,686. The Company sold the 3 distribution centers for cash proceeds of $218,314. The sale of the final distribution center was completed during the first quarter of fiscal 2021 and resulted in a pre-tax gain of $12,690, which was included in the results of operations and cash flows of discontinued operations during the thirteen week period ended May 30, 2020. The transfer of the final distribution center and related assets constitutes the final closing ~~and first subsequent closings~~ under the Amended and Restated Asset Purchase ~~Agreement, resulting~~Agreement.

Table of Contents

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(Dollars and share information in the transfer of 97 Rite Aid stores and related assets to the Buyer. With the final significant closing condition met, and the successful completion of the of the pilot closing and the first subsequent closings, the Sale will proceed as contemplated under the Amended and Restated Asset Purchase Agreement. The Sale remains subject to minimal customary closing conditions applicable only to individual stores being transferred at such subsequent closings, as specified in the Amended and Restated Asset Purchase Agreement.thousands, except per share amounts)

~~The parties to the Amended and Restated Asset Purchase Agreement have each made customary representations and warranties.~~ (unaudited)

The Company has agreed to various covenants and agreements, including, among others, the Company’s agreement to conduct its business at the Acquired Stores in the ordinary course during the period between the execution of the Amended and Restated Asset Purchase Agreement and the subsequent closings. The Company has alsohad agreed to provide transition services to Buyer for up to three ~~(3)~~ years after the initial closing of the Sale. ~~During~~Under the ~~thirteen week period ended December 2, 2017, the amount charged to Buyer for transition services was nominal.~~

~~In the event that the Company enters into an agreement to sell all~~terms of ~~the remainder of Rite Aid or over 50% of its stock or assets to a third party prior to the end of the transition period under~~ the Transition Services Agreement (“TSA”), ~~any potential acquirer would be obligated~~the Company provided various services on behalf of WBA, including but not limited to ~~assume~~ the ~~Company’s remaining obligations~~purchase and distribution of inventory and virtually all selling, general and administrative activities. In connection with these services, the Company purchased the related inventory and incurred cash payments for the selling, general and administrative activities, which, the Company billed on a cash neutral basis to WBA in accordance with terms as outlined in the TSA. Total billings for these items during the thirteen and twenty-six week periods ended August 29, 2020 were $4,162 and $35,167, respectively. The Company recorded WBA TSA fees of $388 and $1,467 during the thirteen and twenty-six week periods ended August 29, 2020, respectively, which are reflected as a reduction to selling, general and administrative expenses. On October 17, 2020, the Company and WBA mutually agreed to terminate the services under the TSA. ~~Under the terms of the Amended~~

Based on its magnitude and ~~Restated Asset Purchase Agreement,~~because the Company ~~has the option to purchase pharmaceutical drugs through an affiliate of WBA under terms, including cost, that are substantially equivalent to Walgreen’s for a period of ten (10) years, subject to~~exited certain ~~terms and conditions.~~

~~Divestiture of the Assets to be Sold~~

During the thirteen weeks ended December 2, 2017, the Company sold 97 stores and related assets to the Buyer in exchange for proceeds of $240,920, and recognized a pre-tax gain of approximately $157,010. During December 2017, the Company sold an additional 260 stores and related assets to WBA for proceeds of $473,980. The Company estimates that the total pre-tax gain onmarkets, the Sale ~~will be approximately $2.5 billion. The Company expects to complete the majority of the Sale by the end of its first quarter of fiscal 2019.~~

~~The Company classified the operating results of the Disposal Group as discontinued operations in its financial statements in accordance with GAAP, as the divestiture of these assets represents~~represented a significant strategic shift that has a material effect on the ~~Company’s~~Company's operations and financial results.

~~The carrying amount of~~ Accordingly, the ~~Assets~~Company has applied discontinued operations treatment for the Sale as required by Accounting Standards Codification 210-05-Discontinued Operations (ASC 205-20). In accordance with ASC 205-20, the Company reclassified the Disposal Group to ~~be Sold, which were included in the Retail Pharmacy segment, have been reclassified from their historical balance sheet presentation to current and non-current~~ assets and liabilities held for sale on its consolidated balance sheets as ~~follows:~~

December 2,
2017

March 4,
2017

Inventories

$
1,071,253

$
1,047,670

Property and equipment

666,118

—

Goodwill (a)

30,994

—

Intangible assets

96,461

—

Other assets

3,302

—

Current assets held for sale

$
1,868,128

$
1,047,670

Property and equipment

$
—

$
725,230

Goodwill (a)

—

32,632

Intangible assets

—

120,389

Other assets

—

4,017

Noncurrent assets held for sale

$
—

$
882,268

Current maturities of long-term lease financing obligations

$
1,908

$
3,626

Accrued salaries, wages and other current liabilities

24,020

29,057

Long-term debt, less current maturities (b)

3,786,480

—

Lease financing obligations, less current maturities

4,164

—

Other noncurrent liabilities

20,947

—

Current liabilities held for sale

$
3,837,519

$
32,683

Long-term debt, less current maturities (b)

$
—

$
4,027,400

Lease financing obligations, less current maturities

—

6,866

Other noncurrent liabilities

—

23,126

Noncurrent liabilities held for sale

$
—

$
4,057,392

~~(a)~~of the periods ended August 28, 2021 and February 27, 2021, and reclassified the financial results of the Disposal Group in its consolidated statements of operations and consolidated statements of cash flows for all periods presented. The Company ~~had $76,124~~also revised its discussion and presentation of ~~goodwill in its Retail Pharmacy segment resulting from the acquisition of Health Dialog~~operating and ~~RediClinic, which is accounted for as Retail Pharmacy segment enterprise goodwill. The Company has allocated a portion~~financial results to be reflective of its ~~Retail Pharmacy segment enterprise goodwill to the discontinued operation.~~continuing operations as required by ASC 205-20.

~~(b)~~ ~~In connection with the Sale, the Company is estimating that the Sale will provide excess cash proceeds~~As of ~~approximately $4,027,400 which will be used to repay outstanding indebtedness. As such, the $4,027,400 of estimated repayment of outstanding indebtedness has been included in~~August 28, 2021 and February 27, 2021, there are no assets and liabilities classified as held for sale ~~as of March 4, 2017. As of December 2, 2017,~~relating to the ~~Company repaid outstanding indebtedness of $240,920 with transaction proceeds received.~~Asset Sale to WBA.

The operating results of the discontinued operations that are reflected on the ~~unaudited condensed~~ consolidated statements of operations within net income ~~(loss)~~ from discontinued operations are as follows:

Thirteen Week Period
Ended

Thirty-Nine Week Period
Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

Revenues

$
2,386,710

$
2,452,996

$
7,130,653

$
7,376,859

Costs and expenses:

Cost of revenues(a)

1,752,664

1,802,987

5,274,187

5,386,605

Selling, general and administrative expenses(a)

572,809

605,216

1,765,621

1,821,506

Lease termination and impairment charges

11

66

74

76

Interest expense (b)

59,456

56,006

178,797

170,136

Gain on stores sold to Walgreens Boots Alliance

(157,010
)
—

(157,010
)
—

(Gain) loss on sale of assets, net

(589
)
726

23

2,119

2,227,341

2,465,001

7,061,692

7,380,442

Income (loss) from discontinued operations before income taxes

159,369

(12,005
)
68,961

(3,583
)
Income tax expense (benefit)

60,155

(3,405
)
26,705

356

Net income (loss) from discontinued operations, net of tax

$
99,213

$
(8,600
)
$
42,257

$
(3,939
)


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

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

~~(a)~~ ~~Cost~~Table of ~~revenues~~Contents

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and ~~selling, general~~Twenty-Six Week Periods Ended August 28, 2021 and ~~administrative expenses for the discontinued operations excludes corporate overhead. These charges are reflected~~August 29, 2020

(Dollars and share information in ~~continuing operations.~~

~~(b)~~ In accordance with ASC 205-20, the operating results for the thirteen and thirty-nine week periods ended December 2, 2017 and November 26, 2016 for the discontinued operations include interest expense relating to the $4,027,400 of outstanding indebtedness expected to be repaid with the estimated excess proceeds from the Sale.thousands, except per share amounts)

(unaudited)

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

~~The Company will continue to generate pharmacy services revenue from the Disposal Group after the Sale is completed. As such, the Company has increased~~ revenues and cost of revenues of the continuing operations to reflect amounts that were previously eliminated in consolidation relating to intercompany sales between the Company and the Disposal Group. Accordingly, the Company has not eliminated $32,381 and $97,301 from revenues and cost of revenues for the thirteen and thirty-nine week periods ended November 26, 2016. Please refer to Note 13 Segment Reporting for the impact on the thirteen and thirty-nine week periods ended December 2, 2017.

4.5. Income (Loss) ~~Income~~ Per Share

Basic income (loss) ~~income~~ per share is computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted income (loss) ~~income~~ 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						Thirty-Nine Week Period Ended
	December 2, 2017			November 26, 2016			December 2, 2017		November 26, 2016
Basic and diluted (loss) income per share:

												Thirteen Week Period Ended				Twenty-Six Week Period Ended
												August 28,		August 29,		August 28,		August 29,
												2021		2020		2021		2020
Basic and diluted loss per share:
Numerator:
Net (loss) income from continuing operations	$	(18,182	)	$	23,610		$	134,141	$	29,134
Net income (loss) from discontinued operations, net of tax	99,213			(8,600		)	42,257		(3,939		)
Income (loss) attributable to common stockholders basic and diluted	$	81,031		$	15,010		$	176,398	$	25,195
Net loss from continuing operations												$	(100,301)	$	(13,197)	$	(113,358)	$	(85,899)
Net income from discontinued operations													—		—		—		9,161
Loss attributable to common stockholders— basic and diluted												$	(100,301)	$	(13,197)	$	(113,358)	$	(76,738)
Denominator:
Basic weighted average shares	1,048,502			1,045,028			1,048,342		1,043,887				53,989		53,573		53,920		53,528
Outstanding options and restricted shares, net	7,367			15,735			18,948		17,117				—		—		—		—
Diluted weighted-average shares	1,055,869			1,060,763			1,067,290		1,061,004

Basic and diluted (loss) earnings per share:
Diluted weighted average shares													53,989		53,573		53,920		53,528
Basic and diluted (loss) income per share:
Continuing operations	$	(0.02	)	$	0.02		$	0.13	$	0.03		$	(1.86)	$	(0.25)	$	(2.10)	$	(1.60)
Discontinued operations	0.10			(0.01		)	0.04		(0.01		)		-		-		-		0.17
Net earnings per share	$	0.08		$	0.01		$	0.17	$	0.02
Net basic and diluted loss per share												$	(1.86)	$	(0.25)	$	(2.10)	$	(1.43)

Due to their antidilutive effect, ~~9,861~~724 and ~~3,320~~798 potential common shares related to stock options have been excluded from the computation of diluted income (loss) per share for the thirteen and twenty-six week ~~period~~periods ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016,~~August 29, 2020, respectively. ~~Due to their antidilutive effect, 5,195 and 3,320 potential common shares related to stock options have been~~Also, excluded

from the computation of diluted income (loss) per share for the ~~thirty-nine~~thirteen and twenty-six week ~~period~~periods ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016, respectively.~~August 29, 2020 are restricted shares of 1,574 and 1,487, respectively, which are included in shares outstanding.

Table of Contents

5RITE AID CORPORATION AND SUBSIDIARIES

~~. Lease Termination~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(unaudited)

6. Facility Exit and Impairment Charges

~~Lease termination~~Facility exit and impairment charges consist of amounts as follows:

	Thirteen Week Period Ended				Thirty-Nine Week Period Ended
	December 2, 2017		November 26, 2016		December 2, 2017		November 26, 2016

									Thirteen Week Period				Twenty-Six Week Period
									Ended				Ended
									August 28,			August 29,	August 28,		August 29,
									2021		2020		2021		2020
Impairment charges	$	315	$	890	$	946	$	1,578	$	6,736	$	9,230	$	11,049	$	11,433
Lease termination charges	3,624		6,309		10,144		18,625
	$	3,939	$	7,199	$	11,090	$	20,203
Facility exit charges										4,617		2,298		9,135		3,848
									$	11,353	$	11,528	$	20,184	$	15,281

Impairment Charges

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

~~Lease Termination Charges~~

As part of the Company’s ongoing business activities, the Company assesses stores and distribution centers for potential closure or relocation. Decisions to close or relocate stores or distribution centers in future periods would result in lease termination charges, lease exit costs and inventory liquidation charges, as well as impairment of assets at these locations. The following table reflects the closed store and distribution center charges that relate to new closures, changes in assumptions and interest accretion:

Thirteen Week Period
Ended

Thirty-Nine Week Period
Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

Balance—beginning of period

$
144,011

$
190,708

$
165,138

$
208,421

Provision for present value of noncancellable lease payments of closed stores

1,138

2,725

2,051

5,877

Changes in assumptions about future sublease income, terminations and changes in interest rates

(264
)
137

(612
)
2,044

Interest accretion

2,776

3,482

8,778

10,878

Cash payments, net of sublease income

(11,800
)
(17,073
)
(39,494
)
(47,241
)
Balance—end of period

$
135,861

$
179,979

$
135,861

$
179,979

~~6. Fair Value Measurements~~

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.

· ~~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 ~~thirty-nine~~twenty-six week period ended ~~December 2, 2017,~~August 28, 2021, long-lived assets from continuing operations with a carrying value of ~~$1,224,~~$11,538, primarily ~~store~~right-of-use assets in connection with stores or leased office spaces, were written down to their fair value of ~~$278,~~$489, resulting in an impairment charge of ~~$946~~$11,049 of which ~~$315~~$6,736 relates to the thirteen week period ended ~~December 2, 2017.~~

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(unaudited)

August 28, 2021. During the ~~thirty-nine~~twenty-six week period ended ~~November 26, 2016,~~August 29, 2020, long-lived assets from continuing operations with a carrying value of ~~$3,309, primarily store assets,~~$12,654, were written down to their fair value of ~~$1,731,~~$1,221, resulting in an impairment charge of ~~$1,578~~$11,433 of which ~~$890~~$9,230 relates to the thirteen week period ended ~~November 26, 2016.~~August 29, 2020. Of the $11,433, $4,779 relates to a terminated software project and the replacement of existing software, $4,995 relates to the closure of the remaining RediClinic operations and $1,659 relates to store and corporate assets. If our actual future cash flows differ from our projections materially, certain stores that are either not impaired or partially impaired in the current period may be further impaired in future periods.

The following table presents fair values for those assets measured at fair value on a non-recurring basis at ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016:~~August 29, 2020:


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

~~Fair Value Measurement Using~~


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

Level 1

Level 2

Level 3

Total as of
December 2,
2017

Long-lived assets held for use

$
—

$
—

$
174

$
174

Long-lived assets held for sale

$
—

$
104

$
—

$
104

Total

$
—

$
104

$
174

$
278

Level 1

Level 2

Level 3

Total as of
November 26,
2016

Long-lived assets held for use

$
—

$
—

$
708

$
708

Long-lived assets held for sale

$
—

$
1,023

$
—

$
1,023

Total

$
—

$
1,023

$
708

$
1,731

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

Facility Exit Charges

As part of ~~December 2, 2017 and November 26, 2016,~~the Company's ongoing business activities, the Company ~~did~~assesses stores and distribution centers for potential closure or relocation. Decisions to close or relocate stores or distribution centers in future periods would result in facility exit charges and inventory liquidation charges, as well as impairment of assets at these locations. When a store or distribution center is closed, the Company records an expense for unrecoverable costs and accrues a liability equal to the present value at current credit adjusted risk-free interest rates of any anticipated executory costs which are not ~~have any financial assets measured on a recurring basis.~~included within the store or distribution center's respective lease liability under Topic 842. Other store or distribution center closing and liquidation costs are expensed when incurred.

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~~Other Financial Instruments~~RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(unaudited)

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


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

7. Fair Value Measurements

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

Financial instruments other than long-term indebtedness include cash and cash equivalents, accounts receivable and accounts payable. These instruments are recorded at book value, which we believe approximate their fair values due to their short term nature. In addition, as of ~~December 2, 2017~~August 28, 2021 and February 27, 2021, the Company has ~~$7,295~~$7,023 and $7,041, respectively, of investments carried at amortized cost as these investments are being held to maturity, which are included as a component of other assets. ~~As of March 4, 2017 the Company has $6,874 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 LIBOR-based borrowings under the Company’s senior secured credit facility ~~and first and second lien term loans are~~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 ~~$6,772,270~~$3,114,351 and ~~$6,588,733,~~$3,234,664, respectively, as of ~~December 2, 2017. There were no outstanding derivative financial instruments~~August 28, 2021. The carrying amount and estimated fair value of the Company's total long-term indebtedness was $3,063,087 and $3,176,322, respectively, as of ~~December 2, 2017 and March 4, 2017.~~February 27, 2021.

7.8. Income Taxes

The Company recorded an income tax ~~benefit~~expense from continuing operations of ~~$16,061~~$3,310 and ~~$4,682~~$47 for the thirteen week periods ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016, respectively, and~~August 29, 2020, respectively. The Company recorded an income tax expense of ~~$89,268~~$4,090 and an income tax benefit from continuing operations of ~~$3,824~~$7,971 for the ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016,~~August 29, 2020, respectively. The effective tax rate for the thirteen week periods

ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016~~August 29, 2020 was ~~46.9%~~(3.4)% and ~~(24.7)~~(0.4)%, respectively. The effective tax rate for the ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016~~August 29, 2020 was ~~40.0%~~(3.7)% and ~~(15.1)%~~8.5%, respectively. The effective tax rate for the thirteen and

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(unaudited)

twenty-six week periods ended August 28, 2021 was net of an adjustment of (22.9)%, and (22.4)%, respectively, to adjust the valuation allowance against deferred tax assets. The effective tax rate for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017 includes~~August 29, 2020 was net of an adjustment of ~~13%~~7.6% and 1%(8.1)%, respectively, ~~for changes~~ to adjust the valuation allowance ~~primarily relating to state NOLs. The effective~~against deferred tax rate for the thirty-nine week period ended December 2, 2017 also includes an adjustment of 55%, primarily related to the tax impact of the Walgreens Boots Alliance merger termination fee received in the second quarter of fiscal 2018. The tax benefit for the thirteen and thirty-nine week periods ended November 26, 2016 was the result of lower projected earnings for the Retail Pharmacy segment which resulted in a cumulative adjustment to the annual effective tax rate.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.

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

The Company regularly evaluates valuation allowances established for deferred tax assets for which future realization is uncertain. Management will continue to monitor all available evidence related to the net deferred tax assets that may change the most recent assessment, including events that have occurred or are anticipated to occur. The Company continues to maintain a valuation allowance against net deferred tax assets of ~~$826,798~~$1,683,815 and ~~$226,726,~~$1,657,562, which relates ~~primarily~~ to federal and state deferred tax assets that may not be realized based on the Company's future projections of taxable income at ~~December 2, 2017~~August 28, 2021 and ~~March 4, 2017,~~February 27, 2021, respectively. The increase in valuation allowance for the period December 2, 2017 relates primarily to a Pennsylvania law change which required an increase to the state deferred tax asset for certain net operating losses with an offsetting valuation allowance adjustment.

On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act into legislation. The Company expects to record a tax expense in the fourth quarter of fiscal 2018 between $200,000 and $325,000, primarily due to the re-measurement of its net deferred tax assets.

8. 9.Medicare Part D

The Company offers Medicare Part D benefits through ~~EIC,~~Elixir Insurance (“EI”), which has contracted with ~~Centers of Medicare and Medicaid Services (“CMS”)~~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.

~~EIC~~EI is a licensed domestic insurance company under the applicable laws and regulations. Pursuant to these laws and regulations, ~~EIC~~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. ~~EIC~~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 ~~$36,426~~$15,036 as of ~~September~~June 30, ~~2017. EIC~~2021. EI was in excess of the minimum required amounts in these states as of ~~December 2, 2017.~~August 28, 2021.

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

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(unaudited)

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

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

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

As of ~~December 2, 2017,~~August 28, 2021 and February 27, 2021 accounts receivable, net included ~~$279,148~~$71,474 and $52,718 due from the Purchaser, subject to final CMS ~~and accrued salaries, wages and other current liabilities included $130,211~~claim reconciliation adjustments, upon receipt of ~~EIC liabilities under certain reinsurance contracts.~~ the final remittance for the respective calendar years from CMS.

As of ~~March 4, 2017,~~August 28, 2021, and February 27, 2021, accounts receivable, net included ~~$245,766~~$203,363 and $69,800 due from ~~CMS~~CMS.

10. Manufacturer Rebates Receivables

The Pharmacy Services Segment has manufacturer rebates receivables of $590,153 and ~~accrued salaries, wages~~$632,267 included in Accounts receivable, net, as of August 28, 2021 and other current liabilities included $145,903 of EIC liabilities under certain reinsurance contracts. During calendar 2017, EIC limited its exposure to loss and recovers a portion of benefits paid by utilizing quota-share reinsurance with a commercial reinsurance company.February 27, 2021, respectively.

9.11. Goodwill and Other Intangible Assets

~~Goodwill and indefinitely-lived assets, such as certain trademarks acquired in connection with acquisition transactions, are not amortized, but are instead evaluated for~~There was 0 goodwill impairment on an annual basis at the end of the fiscal year, or more frequently if events or circumstances indicate that impairment may be more likely. During the thirteen and thirty-nine weeks ended December 2, 2017 and the fifty-three weeks ended March 4, 2017, no impairment charges have been taken against the Company’s goodwill or indefinitely-lived intangible assets. No changes were made to the carrying amount of goodwillcharge for the ~~thirteen~~twenty-six week period ended August 28, 2021. At August 28, 2021 and ~~thirty-nine week periods ended December 2, 2017.~~February 27, 2021, accumulated impairment losses for the Pharmacy Services segment was $574,712.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(unaudited)

The Company’s intangible assets are primarily finite-lived and amortized over their useful lives. Following is a summary of the Company’s finite-lived and indefinite-lived intangible assets as of ~~December 2, 2017~~August 28, 2021 and ~~March 4, 2017.~~February 27, 2021.

December 2, 2017

March 4, 2017

Gross
Carrying
Amount

Accumulated
Amortization

Net

Remaining
Weighted
Average
Amortization
Period

Gross
Carrying
Amount

Accumulated
Amortization

Net

Remaining
Weighted
Average
Amortization
Period

Favorable leases and other (a)

$
384,937

$
(318,634
)
$
66,303

7 years

$
386,636

$
(308,766
)
$
77,870

7 years

Prescription files

898,351

(795,003
)
103,348

3 years

894,330

(764,840
)
129,490

3 years

Customer relationships(a)

465,000

(157,639
)
307,361

15 years

465,000

(110,653
)
354,347

16 years

CMS license

57,500

(5,597
)
51,903

23 years

57,500

(3,872
)
53,628

24 years

Claims adjudication and other developed software

58,987

(20,509
)
38,478

5 years

58,995

(14,188
)
44,807

6 years

Trademarks

20,100

(4,891
)
15,209

8 years

20,100

(3,383
)
16,717

9 years

Backlog

11,500

(9,328
)
2,172

1 year

11,500

(6,453
)
5,047

2 years

Total finite

$
1,896,375

$
(1,311,601
)
$
584,774

$
1,894,061

$
(1,212,155
)
$
681,906

Trademarks

33,500

—

33,500

Indefinite

33,500

—

33,500

Indefinite

Total

$
1,929,875

$
(1,311,601
)
$
618,274

$
1,927,561

$
(1,212,155
)
$
715,406


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

~~(a)~~

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

In connection with the RxEvolution initiatives previously announced on March 16, 2020, the Company rebranded its EnvisionRxOptions and MedTrak subsidiaries to its new brand name, Elixir. These trademarks qualify as Level 3 within the fair value hierarchy. Upon the implementation of the rebranding initiatives during the first quarter of fiscal 2021, the Company has determined that the carrying value exceeded the fair value and consequently the Company incurred an impairment charge of $29,852 for these trademarks, which is ~~determined based on~~included within intangible asset impairment charges within the ~~remaining useful economic lives~~condensed consolidated statement of ~~the customer relationships that are expected to contribute directly or indirectly to future cash flows.~~

Also included in other non-current liabilities as of December 2, 2017 and March 4, 2017 are unfavorable lease intangibles with a net carrying amount of $20,740 and $23,703, respectively. These intangible liabilities are amortized over their remaining lease terms at the time of acquisition. Included in noncurrent liabilities held for sale as of December 2, 2017 and March 4, 2017 are unfavorable lease intangibles with a net carrying amount of $13,394 and $14,539, respectively.

operations.

Amortization expense for these intangible assets and liabilities was ~~$35,490~~$19,953 and ~~$112,772~~$40,413 for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017,~~August 28, 2021, respectively. Amortization expense for these intangible assets and liabilities was ~~$41,654~~$22,695 and ~~$124,060~~$47,115 for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~November 26, 2016,~~August 29, 2020, respectively. The anticipated annual amortization expense for these intangible assets and liabilities is ~~2018—~~2022—$~~172,501; 2019—~~72,376; 2023—$~~120,319; 2020—~~60,441; 2024—$~~96,399; 2021—~~46,737; 2025—$~~72,519~~35,443 and ~~2022—~~2026—$~~50,715.~~24,839.

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RITE AID CORPORATION AND SUBSIDIARIES

~~10.~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(unaudited)

12. Indebtedness and Credit ~~Agreements~~Agreement

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


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

Credit Facility

On December ~~2, 2017~~20, 2018, the Company entered into a senior secured credit agreement (as amended by the First Amendment to Credit Agreement, dated as of January 6, 2020, the “Credit Agreement”; and ~~March 4, 2017:~~the Credit Agreement, as further amended by the Second Amendment (as defined below), the “Amended Credit Agreement”), which Credit Agreement provided for facilities consisting of a $2,700,000 senior secured asset-based revolving credit facility (“Initial

Table of Contents

December 2,
2017

March 4,
2017

Secured Debt:

Senior secured revolving credit facility due January 2020 ($1,925,000 and $2,430,000 face value less unamortized debt issuance costs of $18,308 and $24,918)

$
1,906,692

$
2,405,082

Tranche 1 Term Loan (second lien) due August 2020 ($470,000 face value less unamortized debt issuance costs of $3,249 and $4,167)

466,751

465,833

Tranche 2 Term Loan (second lien) due June 2021 ($500,000 face value less unamortized debt issuance costs of $2,008 and $2,431)

497,992

497,569

Other secured

90

90

2,871,525

3,368,574

Guaranteed Unsecured Debt:

9.25% senior notes due March 2020 ($902,000 face value plus unamortized premium of $1,568 and $2,071 and less unamortized debt issuance costs of $5,575 and $7,527)

897,993

896,544

6.75% senior notes due June 2021 ($810,000 face value less unamortized debt issuance costs of $5,247 and $6,360)

804,753

803,640

6.125% senior notes due April 2023 ($1,800,000 face value less unamortized debt issuance costs of $22,777 and $25,984)

1,777,223

1,774,016

3,479,969

3,474,200

Unguaranteed Unsecured Debt:

7.7% notes due February 2027 ($295,000 face value less unamortized debt issuance costs of $1,501 and $1,625)

293,499

293,375

6.875% fixed-rate senior notes due December 2028 ($128,000 face value less unamortized debt issuance costs of $723 and $771)

127,277

127,229

420,776

420,604

Lease financing obligations

57,990

65,315

Total debt

6,830,260

7,328,693

Current maturities of long-term debt and lease financing obligations

(22,262
)
(21,335
)
Long-term debt and lease financing obligations, less current maturities

$
6,807,998

$
7,307,358

~~Reconciliation of indebtedness included~~RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(unaudited)

Senior Secured Revolving Credit Facility”) and ~~discontinued operations:~~

December 2, 2017

Debt

Lease Financing
Obligations

Total Debt and
Lease Financing
Obligations

Balance, December 2, 2017 — per above table

$
6,772,270

$
57,990

$
6,830,260

Amounts reclassified as current and noncurrent liabilities held for sale in connection with the Sale (a)

(3,786,480
)
(6,072
)
(3,792,552
)
Total debt and lease financing obligations

2,985,790

51,918

3,037,708

Current maturities of long-term debt and lease financing obligations — continuing operations

(90
)
(20,264
)
(20,354
)
Long-term debt and lease financing obligations, less current maturities — continuing operations

$
2,985,700

$
31,654

$
3,017,354

March 4, 2017

Debt

Lease Financing
Obligations

Total Debt and
Lease Financing
Obligations

Balance, March 4, 2017 — per above table

$
7,263,378

$
65,315

$
7,328,693

Amounts reclassified as current and noncurrent liabilities held for sale in connection with the Sale (a)

(4,027,400
)
(10,492
)
(4,037,892
)
Total debt and lease financing obligations

3,235,978

54,823

3,290,801

Current maturities of long-term debt and lease financing obligations — continuing operations

(90
)
(17,619
)
(17,709
)
Long-term debt and lease financing obligations, less current maturities — continuing operations

$
3,235,888

$
37,204

$
3,273,092

~~(a)~~ ~~In connection~~a $450,000 “first-in, last out” senior secured term loan facility (“Initial Senior Secured Term Loan,” and together with the ~~Sale,~~Initial Senior Secured Revolving Credit Facility, collectively, the “Initial Facilities”). In December 2018, the Company ~~is estimating that~~used proceeds from the ~~Sale will provide total excess cash proceeds of approximately $4,027,400 which will be used~~Initial Facilities to ~~repay outstanding indebtedness. As such,~~refinance its prior $2,700,000 existing credit agreement.

On August 20, 2021, the Company ~~included $3,786,480 (total estimated excess cash proceeds of $4,027,400 less proceeds received through~~entered in to the ~~quarter ended December 2, 2017 of $240,900) and $4,027,400 of estimated proceeds as of March 4, 2017 as repayment of outstanding indebtedness that has been included in liabilities held~~Second Amendment to Credit Agreement (the “Second Amendment”), which, among other things, amended the Credit Agreement to provide for sale. Additionally, as part of the Sale, the Company will be relieved of approximately $6,072 and $10,492, respectively, of capital lease obligations as of December 2, 2017 and March 4, 2017. These amounts are also reflected as liabilities held for sale. Please see Note 3 for additional details.

~~Credit Facility~~

~~The Company’s Amended and Restated~~ a $2,800,000 senior secured asset-based revolving credit facility (“Senior Secured Revolving Credit Facility”) and a $350,000 “first-in, last out” senior secured term loan facility (“Senior Secured Term Loan,” and together with the Senior Secured Revolving Credit Facility, ~~has a borrowing capacity of $3,700,000~~collectively, the “Amended Facilities”) and ~~matures in January 2020.~~incorporate customary “hardwired” LIBOR transition provisions. The Amended Facilities extend the Company’s debt maturity profile and provide additional liquidity. Borrowings under the ~~revolver~~Senior Secured Revolving Credit Facility bear interest at a rate per annum ~~between (i) LIBOR plus 1.50% and LIBOR plus 2.00% with respect~~equal to, ~~Eurodollar borrowings and (ii)~~at the ~~alternate~~Company’s option, a base rate (determined in a customary manner) plus ~~0.50%~~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 ~~the alternate base rate plus 1.00% with respect to ABR borrowings,~~1.75%, in each case based upon the Average ~~Revolver~~ABL Availability (as defined in the Amended ~~and Restated~~Credit Agreement). Borrowings under the Senior Secured ~~Credit Facility)~~Term Loan bear interest at a rate per annum equal to, at the Company’s option, (x) a base rate (determined in a customary manner) plus a margin of 1.75% or (y) an adjusted LIBOR rate (determined in a customary manner) plus a margin of 2.75%. The Company is required to pay fees between 0.250% and 0.375% per annum on the daily unused amount of the ~~revolver,~~commitments under the Senior Secured Revolving Credit Facility, depending on ~~the~~ Average ~~Revolver~~ABL Availability (as defined in the Amended ~~and Restated Senior Secured~~ Credit ~~Facility)~~Agreement). ~~Amounts drawn under~~The Amended Facilities are scheduled to mature on August 20, 2026 (subject to a springing maturity if certain of the ~~revolver become due and payable on January 13, 2020.~~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 ~~ability to borrow~~borrowing capacity under the ~~revolver~~Senior Secured Revolving Credit Facility is based upon a specified borrowing base consisting of accounts receivable, inventory and prescription files. At ~~December 2, 2017,~~August 28, 2021, the Company had ~~$1,925,000~~$1,450,000 of borrowings outstanding under the ~~revolver~~Amended Facilities and had letters of credit outstanding ~~against~~under the ~~revolver~~Senior Secured Revolving Credit Facility in a face amount of ~~$59,343~~$123,565, which resulted in ~~additional~~remaining borrowing capacity under the Senior Secured Revolving Credit Facility of ~~$1,715,657.~~

$1,576,435. If at any time the total credit exposure outstanding under the Senior Secured Revolving Credit Facility exceeds the borrowing base, the Company will be required to repay amounts outstanding to eliminate such shortfall.

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

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(unaudited)

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

The Amended ~~and Restated Senior Secured~~ Credit ~~Facility~~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 ~~term loan~~ debt, unsecured debt and disqualified preferred stock in addition to borrowings under the Amended ~~and Restated Senior Secured Credit Facility~~Facilities and existing indebtedness, provided that not in excess of $750,000 of such secured second priority debt, split-priority ~~term loan~~ debt, unsecured debt and disqualified preferred stock shall mature or require scheduled payments of principal prior to 90 days after ~~the latest of (a) the fifth anniversary of the effectiveness of the Amended and Restated Senior Secured Credit Facility and (b)~~ the latest maturity date of any Term Loan or Other Revolving ~~Loan~~Commitment (each as defined in the Amended ~~and Restated Senior Secured~~ Credit ~~Facility)~~Agreement) (excluding bridge facilities allowing extensions on customary terms to at least the date that is 90 days after such date and, with respect to any escrow notes issued by Rite Aid, excluding any special mandatory redemption of the type described in clause (iii) of the definition of “Escrow Notes” in the Amended and Restated Senior Secured Credit Facility)date). Subject to the limitations described in ~~clauses (a) and (b) of~~ the immediately preceding sentence, the Amended ~~and Restated Senior Secured~~ Credit ~~Facility~~Agreement additionally allows the Company to issue or incur an unlimited amount of unsecured debt and disqualified preferred stock so long as a Financial Covenant Effectiveness Period (as defined in the Amended ~~and Restated Senior Secured~~ Credit ~~Facility)~~Agreement) is not in effect; provided, however, that certain of the Company’s other outstanding indebtedness limits the amount of unsecured debt that can be incurred if certain interest coverage levels are not met at the time of incurrence or other exemptions are not available. The Amended ~~and Restated Senior Secured~~ Credit ~~Facility~~Agreement also contains certain restrictions on the amount of secured first priority debt the Company is able to incur. The Amended ~~and Restated Senior Secured~~ Credit ~~Facility~~Agreement also allows for the voluntary repurchase of any debt or other convertible debt, so long as the Amended ~~and Restated Senior Secured Credit Facility is~~Facilities are not in default and the Company maintains availability under its revolver of more than $365,000.

The Amended ~~and Restated Senior Secured~~ Credit ~~Facility~~Agreement has a financial covenant that requires the Company to maintain a minimum fixed charge coverage ratio of 1.00 to 1.00 ~~(a)~~(i) on any date on which availability under the ~~revolver~~Senior Secured Revolving Credit Facility is less than $200,000 or ~~(b)~~(ii) on the third consecutive business day on which availability under the ~~revolver~~Senior Secured Revolving Credit Facility is less than $250,000 and, in each case, ending on and excluding the first day thereafter, if any, which is the 30th consecutive calendar day on which availability under the revolver is equal to or greater than $250,000. As of ~~December 2, 2017,~~August 28, 2021, the ~~Company had availability under its revolver of $1,715,657, its~~Company’s fixed charge coverage ratio was greater than 1.00 to 1.00, and the Company was in compliance with the ~~senior secured credit facility’s~~Amended Credit Agreement’s financial covenant. The Amended ~~and Restated Senior Secured~~ Credit ~~Facility~~Agreement also contains covenants which place restrictions on the incurrence of debt, the payments of dividends, the making of investments, sale of assets, mergers and acquisitions and the granting of liens.

The Amended ~~and Restated Senior Secured~~ Credit ~~Facility also~~Agreement provides for customary events of ~~default.~~

~~The Company~~default including nonpayment, misrepresentation, breach of covenants and bankruptcy. It is also has two second priority secured term loan facilities, the Tranche 1 Term Loan and the Tranche 2 Term Loan. The Tranche 1 Term Loan matures on August 21, 2020 and currently bears interest at a rate per annum equal to LIBOR plus 4.75% with a LIBOR flooran event of ~~1.00%,~~default if the Company ~~chooses~~fails to make ~~LIBOR borrowings, or at Citibank’s base rate plus 3.75%. The Tranche 2 Term Loan matures on June 21,~~any

Table of Contents

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and ~~currently bears interest at~~August 29, 2020

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

(unaudited)

required payment on debt having a ~~rate per annum equal~~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 ~~LIBOR plus 3.875% with a LIBOR floor~~accelerate the maturity or require the repayment, repurchase, redemption or defeasance of ~~1.00%, if~~such debt.

Fiscal 2021 and 2022 Transactions

On June 25, 2020, the Company ~~chooses~~commenced an offer to ~~make LIBOR borrowings, or at Citibank’s base rate plus 2.875%.~~exchange (the “June 25, 2020 Exchange Offer”) up to $750,000 aggregate principal amount of the outstanding 6.125% Notes for a combination of $600,000 8.0% Senior Secured Notes due 2026 (the “8.0% Notes”) and $145,500 cash. On July 10, 2020, the Company increased the maximum amount of 6.125% Notes that may be accepted for exchange from $750,000 to $1,125,000 and, on July 24, 2020, the Company announced that it accepted for payment $1,062,682 aggregate principal amount of the 6.125% Notes in exchange for $849,918 aggregate principal amount of 8.0% Notes and $206,373 in cash. In connection therewith, the Company recorded a gain on debt modification of $5,274 which is included in the results of operations and cash flows of continuing operations.

~~With~~On April 28, 2021, the ~~exception~~Company issued a notice of ~~EIC, substantially~~redemption for all of ~~Rite Aid Corporation’s 100 percent owned subsidiaries guarantee~~ the ~~obligations under~~6.125% Notes that were outstanding on May 28, 2021, pursuant to the ~~Amended~~terms of the indenture of the 6.125% Notes. On May 28, 2021, the Company redeemed 100% of the remaining outstanding 6.125% Notes at par. In connection therewith, the Company recorded a loss on debt retirement of $396 which included unamortized debt issuance costs. The debt repayment and ~~Restated Senior Secured Credit Facility, second priority secured term loan facilities,~~related loss on debt retirement is included in the results of operations and ~~unsecured guaranteed notes. The Amended and Restated Senior Secured Credit Facility and second priority secured term loan~~cash flows of continuing operations.

~~facilities are secured, on a senior or second priority basis, as applicable, by a lien on,~~

On August 20, 2021, the Company entered into the Second Amendment in order to, among other things, ~~accounts receivable, inventory and prescription files~~increase the aggregate principal amount of commitments under the ~~Subsidiary Guarantors. The subsidiary guarantees related to the Company’s Amended and Restated~~ Senior Secured Revolving Credit Facility from $2,700,000 to $2,800,000 and ~~second priority secured term loan facilities and, on an unsecured basis,~~decrease the ~~unsecured guaranteed notes, are full and unconditional and joint and several, and there are no restrictions on~~aggregate principal amount of loans outstanding under the ~~ability of~~Senior Secured Term Loan from $450,000 to $350,000. In connection therewith, the Company ~~to obtain funds from its subsidiaries.~~recorded a loss on debt modification and retirement of $2,839 which included unamortized debt issuance costs. The ~~Company has no independent assets or~~debt repayment and related loss on debt modification and retirement is included in the results of operations and cash flows of continuing operations. Additionally, prior to the Acquisition, the subsidiaries, including joint ventures, that did not guarantee the Amended and Restated Senior Secured Credit Facility, the credit facility, second priority secured term loan facilities and applicable notes, were minor. Accordingly, condensed consolidating financial information for the Company and subsidiaries is not presented for those periods. Subsequent to the Acquisition, other than EIC, the subsidiaries, including joint ventures, that do not guarantee the credit facility, second priority secured term loan facilities and applicable notes, are minor. As such, condensed consolidating financial information for the Company, its guaranteeing subsidiaries and non-guaranteeing subsidiaries is presented for those periods subsequent to the Acquisition. See Note 15 “Guarantor and Non-Guarantor Condensed Consolidating Financial Information” for additional disclosure.

Maturities

The aggregate annual principal payments of long-term debt for the remainder of fiscal ~~2018~~2022 and thereafter are as follows: ~~2018—$90; 2019—~~2022—$0; ~~2020—~~2023—$~~1,925,000; 2021—~~0; 2024—$~~1,372,000; 2022—~~0; 2025—$~~1,310,000~~0; 2026—$600,000 and ~~$2,223,000~~$2,566,305 thereafter.

13. Leases

The ~~proceeding amounts do not reflect repayments associated~~Company leases most of its retail stores and certain distribution facilities under noncancelableoperating and finance leases, most of which have initial lease terms ranging from 5 to 22 years. The Company also leases certain of its equipment and other assets under noncancelable operating leases with ~~excess~~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.

Table of Contents

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(unaudited)

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


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

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


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

Table of Contents

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(unaudited)

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


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

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

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

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

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

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


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

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

Table of Contents

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(unaudited)

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

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

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

~~11.~~14. Stock Options and Stock Awards

The Company recognizes share-based compensation expense over the requisite service period of the award, net of an estimate for the impact of forfeitures. Operating results for the ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016~~August 29, 2020 include ~~$22,549~~$8,603 and ~~$36,766,~~$5,810, respectively, of compensation costs related to the Company’s stock-based compensation arrangements.

~~Beginning in fiscal 2015, the~~The Company ~~provided~~provides certain of its associates with performance based incentive plans under which the associates will receive a certain number of shares of the Company’s common stock or cash based on the Company meeting certain financial and performance goals. During fiscal 2018, the Company issued performance units to certain of its associates. The performance units will be settled in cash based on the actual performance of the Company relative to certain financial performanceIf such goals are not met, no stock-based compensation expense is recognized and ~~the stock price upon vesting.~~any recognized stock-based compensation expense is reversed. During the ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016,~~August 29, 2020, the Company incurred ~~$3,482~~expense of $3,167 and ~~$14,448~~$513 related to these performance based incentive plans, respectively, which is recorded as a component of stock-based compensation expense.

Table of Contents

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(unaudited)

The total number and type of newly awarded grants and the related weighted average fair value for the ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016~~August 29, 2020 are as follows:

	December 2, 2017			November 26, 2016
	Shares	Weighted Average Fair Value		Shares	Weighted Average Fair Value

							August 28, 2021			August 29, 2020
							Shares	Weighted Average Fair Value		Shares	Weighted Average Fair Value
Stock options granted	1,000	$	1.08	—	$	N/A	—	$	N/A	—	$	N/A
Restricted stock awards granted	13,856	$	2.82	3,613	$	7.73	823	$	15.07	736	$	17.97
Total awards	14,856			3,613			823			736

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

The Company calculates the fair value of stock options using the ~~Black- Scholes-Merton~~Black-Scholes-Merton option pricing model. ~~The following assumptions were used in the Black-Scholes-Merton option pricing model:~~

	~~Thirty-Nine Week Period~~ ~~Ended~~
	~~December 2,~~ ~~2017~~		~~November 26,~~ ~~2016~~
~~Expected stock price volatility~~	58	%	~~N/A~~
~~Expected dividend yield~~	0	%	~~N/A~~
~~Risk-free interest rate~~	~~1.9~~	%	~~N/A~~
~~Expected option life~~	~~5.5 years~~		~~N/A~~

As of ~~December 2, 2017,~~August 28, 2021, the total unrecognized pre-tax compensation costs related to unvested stock options and restricted stock awards granted, net of estimated forfeitures and the weighted average period of cost amortization are as follows:

December 2, 2017

Unvested
stock
options

Unvested
restricted
stock

Unvested
performance
shares

August 28, 2021

Unvested

stock

restricted

performance

options

stock

shares

Unrecognized pre-tax costs

7,057

38,971

12,253

1,019

20,701

23,256

Weighted average amortization period

1.62 years

2.1 years

2.3 years

1.8 years

2.2 years

~~12.~~15. Retirement Plans

Net periodic pension expense ~~recorded in~~for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016,~~August 29, 2020, for the Company’s defined benefit plan includes the following components:

	Defined Benefit Pension Plan						Defined Benefit Pension Plan
	Thirteen Week Period Ended						Thirty-Nine Week Period Ended
	December 2, 2017			November 26, 2016			December 2, 2017			November 26, 2016

													Defined Benefit				Defined Benefit
													Pension Plan				Pension Plan
													Thirteen Week Period Ended				Twenty-Six Week Period Ended
													August 28,		August 29,		August 28,		August 29,
													2021		2020		2021		2020
Service cost	$	346		$	292		$	1,038		$	876		$	128	$	144	$	256	$	288
Interest cost	1,603			1,621			4,809			4,863				1,232		1,199		2,464		2,398
Expected return on plan assets	(1,147		)	(1,142		)	(3,441		)	(3,426		)		(1,313)		(1,177)		(2,626)		(2,354)
Amortization of unrecognized prior service cost	—			—			—			—
Amortization of unrecognized net loss	856			1,132			2,569			3,396				123		912		246		1,823
Net periodic pension expense	$	1,658		$	1,903		$	4,975		$	5,709		$	170	$	1,078	$	340	$	2,155

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(unaudited)

During the thirteen and ~~thirty-nine~~twenty-six week ~~period~~ periods ended ~~December 2, 2017~~August 28, 2021 the Company contributed ~~$8,210~~$895 and $1,700 to the Defined Benefit Pension Plan. During the remainder of fiscal ~~2018,~~2022, the Company expects to contribute ~~$813~~$1,340 to the Defined Benefit Pension Plan.

~~13.~~16. Segment Reporting

~~Prior to June 24, 2015, the Company’s operations were within one reportable segment. As a result of the completion of the Acquisition, the~~The Company has ~~realigned its internal management reporting to reflect two~~2 reportable segments, its retail drug stores (“Retail Pharmacy”), and its pharmacy services (“Pharmacy Services”) ~~segments, collectively the “Parent Company”.~~segments.

The Retail Pharmacy segment’s primary business is the sale of prescription drugs and related consultation to its customers. Additionally, the Retail Pharmacy segment sells a full selection of health and beauty aids and personal care products, seasonal merchandise and a large private brand product line. The Pharmacy Services segment offers a full range of pharmacy benefit management services including plan design and administration, ~~on both a transparent pass-through model and traditional model,~~ formulary management and claims processing. Additionally, the Pharmacy Services segment offers specialty and mail order services, ~~infertility treatment,~~ and drug benefits to eligible beneficiaries under the federal government’s Medicare Part D program.

The ~~Parent~~ Company’s chief operating decision makers are its ~~Parent Company~~ Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer, ~~Chief Operating Officer-Retail Pharmacy, and the Chief Executive Officer—Pharmacy Services,~~ (collectively the “CODM”). The CODM has ultimate responsibility for enterprise decisions. The CODM determines, in particular, resource allocation for, and monitors performance of, the consolidated enterprise, the Retail Pharmacy segment and the Pharmacy Services segment. The Retail Pharmacy and Pharmacy Services segment managers have responsibility for operating decisions, allocating resources and assessing performance within their respective segments. The CODM relies on internal management reporting that analyzes enterprise results on certain key performance indicators, namely, revenues, gross profit, and Adjusted EBITDA.

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


	Retail		Pharmacy
	Pharmacy		Services		Eliminations(1)		Consolidated
August 28, 2021:
Total Assets	$	6,585,772	$	2,791,141	$	(13,323)	$	9,363,590
Goodwill		43,492		1,064,644		—		1,108,136
February 27, 2021:
Total Assets	$	6,613,370	$	2,736,546	$	(14,512)	$	9,335,404
Goodwill		43,492		1,064,644		—		1,108,136

(1)

As of August 28, 2021 and February 27, 2021, intersegment eliminations include netting of the Pharmacy Services segment long-term deferred tax liability of $0 against the Retail Pharmacy segment long-term deferred tax asset for consolidation purposes in accordance with ASC 740, and intersegment accounts receivable of $13,323 and $14,512, respectively, that represents amounts owed from the Pharmacy Services segment to the Retail Pharmacy segment that are created when Pharmacy Services segment customers use Retail Pharmacy segment stores to purchase covered products.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(unaudited)

The following table is a reconciliation of the Company’s business segments to the ~~condensed~~ consolidated financial statements for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016:~~August 29, 2020:


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

(1)

Intersegment eliminations include intersegment revenues and corresponding cost of revenues that occur when Pharmacy Services segment customers use Retail Pharmacy segment stores to purchase covered products. When this occurs, both the Retail Pharmacy and Pharmacy Services segments record the revenue on a stand-alone basis.

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

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(unaudited)

Retail
Pharmacy

Pharmacy
Services

Intersegment
Eliminations (1)

Consolidated

Thirteen Week Period Ended

December 2, 2017:

Revenues

$
3,959,002

$
1,445,140

$
(50,972
)
$
5,353,170

Gross Profit

1,087,888

98,835

—

1,186,723

Adjusted EBITDA (2)

88,886

40,363

—

129,249

November 26, 2016:

Revenues

$
4,082,278

$
1,645,835

$
(59,002
)
$
5,669,111

Gross Profit

1,141,794

103,057

—

1,244,852

Adjusted EBITDA (2)

138,903

52,431

—

191,334

Thirty-Nine Week Period Ended

December 2, 2017:

Revenues

$
11,833,195

$
4,451,212

$
(149,703
)
$
16,134,704

Gross Profit

3,203,270

307,069

—

3,510,339

Adjusted EBITDA (2)

264,253

138,237

—

402,490

November 26, 2016:

Revenues

$
12,319,445

$
4,883,070

$
(178,361
)
$
17,024,154

Gross Profit

3,426,265

289,384

—

3,715,649

Adjusted EBITDA (2)

428,864

143,616

—

572,480

~~(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. In accordance with ASC 205-20, the Company reduced its intersegment eliminations to reflect the ongoing cash flows which are expected to continue between the Company and the Disposal Group of $32,438 and $97,560 for the thirteen and thirty-nine week periods ended December 2, 2017 and $32,381 and $97,301 for the thirteen and thirty-nine week periods ended November 26, 2016. Please see Note 3 for additional information.

~~(2)~~ ~~See “Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures” in MD&A for additional details.~~

The following is a reconciliation of net income (loss) to Adjusted EBITDA for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016:~~August 29, 2020:

Thirteen Week
Period Ended

Thirty-Nine Week
Period Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

(dollars in thousands)

Net (loss) income — continuing operations

$
(18,182
)
$
23,610

$
134,141

$
29,134

Interest expense

50,308

50,304

152,165

146,674

Income tax (benefit) expense

(16,061
)
(4,682
)
89,268

(3,824
)
Depreciation and amortization expense

95,764

101,953

292,448

304,460

LIFO charge

6,784

8,373

20,393

25,266

Lease termination and impairment charges

3,939

7,199

11,090

20,203

Walgreens Boots Alliance merger termination fee

—

—

(325,000
)
—

Other

6,697

4,577

27,985

50,567

Adjusted EBITDA

$
129,249

$
191,334

$
402,490

$
572,480


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

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

Retail
Pharmacy

Pharmacy
Services

Eliminations (2)

Consolidated

December 2, 2017:

Total Assets

$
8,361,424

$
3,146,288

$
(167,098
)
$
11,340,614

Goodwill

43,492

1,639,355

—

1,682,847

Additions to property and equipment and intangible assets

150,043

10,974

—

161,017

March 4, 2017:

Total Assets

$
8,664,216

$
3,087,143

$
(157,607
)
$
11,593,752

Goodwill

43,492

1,639,355

—

1,682,847

Additions to property and equipment and intangible assets(1)

281,072

12,725

—

293,797

~~(1)~~ ~~Includes additions to property and equipment and intangible assets for the fifty-three week period ended March 4, 2017.~~

~~(2)~~ As of December 2, 2017 and March 4, 2017, intersegment eliminations include netting of the Pharmacy Services segment long-term deferred tax liability of $154,119 and $140,865, respectively, against the Retail Pharmacy segment long-term deferred tax asset for consolidation purposes in accordance with ASC 740, and intersegment accounts receivable of $12,979 and $16,742, 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.

~~14.~~17. Commitments, Contingencies and ~~Contingencies~~Guarantees

Legal Matters and Regulatory Proceedings

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

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

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(unaudited)

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

The Company’s contingencies are subject to significant uncertainties, many of which are beyond the Company’s control, including, among other factors: (i) ~~proceedings are~~the stage of any proceeding and delays in ~~early stages;~~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, ~~or motions;~~motions and settlement discussions; (iv) the ~~extent~~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;~~issue or advanced; (vii) whether there are significant factual issues to be resolved; ~~and/or~~ (viii) in the case of certain government agency investigations, whether a ~~sealed~~ qui tam lawsuit (“whistleblower” action) has been filed and whether the government agency makes a decision to intervene in the lawsuit following ~~investigation.~~

After the announcement of the proposed Merger between the Company and Walgreens Boots Alliance, Inc. (WBA), a putative class action lawsuit was filed in Pennsylvania in the Court of Common Pleas of Cumberland County (~~Wilson v. Rite Aid Corp., et al.~~) by purported Company stockholders against the Company, its directors (the Individual Defendants, together with the Company, the Rite Aid Defendants), WBA and Victoria Merger Sub Inc. (Victoria) challenging the transactions contemplated by the Merger agreement. The complaint alleged primarily that the Individual Defendants breached their fiduciary duties by, among other things, agreeing to an allegedly unfair and inadequate price, agreeing to deal protection devices that allegedly prevented the directors from obtaining higher offers from other interested buyers for the Company and allegedly failing to protect against certain purported conflicts of interest in connection with the Merger. The complaint further alleged that the Company, WBAinvestigation, and/or Victoria aided and abetted these alleged breaches of fiduciary duty. The complaint sought, among other things, to enjoin the closing of the Merger as well as money damages and attorneys’ and experts’ fees.

~~Also~~(viii) changes in ~~connection with the proposed Merger, an action was filed~~priorities following any change in the United States District Court for the Middle District of Pennsylvania (the Pennsylvania District Court), asserting a claim for violations of Section 14(a) of the Exchange Act and SEC Rule 14a-9 against the Rite Aid Defendants, WBA and Victoria and a claim for violations of Section 20(a) of the Exchange Act against the Individual Defendants and WBA (~~Hering v. Rite Aid Corp., et al.~~~~). The complaint in the~~ ~~Hering~~ action alleged, among other things, that the Rite Aid Defendants disseminated an allegedly false and materially misleading proxy and sought to enjoin the shareholder vote on the proposed Merger, a declaration that the proxy was materially false and misleading in violation of federal securities laws and an award of money damages and attorneys’ and experts’ fees. On January 14 and 16, 2016, respectively, the plaintiff in the ~~Hering~~ ~~action filed a motion for preliminary injunction and a motion for expedited discovery. On January 21, 2016, the Rite Aid Defendants filed a motion to dismiss the~~ ~~Hering~~ complaint. At a hearing held on January 25, 2016, the Pennsylvania District Court orally denied the plaintiff’s motion for expedited discovery and subsequently denied the plaintiff’s motion for preliminary injunction on January 28, 2016. On March 14, 2016, the Pennsylvania District Court appointed Jerry Hering, Don Michael Hussey and Joanna Pauli Hussey as lead plaintiffs for the putative class and approved their selection of Robbins Geller Rudman & Dowd LLP as lead counsel. On April 14, 2016, the Pennsylvania District Court granted the lead plaintiffs’ unopposed motion to stay the ~~Hering~~ ~~action for all purposes pending consummation of the Merger.~~

~~On March 17, 2017, the~~ ~~Hering~~ plaintiffs filed a motion to lift the stay for the purpose of filing a proposed amended complaint. Defendants opposed the motion, and briefing concluded on April 17, 2017. The proposed amended complaint asserted state law breach of fiduciary duty claims against the Individual Defendants, a claim of aiding and abetting the alleged breaches of fiduciary duty against Rite Aid, WBA and Victoria, as well as claims for violations of Section 14(a) of the Exchange Act and SEC

Rule 14a-9 against the Rite Aid Defendants, WBA and Victoria, claims for violations of Section 10(b) of the Exchange Act and SEC Rule 10b-5 against the Rite Aid Defendants, WBA, Victoria and certain WBA executives, and a claim for violations of Section 20(a) of the Exchange Act against the Individual Defendants, WBA and Victoria. August 4, 2017, the Pennsylvania District Court entered an order lifting the stay, noting that the original claims in this matter are now moot, and directed the plaintiffs to file a motion for leave to amend the complaint, with brief in support thereof, on or before September 15, 2017 which deadline was subsequently extended to September 22, 2017. On September 22, 2017, the lead plaintiffs gave notice that plaintiffs Don Michael Hussey and Joanna Pauli Hussey were withdrawing as lead plaintiffs, and that plaintiff Jerry Hering (the Lead Plaintiff) would continue to represent the proposed class in the ~~Hering~~ action going forward. That same day, Lead Plaintiff filed a motion for leave to file an amended complaint, which the Pennsylvania District Court granted on November 27, 2017. On December 11, 2017, Lead Plaintiff filed the amended complaint (the Amended Complaint), which alleges a claim for violations of Section 10(b) of the Exchange Act and SEC Rule 10b-5 and a claim for violations of Section 20(a) of the Exchange Act against the Rite Aid Defendants, WBA, and certain WBA executives. The Rite Aid Defendants intend to move to dismiss the Amended Complaint.

~~The Company has been named in a collective and class action lawsuit,~~ ~~Indergit v. Rite Aid Corporation, et al.~~~~, pending in the United States District Court for the Southern District of New York, filed purportedly on behalf of current and former store managers working in the Company’s stores~~political administration at various locations around the country. The lawsuit alleges that the Company failed to pay overtime to store managers as required under the FLSA and under certain New York state statutes. The lawsuit also seeks other relief, including liquidated damages, attorneys’ fees, costs and injunctive relief arising out of state and federal claims for overtime pay. On April 2, 2010, the Court conditionally certified a nationwide collective group of individuals who worked for the Company as store managers since March 31, 2007. The Court ordered that Notice of the ~~Indergit~~ ~~action be sent to the purported members of the collective group (approximately 7,000 current and former store managers) and approximately 1,550 joined the~~ ~~Indergit~~ action. Discovery as to certification issues has been completed. On September 26, 2013, the Court granted Rule 23 class certification of the New York store manager claims as to liability only, but denied it as to damages, and denied the Company’s motion for decertification of the nationwide collective action claims. The Company filed a motion seeking reconsideration of the Court’s September 26, 2013 decision which motion was denied in June 2014. The Company subsequently filed a petition for an interlocutory appeal of the Court’s September 26, 2013 ruling with the U. S. Court of Appeals for the Second Circuit which petition was denied in September 2014. Notice of the Rule 23 class certification as to liability only has been sent to approximately 1,750 current and former store managers in the state of New York. Discovery related to the merits of the claims is ongoing. On January 12, 2017, the parties reached a settlement in principle of this matter, for an immaterial amount of money, which is subject to preliminary and final approval by the court. On August 3, 2017, the court entered an order granting plaintiff’s unopposed motion for preliminary approval of the settlement and notice of the settlement was issued to putative class members on September 7, 2017. A final approval hearing is scheduled to be heard on January 11, 2018. In the event the settlement does not receive final approval by the court, the litigation may resume. If such occurs, the Company presently is not able to either predict the outcome of this lawsuit or ~~estimate a potential range of loss with respect to the lawsuit. The Company’s management believes, however, that this lawsuit is without merit and is vigorously defending this lawsuit.~~federal level.

California Employment Litigation.

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

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 ~~able~~submitting the price available to ~~predict either~~members of the ~~outcome of or estimate a potential range of loss with respect to~~Rite Aid’s Rx Savings Program as the ~~California Cases~~pharmacy’s usual and ~~is vigorously defending them.~~

~~In the employee seating case (~~~~Hall v. Rite Aid Corporation, San Diego County Superior Court~~~~), the Court, in October 2011, granted the plaintiff’s motion for class certification.~~customary price, and related theories. The Company ~~filed its motion for decertification, which motion was granted in November 2012. Plaintiff subsequently appealed the Court’s order which appeal was granted in May 2014. The Company~~is defending itself against these claims.

In January 2017, qui tam plaintiff Azam Rahimi (“Relator”) filed a ~~petition for review of the appellate court’s decision with the California Supreme Court, which petition was denied in August 2014. Proceedings~~sealed False Claims Act (“FCA”) lawsuit in the ~~Hall~~ ~~case were stayed pending a decision by~~United States District Court for the California Supreme Court in two similar cases. That decision was rendered on April 4, 2016. A status conference in the case was held on November 18, 2016, at which time the court lifted the stay and scheduled the case for trial on January 26, 2018. Thereafter, the Court continued the trial to March 9, 2018, and is scheduled to hear Rite Aid’s pending motion for summary judgment on February 2, 2018.

~~Following service~~Eastern District of ~~subpoenas on the Company in 2011 and 2013 by the~~Michigan. The United States Attorney’s Office for the Eastern

Table of Contents

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(unaudited)

District of Michigan, (“USAO”) and the State of Indiana’s Office of the Attorney General, respectively, the Company cooperated with inquiries regarding the relationship of Rite Aid’s Rx Savings Program to the reporting of usual and customary charges to publicly funded health programs. In January 2017, the USAO, 18 states, and the District of Columbia declined to ~~intervene in a sealed False Claims Act (“FCA”) action filed by~~ ~~qui tam~~ ~~plaintiff Azam Rahimi (“Relator”) in the District Court for the Eastern District of~~

~~Michigan. On January 19, 2017, the court~~intervene. The unsealed ~~Relator’s Second Amended Complaint against the Company; it~~lawsuit alleges that the Company failed to report its Rx Savings Program prices as its usual and customary ~~charges~~prices under the Medicare Part D program, ~~and to~~ federal and state Medicaid programs, ~~in 18 states~~ and ~~the District of Columbia;~~other publicly funded health care programs, and that the Company is thus liable under the federal FCA and similar state statutes. On December 12, 2019, the court granted the Company’s motion to dismiss and judgment on the pleadings based upon the FCA’s public disclosure bar. The ~~Company has~~Relator filed a motion for reconsideration which was denied. The Relator appealed to the Court of Appeals for the Sixth Circuit. On June 29, 2021, the Sixth Circuit upheld the lower court's granting of the Company's motion to dismiss the ~~complaint, which is pending. At this stage~~federal FCA claims, leaving Relator the option of refiling the ~~proceedings,~~remaining state court claims.

The State of Mississippi, by and through its Attorney General, filed a lawsuit against the Company ~~is not able to either predict the outcome of this lawsuit or estimate a potential range of loss with respect to the lawsuit~~ and ~~is vigorously defending this lawsuit.~~

~~On April 26, 2012,~~various purported related entities on September 27, 2016 alleging the Company ~~received an administrative subpoena from~~failed to accurately report usual and customary prices to Mississippi’s Division of Medicaid.

The Company is involved in a putative consumer class action lawsuit in the U.S. Drug Enforcement Administration (“DEA”), Albany, New York District Office, requesting information regarding the Company’s sale of products containing pseudoephedrine (“PSE”). In April 2012, it also received a communication from the U.S. Attorney’s Office (“USAO”) for the Northern District of New York concerning an investigation of possible civil violations of the Combat Methamphetamine Epidemic Act of 2005 (“CMEA”). Additional subpoenas were issued in 2013, 2014, and 2015 seeking broader documentation regarding PSE sales and recordkeeping requirements. Assistant U.S. Attorneys from the Northern and Eastern Districts of New York and the Southern District of West Virginia are currently investigating, but no lawsuits or charges have been filed. Between September 2015 and August 2017, the Company received several grand jury subpoenas from the U.S.United States District Court for the Southern District of ~~West Virginia seeking additional information~~California captioned Byron Stafford v. Rite Aid Corp. A separate lawsuit, Robert Josten v. Rite Aid Corp., was consolidated with this lawsuit in ~~connection with~~November, 2019. The lawsuit contains allegations that (i) the ~~investigation~~Company was obligated to charge the plaintiffs’ insurance companies its usual and customary prices for their prescription drugs; and (ii) the Company failed to do so because the prices it reported were not equal to or adjusted to account for the prices that Rite Aid offers to uninsured and underinsured customers through its Rx Savings Program. Although a stay pending the Company’s unsuccessful attempt to compel arbitration has been lifted, the cases are now stayed pending mediation of ~~violations of the CMEA and/or the Controlled Substances Act (“CSA”). Violations of the CMEA or the CSA could result~~these matters and 2 other lawsuits raising usual and customary pricing allegations filed in ~~the imposition of administrative, civil and/or criminal penalties against the Company. The Company had entered into tolling agreements with~~ the United States District Court for Pennsylvania.

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

The Company is a defendant in 2 consolidated lawsuits pending in the United States District Court for the District of Minnesota filed in 2020 by various Blue Cross/Blue Shield plans that operate in eight different states (North Carolina, North Dakota, Alabama, Utah, Minnesota, Oregon, Washington and New Jersey) alleging that the Company improperly submitted various usual and customary overcharges by failing to report its Rx Savings Program pricing to several Pharmacy Benefit Managers with ~~respect to both the civil and grand jury investigations,~~ which ~~expired on June 30, 2017 and August 3, 2016, respectively. There was no request to renew the agreements. Discussions have been held to attempt to resolve these matters with those USAOs~~Rite Aid and the ~~Department~~insurers had independent contracts.

Drug Utilization Review and Code 1 Litigation

In June 2012, qui tam plaintiff, Lloyd F. Schmuckley (“Relator”) filed a complaint under seal against the Company alleging that it failed to comply with certain requirements of ~~Justice, but whether any agreements can be reached~~California’s Medicaid program between 2007 and on what terms is uncertain. While the Company’s management cannot predict the outcome of these matters, it is possible that the Company’s results of operations or cash flows could be materially affected by an unfavorable resolution. At this stage of the investigation, Rite Aid is not able to predict the outcome of the investigations.

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 ~~(the “USAO”)~~ regarding (1) the Company’s Drug Utilization Review ~~(“DUR”)~~ and prescription dispensing protocol; and (2) the dispensing of drugs designated as “Code 1” by the State of California. Specifically, the Relator alleged that the Company did not perform special verification and documentation for certain medications known as “Code 1” drugs. While the complaint remained under seal, the United States Department of Justice conducted an extensive investigation and ultimately declined to intervene. Although numerous states declined to intervene, in September 2017, the State of California filed a complaint in intervention. The Company ~~cooperated with~~filed a motion to

Table of Contents

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the ~~investigation, researched the government’s allegations,~~Thirteen and ~~refuted the government’s position. The Company produced documents including certain prescription files related to Code 1 drugs to the USAO’s office~~Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

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

(unaudited)

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

Controlled Substances Litigation, Audits and Investigations

The Company, along with various other defendants, is named in multiple opioid-related lawsuits filed by counties, cities, municipalities, Native American tribes, hospitals, third-party payers, and others across the United States. In ~~August 2014,~~December 2017, the ~~USAO~~U.S. Judicial Panel on Multidistrict Litigation consolidated and ~~8 states’ attorneys general declined~~transferred more than a thousand federal opioid-related lawsuits that name the Company as a defendant to ~~intervene in a California False Claim Act~~the multi-district litigation (“~~FCA”~~MDL”) ~~action (“Action”) filed under seal~~pending in the ~~Eastern~~United States District Court for the Northern District of ~~California by~~Ohio under ~~qui tam~~In re National Prescription Opiate Litigation ~~plaintiff Loyd F. Schmuckley (“Relator”) based on DUR~~(Case No. 17-MD-2804). A significant number of similar cases that are not part of the MDL and ~~Code 1 allegations. In July 2016,~~name the ~~Commonwealth~~Company as a defendant are also pending in state courts. The plaintiffs in these opioid-related lawsuits generally allege claims that include public nuisance and negligence theories of ~~Massachusetts~~liability resulting from the impacts of widespread opioid abuse against defendants along the pharmaceutical supply chain, including manufacturers, wholesale distributors, and the District of Columbia also declined to intervene in the Action. On May 15, 2017, Relator and the CADOJ stipulated to dismiss all DUR-related claims and 18 other state-based claims. On September 21, 2017, the CADOJ filed a sealed complaint-in-intervention in the Action, asserting causes under the FCA, for unjust enrichment and for payment by mistake related to the Code 1 allegations. The Action was unsealed on September 26, 2017. On September 28, 2017, Relator filed a First Amended Complaint under the FCA also concerning the Code 1 allegations. The Company’s deadline to respond to the CADOJ’s and Relator’s complaints is currently scheduled for January 2018. retail pharmacies.At this stage of the proceedings, the Company is not able to ~~either~~ predict the outcome of ~~this matter or estimate a potential range of loss with respect to this matter and is vigorously defending this lawsuit.~~

~~Relator, Matthew Omlansky, filed a~~ ~~qui tam~~ ~~action, State of California ex rel. Matthew Omlansky v. Rite Aid Corporation, on behalf of~~ the State of California against Rite Aid in the Superior Court of the State of California. In his Complaint, Relator alleges that Rite Aid violated the California False Claims Act by (i) failing to comply with California rules governing the Company’s reporting of its usual and customary prices; (ii) failing to dispense the least expensive equivalent generic drug in certain circumstances, in violation of applicable regulations; and (iii) dispensing, and seeking reimbursement for, restricted brand name drugs without prior approval. Relator filed his Second Amended Complaint on April 19, 2016. On October 5, 2016, Rite Aid’s demurrer to the Second Amended Complaint was granted, with leave for Relator to file an amended complaint. Relator filed his Third Amended Complaint to which Rite Aid filed a second demurrer, which the Court granted with leave for Relator to amend on April 20, 2017. Relator filed his Fourth Amended Complaint on May 1, 2017. On July 7, 2017, the Company’s demurrer to the Fourth Amended Complaint was sustained without leave for Relator to amend. The court entered a final judgment of dismissal of each of Relator’s claims on August 3, 2017. Relator’s deadline to appeal the judgment passed on October 9, 2017. Relator filed an untimely notice of appeal in the action on October 13, 2017, and thereafter moved the California Court of Appeal for the Third District to construe an October 5, 2017 notice of appeal erroneously filed in another action brought by Relator as a timely appeal of this action. The Court of Appeal denied Relator’s motion, and the Company has moved to dismiss the attempted appeal. At this stage of the proceedings, the Company is not able to either predict the outcome of this matter or estimate a potential range of loss with respect to this matter and is vigorously defending this lawsuit.

The State of Mississippi, by and through its Attorney General, filed a First Amended Complaint against the Company and various purported related entities on September 27, 2016 alleging violations of the Mississippi Medicaid Fraud Control Act, violations

of the Mississippi Unfair and Deceptive Trade Practices Act, fraud and unjust enrichment. The Complaint alleges the Company failed to accurately report usual and customary prices to Mississippi’s Division of Medicaid. On November 14, 2016, the Company filed motions to dismiss based on substantive and jurisdictional grounds, as well as a motion to transfer venue. These motions are pending and the action is stayed while related litigation is resolved on appeal. At this stage of the proceedings, the Company is not able to either predict the outcome of this lawsuit or estimate a potential range of loss with respect to the lawsuit and is vigorously defending this lawsuit.

Rite Aid is in the preliminary stages of litigation with 10 West Virginia counties and Shelby County, Tennessee related to the alleged costs of opioid addiction by their residents. All lawsuits except for the Shelby County action are federal lawsuits that have been consolidated in the Northern District of Ohio before Judge Polster as part of the ~~In re: National Prescription Opiate Litigation~~. No responsive pleadings have been filed by Rite Aid because the West Virginia lawsuits had all been stayed prior to consolidation and Rite Aid has not yet been served with the Shelby County complaint. The complaints allege generally that defendants, including Rite Aid, created a public nuisance in the plaintiff counties. Along with other distributors, these Counties accuse Rite Aid of distributing an excessive amount of opiates to licensed pharmacies, or otherwise failing to refuse suspicious orders. At this stage of these proceedings, the Company is not able to either predict the outcome of theseopioid-related lawsuits or estimate a potential range of loss regarding the lawsuits, and is defending itself against all relevant claims. From time to time, some of these cases may be settled, dismissed or otherwise terminated, and additional such cases may be filed.

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

In April 2019, the Company initiated a coverage action styled Rite Aid Corporation et al. v. ACE American Ins. Co. et al. Through this action, the Company is seeking the recovery of defense costs and future settlement and/or judgment costs for the opioid-related lawsuits. The action seeks declaratory relief with respect to the ~~lawsuits~~obligations of the insurers under all of the policies at issue in the action and ~~is vigorously defending the lawsuits.~~

~~In addition to the above described matters,~~asserts claims for breach of contract and statutory remedies against an insurer. While the Company ~~is subject from time~~prevailed on a partial summary judgment motion that this insurer has a past and continuing duty to ~~time~~reimburse defense costs for the suits in excess of a satisfied $3,000 retention, that insurer has appealed the ruling and has refused to ~~various claims and lawsuits and governmental investigations arising~~reimburse the Company for any of its defense costs. The briefing on the insurer’s appeal has been submitted. The Delaware Supreme Court heard oral arguments in the ~~ordinary course of business. While~~matter on September 22, 2021.

Miscellaneous Litigation and Investigations.

The U.S. Securities and Exchange Commission (“SEC”) is investigating trading in the Company’s ~~management cannot predict~~securities that occurred in or around January 2017, and has subpoenaed information from the ~~outcome~~Company in connection with that investigation. The Company is cooperating with the SEC in this matter. In July 2021, Elixir participated in a binding arbitration regarding a dispute with its reinsurer for years 2012 through 2014. The arbitration panel issued a majority opinion awarding Elixir approximately $5 million for years 2012 through 2013, and ordering Elixir to pay the reinsurer approximately $15.4 million in damages for breach for year 2014. The Company acquired Elixir in June 2015. The Company has received a CID and requests for information with respect to consumer protection laws.

Table of ~~any of~~Contents

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the claims, the Company’s management does not believe that the outcome of any of these legal matters will be material to the Company’s consolidated financial position. It is possible, however, that the Company’s results of operations or cash flows could be materially affected by an unfavorable resolution of pending litigation or contingencies.Thirteen and Twenty-Six Week Periods Ended August 28, 2021 and August 29, 2020

~~15.~~ (Dollars and share information in thousands, except per share amounts)

(unaudited)

18.Supplementary Cash Flow Data

Thirty-Nine Weeks
Ended December
2, 2017

Cash paid for interest (net of capitalized amounts of $263)

$
285,022

Cash payments of income taxes, net of refunds

$
8,353

Equipment financed under capital leases

$
10,295

Equipment received for noncash consideration

$
2,044

Reduction in lease financing obligation

$
4,740

Gross borrowings from revolver

$
2,203,000

Gross payments to revolver

$
2,467,080


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

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

Thirty-Nine Weeks
Ended November
26, 2016

Cash paid for interest (net of capitalized amounts of $99)

$
273,761

Cash payments of income taxes, net of refunds

$
6,506

Equipment financed under capital leases

$
3,881

Equipment received for noncash consideration

$
746

Gross borrowings from revolver

$
2,774,000

Gross payments to revolver

$
2,494,000

~~16. Guarantor and Non-Guarantor Condensed Consolidating Financial Information~~

~~Rite Aid Corporation conducts the majority~~A significant component of ~~its business through its subsidiaries. With the exception~~cash provided by Other Liabilities of EIC, substantially all of Rite Aid Corporation’s 100 percent owned subsidiaries guarantee the obligations under the Amended and Restated Senior Secured Credit Facility, second priority secured term loan facilities, secured guaranteed notes and unsecured guaranteed notes (the “Subsidiary Guarantors”). Additionally, with the exception of EIC, the subsidiaries, including joint ventures, that do not guarantee the

~~Amended and Restated Senior Secured Credit Facility, second priority secured term loan facilities, secured guaranteed notes and unsecured guaranteed notes, are minor.~~

For the purposes of preparing the information below, Rite Aid Corporation uses the equity method to account for its investment in subsidiaries. The equity method has been used by Subsidiary Guarantors with respect to investments in the non-guarantor subsidiaries. The subsidiary guarantees related to the Company’s Amended and Restated Senior Secured Credit Facility, second priority secured term loan facilities and secured guaranteed notes and, on an unsecured basis, the unsecured guaranteed notes, are full and unconditional and joint and several. Presented below is condensed consolidating financial information for Rite Aid Corporation, the Subsidiary Guarantors, and the non-guarantor subsidiaries at December 2, 2017, March 4, 2017, and$101,133 for the ~~thirteen~~twenty-six week period ended August 28, 2021 includes cash provided from an increase in accrued litigation of $34,954 and ~~thirty-nine week periods ended December 2, 2017 and November 26, 2016. Separate financial statements for Subsidiary Guarantors are not presented.~~an increase in accrued payables to network pharmacies of $53,596.

Table of Contents

Rite Aid Corporation

Condensed Consolidating Balance Sheet

December 2, 2017

(unaudited)

Rite Aid
Corporation (Parent
Company Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

(in thousands)

ASSETS

Current assets:

Cash and cash equivalents

$
—

$
163,343

$
6,457

$
—

$
169,800

Accounts receivable, net

—

1,503,578

293,341

—

1,796,919

Intercompany receivable

200,895

—

(200,895
)(a)
—

Inventories, net of LIFO reserve of $0, $627,718, $0, $0, and $627,718

—

1,853,886

—

—

1,853,886

Prepaid expenses and other current assets

—

240,093

619

—

240,712

Current assets held for sale

—

1,868,128

—

—

1,868,128

Total current assets

—

5,829,923

300,417

(200,895
)
5,929,445

Property, plant and equipment, net

—

1,479,214

—

—

1,479,214

Goodwill

—

1,682,847

—

—

1,682,847

Other intangibles, net

—

566,371

51,903

—

618,274

Deferred tax assets

—

1,419,544

—

—

1,419,544

Investment in subsidiaries

7,953,874

47,355

—

(8,001,229
)(b)
—

Intercompany receivable

—

261,847

—

(261,847
)(a)
—

Other assets

—

203,995

7,295

—

211,290

Total assets

$
7,953,874

$
11,491,096

$
359,615

$
(8,463,971
)
$
11,340,614

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current maturities of long-term debt and lease financing obligations

$
90

$
20,264

$
—

$
—

$
20,354

Accounts payable

—

1,780,226

9,230

—

1,789,456

Intercompany payable

—

—

200,895

(200,895
)(a)
—

Accrued salaries, wages and other current liabilities

94,613

1,082,686

81,287

—

1,258,586

Current liabilities held for sales

3,786,480

51,039

—

—

3,837,519

Total current liabilities

3,881,183

2,934,215

291,412

(200,895
)
6,905,915

Long-term debt, less current maturities

2,985,700

—

—

—

2,985,700

Lease financing obligations, less current maturities

—

31,654

—

—

31,654

Intercompany payable

261,847

—

—

(261,847
)(a)
—

Other noncurrent liabilities

—

571,353

20,848

—

592,201

Total liabilities

7,128,730

3,537,222

312,260

(462,742
)
10,515,470

Commitments and contingencies

—

—

—

—

—

Total stockholders’ equity

825,144

7,953,874

47,355

(8,001,229
)(b)
825,144

Total liabilities and stockholders’ equity

$
7,953,874

$
11,491,096

$
359,615

$
(8,463,971
)
$
11,340,614

~~(a) Elimination of intercompany accounts receivable and accounts payable amounts.~~

~~(b) Elimination of investments in consolidated subsidiaries.~~

Rite Aid Corporation

Condensed Consolidating Balance Sheet

March 4, 2017

(unaudited)

Rite Aid
Corporation (Parent
Company Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

(in thousands)

ASSETS

Current assets:

Cash and cash equivalents

$
—

$
213,104

$
32,306

$
—

$
245,410

Accounts receivable, net

—

1,506,288

264,838

—

1,771,126

Intercompany receivable

215,862

—

(215,862
)(a)
—

Inventories, net of LIFO reserve of $0, $607,326, $0, $0, and $607,326

—

1,789,541

—

—

1,789,541

Prepaid expenses and other current assets

—

203,033

8,508

—

211,541

Current assets held for sale

—

1,047,670

—

—

1,047,670

Total current assets

—

4,975,498

305,652

(215,862
)
5,065,288

Property, plant and equipment, net

—

1,526,462

—

—

1,526,462

Goodwill

—

1,682,847

—

—

1,682,847

Other intangibles, net

—

661,778

53,628

—

715,406

Deferred tax assets

—

1,505,564

—

—

1,505,564

Investment in subsidiaries

15,275,488

50,004

—

(15,325,492
)(b)
—

Intercompany receivable

—

7,331,675

—

(7,331,675
)(a)
—

Other assets

—

215,917

—

—

215,917

Noncurrent assets held for sale

—

882,268

—

—

882,268

Total assets

$
15,275,488

$
18,832,013

$
359,280

$
(22,873,029
)
$
11,593,752

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current maturities of long-term debt and lease financing obligations

$
90

$
17,619

$
—

$
—

$
17,709

Accounts payable

—

1,609,025

4,884

—

1,613,909

Intercompany payable

—

—

215,862

(215,862
)(a)
—

Accrued salaries, wages and other current liabilities

66,365

1,207,240

67,342

—

1,340,947

Current liabilities held for sales

—

32,683

—

—

32,683

Total current liabilities

66,455

2,866,567

288,088

(215,862
)
3,005,248

Long-term debt, less current maturities

3,235,888

—

—

—

3,235,888

Lease financing obligations, less current maturities

—

37,204

—

—

37,204

Intercompany payable

7,331,675

—

—

(7,331,675
)(a)
—

Other noncurrent liabilities

—

622,762

21,188

—

643,950

Noncurrent liabilities held for sale

4,027,400

29,992

4,057,392

Total liabilities

14,661,418

3,556,525

309,276

(7,547,537
)
10,979,682

Commitments and contingencies

—

—

—

—

—

Total stockholders’ equity

614,070

15,275,488

50,004

(15,325,492
)(b)
614,070

Total liabilities and stockholders’ equity

$
15,275,488

$
18,832,013

$
359,280

$
(22,873,029
)
$
11,593,752

~~(a) Elimination of intercompany accounts receivable and accounts payable amounts.~~

~~(b) Elimination of investments in consolidated subsidiaries.~~

Rite Aid Corporation
Condensed Consolidating Statement of Operations
For the Thirteen Weeks Ended December 2, 2017
(unaudited)

Rite Aid
Corporation
(Parent
Company Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

(in thousands)

Revenues

$
—

$
5,331,788

$
47,064

$
(25,682
)(a)
$
5,353,170

Costs and expenses:

Cost of revenues

—

4,146,272

45,063

(24,888
)(a)
4,166,447

Selling, general and administrative expenses

—

1,162,416

4,892

(794
)(a)
1,166,514

Lease termination and impairment expenses

—

3,939

—

—

3,939

Interest expense

45,586

5,040

(318
)
—

50,308

Gain on sale of assets, net

—

205

—

—

205

Equity in earnings of subsidiaries, net of tax

(186,073
)
1,793

—

184,280
(b)
—

(140,487
)
5,319,665

49,637

158,598

5,387,413

Earnings from continuing operations before income taxes

140,487

12,123

(2,573
)
(184,280
)
(34,243
)
Income tax expense (benefit)

—

(15,281
)
(780
)
—

(16,061
)
Net income (loss) from continuing operations

140,487

27,404

(1,793
)
(184,280
)
(18,182
)
Net income (loss) from discontinued operations

(59,456
)
158,669

—

—

99,213

Net income (loss)

$
81,031

$
186,073

$
(1,793
)
$
(184,280
)(b)
$
81,031

Total other comprehensive income (loss)

514

514

—

(514
)
514

Comprehensive income (loss)

$
81,545

$
186,587

$
(1,793
)
$
(184,794
)
$
81,545

~~(a)~~ ~~Elimination of intercompany revenues and expenses.~~

~~(b)~~ ~~Elimination of equity in earnings of subsidiaries.~~

Rite Aid Corporation
Condensed Consolidating Statement of Operations
For the Thirteen Weeks Ended November 26, 2016
(unaudited)

Rite Aid
Corporation
(Parent
Company Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

(in thousands)

Revenues

$
—

$
5,641,856

$
57,044

$
(29,789
)(a)
$
5,669,111

Costs and expenses:

Cost of revenues

—

4,395,976

57,270

(28,987
)(a)
4,424,259

Selling, general and administrative expenses

—

1,167,983

1,465

(802
)(a)
1,168,646

Lease termination and impairment expenses

—

7,199

—

—

7,199

Interest expense

45,959

4,322

23

—

50,304

Gain on sale of assets, net

—

(225
)
—

—

(225
)
Equity in earnings of subsidiaries, net of tax

(116,974
)
3,059

—

113,915
(b)
—

(71,015
)
5,578,314

58,758

84,126

5,650,183

Earnings from continuing operations before income taxes

71,015

63,542

(1,714
)
(113,915
)
18,928

Income tax expense (benefit)

—

(6,027
)
1,345

—

(4,682
)
Net income (loss) from continuing operations

71,015

69,569

(3,059
)
(113,915
)
23,610

Net income (loss) from discontinued operations

(56,005
)
47,405

—

—

(8,600
)
Net income (loss)

$
15,010

$
116,974

$
(3,059
)
$
(113,915
)(b)
$
15,010

Total other comprehensive income (loss)

681

681

—

(681
)
681

Comprehensive income (loss)

$
15,691

$
117,655

$
(3,059
)
$
(114,596
)
$
15,691

~~(a)~~ ~~Elimination of intercompany revenues and expenses.~~

~~(b)~~ ~~Elimination of equity in earnings of subsidiaries.~~

Rite Aid Corporation
Condensed Consolidating Statement of Operations
For the Thirty-Nine Weeks Ended December 2, 2017
(unaudited)

Rite Aid
Corporation
(Parent
Company Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

(in thousands)

Revenues

$
—

$
16,070,256

$
128,391

$
(63,943
)(a)
$
16,134,704

Costs and expenses:

Cost of revenues

—

12,565,600

122,926

(64,161
)(a)
12,624,365

Selling, general and administrative expenses

—

3,459,511

9,569

218
(a)
3,469,298

Lease termination and impairment expenses

—

11,090

—

—

11,090

Interest expense

137,562

14,896

(293
)
—

152,165

Walgreens Boots Alliance, Inc. termination fee

(325,000
)
—

—

—

(325,000
)
Gain on sale of assets, net

—

(20,623
)
—

—

(20,623
)
Equity in earnings of subsidiaries, net of tax

(167,757
)
2,649

—

165,108
(b)
—

(355,195
)
16,033,123

132,202

101,165

15,911,295

Earnings from continuing operations before income taxes

355,195

37,133

(3,811
)
(165,108
)
223,409

Income tax expense (benefit)

—

90,430

(1,162
)
—

89,268

Net income (loss) from continuing operations

355,195

(53,297
)
(2,649
)
(165,108
)
134,141

Net income (loss) from discontinued operations

(178,797
)
221,054

—

—

42,257

Net income (loss)

$
176,398

$
167,757

$
(2,649
)
$
(165,108
)(b)
$
176,398

Total other comprehensive income (loss)

1,543

1,543

—

(1,543
)
1,543

Comprehensive income (loss)

$
177,941

$
169,300

$
(2,649
)
$
(166,651
)
$
177,941

~~(a)~~ ~~Elimination of intercompany revenues and expenses.~~

~~(b)~~ ~~Elimination of equity in earnings of subsidiaries.~~

Rite Aid Corporation
Condensed Consolidating Statement of Operations
For the Thirty-Nine Weeks Ended November 26, 2016
(unaudited)

Rite Aid
Corporation
(Parent
Company Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

(in thousands)

Revenues

$
—

$
16,946,453

$
176,153

$
(98,452
)(a)
$
17,024,154

Costs and expenses:

Cost of revenues

—

13,233,024

170,883

(95,402
)(a)
13,308,505

Selling, general and administrative expenses

—

3,519,465

7,435

(3,050
)(a)
3,523,850

Lease termination and impairment expenses

—

20,203

—

—

20,203

Interest expense

133,208

13,436

30

—

146,674

Gain (loss) on sale of assets, net

—

(388
)
—

—

(388
)
Equity in earnings of subsidiaries, net of tax

(328,539
)
3,704

—

324,835
(b)
—

(195,331
)
16,789,444

178,348

226,383

16,998,844

Earnings from continuing operations before income taxes

195,331

157,009

(2,195
)
(324,835
)
25,310

Income tax expense (benefit)

—

(5,333
)
1,509

—

(3,824
)
Net income (loss) from continuing operations

195,331

162,342

(3,704
)
(324,835
)
29,134

Net income (loss) from discontinued operations

(170,136
)
166,197

—

—

(3,939
)
Net income (loss)

$
25,195

$
328,539

$
(3,704
)
$
(324,835
)(b)
$
25,195

Total other comprehensive income (loss)

2,043

2,043

—

(2,043
)
2,043

Comprehensive income (loss)

$
27,238

$
330,582

$
(3,704
)
$
(326,878
)
$
27,238

~~(a)~~ ~~Elimination of intercompany revenues and expenses.~~

~~(b)~~ ~~Elimination of equity in earnings of subsidiaries.~~

Rite Aid Corporation
Condensed Consolidating Statement of Cash Flows
For the Thirty-Nine Weeks Ended December 2, 2017
(unaudited)

Rite Aid
Corporation
(Parent
Company
Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

(in thousands)

Operating activities:

Net cash provided by operating activities

$
229,578

$
220,721

$
(25,849
)
$
—

$
424,450

Investing activities:

Payments for property, plant and equipment

—

(140,816
)
—

—

(140,816
)
Intangible assets acquired

—

(20,201
)
—

—

(20,201
)
Intercompany activity

—

(449,803
)
—

449,803

—

Proceeds from dispositions of assets and investments

—

19,254

—

—

19,254

Proceeds from insured loss

—

3,627

—

—

3,627

Net cash (used in) provided by investing activities

—

(587,939
)
—

449,803

(138,136
)
Financing activities:

Net payments to revolver

(264,080
)
—

—

—

(264,080
)
Principal payments on long-term debt

—

(7,292
)
—

—

(7,292
)
Change in zero balance cash accounts

—

27,594

—

—

27,594

Net proceeds from issuance of common stock

4,416

—

—

—

4,416

Payments for taxes related to net share settlement of equity awards

—

(4,103
)
—

—

(4,103
)
Intercompany activity

449,803

—

—

(449,803
)
—

Net cash provided by (used in) financing activities

190,139

16,199

—

(449,803
)
(243,465
)
Cash flows of discontinued operations:

Operating activities of discontinued operations

(178,797
)
116,503

—

—

(62,294
)
Investing activities of discontinued operations

—

189,175

—

—

189,175

Financing activities of discontinued operations

(240,920
)
(4,420
)
—

—

(245,340
)
Net cash provided by (used in) discontinued operations

(419,717
)
301,258

—

—

(118,459
)
(Decrease) increase in cash and cash equivalents

—

(49,761
)
(25,849
)
—

(75,610
)
Cash and cash equivalents, beginning of period

—

213,104

32,306

—

245,410

Cash and cash equivalents, end of period

$
—

$
163,343

$
6,457

$
—

$
169,800

Rite Aid Corporation
Condensed Consolidating Statement of Cash Flows
For the Thirty-Nine Weeks Ended November 26, 2016
(unaudited)

Rite Aid
Corporation
(Parent
Company
Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

(in thousands)

Operating activities:

Net cash (used in) provided by operating activities

$
(92,312
)
$
259,647

$
5,913

$
—

$
173,248

Investing activities:

Payments for property, plant and equipment

—

(197,723
)
—

—

(197,723
)
Intangible assets acquired

—

(35,986
)
—

—

(35,986
)
Intercompany activity

—

21,964

—

(21,964
)
—

Proceeds from dispositions of assets and investments

—

10,217

—

—

10,217

Net cash used in investing activities

—

(201,528
)
—

(21,964
)
(223,492
)
Financing activities:

Net proceeds from revolver

280,000

—

—

—

280,000

Principal payments on long-term debt

—

(12,728
)
—

—

(12,728
)
Change in zero balance cash accounts

—

30,685

—

—

30,685

Net proceeds from issuance of common stock

4,412

—

—

—

4,412

Excess tax benefit on stock options and restricted stock

—

3,809

—

—

3,809

Payments for taxes related to net share settlement of equity awards

—

(6,254
)
—

—

(6,254
)
Intercompany activity

(21,964
)
—

—

21,964

—

Net cash provided by financing activities

262,448

15,512

—

21,964

299,924

Cash flows of discontinued operations:

Operating activities of discontinued operations

(170,136
)
168,595

—

—

(1,541
)
Investing activities of discontinued operations

—

(148,884
)
—

—

(148,884
)
Financing activities of discontinued operations

—

(3,698
)
—

—

(3,698
)
Net cash provided by (used in) discontinued operations

(170,136
)
16,013

—

—

(154,123
)
Increase in cash and cash equivalents

—

89,644

5,913

—

95,557

Cash and cash equivalents, beginning of period

—

90,569

33,902

—

124,471

Cash and cash equivalents, end of period

$
—

$
180,213

$
39,815

$
—

$
220,028

~~17. Subsequent Event~~

On January 3, 2018, the Company entered into a Tax Benefits Preservation Plan (the “Plan”) with Broadridge Corporate Issuer Solutions, as rights agent, and its Board of Directors declared a dividend distribution of one right (a “Right”) for each outstanding share of common stock, par value $1.00 per share, to stockholders of record at the close of business on January 16, 2018. Each Right is governed by the terms of the Plan and entitles the registered holder to purchase from the Company a unit consisting of one one-thousandth of a share of Series J Junior Participating Preferred Stock, par value $1.00 per share, at a purchase price of $8.00 per unit, subject to adjustment. The purpose of the Plan is to preserve our ability to use the Company’s net operating loss carryforwards and other tax attributes (collectively, “Tax Benefits”) which would be substantially limited if the Company experienced an “ownership change” as defined under Section 382 of the Internal Revenue Code. In general, an ownership change would occur if Company shareholders who are treated as owning 5 percent or more of its outstanding shares for purposes of Section 382 (“5-percent shareholders”) collectively increase their aggregate ownership in the Company’s overall shares outstanding by more than 50 percentage points. Whether this change has occurred would be measured by comparing each 5-percent shareholder’s current ownership as of the measurement date to such shareholders’ lowest ownership percentage during the three year period preceding the measurement date. The adoption of the Plan is intended to ensure that the Company will be able to utilize Tax Benefits in connection with the Sale.

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

Overview

We are a ~~pharmacy~~healthcare company with a retail ~~healthcare company,~~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 ~~RediClinic walk-in retail health clinics~~ and ~~transparent and traditional EnvisionRxOptions and MedTrak PBMs.~~our PBM, Elixir. We also offer fully integrated mail-order and specialty pharmacy services through ~~EnvisionPharmacies.~~Elixir Pharmacy. Additionally, through ~~EIC, EnvisionRxOptions~~Elixir Insurance (“EI”), Elixir also serves ~~one of the fastest-growing demographics in healthcare:~~ 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 ~~succeed~~compete in ~~today’s~~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 ~~2,569~~over 2,500 retail ~~stores.~~pharmacy locations across 17 states. We replenish our retail stores through a combination of direct store delivery of pharmaceutical products facilitated

through our ~~pharmacy~~pharmaceutical Purchasing and Delivery Agreement with McKesson, ~~Corporation,~~ and the majority of our ~~front end~~front-end products through our network of ~~ten~~ distribution centers. ~~In addition, the Retail Pharmacy segment includes 79 RediClinic walk-in retail clinics, of which 43 are located within Rite Aid retail stores in the Philadelphia, Seattle and New Jersey markets.~~

Pharmacy Services Segment

Our Pharmacy Services segment ~~which was formed on June 24, 2015~~provides a fully integrated suite of PBM offerings including technology solutions, mail delivery services, specialty pharmacy, network and rebate administration, claims adjudication and pharmacy discount programs. Elixir also provides prescription discount programs and Medicare Part D insurance offerings for individuals and groups. Elixir provides services to various clients across its different lines of business, including major health plans, commercial employers, labor groups and state and local governments, representing approximately 3.2 million covered lives, including approximately 1 million covered lives through our ~~acquisition~~Medicare Part D insurance offerings. Elixir continues to focus its efforts and offerings to its target market of ~~EnvisionRxOptions, provides~~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 ~~full range~~series of restructuring plans designed to reorganize our executive management team, reduce managerial layers, and consolidate roles. In March 2020, we announced the details of our RxEvolution strategy, which includes building tools to work with regional health plans to improve patient health outcomes, rationalizing SKU’s in our front-end offering to free up working capital and update our merchandise assortment, assessing our pricing and promotional strategy, rebranding our retail pharmacy ~~benefit services. The~~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 ~~provides~~ both ~~transparent~~within the segment and ~~traditional pharmacy benefit management (“PBM”) options through its EnvisionRxOptions~~across Rite Aid. Other strategic initiatives include the expansion of our digital business, replacing and ~~MedTrak PBMs, respectively. EnvisionRxOptions also offers fully integrated mail-order~~updating the Company’s financial systems to improve efficiency, movement to a common client platform at Elixir and ~~specialty pharmacy services through EnvisionPharmacies; access~~investments in talent in sales, underwriting and operations at Elixir.

These and future restructuring activities are expected to provide future growth and expense efficiency benefits. There can be no assurance that our current and future restructuring charges will achieve the ~~nation’s largest cash pay infertility discount drug program via Design Rx; an innovative claims adjudication software platform~~cost savings and remerchandising benefits in Laker Software; and a national Medicare Part D prescription drug plan through EIC’s EnvisionRx Plus product offering. The segment’s clients are primarily employers, insurance companies, unions, government employee groups, health plans, Managed Medicaid plans, Medicare plans, other sponsorsthe amounts or time anticipated.

Table of ~~health benefit plans and individuals throughout the United States.~~Contents

Asset Sale to WBA

~~Termination of Merger Agreement with WBA~~

~~Entry Into Amended and Restated Asset Purchase Agreement with WBA~~

On September 18, 2017, we entered into the Amended and Restated Asset Purchase Agreement with Walgreens Boots Alliance, Inc. (“WBA”) and Walgreen Co., an Illinois corporation and 100% owned subsidiary of WBA ~~and~~(“Buyer”), in which the Buyer ~~which amended and restated in its entirety the Original APA. Pursuant to the terms and subject to the conditions set forth in the Amended and Restated Asset Purchase Agreement, the Buyer will purchase~~purchased from usRite Aid 1,932 stores, three ~~(3)~~ distribution centers, related inventory and other specified assets ~~related thereto~~and liabilities for a total purchase price of ~~approximately $4.375 billion,~~$4,375,000, on a cash-free, debt-free ~~basis, plus~~basis.

During the ~~Buyer’s assumption~~first quarter of ~~certain liabilities of Rite Aid and its affiliates. On September 19, 2017,~~fiscal 2021, we ~~announced that the waiting period under the HSR Act expired with respect to the Sale. On November 27, 2017, we announced that we had~~ completed the ~~pilot closing and first subsequent closings under the Amended and Restated Asset Purchase Agreement, resulting in the transfer of 97 Rite Aid stores and related assets to the Buyer. The majority~~sale of the closing conditions to the Sale have been satisfied, and the subsequent transfers of our stores and related assets remain subject to minimal customary closing conditions applicable only to the stores being transferred at such subsequent closing, as specified in the Amended and Restated Asset Purchase Agreement.

We, WBA and the Buyer have each made customary representations and warranties. We have agreed to various covenants and agreements, including, among others, our agreement to conduct our business at the Acquired Stores in the ordinary course during the period between the execution of the Amended and Restated Asset Purchase Agreement and the subsequent closings of the Sale. We have also agreed to provide transition services to the Buyer for up to three (3) years after the initial closing of the Sale. During the thirteen week period ended December 2, 2017, the amount charged to Buyer for transition services was nominal.

In the event that we enter into an agreement to sell all of the remainder of Rite Aid or over 50% of our stock or assets to a third party prior to the end of the transition period under the TSA, any potential acquirer would be obligated to assume our remaining obligations under the TSA. Under the terms of the Amended and Restated Asset Purchase Agreement, we have the option to purchase pharmaceutical drugs through an affiliate of WBA under terms, including cost, that are substantially equivalent to Walgreen’s for a period of ten (10) years, subject to certain terms and conditions.

~~Divestiture of the Assets to be Sold~~

On October 17, 2017, we began the process of selling the Assets to be Sold to WBA in accordance with the terms and provisions as contained in the Amended and Restated Asset Purchase Agreement. During the thirteen weeks ended December 2, 2017, we sold 97 stores and related assets to WBA in exchange for proceeds of $240.9 million, which were used to repay outstanding debt, and recognized a pre-tax gain of $157.0 million. During December 2017, we sold an additional 260 storesfinal distribution center and related assets to WBA for proceeds of ~~$474.0 million. We estimate that~~$94,289. The impact of the ~~total~~sale of the distribution center and related assets resulted in a pre-tax gain onof $12,690, which was included in the ~~Sale will be approximately $2.5 billion. We expect to complete~~results of operations and cash flows of discontinued operations during the ~~majority~~thirteen week period ended May 30, 2020. The transfer of the ~~Sale by~~final distribution center and related assets constitutes the ~~end~~final closing under the Amended and Restated Asset Purchase Agreement.

In connection with the asset sale, we agreed to provide transition services to Buyer. Under the terms of the Transition Services Agreement (“TSA”), we provided various services on behalf of WBA, including but not limited to the purchase and distribution of inventory and virtually all selling, general and administrative activities. In connection with these services, we purchased the related inventory and incurred cash payments for the selling, general and administrative activities, which, we billed on a cash neutral basis to WBA in accordance with terms as outlined in the TSA. Total billings for these items during the thirteen and twenty-six week periods ended August 29, 2020 were $4.2 million and $35.2 million, respectively. We recorded WBA TSA fees of $0.4 million and $1.5 million during the thirteen and twenty-six week periods ended August 29, 2020, respectively, which are reflected as a reduction to selling, general and administrative expenses. In conjunction with the transfer of the final distribution center during the quarter ended May 30, 2020, we have substantially completed our ~~first quarter of fiscal 2019.~~obligations under the TSA.

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

Overview of Financial Results from Continuing Operations

Our net loss from continuing operations for the thirteen week period ended ~~December 2, 2017~~August 28, 2021 was ~~$18.2~~$100.3 million or ~~$0.02~~$1.86 per basic and diluted share compared to a net ~~income~~loss of ~~$23.6~~$13.2 million or ~~$0.02~~$0.25 per basic and diluted share for the thirteen week period ended ~~November 26, 2016.~~August 29, 2020. Our net ~~income~~loss from continuing operations for the ~~thirty-nine~~twenty-six week period ended ~~December 2, 2017~~August 28, 2021 was ~~$134.1~~$113.4 million or ~~$0.13~~$2.10 per basic and diluted share compared to a net ~~income~~loss of ~~$29.1~~$85.9 million or ~~$0.03~~$1.60 per basic and diluted share for the ~~thirty-nine~~twenty-six week period ended ~~November 26, 2016.~~August 29, 2020. The ~~decline~~increase in ~~our operating results~~net loss for the thirteen and twenty-six week period ended ~~December 2, 2017 was due a decrease in our Adjusted EBITDA, partially offset by a higher income tax benefit. The increase in the thirty-nine week operating results~~August 28, 2021 was due primarily to ~~the receipt of the $325.0 million Walgreens Boots Alliance merger termination fee for the termination of the merger agreement, effective June 28, 2017, partially offset by~~ a decrease in Adjusted ~~EBITDA~~EBTIDA, higher litigation settlements, a higher loss on sale of assets, and ~~higher income tax expense.~~a loss on debt modifications and retirements compared to a gain on debt modifications and retirements in the prior year second quarter. These items were partially offset by lower restructuring-related costs. Additionally, the prior year first quarter includes intangible asset impairment charges associated with the rebranding of Elixir.

Our Adjusted EBITDA from continuing operations for the thirteen and ~~thirty-nine~~twenty-six week ~~periods~~period ended ~~December 2, 2017~~August 28, 2021 was ~~$129.2~~$106.2 million or ~~2.4 percent~~1.7% of revenues and ~~$402.5~~$245.0 million or ~~2.5 percent~~2.0% of revenues, respectively, compared ~~$191.3~~to $151.6 million or ~~3.4 percent~~2.5% of revenues and ~~$572.5~~$259.0 million or ~~3.4 percent~~2.2% of revenues, respectively, for the thirteen and ~~thirty-nine~~twenty-six week ~~periods~~period ended ~~November 26, 2016, respectively.~~August 29, 2020. The decline in Adjusted EBITDA for the thirteen week period ended ~~December 2, 2017~~August 28, 2021, was due ~~primarily~~ to a ~~decrease of $50.0 million in the Retail Pharmacy segment. The~~ decrease in the Retail Pharmacy segment, Adjusted EBITDA was primarily driven by a decline in pharmacy reimbursement rates, which we were unable to fully offset with generic purchasing efficiencies, lower script counts and lower net favorable legal settlements of approximately $15.0 million. The decline in pharmacy gross profit was partially offset by ~~a reduction of SG&A expenses of $8.6 million resulting from cost control initiatives in our Retail Pharmacy segment. Adjusted EBITDA~~an increase in the Pharmacy Services ~~segment decreased by $12.1 million as a result of our election to participate in fewer Medicare Part D regions and a decline in commercial business.~~

~~The decline in our~~segment. Adjusted EBITDA ~~for the thirty-nine week period ended December 2, 2017 was due primarily to a decrease of $164.6~~decreased $53.0 million in the Retail Pharmacy segment driven by ~~lower reimbursement rates~~an increase in SG&A expenses due to cycling the benefit from the prior year change to modernize our associate paid time off (PTO) plans, incremental costs from recently acquired Bartell stores and ~~a decrease in prescription count. The decline in pharmacy reimbursement rates~~incremental payroll and marketing costs incurred to drive COVID-19 vaccines. These items were partially offset by ~~generic drug purchasing efficiencies~~an increase in gross profit resulting from an increase in prescription volume. Adjusted EBITDA in the Pharmacy Services segment increased $7.5 million driven by increased gross profit resulting from improvements in our discount card business and good network management, partially offset by the impact from the loss in lives and cost pressures in the Elixir Insurance business. Prior year’s Adjusted EBITDA

Table of Contents

was negatively impacted by a reduction ~~of SG&A expenses of $76.3 million resulting from expense reduction initiatives~~ in gross profit related to a change in rebate aggregator at our MedTrak subsidiary.

The decline in Adjusted EBITDA for the twenty-six week period ended August 28, 2021 was due to a decrease in the Retail Pharmacy segment, partially offset by an increase in the Pharmacy Services segment. Adjusted EBITDA ~~was also impacted~~decreased $21.0 million in the Retail Pharmacy segment due primarily to an increase in SG&A expenses, partially offset by ~~a decrease of $5.4 million of~~an increase in gross profit. Adjusted EBITDA in the Pharmacy Services segment ~~Adjusted EBITDA~~increased $7.1 million driven by increased gross profit resulting from improvements in our ~~election to participate in fewer Medicare Part D regions~~discount card business and ~~a decline in commercial business.~~good network management. Please see the sections entitled “Segment Analysis” and “Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures” below for additional details.

Consolidated Results of Operations-Continuing Operations

Revenues and Other Operating Data

Thirteen Week Period Ended

Thirty-Nine Week Period Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

(dollars in thousands except per share amounts)

Revenues(a)

$
5,353,170

$
5,669,111

$
16,134,704

$
17,024,154

Revenue (decline) growth

(5.6
)%
0.3
%
(5.2
)%
13.9
%
Net (loss) income from continuing operations

$
(18,182
)
$
23,610

$
134,141

$
29,134

Net (loss) income from continuing operations per diluted share

$
(0.02
)
$
0.02

$
0.13

$
0.03

Adjusted EBITDA from continuing operations(b)

$
129,249

$
191,334

$
402,490

$
572,480

Adjusted Net Income (Loss) from continuing operations(b)

$
1,619

$
26,755

$
(10,082
)
$
64,727

Adjusted Net Income (Loss) per Diluted Share — continuing operations(b)

$
0.00

$
0.03

$
(0.01
)
$
0.06


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

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

(a)

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

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

~~(a)~~

Revenues

Revenues increased 2.2% for the thirteen and ~~thirty-nine~~twenty-six weeks ended December 2, 2017 exclude $50,972 and $149,703, respectively, of inter-segment activity that is eliminated in consolidation. Revenues for the thirteen and thirty-nine weeks ended November 26, 2016 exclude $59,002 and $178,361, 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 5.6% and 5.2% for the thirteen and thirty-nine weeks ended December 2, 2017, respectively,~~August 28, 2021, compared to an increase of ~~0.3%~~11.5% and ~~13.9%~~11.8% for the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~November 26, 2016,~~August 29, 2020, respectively. Revenues for the thirteen week period ended ~~December 2, 2017~~August 28, 2021 were ~~negatively~~positively impacted by a ~~$123.3~~$259.3 million ~~decrease~~increase in Retail Pharmacy segment revenues, ~~and~~partially offset by a ~~$200.7~~$140.2 million decrease in Pharmacy Services segment revenues. Revenues for the ~~thirty-nine~~twenty-six week period ended ~~December 2, 2017~~August 28, 2021 were ~~negatively~~positively impacted by a ~~$486.3~~$487.7 million ~~decrease~~increase in Retail Pharmacy segment revenues, ~~and~~partially offset by a ~~$431.9~~$245.1 million decrease in Pharmacy Services segment revenues. ~~Same store sales trends for the thirteen and thirty-nine week periods ended December 2, 2017 and November 26, 2016 are described in the “Segment Analysis” section below.~~

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

Table of Contents

Costs and Expenses


													Thirteen Week Period Ended						Twenty-Six Week Period Ended
													August 28,			August 29,			August 28,			August 29,
													2021			2020			2021			2020
	Thirteen Week Period Ended						Thirty-Nine Week Period Ended
	December 2, 2017			November 26, 2016			December 2, 2017			November 26, 2016
	(dollars in thousands)
Cost of revenues (a)	$	4,166,447		$	4,424,259		$	12,624,365		$	13,308,505
													(dollars in thousands)
Cost of revenues(a)													$	4,867,076		$	4,821,625		$	9,743,186		$	9,650,682
Gross profit	1,186,723			1,244,852			3,510,339			3,715,649				1,245,924			1,160,345			2,530,799			2,358,664
Gross margin	22.2		%	22.0		%	21.8		%	21.8		%		20.4	%		19.4	%		20.6	%		19.6	%
Selling, general and administrative expenses	1,166,514			1,168,646			3,469,298			3,523,850			$	1,267,753		$	1,116,142		$	2,513,115		$	2,313,289
Selling, general and administrative expenses as a percentage of revenues	21.8		%	20.6		%	21.5		%	20.7		%		20.7	%		18.7	%		20.5	%		19.3	%
Lease termination and impairment charges	3,939			7,199			11,090			20,203
Facility exit and impairment charges														11,353			11,528			20,184			15,281
Intangible asset impairment charges														—			—			—			29,852
Interest expense	50,308			50,304			152,165			146,674				48,592			50,007			97,713			100,554
(Gain) loss on sale of assets, net	205			(225		)	(20,623		)	(388		)

Loss (gain) on debt modifications and retirements, net														2,839			(5,274)			3,235			(5,274)
Loss (gain) on sale of assets, net														12,378			1,092			5,820			(1,168)

(a)

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

~~(a)~~ Cost of revenues for the thirteen and thirty-nine weeks ended December 2, 2017 exclude $50,972 and $149,703, respectively, of inter-segment activity that is eliminated in consolidation. Cost of revenues for the thirteen and thirty-nine weeks ended November 26, 2016 exclude $59,002 and $178,361, respectively, of inter-segment activity that is eliminated in consolidation.

Gross Profit and Cost of Revenues

Gross profit ~~decreased~~increased by ~~$58.1~~$85.6 million for the thirteen week period ended ~~December 2, 2017~~August 28, 2021 compared to the thirteen week period ended ~~November 26, 2016.~~August 29, 2020. Gross profit ~~decreased~~increased by ~~$205.3~~$172.1 million for the ~~thirty-nine~~twenty-six week period ended ~~December 2, 2017~~August 28, 2021 compared to the ~~thirty-nine~~twenty-six week period ended ~~November 26, 2016.~~August 29, 2020. Gross profit for the thirteen week period ended ~~December 2, 2017~~August 28, 2021 includes ~~a decline~~an increase of ~~$53.9~~$78.4 million in our Retail Pharmacy segment and ~~a decline~~an increase of ~~$4.2~~$7.1 million in our Pharmacy Services segment. Gross profit for the ~~thirty-nine~~twenty-six week period ended ~~December 2, 2017~~August 28, 2021 includes ~~a decline~~an increase of ~~$223.0~~$166.8 million in our Retail Pharmacy segment ~~partially offset by increased gross profit~~and an increase of ~~$17.7~~$5.3 million in our Pharmacy Services segment. Gross margin was ~~22.2% and 21.8%, respectively,~~20.4% for the thirteen ~~and thirty-nine~~ week ~~periods~~period ended ~~December 2, 2017~~August 28, 2021 compared to ~~22.0% and 21.8%, respectively,~~19.4% for the thirteen ~~and thirty-nine~~ week ~~periods~~period ended ~~November 26, 2016.~~August 29, 2020. Gross margin was 20.6% for the twenty-six week period ended August 28, 2021 compared to 19.6% for the twenty-six week period ended August 29, 2020. Please see the section entitled “Segment Analysis” for a more detailed description of gross profit and gross margin results by segment.

Selling, General and Administrative Expenses

SG&A ~~decreased $2.1~~increased by $151.6 million and ~~$54.6~~$199.8 million for the thirteen and ~~thirty-nine~~twenty-six week ~~periods~~period ended ~~December 2, 2017,~~August 28, 2021, respectively, compared to the thirteen and ~~thirty-nine~~twenty-six week ~~periods~~period ended ~~November 26, 2016.~~August 29, 2020. The ~~decrease~~increase in SG&A for the thirteen week period ended ~~December 2, 2017~~August 28, 2021 includes ~~a decrease~~an increase of ~~$8.6~~$133.3 million relating to our Retail Pharmacy segment ~~partially offset by~~and an increase of ~~$6.4~~$18.3 million relating to our Pharmacy Services segment. The ~~decrease~~increase in SG&A for the ~~thirty-nine~~twenty-six week period ended ~~December 2, 2017~~August 28, 2021 includes ~~a decrease~~an increase of ~~$76.3~~$180.3 million relating to our Retail Pharmacy segment ~~partially offset by~~and an increase of

~~$21.8~~ $19.5 million relating to our Pharmacy Services segment. Please see the section entitled “Segment Analysis” below for additional details regarding SG&A.

Table of Contents

~~Lease Termination~~Facility Exit and Impairment Charges

~~Lease termination~~Facility exit and impairment charges consist of amounts as follows:

	Thirteen Week Period Ended				Thirty-Nine Week Period Ended
	December 2, 2017		November 26, 2016		December 2, 2017		November 26, 2016

									Thirteen Week				Twenty-Six Week
									Period Ended				Period Ended
									August 28,			August 29,	August 28,		August 29,
									2021		2020		2021		2020
Impairment charges	$	315	$	890	$	946	$	1,578	$	6,736	$	9,230	$	11,049	$	11,433
Lease termination charges	3,624		6,309		10,144		18,625
	$	3,939	$	7,199	$	11,090	$	20,203
Facility exit charges										4,617		2,298		9,135		3,848
									$	11,353	$	11,528	$	20,184	$	15,281

Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations—Lease Termination and Impairment Charges” included in our Fiscal ~~2017~~2021 10-K for a detailed description of our impairment and lease termination ~~methodology.~~methodology for fiscal 2021.

Interest Expense

Interest expense was ~~$50.3~~$48.6 million and ~~$152.2~~$97.7 million for the thirteen and ~~thirty-nine~~twenty-six week ~~periods~~period ended ~~December 2, 2017,~~August 28, 2021, respectively, compared to ~~$50.3~~$50.0 million and ~~$146.7~~$100.6 million for the thirteen and ~~thirty-nine week periods ended November 26, 2016, respectively. Interest expense was higher in the thirty-nine~~twenty-six week period ended ~~December 2, 2017 due to higher average outstanding borrowings on our~~ ~~Amended and Restated Senior Secured Credit Facility.~~August 29, 2020, respectively. The weighted average interest ~~rates~~rate on our indebtedness for the ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016 were 5.5%~~August 29, 2020 was 5.1% and ~~5.3%~~4.9%, respectively.

Income Taxes

We recorded an income tax ~~benefit~~expense from continuing operations of ~~$16.0~~$3.3 million and ~~$4.7~~$0.05 million for the thirteen week periods ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016, respectively, and~~August 29, 2020, respectively. We recorded an income tax expense from continuing operations of ~~$89.3~~$4.1 million and an income tax benefit from continuing operations of ~~$3.8~~$8.0 million for the ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016,~~August 29, 2020, respectively. The effective tax rate for the thirteen week periods ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016~~August 29, 2020 was ~~46.9%~~(3.4)% and ~~(24.7)~~(0.4)%, respectively. The effective tax rate for the ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016~~August 29, 2020 was ~~40.0%~~(3.7)% and ~~(15.1)%~~8.5%, respectively. The effective tax rate for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017 includes~~August 28, 2021 was net of an adjustment of ~~13%~~(22.9)% and 1%(22.4)%, respectively, ~~for changes~~ to adjust the valuation allowance ~~primarily relating to state NOLs.~~against deferred tax assets. The effective tax rate for the ~~thirty-nine~~thirteen and twenty-six week ~~period~~periods ended ~~December 2, 2017 also includes~~August 29, 2020 was net of an adjustment of ~~55%~~7.6% and (8.1)%, ~~primarily related~~respectively, to adjust the valuation allowance against deferred tax impact of the Walgreens Boots Alliance merger termination fee received in the second quarter of fiscal 2018. The tax benefit for the thirteen and thirty-nine week periods ended November 26, 2016 was the result of lower projected earnings for the Retail Pharmacy segment which resulted in a cumulative adjustment to the annual effective tax rate.assets.

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

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

We regularly evaluate valuation allowances established for deferred tax assets for which future realization is uncertain. We will continue to monitor all available evidence related to the net deferred tax assets that may change the most recent assessment, including events that have occurred or are anticipated to occur. We continue to maintain a valuation allowance against net deferred tax assets of ~~$826.8~~$1,683.8 million and ~~$226.7~~$1,657.6 million, which relates ~~primarily~~ to federal and state deferred tax assets that may not be realized based on our future projections of taxable income at ~~December 2, 2017~~August 28, 2021 and ~~March 4, 2017,~~February 27, 2021, respectively. The increase in valuation allowance for the period December 2, 2017 relates primarily to a Pennsylvania law change which required an increase to the state deferred tax asset for certain net operating losses with an offsetting valuation allowance adjustment.

~~On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act into legislation. We expect to record a tax expense in the fourth quarter~~Table of fiscal 2018 between $200 million and $325 million, primarily due to the re-measurement of our net deferred tax assets. The new U.S. tax legislation is subject to a number of complex provisions, which we are currently reviewing, however we expect future earnings to be positively impacted largely due to the reduction of the U.S. federal corporate income tax rate from 35% to 21% (effective January 1, 2018).Contents

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
Segment

Pharmacy Services
Segment

Intersegment
Eliminations (1)

Consolidated
Totals

Thirteen Week Period Ended

December 2, 2017:

Revenue

$
3,959,002

$
1,445,140

$
(50,972
)
$
5,353,170

Gross Profit

1,087,888

98,835

—

1,186,723

Adjusted EBITDA (2)

88,886

40,363

—

129,249

November 26, 2016:

Revenue

$
4,082,278

$
1,645,835

$
(59,002
)
$
5,669,111

Gross Profit

1,141,794

103,057

—

1,244,851

Adjusted EBITDA (2)

138,903

52,431

—

191,334

Thirty-Nine Week Period Ended

December 2, 2017:

Revenue

$
11,833,195

$
4,451,212

$
(149,703
)
$
16,134,704

Gross Profit

3,203,270

307,069

—

3,510,339

Adjusted EBITDA (2)

264,253

138,237

—

402,490

November 26, 2016:

Revenue

$
12,319,445

$
4,883,070

$
(178,361
)
$
17,024,154

Gross Profit

3,426,265

289,384

—

3,715,649

Adjusted EBITDA (2)

428,864

143,616

—

572,480


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

(1)

~~(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. In accordance with ASC 205-20, the Company reduced its intersegment eliminations to reflect the ongoing cash flows which are expected to continue between the Company and the Disposal Group of $32.4 million and $97.6 million for the thirteen and thirty-nine week periods ended December 2, 2017 and $32.4 million and $97.3 million for the thirteen and thirty-nine week periods ended November 26, 2016.

~~(2)~~(*) See “Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures” for additional details.

Table of Contents

Retail Pharmacy Segment Results of Operations

Revenues and Other Operating Data

Thirteen Week Period Ended

Thirty-Nine Week Period Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

(dollars in thousands)

Revenues

$
3,959,002

$
4,082,278

$
11,833,195

$
12,319,445

Revenue decline

(3.0
)%
(3.1
)%
(3.9
)%
(1.7
)%
Same store sales decline

(2.5
)%
(3.2
)%
(3.3
)%
(1.7
)%
Pharmacy sales decline

(4.4
)%
(4.6
)%
(5.2
)%
(2.8
)%
Same store prescription count (decline) growth, adjusted to 30-day equivalents

(2.4
)%
(0.2
)%
(1.9
)%
1.2
%
Same store pharmacy sales decline

(3.5
)%
(4.6
)%
(4.5
)%
(2.7
)%
Pharmacy sales as a % of total retail sales

66.5
%
67.3
%
66.2
%
67.1
%
Front-end sales (decline) growth

(1.3
)%
(0.1
)%
(1.5
)%
0.4
%

Thirteen Week Period Ended

Thirty-Nine Week Period Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

(dollars in thousands)

Same store front-end sales (decline) growth

(0.5
)%
(0.3
)%
(0.8
)%
0.4
%
Front-end sales as a % of total retail sales

33.5
%
32.7
%
33.8
%
32.9
%
Adjusted EBITDA — continuing operations(*)

$
88,886

$
138,903

$
264,253

$
428,864

Store data (Total):

Total stores (beginning of period)

4,507

4,550

4,536

4,561

New stores

1

3

3

10

Store acquisitions

—

1

—

3

Sold to WBA

(97
)

(97
)

Closed stores

(7
)
(7
)
(38
)
(27
)
Total stores (end of period)

4,404

4,547

4,404

4,547

Relocated stores

9

9

14

19

Remodeled and expanded stores

21

95

144

259

Store data (Discontinued Operations):

Total stores to be sold to WBA

1,932

1,932

1,932

1,932

Sold to WBA

(97
)
—

(97
)
—

Total stores remaining to be sold to WBA

1,835

1,932

1,835

1,932

Store data (Continuing Operations):

Total stores (end of period- Total)

4,404

4,547

4,404

4,547

Stores remaining to be sold to WBA

(1,835
)
(1,932
)
(1,835
)
(1,932
)
Total stores (end of period — Continuing Operations)

2,569

2,615

2,569

2,615


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

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

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

Revenues

Revenues ~~decreased 3.0%~~increased 6.5% for the thirteen weeks ended ~~December 2, 2017~~August 28, 2021 compared to ~~a decrease~~an increase of ~~3.1%~~4.4% for the thirteen weeks ended ~~November 26, 2016.~~August 29, 2020. The ~~decrease~~increase in revenues for the thirteen week period ended ~~December 2, 2017~~August 28, 2021 was primarily a result of ~~the decrease~~an increase in ~~pharmacy~~ same store ~~sales.~~sales and incremental sales from our recently acquired Bartell stores.

Pharmacy same store sales ~~decreased~~increased by ~~3.5%~~5.0% for the thirteen week period ended ~~December 2, 2017~~August 28, 2021 compared to ~~the 4.6% decrease~~an increase of 2.3% in the thirteen week period ended ~~November 26, 2016.~~August 29, 2020. The ~~decrease~~increase in ~~the current period~~pharmacy same store sales is due ~~primarily~~ to the ~~2.4% decrease~~increase in same store prescription ~~count compared to the prior year period driven in part by being excluded from certain pharmacy networks that we participated in last year.~~count. Same store prescription ~~sales were also impacted~~count, adjusted to 30-day equivalents, increased 7.1% for the thirteen week period ended August 28, 2021 driven primarily by ~~continued lower reimbursement rates~~our COVID-19 vaccination program and ~~an approximate 2.0% negative impact from generic introductions, partially offset by the impact of brand drug inflation.~~increases in other acute and maintenance prescriptions.

Front-end same store sales decreased ~~0.5%~~2.8% during the thirteen week period ended ~~December 2, 2017~~August 28, 2021 compared to ~~a decrease~~an increase of ~~0.3%~~4.6% during the thirteen week period ended ~~November 26, 2016.~~August 29, 2020. Front-end same store sales, excluding cigarettes and tobacco products, decreased 2.4%. On a 2-year stack basis, front-end same store sales, excluding cigarettes and tobacco products, increased 3.0%, driven by increase in vitamins, color cosmetics and baby care resulting from our work to enhance the assortment in these categories.

Revenues ~~decreased 3.9%~~increased 6.0% for the ~~thirty-nine~~twenty-six weeks ended ~~December 2, 2017~~August 28, 2021 compared to ~~a decrease~~an increase of ~~1.7%~~5.6% for the ~~thirty-nine~~twenty-six weeks ended ~~November 26, 2016.~~August 29, 2020. The ~~decrease~~increase in revenues for the ~~thirty-nine~~twenty-six week period ended ~~December 2, 2017~~August 28, 2021 was primarily a result of an increase in same store sales and incremental sales from our recently acquired Bartell stores.

Table of Contents

Pharmacy same store sales increased by 6.6% for the ~~decrease~~twenty-six week period ended August 28, 2021 compared to an increase of 2.3% in the twenty-six week period ended August 29, 2020. The increase in pharmacy same store ~~sales.~~

~~Pharmacy same store~~ sales ~~decreased by 4.7% for the thirty-nine week period ended December 2, 2017 compared~~is due to the 2.7% decrease in the thirty-nine week period ended November 26, 2016. The decrease in the current period is due primarily to continued lower reimbursement rates, an approximate 2.0% negative impact from generic introductions, and a 1.9% decreaseincrease in same store prescription count. Same store prescription count, ~~partially offset~~adjusted to 30-day equivalents, increased 9.2% for the twenty-six week period ended August 28, 2021 driven primarily by ~~the impact of brand drug inflation.~~our COVID-19 vaccination program and increases in other acute and maintenance prescriptions.

Front-end same store sales decreased ~~by 0.8%~~7.7% during the ~~thirty-nine~~twenty-six week period ended ~~December 2, 2017~~August 28, 2021 compared to an increase of 9.4% during the ~~0.4% increase in the thirty-nine~~twenty-six week period ended ~~November 26, 2016.~~August 29, 2020. Front-end same store sales, excluding cigarettes and tobacco products, decreased 7.2%, driven by decreases in general cleaning products, sanitizers, wipes, paper products, liquor, and over-the-counter products resulting from the pandemic driven surge in the prior year quarter.

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

Costs and Expenses

Thirteen Week Period
Ended

Thirty-Nine Week Period
Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

(dollars in thousands)

Cost of revenues

$
2,871,114

$
2,940,484

$
8,629,925

$
8,893,180

Gross profit

1,087,888

1,141,794

3,203,270

3,426,265

Gross margin

27.5
%
28.0
%
27.1
%
27.8
%
FIFO gross profit(*)

1,094,672

1,150,167

3,223,663

3,451,531

FIFO gross margin(*)

27.7
%
28.2
%
27.2
%
28.0
%
Selling, general and administrative expenses

1,086,857

1,095,409

3,235,309

3,311,655

Selling, general and administrative expenses as a percentage of revenues

27.5
%
26.8
%
27.34
%
26.9
%


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

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

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

Gross Profit and Cost of Revenues

Gross profit ~~decreased $53.9~~increased $78.4 million for the thirteen week period ended ~~December 2, 2017 as~~August 28, 2021 compared to the thirteen week period ended ~~November 26, 2016. Gross~~August 29, 2020. The increase in gross profit was ~~negatively impacted~~driven by ~~lower~~higher pharmacy same stores sales, partially offset by pharmacy reimbursement ~~rates~~rate pressures that were not fully offset by generic drug ~~purchasing efficiencies~~cost reductions and a ~~decrease~~decline in ~~prescription count. Also impacting~~front end gross profit as we cycled the ~~decrease was a legal settlement~~impact of ~~$9.0 million that benefited~~ the prior ~~year results.~~year’s COVID-19 buying surge.

Gross profit ~~decreased $223.0~~increased $166.8 million for the ~~thirty-nine~~twenty-six week period ended ~~December 2, 2017 as~~August 28, 2021 compared to the ~~thirty-nine~~twenty-six week period ended ~~November 26, 2016. Gross~~August 29, 2020. The increase in gross profit was ~~negatively impacted~~driven by higher pharmacy same stores sales in the ~~decrease in pharmacy~~current year, incremental gross profit ~~due~~from our recently acquired Bartell stores, and cycling a prior year restructuring charge of $25.8 million related to ~~lower~~exiting product lines as part of our rebranding initiatives. These increases were partially offset by pharmacy reimbursement ~~rates~~rate pressures that were not fully offset by generic drug ~~purchasing efficiencies~~cost reductions and a ~~decrease~~decline in ~~prescription count.~~front end gross profit as we cycled the impact of the prior year’s COVID-19 buying surge.

Gross margin was ~~27.4% and 27.0%~~26.7% of sales for the thirteen ~~and thirty-nine~~ week ~~periods~~period ended ~~December 2, 2017, respectively,~~August 28, 2021 compared to ~~28.0% and 27.8%~~26.4% of sales for the thirteen ~~and thirty-nine~~ week ~~periods~~period ended ~~November 26, 2016, respectively.~~August 29, 2020. The ~~decrease~~improvement in gross margin ~~for the thirteen and thirty-nine week period was~~as a percentage of revenues is due primarily to ~~lower~~higher gross margin associated with COVID-19 vaccines. These improvements are partially offset by continued pharmacy reimbursement ~~rates~~rate pressures that were not fully offset by generic drug ~~purchasing efficiencies,~~ cost reductions.

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

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partially offset by ~~a lower estimated LIFO charge.~~continued pharmacy reimbursement rate pressures that were not fully offset by generic drug cost reductions.

We use the last-in, first-out (“LIFO”) method of inventory valuation, which is estimated on a quarterly basis and is finalized at year end when inflation rates and inventory levels are final. Therefore, LIFO costs for interim period financial statements are estimated. LIFO ~~charges~~credits were ~~$6.8~~$4.0 million and ~~$20.4~~$8.0 million for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017,~~August 28, 2021, respectively, compared to ~~$8.4~~LIFO credits of $8.8 million and ~~$25.3~~$20.8 million for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~November 26, 2016,~~August 29, 2020, respectively. The LIFO credit in the thirteen week period ended August 28, 2021 was mostly due to the planned reduction in front-end inventory, partially offset by higher anticipated front-end inflation in fiscal 2022.

Selling, General and Administrative Expenses

SG&A expenses increased $133.3 million for the thirteen week period ended August 28, 2021 due primarily to cycling the prior year change to modernize our PTO plan, incremental costs from our recently acquired Bartell stores, costs incurred to support our COVID-19 vaccination program and litigation settlements. SG&A expenses as a percentage of revenues ~~were 27.5% in~~for the thirteen week period ended ~~December 2, 2017~~August 28, 2021 was 27.2% compared to ~~26.8% in~~25.6% for the thirteen week period ended ~~November 26, 2016.~~August 29, 2020. The increase ~~in SG&A as a percentage of revenues was~~is due primarily to ~~fixed~~the items noted above.

SG&A expenses increased $180.3 million for the twenty-six week period ended August 28, 2021 due primarily to cycling the prior year change to modernize our PTO plan, incremental costs ~~increasing as a percentage of revenues, as revenues declined. SG&A dollars decreased by $8.6 million due~~from our recently acquired Bartell stores, costs incurred to ~~expense efficiency initiatives that resulted in reduced payroll~~support our COVID-19 vaccination program and ~~operating expenses. The effect of these initatives were~~litigation settlements, partially offset by ~~higher bonus expense~~labor savings due to the cycling of ~~$10.0 million and legal settlements of $6.0 million that benefited~~ the prior ~~year results.~~

year’s Hero Pay and Hero Bonus programs and the COVID-19 buying surge. SG&A expenses as a percentage of revenues ~~were 27.4% in~~for the ~~thirty-nine~~twenty-six week period ended ~~December 2, 2017~~August 28, 2021 was 26.9% compared to ~~26.9% in~~26.3% for the ~~thirty-nine~~twenty-six week period ended ~~November 26, 2016.~~August 29, 2020. The increase ~~in SG&A as a percentage of revenues was~~is due primarily to fixed costs increasing as a percentage of revenues, as revenues declined. SG&A dollars decreased by $76.3 million due to expense efficiency initiatives that resulted in reduced payroll and operating expenses.the items noted above.

Pharmacy Services Segment Results of Operations

~~Acquisition of EnvisionRx~~

On June 24, 2015, we completed our acquisition of EnvisionRx, pursuant to the terms of the agreement (“Agreement”) dated February 10, 2015. EnvisionRx, our Pharmacy Services segment, is a full-service pharmacy benefit provider. EnvisionRx provides both transparent and traditional PBM options through its EnvisionRx and MedTrak PBMs. EnvisionRx also offers fully integrated mail-order and specialty pharmacy services through EnvisionPharmacies; access to the nation’s largest cash pay infertility discount drug program via Design Rx; an innovative claims adjudication software platform in Laker Software; and a national Medicare Part D prescription drug plan through EIC’s EnvisionRx Plus Silver product for the low income auto-assign market and its Clear Choice product for the chooser market. EnvisionRx operates as our 100 percent owned subsidiary. The acquisition of EnvisionRx enabled us to expand our retail healthcare platform and enhance our health and wellness offerings by combining EnvisionRx’s broad suite of PBM and pharmacy-related businesses with our established retail platform to provide our customers and patients with an integrated offering across retail, specialty and mail-order channels.

Revenues and Other Operating Data

Thirteen Week Period Ended

Thirty-Nine Week Period Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

(dollars and plan
members in thousands)

Revenues

$
1,445,140

$
1,645,835

$
4,451,212

$
4,883,070

Revenue (decline) growth (1)

(12.2
)%
9.7
%
(8.8
)%
N/A

Adjusted EBITDA(*)

$
40,363

$
52,431

$
138,237

$
143,616

Plan Members

3,780

4,062

3,780

4,062



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

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

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

~~(1)~~ ~~The thirty-nine week period ended November 26, 2016 amount is labeled N/A as we do not have a full comparable period.~~

Revenues

~~Pharmacy Services segment revenue for~~ ~~the thirteen week period ended December 2, 2017 was $1,445.1 million as compared to revenue of $1,645.8~~Revenues decreased $140.2 million for the thirteen week period ended ~~November 26, 2016. Pharmacy Services segment revenue for~~August 28, 2021 compared to the ~~thirty-nine~~thirteen week period ended ~~December 2, 2017 was $4,451.2 million compared to revenue of $4,883.1~~August 29, 2020. Revenues decreased $245.1 million for the ~~thirty-nine~~twenty-six week period ended ~~November 26, 2016.~~August 28, 2021 compared to the twenty-six week period ended August 29, 2020. The decrease in revenues was primarily the ~~thirteen and thirty-nine week revenue for the segment is due to our election to participate in fewer Medicare Part D regions, which caused~~result of a decrease in ~~covered lives at EIC,~~membership in the PBM business and a ~~decline~~decrease in ~~commercial business.~~Elixir Insurance membership.

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Costs and Expenses



													Thirteen Week Period Ended						Twenty-Six Week Period Ended
													August 28,			August 29,			August 28,			August 29,
													2021			2020			2021			2020
	Thirteen Week Period Ended						Thirty-Nine Week Period Ended
	December 2, 2017			November 26, 2016			December 2, 2017			November 26, 2016
	(dollars in thousands)
													(dollars in thousands)
Cost of revenues	$	1,346,305		$	1,542,778		$	4,144,143		$	4,593,686		$	1,792,651		$	1,939,946		$	3,549,992		$	3,800,409
Gross profit	98,835			103,057			307,069			289,384				105,562			98,432			220,503			215,215
Gross margin	6.8		%	6.3		%	6.9		%	5.9		%		5.6	%		4.8	%		5.8	%		5.4	%
Selling, general and administrative expenses	79,657			73,237			233,989			212,195			$	104,401		$	86,067			193,724			174,238
Selling, general and administrative expenses as a percentage of revenues	5.5		%	4.4		%	5.3		%	4.3		%		5.5	%		4.2	%		5.1	%		4.3	%

Gross Profit and Cost of Revenues

Gross profit ~~for the thirteen week period ended December 2, 2017 was $98.8 million as compared to gross profit of $103.1~~increased $7.1 million for the thirteen week period ended ~~November 26, 2016.~~ ~~Gross profit for~~August 28, 2021 compared to the ~~thirty-nine~~thirteen week period ended December 2, 2017 was $307.1 million as compared to gross profit of $289.4 million for the thirty-nine week period ended November 26, 2016. The decrease in the thirteen week gross profit for the segment is due primarily to reduced revenues caused by our election to participate in

~~fewer Medicare Part D regions and a decline in commercial business.~~ August 29, 2020. The increase in ~~the thirty-nine week~~ gross profit ~~for the segment~~ is primarily due to ~~improved customer mix.~~improvements in our discount card business and good network management, partially offset by the impact from the loss in lives and cost pressures in the Elixir Insurance business.

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

Gross margin was ~~6.8%~~5.6% of sales for the thirteen week period ended ~~December 2, 2017~~August 28, 2021 compared to ~~6.3%~~4.8% of sales for the thirteen week period ended ~~November 26, 2016.~~ August 29, 2020. The improvement in gross margin is due primarily to improvements in our discount card business and good network management, partially offset by an increase in the medical loss ratio tied to our Medicare Part D business.

Gross margin was ~~6.9%~~5.8% of sales for the ~~thirty-nine~~twenty-six week period ended ~~December 2, 2017~~August 28, 2021 compared to ~~5.9%~~5.4% of sales for the ~~thirty-nine~~twenty-six week period ended ~~November 26, 2016.~~August 29, 2020. The ~~increase~~improvement in ~~the thirteen and thirty-nine week~~ gross margin ~~for the segment~~ is due primarily to ~~improved customer mix.~~improvements in our discount card business and good network management, partially offset by an increase in the medical loss ratio tied to our Medicare Part D business.

Selling, General and Administrative Expenses

~~Pharmacy Services segment selling, general and administrative~~SG&A expenses increased $18.3 million for the thirteen week period ended ~~December 2, 2017 was $79.7 million or 5.5% of revenues as~~August 28, 2021 compared to ~~$73.2 million or 4.4%~~the thirteen week period ended August 29, 2020 due primarily to increased litigation settlements, restructuring charges and higher discount card program costs, partially offset by further consolidation of ~~revenues~~administrative functions. SG&A expenses as a percentage of revenue was 5.5% for the thirteen week period ended ~~November 26, 2016. Pharmacy Services segment selling, general and administrative expenses~~August 28, 2021 compared to 4.2% for the ~~thirty-nine~~thirteen week period ended ~~December 2, 2017 was $234.0 million or 5.3% of revenues as compared to $212.2 million or 4.3% of revenues for the thirty-nine week period ended November 26, 2016.~~August 29, 2020. The increase in the thirteen ~~and thirty-nine~~ week period selling, general and administrative expenses as a percentage of revenues is due primarily to the ~~result~~items noted above and the loss of sales volume.

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

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Liquidity and Capital Resources

General

We have two primary sources of liquidity: (i) cash provided by operating activities and (ii) borrowings under our ~~Amended and Restated Senior Secured Credit Facility.~~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 ~~December 2, 2017~~August 28, 2021 was ~~$1,746.1~~$1,690.5 million, which consisted of revolver borrowing capacity of ~~$1,715.7~~$1,576.4 million and invested cash of ~~$30.4~~$114.1 million.

Credit Facilities

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

On August 20, 2021, we entered in to the Second Amendment to Credit Agreement (the “Second Amendment”), which, among other things, amended the Credit Agreement to provide for a ~~borrowing capacity of $3.7~~$2.8 billion senior secured asset-based revolving credit facility (“Senior Secured Revolving Credit Facility”) and ~~matures in January 2020.~~a $350 million “first-in, last out” senior secured term loan facility (“Senior Secured Term Loan,” and together with the Senior Secured Revolving Credit Facility, collectively, the “Amended Facilities”) and incorporate customary “hardwired” LIBOR transition provisions. The Amended Facilities extend our debt maturity profile and provide additional liquidity. Borrowings under the ~~revolver~~Senior Secured Revolving Credit Facility bear interest at a rate per annum ~~between (i) LIBOR plus 1.50% and LIBOR plus 2.00% with respect~~equal to, ~~Eurodollar borrowings and (ii) the alternate~~at our option, (x) a base rate (determined in a customary manner) plus ~~0.50%~~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 ~~the alternate base rate plus 1.00% with respect to ABR borrowings,~~1.75%, in each case based upon the Average ~~Revolver~~ABL Availability (as defined in the Amended ~~and Restated~~Credit Agreement). Borrowings under the Senior Secured ~~Credit Facility)~~Term Loan bear interest at a rate per annum equal to, at our option, of (x) a base rate (determined in a customary manner) plus a margin of 1.75% or (y) an adjusted LIBOR rate (determined in a customary manner) plus a margin of 2.75%. We are required to pay fees between 0.250% and 0.375% per annum on the daily unused amount of the ~~revolver,~~commitments under the Senior Secured Revolving Credit Facility, depending on Average ABL Availability. The Amended Facilities are scheduled to mature on August 20, 2026 (subject to a springing maturity if certain of our existing secured notes are not refinanced or repaid prior to the ~~Average Revolver Availability (as defined in~~date that is 91 days prior to the ~~Amended and Restated~~stated maturity thereof).

Our borrowing capacity under the Senior Secured Revolving Credit ~~Facility). Amounts drawn under the revolver become due and payable on January 13, 2020.~~

~~Our ability to borrow under the revolver~~Facility is based upon a specified borrowing base consisting of accounts receivable, inventory and prescription files. At ~~December 2, 2017,~~August 28, 2021, we had ~~$1,925.0~~approximately $1,450.0 million of borrowings outstanding under the ~~revolver~~Amended Facilities and had letters of credit outstanding ~~against~~under the ~~revolver~~Senior Secured Revolving Credit Facility in a face amount of ~~$59.3~~approximately $123.6 million, which resulted in ~~additional~~remaining borrowing capacity under the Senior Secured Revolving Credit Facility of ~~$1,715.7~~$1,576.4 million. If at any time the total credit exposure outstanding under ~~our Amended and Restated~~the Senior Secured Revolving Credit Facility ~~and the principal amount of our other senior obligations~~ exceeds the borrowing base, we will be required to ~~make certain other mandatory prepayments~~repay amounts outstanding to eliminate such shortfall.

The Amended ~~and Restated Senior Secured~~ Credit ~~Facility~~Agreement restricts us and all of our subsidiaries, including the subsidiaries that guarantee our obligations under the Amended ~~and Restated Senior Secured Credit Facility, second priority secured term loan facilities,~~Facilities, the secured guaranteed notes and unsecured guaranteed notes ~~(the~~(collectively, the “Subsidiary Guarantors”) from accumulating cash on hand in excess of $200.0 million at any time when revolving loans are outstanding (not including cash located in our store and lockbox deposit accounts and cash necessary to cover our current liabilities) ~~and from accumulating cash on hand with revolver borrowings in excess of $100.0 million over three consecutive business days.~~. The Amended ~~and Restated Senior Secured~~ Credit ~~Facility~~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 ~~(a)~~(i) an event of default exists under ~~our~~the Amended ~~and Restated Senior Secured Credit Facility~~Facilities or ~~(b)~~(ii) the sum of ~~revolver availability~~our borrowing capacity under our ~~Amended and Restated~~ Senior Secured

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

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

The Amended ~~and Restated Senior Secured~~ Credit ~~Facility~~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 ~~term loan~~ debt, unsecured debt and disqualified preferred stock in addition to borrowings under the Amended Facilities and ~~Restated Senior Secured Credit Facility and~~other existing indebtedness, provided that not in excess of $750.0 million of such secured second priority debt, split-priority ~~term loan~~ debt, unsecured debt and disqualified preferred stock shall mature or require scheduled payments of principal prior to 90 days after the latest ~~of (a) the fifth anniversary of the effectiveness of the Amended and Restated Senior Secured Credit Facility and (b) the latest~~ maturity date of any Term Loan or Other Revolving ~~Loan~~Commitment (each as defined in the Amended ~~and Restated Senior Secured~~ Credit ~~Facility)~~Agreement) (excluding bridge facilities allowing extensions on customary terms to at least the date that is 90 days after such date and, with respect to any escrow notes issued by Rite Aid, excluding any special mandatory redemption of the type described in clause (iii) of the definition of “Escrow Notes” in the Amended and Restated Senior Secured Credit Facility)date). Subject to the limitations described in ~~clauses (a) and (b) of~~ the immediately preceding sentence, the Amended ~~and Restated Senior Secured~~ Credit ~~Facility~~Agreement additionally allows us to issue or incur an unlimited amount of unsecured debt and disqualified preferred stock so long as a Financial Covenant Effectiveness Period (as defined in the Amended ~~and Restated Senior Secured~~ Credit ~~Facility)~~Agreement) is not in effect; provided, however, that certain of our other outstanding indebtedness limits the amount of unsecured debt that can be incurred if certain interest coverage levels are not met at the time of incurrence or other exemptions are not available. The Amended ~~and Restated Senior Secured~~ Credit ~~Facility~~Agreement also contains certain restrictions on the amount of secured first priority debt we are able to incur. The Amended ~~and Restated Senior Secured~~ Credit ~~Facility~~Agreement also allows for the voluntary repurchase of any debt or other convertible debt, so long as the Amended ~~and Restated Senior Secured Credit Facility is~~Facilities are not in default and we maintain availability under our revolver of more than $365.0 million.

The Amended ~~and Restated Senior Secured~~ Credit ~~Facility~~Agreement has a financial covenant that requires us to maintain a minimum fixed charge coverage ratio of 1.00 to 1.00 ~~(a)~~(i) on any date on which availability under the ~~revolver~~Senior Secured Revolving Credit Facility is less than $200.0 million or ~~(b)~~(ii) on the third consecutive business day on which availability under the ~~revolver~~Senior Secured Revolving Credit Facility is less than $250.0 million and, in each case, ending on and excluding the first day thereafter, if any, which is the 30th consecutive calendar day on which availability under the revolver is equal to or greater than $250.0 million. As of ~~December 2, 2017, we had availability under our revolver of $1,715.7 million,~~August 28, 2021, our fixed charge coverage ratio was greater than 1.00 to 1.00, and we were in compliance with the ~~senior secured credit facility’s~~Amended Credit Agreement’s financial covenant. The Amended ~~and Restated Senior Secured~~ Credit ~~Facility~~Agreement also contains covenants which place restrictions on the incurrence of debt, the payments of dividends, the making of investments, sale of assets, mergers and acquisitions and the granting of liens.

The Amended ~~and Restated Senior Secured~~ Credit ~~Facility~~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.

~~We also have two second priority secured term loan facilities, the Tranche 1 Term Loan and the Tranche 2 Term Loan.~~ The Tranche 1 Term Loan matures on August 21, 2020 and currently bears interest at a rate per annum equal to LIBOR plus 4.75% with a LIBOR floor of 1.00%, if we choose to make LIBOR borrowings, or at Citibank’s base rate plus 3.75%. The Tranche 2 Term Loan matures on June 21, 2021 and currently bears interest at a rate per annum equal to LIBOR plus 3.875% with a LIBOR floor of 1.00%, if we choose to make LIBOR borrowings, or at Citibank’s base rate plus 2.875%.

~~The second priority secured term loan facilities and the~~ indentures that govern our ~~secured~~guaranteed unsecured notes and our guaranteed ~~unsecured~~secured notes contain restrictions on the amount of additional secured and unsecured debt that ~~can be incurred by us.~~we may incur. As of ~~December 2, 2017,~~August 28, 2021, we had the ability to (i) draw the full amount ofunder our revolving credit facility, or (ii) incur additional secured ~~debt that could be incurred under the most restrictive covenant of the second priority secured term loan facilities and these indentures was approximately $2.1 billion (which amount does not include~~debt. In addition, we have the ability to enter into certain sale and leaseback ~~transactions). Assuming a fully drawn revolver and the outstanding letters of credit, we could incur an additional $350.0 million in secured debt.~~transactions. The ability to issue additional unsecured debt under ~~these indentures~~the indenture is generally governed by an interest coverage ratio test. As of ~~December 2, 2017,~~August 28, 2021, we had the ability to issue additional secured and unsecured debt under the ~~second~~indentures governing our unguaranteed unsecured notes.

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Guarantor Summarized Financial Information

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

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

Condensed Combined Financial Information

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


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

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

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

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

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

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

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

(a)

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

(b)

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

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

Cash ~~flow~~ provided by operating activities was ~~$424.5~~$39.6 million ~~and $173.2~~compared to cash used in operating activities of $476.6 million infor the ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016,~~August 29, 2020, respectively. Operating cash flow was positively impacted by the ~~$325.0 million WBA merger termination fee, the corresponding change in deferred taxes, and an increase in accounts payable. Accounts payable increased due to the~~ timing of ~~inventory purchases at our Retail Pharmacy segment and increased amounts payable~~payments to ~~our~~Elixir’s pharmacy network and increases in ~~our Pharmacy Services segment. These positive working capital changes were~~litigation and other operating expense accruals, partially offset by ~~increases~~growth in ~~inventory~~our CMS receivable during the twenty-six week period ended August 28, 2021. The improvement in cash provided by operating activities compared to the prior year is due primarily to the acceleration of the sale of our CMS receivable, and ~~other assets and liabilities. Front end inventory increased at our Retail Pharmacy segment~~ ~~due to seasonal inventory build. Cash used by other~~changes in operating assets and liabilities ~~resulted from reductions in accrued expenses relating~~due to ~~payments made under our CMS reinsurance contracts at our Pharmacy Services segment.~~timing.

Cash used in investing activities was ~~$138.1~~$90.5 million and ~~$223.5~~$58.8 million for the ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016,~~August 29, 2020, respectively. Cash used for the purchase of property, plant, and equipment was ~~lower~~higher than in the prior year ~~primarily~~ due to ~~fewer Wellness~~signage costs associated with our store ~~remodels~~rebranding activities in the current year. ~~Included in cash provided by investing activities of discontinued operations is $240.9 million of proceeds received from stores sold to Walgreens Boots Alliance. A corresponding payment to~~During the ~~revolver is included in the financing activities of discontinued operations.~~

~~Cash used in financing activities was $243.5 million for the thirty-nine~~twenty-six week period ended ~~December 2, 2017 as compared to cash~~August 28, 2021, we remodeled six stores, spent $14.5 million on prescription file purchases, received proceeds of $14.2 million from sale-leaseback transactions and received proceeds of $10.4 million associated with insurance claims.

Cash flow provided by financing activities ~~of $299.9~~was $36.6 million and $397.8 million for the ~~thirty-nine~~twenty-six week ~~period~~periods ended ~~November 26, 2016.~~August 28, 2021 and August 29, 2020, respectively. Cash used in financing activities for the ~~thirty-nine week period~~twenty-six weeks ended ~~December 2, 2017~~August 28, 2021 reflects ~~net payments on~~ the amendment and extension of our Senior Secured Revolving Credit Facility and Senior Secured Term Loan and incremental revolver ~~and scheduled payments on~~borrowings, partially offset by the repayment of our ~~long-term debt and capital leases. As noted above, cash used in financing activities of discontinued operations includes $240.9 million of revolver payments~~.6.125% Notes.

Capital Expenditures

During the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016~~August 29, 2020 capital expenditures were as follows:

	Thirteen Week Period Ended				Thirty-Nine Week Period Ended
	December 2, 2017		November 26, 2016		December 2, 2017		November 26, 2016


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

New store construction, store relocation and store remodel projects	$	25,990	$	36,087	$	64,466	$	96,660	$	25,667	$	9,964	$	58,960	$	16,696
Technology enhancements, improvements to distribution centers and other corporate requirements	35,710		18,672		76,350		101,063			20,525		24,662		46,396		46,389
Purchase of prescription files from other retail pharmacies	10,522		13,573		20,201		35,986			9,043		11,857		14,479		22,572
Total capital expenditures	$	72,222	$	68,332	$	161,017	$	233,709	$	55,235	$	46,483	$	119,835	$	85,657

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Future Liquidity

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

Critical Accounting Policies and Estimates

For a description of the critical accounting policies that require the use of significant judgments and estimates by management, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations—Critical Accounting Policies and Estimates” included in our Fiscal ~~2017 10-K.~~2021 10-K, which we filed with the SEC on April 27, 2021.

Factors Affecting Our Future Prospects

For a discussion of risks related to our financial condition, operations and industry, refer to “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations” included in our Fiscal ~~2017~~2021 10-K.

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

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

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The following is a reconciliation of our net income (loss) ~~income~~ to Adjusted EBITDA ~~from continuing operations~~ for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016:~~August 29, 2020:


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

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

Thirteen Week
Period Ended

Thirty-Nine Week
Period Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

(dollars in thousands)

Net income — discontinued operations

$
99,213

$
(8,600
)
$
42,257

$
(3,939
)
Interest expense

59,456

56,005

178,797

170,136

Income tax expense (benefit)

60,155

(3,405
)
26,705

356

Depreciation and amortization expense

21,952

41,292

99,372

119,624

LIFO charge

4,469

5,377

13,366

15,995

Lease termination and impairment charges

11

66

74

76

Gain on stores sold to Walgreens Boots Alliance

(157,010
)
—

(157,010
)

Other

(3,320
)
(7,922
)
13,958

(1,926
)
Adjusted EBITDA - discontinued operations

$
84,926

$
82,813

$
217,519

$
300,322

The following is a reconciliation of our net income (loss) from continuing operations to Adjusted Net Income (Loss) ~~Income~~ and Adjusted Net Income (Loss) ~~Income~~ per Diluted Share for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017~~August 28, 2021 and ~~November 26, 2016.~~August 29, 2020. Adjusted Net Income (Loss) is defined as net income (loss) excluding the impact of amortization ~~of EnvisionRx intangible assets,~~expense, merger and acquisition-related costs, ~~loss~~non-recurring litigation settlements, gains or losses on debt modifications and retirements, LIFO adjustments (which removes the entire impact of LIFO, and effectively reflects the ~~Walgreens Boots Alliance merger termination fee.~~results as if we were on a FIFO inventory basis), goodwill and intangible asset impairment charges, and restructuring-related costs. We calculate Adjusted Net Income (Loss) per Diluted Share using our above-referenced definition of

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Adjusted Net Income (Loss). We believe Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share ~~serve as appropriate measures to be used in evaluating the performance~~are useful indicators of ~~our business and help our investors better compare~~ our operating performance over multiple periods.

Thirteen Week
Period Ended

Thirty-Nine Week
Period Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

(dollars in thousands)

Net (loss) income from continuing operations

$
(18,182
)
$
23,610

$
134,141

$
29,134

Add back—Income tax (benefit) expense

(16,061
)
(4,682
)
89,268

(3,824
)
(Loss) income before income taxes — continuing operations

(34,243
)
18,928

223,409

25,310

Adjustments:

Amortization of EnvisionRx intangible assets

19,139

21,049

59,415

62,217

LIFO charge

6,784

8,373

20,393

25,266

Merger and Acquisition-related costs

6,550

1,964

17,274

6,117

Walgreens Boots Alliance merger termination fee

—

—

(325,000
)
—

Adjusted (loss) income before income taxes — continuing operations

(1,770
)
50,314

(4,509
)
118,910

Adjusted income tax (benefit) expense (a)

(3,389
)
23,559

5,573

54,183

Adjusted net income (loss) from continuing operations

$
1,619

$
26,755

$
(10,082
)
$
64,727

Net (loss) income per diluted share — continuing operations

$
(0.02
)
$
0.02

$
0.13

$
0.03

Adjusted net income (loss) per diluted share — continuing operations

$
0.00

$
0.03

$
(0.01
)
$
0.06


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

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

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

~~(a)~~ The fiscal year 2018 and 2017 annual effective tax rates, adjusted to exclude amortization of EnvisionRx intangible assets, LIFO charges, Merger and Acquisition-related costs and the Walgreens Boots Alliance merger termination fee from book income, are used for the thirteen and thirty-nine weeks ended December 2, 2017 and November 26, 2016, respectively.

In addition to Adjusted EBITDA, Adjusted Net (Loss) Income ~~(Loss)~~ and Adjusted Net (Loss) Income ~~(Loss)~~ 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, ~~acquisition~~restructuring-related costs and the change in working capital).

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

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Our future earnings, cash flow and fair values relevant to financial instruments are dependent upon prevalent market rates. Market risk is the risk of loss from adverse changes in market prices and interest rates. Our major market risk exposure is changing interest rates. Increases in interest rates would increase our interest expense. We enter into debt obligations to support capital expenditures, acquisitions, working capital needs and general corporate purposes. Our policy is to manage interest rates through the use of a combination of variable-rate credit facilities, fixed-rate long-term obligations and derivative transactions. ~~We currently do not have any derivative transactions outstanding.~~

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The table below provides information about our financial instruments that are sensitive to changes in interest rates. The table presents principal payments and the related weighted average interest rates by expected maturity dates as of ~~December 2, 2017.~~August 28, 2021.

Fiscal Year

2018

2019

2020

2021

2022

Thereafter

Total

Fair Value
at
12/02/2017

(dollars in thousands)

Long-term debt, including current portion, excluding capital lease obligations

Fixed Rate

$
90

$
—

$
—

$
902,000

$
810,000

$
2,223,000

$
3,935,090

$
3,691,346

Average Interest Rate

7.61
%
0.00
%
0.00
%
9.25
%
6.75
%
6.38
%
7.11
%

Variable Rate

$
—

$
—

$
1,925,000

$
470,000

$
500,000

$
—

$
2,895,000

$
2,897,387

Average Interest Rate

0.00
%
0.00
%
2.97
%
5.96
%
5.09
%
0.00
%
3.82
%


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

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

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

The interest rate on our variable rate borrowings, which include our revolving credit facility ~~Tranche 1 Term Loan~~ and our ~~Tranche 2 Term Loan,~~term loan facility, are ~~all~~ based on LIBOR. ~~However, the interest rate on our Tranche 1 Term Loan and Tranche 2 Term Loan have a LIBOR floor of 100 basis points.~~ If the market rates of interest for LIBOR changed by 100 basis points as of ~~December 2, 2017,~~August 28, 2021, our annual interest expense would change by approximately ~~$31.0~~$14.5 million.

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

ITEM 4. Controls and Procedures

(a)Disclosure Controls and Procedures

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

(b) Changes in Internal Control over Financial Reporting

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

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

The information in response to this item is incorporated herein by reference to Note ~~14,~~17, Commitments, Contingencies and ~~Contingencies~~Guarantees, of the Consolidated Condensed Financial Statements of this Quarterly Report.

ITEM 1A. Risk Factors

In addition to the information set forth in this Quarterly Report, you should carefully consider the factors discussed in ~~Part~~“Part I — Item ~~1A, “Risk~~1A. Risk Factors” in our Fiscal ~~2017~~2021 10-K, which could materially affect our business, financial condition or future results.

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

Issuer Repurchases of Equity Securities. The table below is a listing of repurchases of common stock during the ~~third~~second quarter of fiscal ~~2018.~~2022.

Fiscal period:

Total
Number of
Shares
Repurchased

Average
Price Paid
Per Share

Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs

Maximum Number of
Shares that may yet be
Purchased under the
Plans or Programs

September 3 to September 30, 2017(1)

12

$
2.64

—

—

October 1 to October 28, 2017

—

$
—

—

—

October 29 to December 2, 2017

—

$
—

—

—


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

~~(1)~~ ~~Represents shares withheld by the Company, at the election of certain holders of vested restricted stock, with a market value approximating the amount of withholding taxes due.~~

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

Not applicable.

ITEM 6. Exhibits

~~(a)~~ ~~The following exhibits are filed as part of this report.~~

(a)

The following exhibits are filed as part of this report.


Exhibit Numbers			Description		~~Description~~	Incorporation By Reference To
2.1	**	Amended and Restated Asset Purchase Agreement, dated September 18, 2017, among Rite Aid Corporation, Walgreens Boots Alliance, Inc. and Walgreen ~~Co.~~Co.		Exhibit 2.1 to Form 8-K, filed on September 19, 2017
2.2		Receivable Purchase Agreement, dated as of February 19, 2020, by and between Envision Insurance Company and Part D Receivable Trust 2020-1 (Series A)		Exhibit 2.1 to Form 8-K, filed on February 21, 2020
2.3		Indemnity Agreement, dated as of February 19, 2020 by and between Rite Aid Corporation and Part D Receivable Trust 2020-1 (Series A)		Exhibit 2.2 to Form 8-K, filed on February 21, 2020
3.1		Amended and Restated Certificate of Incorporation ~~dated January 22, 2014~~		Exhibit 3.1 to Form ~~10-K,~~8-K, filed on April ~~23, 2014~~18, 2019

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Exhibit Numbers	Description	Incorporation By Reference To
3.2	Amended and Restated By-Laws	Exhibit ~~3.2 to Form 10-Q, filed on January 6, 2016~~
~~3.3~~	~~Certificate of Designations, Preferences and Rights of Series J Junior Participating Preferred Stock of Rite Aid Corporation~~	~~Exhibit 31.~~3.1 to Form 8-K, filed on ~~January 3, 2018~~April 17, 2020
4.1	Indenture, dated as of February 27, 2012, among Rite Aid Corporation, as issuer, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as trustee, related to the Company’s 9.25% Senior Notes due 2020	~~Exhibit 4.1 to Form 8-K, filed on February 27, 2012~~
~~4.2~~	First Supplemental Indenture, dated as of May 15, 2012, among Rite Aid Corporation, the subsidiaries named therein and The Bank of New York Mellon Trust Company, N.A. to the Indenture, dated as of February 27, 2012, among Rite Aid Corporation, the subsidiary guarantors named therein and The Bank of New York Trust Company, N.A., related to the Company’s 9.25% Senior Notes due 2020	~~Exhibit 4.23 to the Registration Statement on Form S-4, File No. 181651, filed on May 24, 2012~~
~~4.3~~	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
~~4.4~~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
~~4.5~~4.3	Indenture, dated as of December 21, 1998, between Rite Aid Corporation, as issuer, and Harris Trust and Savings Bank, as trustee, related to the Company’s 6.875% Notes due 2028	Exhibit 4.1 to Registration Statement on Form S-4, File No. 333-74751, filed on March 19, 1999
~~4.6~~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

~~4.7~~4.5	Indenture, dated as of July 2, 2013, among Rite Aid Corporation, as issuer, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., related to the Company’s 6.75% Senior Notes due 2021	~~Exhibit 4.1 to Form 8-K, filed on July 2, 2013~~
~~4.8~~	Indenture, dated as of April 2, 2015, among Rite Aid Corporation, as issuer, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., related to the Company’s 6.125% Senior Notes due 2023	Exhibit 4.1 to Form 8-K, filed on April 2, 2015
~~4.9~~4.6	~~Tax Benefits Preservation Plan,~~Supplemental Indenture, dated as of ~~January 3,~~August 23, 2018, ~~between~~among Rite Aid Corporation, the subsidiary guarantors named therein and ~~Broadridge Corporate Issuer Solutions~~The Bank of New York Mellon Trust Company, N.A., to the Indenture, dated as of April 2, 2015, among Rite Aid Corporation, as issuer, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., related to the Company’s 6.125% Senior Notes due 2023	Exhibit 4.1 to Form 8-K filed on ~~January 3,~~August 23, 2018
4.7	Supplemental Indenture, dated as of February 8, 2019, among Rite Aid Corporation, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., to the Indenture, dated as of April 2, 2015, among Rite Aid Corporation, as issuer, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., related to the Company’s 6.125% Senior Notes due 2023	Exhibit 4.9 to Form 10-K filed on April 25, 2019
4.8	Indenture, dated as of February 5, 2020, among Rite Aid Corporation, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., related to the Company’s 7.500% Senior Secured Notes due 2025	Exhibit 4.1 to Form 8-K filed on February 5, 2020
4.9	Description of the Company’s securities registered pursuant to Section 12 of the Securities Exchange Act of 1934	Exhibit 4.9 to Form 10-K filed on April 27, 2020
4.10	~~Specimen Common Stock Certificate~~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 ~~4.2~~4.1 to Form 8-K filed on July 27, 2020

Table of Contents


Exhibit Numbers		Description	Incorporation By Reference To
4.11		Supplemental Indenture, dated as of July 9, 2020, among Rite Aid Corporation, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., to the Indenture, dated as of April 2, 2015, among Rite Aid Corporation, as issuer, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., related to the Company’s 6.125% Senior Notes due 2023	Exhibit 4.3 to Form 8-K filed on July 27, 2020
4.12		Supplemental Indenture, dated as of August 27, 2021, among Rite Aid Corporation, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., to the Indenture, dated as of February 5, 2020, related to the Company’s 7.500% Senior Secured Notes due 2025	Filed herewith
4.13		Supplemental Indenture, dated as of July 27, 2021, among Rite Aid Corporation, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., to the Indenture, dated as of July 27, 2020, related to the Company’s 8.000% Senior Secured Notes due 2026	Filed herewith
10.1	†	2010 Omnibus Equity Plan	Exhibit 10.1 to Form 8-K, filed on June 25, 2010
10.2	†	Amendment No. 1, dated September 21, 2010, to the 2010 Omnibus Equity Plan	Exhibit 10.7 to Form 10-Q, filed on October 7, 2010
10.3	†	Amendment No. 2, dated January 16, 2013, to the 2010 Omnibus Equity Plan	Exhibit 10.8 to Form 10-K, filed on April 23, 2013
10.4	†	2012 Omnibus Equity Plan	Exhibit 10.1 to Form 8-K, filed on June 25, 2012
10.5	†	Amendment No. 1, dated January 16, 2013, to the 2012 Omnibus Equity Plan	Exhibit 10.10 to Form 10-K, filed on April 23, 2013
10.6	†	2014 Omnibus Equity Plan	Exhibit 10.1 to Form 8-K, filed on June 23, 2014
10.7	†	Form of Award Agreement	Exhibit 10.2 to Form 8-K, filed on May 15, 2012
10.8	†	Executive Incentive Plan for Officers of Rite Aid Corporation	Exhibit 10.1 to Form 8-K, filed on February 24, 2012
10.9	†	Employment Agreement by and between Rite Aid Corporation and Jocelyn Konrad dated as of August 18, 2015	Exhibit 10.1 to Form 10-Q, filed on January 6, 2016
10.10		Credit Agreement, dated as of December 20, 2018, among Rite Aid Corporation, the lenders from time to time party thereto and Bank of America, N.A., as administrative agent and collateral agent.	Exhibit 10.1 to Form 8-K, filed on December 20, 2018
10.11		First Amendment to Credit Agreement, dated as of January 6, 2020, among Rite Aid Corporation, the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent.	Exhibit 10.1 to Form 8-K, filed on January ~~3, 2018~~7, 2020
1110.12		~~Statement regarding computation~~Second Amendment Credit Agreement, dated as of ~~earnings per share (See Note 4 to~~August 20, 2021, among Rite Aid Corporation, the ~~condensed consolidated financial statements)~~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

Table of Contents


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

Table of Contents


Exhibit Numbers		Description	Incorporation By Reference To
10.31	†	Employment Agreement by and between RxOptions, LLC and Dan Robson, dated as of December 12, 2019	Exhibit 10.48 to Form 10-K filed on April 27, 2020
10.32	†	Separation Agreement by and between Rite Aid Corporation and James C. Comitale, as of May 21, 2020	Exhibit 10.45 to Form 10-Q filed on July 2, 2020
10.33	†	Employment Agreement by and between Rite Aid Corporation and Paul D. Gilbert, as of July 29, 2020	Exhibit 10.46 to Form 10-Q filed on October 6, 2020
10.34	†*	Separation Agreement by and between Rite Aid Corporation and Dan Robson, as of January 27, 2021	Exhibit 10.32 to Form 10-K filed on April 27, 2021
10.35	†	Rite Aid Corporation Amended and Restated 2020 Omnibus Equity Plan	Appendix B-1 to Schedule 14A (Definitive Proxy Statement) filed on May 20, 2021
10.36	†	Form Award Agreement (Executive) under the Rite Aid Corporation 2020 Omnibus Equity Plan	Exhibit 10.2 to Form 8-K filed on July 8, 2020
10.37	†	Form Award Agreement (Non-employee Director) under the Rite Aid Corporation 2020 Omnibus Equity Plan	Exhibit 10.3 to Form 8-K filed on July 8, 2020
22		List of Subsidiary Guarantors	Filed herewith
31.1		Certification of CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended	Filed herewith
31.2		Certification of CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended	Filed herewith
32		Certification of CEO and CFO pursuant to 18 United States Code, Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
~~101.~~101.INS		~~The following materials~~XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets at December 2, 2017 and March 4, 2017, (ii) Condensed Consolidated Statements of Operations forembedded within the thirteen and thirty-nine week periods ended December 2, 2017 and November 26, 2016, (iii) Condensed Consolidated Statements of Comprehensive Income for the thirteen and thirty-nine week periods ended December 2, 2017 and November 26, 2016, (iv) Condensed Consolidated Statements of Cash Flows for the thirty-nine week periods ended December 2, 2017 and November 26, 2016 and (v) Notes to Condensed Consolidated Financial Statements, tagged in detail.Inline XBRL document.	Filed herewith
101.SCH		XBRL Taxonomy Extension Schema Document.	Filed herewith
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.	Filed herewith
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.	Filed herewith
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.	Filed herewith
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.	Filed herewith
104		Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.	Filed herewith

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

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

† Management contract or compensatory plan or arrangement.

Table of Contents

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: ~~January 11, 2018~~October 5, 2021	RITE AID CORPORATION

	By:			~~/s/ DARREN W. KARST~~
					~~Darren W. Karst~~
			~~Senior Executive Vice President, Chief Financial Officer and Chief Administrative Officer~~

~~Date: January 11, 2018~~	~~By:~~			/s/ MATTHEW C. SCHROEDER
		Matthew C. Schroeder
		Executive Vice President and Chief Financial Officer

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

	December 2, 2017			March 4, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	169,800		$	245,410
Accounts receivable, net	1,796,919			1,771,126
Inventories, net of LIFO reserve of $627,718 and $607,326	1,853,886			1,789,541
Prepaid expenses and other current assets	240,712			211,541
Current assets held for sale	1,868,128			1,047,670
Total current assets	5,929,445			5,065,288
Property, plant and equipment, net	1,479,214			1,526,462
Goodwill	1,682,847			1,682,847
Other intangibles, net	618,274			715,406
Deferred tax assets	1,419,544			1,505,564
Other assets	211,290			215,917
Noncurrent assets held for sale	—			882,268
Total assets	$	11,340,614		$	11,593,752
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt and lease financing obligations	$	20,354		$	17,709
Accounts payable	1,789,456			1,613,909
Accrued salaries, wages and other current liabilities	1,258,586			1,340,947
Current liabilities held for sale	3,837,519			32,683
Total current liabilities	6,905,915			3,005,248
Long-term debt, less current maturities	2,985,700			3,235,888
Lease financing obligations, less current maturities	31,654			37,204
Other noncurrent liabilities	592,201			643,950
Noncurrent liabilities held for sale	—			4,057,392
Total liabilities	10,515,470			10,979,682
Commitments and contingencies	—			—
Stockholders’ equity:
Common stock, par value $1 per share; 1,500,000 shares authorized; shares issued and outstanding 1,067,887 and 1,053,690	1,067,887			1,053,690
Additional paid-in capital	4,846,213			4,839,854
Accumulated deficit	(5,048,182		)	(5,237,157		)
Accumulated other comprehensive loss	(40,774		)	(42,317		)
Total stockholders’ equity	825,144			614,070
Total liabilities and stockholders’ equity	$	11,340,614		$	11,593,752

*Final purchase price*
Cash consideration	$	1,882,211
Stock consideration	240,907
Total	$	2,123,118
*Final purchase price allocation*
Cash and cash equivalents	$	103,834
Accounts receivable	892,678
Inventories	7,276
Prepaid expenses and other current assets	13,386
Total current assets	1,017,174
Property and equipment	13,196
Intangible assets(1)	646,600
Goodwill	1,639,355
Other assets	7,219
Total assets acquired	3,323,544
Accounts payable	491,672
Reinsurance funds held	381,225
Other current liabilities(2)	215,770
Total current liabilities	1,088,667
Other long term liabilities(3)	111,759
Total liabilities assumed	1,200,426
*Net assets acquired*	$	2,123,118

	Estimated Fair Value		Estimated Useful Life (In Years)
Customer relationships	$	465,000	17
CMS license	57,500		25
Claims adjudication and other developed software	59,000		7
Trademarks	20,100		10
Backlog	11,500		3
Trademarks	33,500		Indefinite
Total	$	646,600

	December 2, 2017								March 4, 2017
	Gross Carrying Amount		Accumulated Amortization			Net		Remaining Weighted Average Amortization Period	Gross Carrying Amount		Accumulated Amortization			Net		Remaining Weighted Average Amortization Period
Favorable leases and other (a)	$	384,937	$	(318,634	)	$	66,303	7 years	$	386,636	$	(308,766	)	$	77,870	7 years
Prescription files	898,351		(795,003		)	103,348		3 years	894,330		(764,840		)	129,490		3 years
Customer relationships(a)	465,000		(157,639		)	307,361		15 years	465,000		(110,653		)	354,347		16 years
CMS license	57,500		(5,597		)	51,903		23 years	57,500		(3,872		)	53,628		24 years
Claims adjudication and other developed software	58,987		(20,509		)	38,478		5 years	58,995		(14,188		)	44,807		6 years
Trademarks	20,100		(4,891		)	15,209		8 years	20,100		(3,383		)	16,717		9 years
Backlog	11,500		(9,328		)	2,172		1 year	11,500		(6,453		)	5,047		2 years
Total finite	$	1,896,375	$	(1,311,601	)	$	584,774		$	1,894,061	$	(1,212,155	)	$	681,906

Trademarks	33,500		—			33,500		Indefinite	33,500		—			33,500		Indefinite
Total	$	1,929,875	$	(1,311,601	)	$	618,274		$	1,927,561	$	(1,212,155	)	$	715,406

	December 2, 2017
	Debt			Lease Financing Obligations			Total Debt and Lease Financing Obligations
Balance, December 2, 2017 — per above table	$	6,772,270		$	57,990		$	6,830,260
Amounts reclassified as current and noncurrent liabilities held for sale in connection with the Sale (a)	(3,786,480		)	(6,072		)	(3,792,552		)
Total debt and lease financing obligations	2,985,790			51,918			3,037,708
Current maturities of long-term debt and lease financing obligations — continuing operations	(90		)	(20,264		)	(20,354		)
Long-term debt and lease financing obligations, less current maturities — continuing operations	$	2,985,700		$	31,654		$	3,017,354

	Retail Pharmacy		Pharmacy Services		Intersegment Eliminations (1)			Consolidated
Thirteen Week Period Ended
December 2, 2017:
Revenues	$	3,959,002	$	1,445,140	$	(50,972	)	$	5,353,170
Gross Profit	1,087,888		98,835		—			1,186,723
Adjusted EBITDA (2)	88,886		40,363		—			129,249
November 26, 2016:
Revenues	$	4,082,278	$	1,645,835	$	(59,002	)	$	5,669,111
Gross Profit	1,141,794		103,057		—			1,244,852
Adjusted EBITDA (2)	138,903		52,431		—			191,334
Thirty-Nine Week Period Ended
December 2, 2017:
Revenues	$	11,833,195	$	4,451,212	$	(149,703	)	$	16,134,704
Gross Profit	3,203,270		307,069		—			3,510,339
Adjusted EBITDA (2)	264,253		138,237		—			402,490
November 26, 2016:
Revenues	$	12,319,445	$	4,883,070	$	(178,361	)	$	17,024,154
Gross Profit	3,426,265		289,384		—			3,715,649
Adjusted EBITDA (2)	428,864		143,616		—			572,480

	Retail Pharmacy		Pharmacy Services		Eliminations (2)			Consolidated
December 2, 2017:
Total Assets	$	8,361,424	$	3,146,288	$	(167,098	)	$	11,340,614
Goodwill	43,492		1,639,355		—			1,682,847
Additions to property and equipment and intangible assets	150,043		10,974		—			161,017
March 4, 2017:
Total Assets	$	8,664,216	$	3,087,143	$	(157,607	)	$	11,593,752
Goodwill	43,492		1,639,355		—			1,682,847
Additions to property and equipment and intangible assets(1)	281,072		12,725		—			293,797

	Thirty-Nine Weeks Ended December 2, 2017

Cash paid for interest (net of capitalized amounts of $263)	$	285,022
Cash payments of income taxes, net of refunds	$	8,353
Equipment financed under capital leases	$	10,295
Equipment received for noncash consideration	$	2,044
Reduction in lease financing obligation	$	4,740
Gross borrowings from revolver	$	2,203,000
Gross payments to revolver	$	2,467,080

	Thirty-Nine Weeks Ended November 26, 2016

Cash paid for interest (net of capitalized amounts of $99)	$	273,761
Cash payments of income taxes, net of refunds	$	6,506
Equipment financed under capital leases	$	3,881
Equipment received for noncash consideration	$	746
Gross borrowings from revolver	$	2,774,000
Gross payments to revolver	$	2,494,000

	Rite Aid Corporation
	Condensed Consolidating Balance Sheet
	December 2, 2017
	(unaudited)
	Rite Aid Corporation (Parent Company Only)		Subsidiary Guarantors		Non- Guarantor Subsidiaries		Eliminations			Consolidated
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	163,343	$	6,457	$	—		$	169,800
Accounts receivable, net	—		1,503,578		293,341		—			1,796,919
Intercompany receivable			200,895		—		(200,895		)(a)	—
Inventories, net of LIFO reserve of $0, $627,718, $0, $0, and $627,718	—		1,853,886		—		—			1,853,886
Prepaid expenses and other current assets	—		240,093		619		—			240,712
Current assets held for sale	—		1,868,128		—		—			1,868,128
Total current assets	—		5,829,923		300,417		(200,895		)	5,929,445
Property, plant and equipment, net	—		1,479,214		—		—			1,479,214
Goodwill	—		1,682,847		—		—			1,682,847
Other intangibles, net	—		566,371		51,903		—			618,274
Deferred tax assets	—		1,419,544		—		—			1,419,544
Investment in subsidiaries	7,953,874		47,355		—		(8,001,229		)(b)	—
Intercompany receivable	—		261,847		—		(261,847		)(a)	—
Other assets	—		203,995		7,295		—			211,290
Total assets	$	7,953,874	$	11,491,096	$	359,615	$	(8,463,971	)	$	11,340,614
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt and lease financing obligations	$	90	$	20,264	$	—	$	—		$	20,354
Accounts payable	—		1,780,226		9,230		—			1,789,456
Intercompany payable	—		—		200,895		(200,895		)(a)	—
Accrued salaries, wages and other current liabilities	94,613		1,082,686		81,287		—			1,258,586
Current liabilities held for sales	3,786,480		51,039		—		—			3,837,519
Total current liabilities	3,881,183		2,934,215		291,412		(200,895		)	6,905,915
Long-term debt, less current maturities	2,985,700		—		—		—			2,985,700
Lease financing obligations, less current maturities	—		31,654		—		—			31,654
Intercompany payable	261,847		—		—		(261,847		)(a)	—
Other noncurrent liabilities	—		571,353		20,848		—			592,201
Total liabilities	7,128,730		3,537,222		312,260		(462,742		)	10,515,470
Commitments and contingencies	—		—		—		—			—
Total stockholders’ equity	825,144		7,953,874		47,355		(8,001,229		)(b)	825,144
Total liabilities and stockholders’ equity	$	7,953,874	$	11,491,096	$	359,615	$	(8,463,971	)	$	11,340,614

	Rite Aid Corporation Condensed Consolidating Statement of Operations For the Thirteen Weeks Ended December 2, 2017 (unaudited)
	Rite Aid Corporation (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Revenues	$	—		$	5,331,788		$	47,064		$	(25,682	)(a)	$	5,353,170
Costs and expenses:
Cost of revenues	—			4,146,272			45,063			(24,888		)(a)	4,166,447
Selling, general and administrative expenses	—			1,162,416			4,892			(794		)(a)	1,166,514
Lease termination and impairment expenses	—			3,939			—			—			3,939
Interest expense	45,586			5,040			(318		)	—			50,308
Gain on sale of assets, net	—			205			—			—			205
Equity in earnings of subsidiaries, net of tax	(186,073		)	1,793			—			184,280		(b)	—
	(140,487		)	5,319,665			49,637			158,598			5,387,413
Earnings from continuing operations before income taxes	140,487			12,123			(2,573		)	(184,280		)	(34,243		)
Income tax expense (benefit)	—			(15,281		)	(780		)	—			(16,061		)
Net income (loss) from continuing operations	140,487			27,404			(1,793		)	(184,280		)	(18,182		)
Net income (loss) from discontinued operations	(59,456		)	158,669			—			—			99,213
Net income (loss)	$	81,031		$	186,073		$	(1,793	)	$	(184,280	)(b)	$	81,031
Total other comprehensive income (loss)	514			514			—			(514		)	514
Comprehensive income (loss)	$	81,545		$	186,587		$	(1,793	)	$	(184,794	)	$	81,545

	Rite Aid Corporation Condensed Consolidating Statement of Cash Flows For the Thirty-Nine Weeks Ended December 2, 2017 (unaudited)
	Rite Aid Corporation (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Operating activities:
Net cash provided by operating activities	$	229,578		$	220,721		$	(25,849	)	$	—		$	424,450
Investing activities:
Payments for property, plant and equipment	—			(140,816		)	—			—			(140,816		)
Intangible assets acquired	—			(20,201		)	—			—			(20,201		)
Intercompany activity	—			(449,803		)	—			449,803			—
Proceeds from dispositions of assets and investments	—			19,254			—			—			19,254
Proceeds from insured loss	—			3,627			—			—			3,627
Net cash (used in) provided by investing activities	—			(587,939		)	—			449,803			(138,136		)
Financing activities:
Net payments to revolver	(264,080		)	—			—			—			(264,080		)
Principal payments on long-term debt	—			(7,292		)	—			—			(7,292		)
Change in zero balance cash accounts	—			27,594			—			—			27,594
Net proceeds from issuance of common stock	4,416			—			—			—			4,416
Payments for taxes related to net share settlement of equity awards	—			(4,103		)	—			—			(4,103		)
Intercompany activity	449,803			—			—			(449,803		)	—
Net cash provided by (used in) financing activities	190,139			16,199			—			(449,803		)	(243,465		)
Cash flows of discontinued operations:
Operating activities of discontinued operations	(178,797		)	116,503			—			—			(62,294		)
Investing activities of discontinued operations	—			189,175			—			—			189,175
Financing activities of discontinued operations	(240,920		)	(4,420		)	—			—			(245,340		)
Net cash provided by (used in) discontinued operations	(419,717		)	301,258			—			—			(118,459		)
(Decrease) increase in cash and cash equivalents	—			(49,761		)	(25,849		)	—			(75,610		)
Cash and cash equivalents, beginning of period	—			213,104			32,306			—			245,410
Cash and cash equivalents, end of period	$	—		$	163,343		$	6,457		$	—		$	169,800

	Retail Pharmacy Segment		Pharmacy Services Segment		Intersegment Eliminations (1)			Consolidated Totals
Thirteen Week Period Ended
December 2, 2017:
Revenue	$	3,959,002	$	1,445,140	$	(50,972	)	$	5,353,170
Gross Profit	1,087,888		98,835		—			1,186,723
Adjusted EBITDA (2)	88,886		40,363		—			129,249
November 26, 2016:
Revenue	$	4,082,278	$	1,645,835	$	(59,002	)	$	5,669,111
Gross Profit	1,141,794		103,057		—			1,244,851
Adjusted EBITDA (2)	138,903		52,431		—			191,334
Thirty-Nine Week Period Ended
December 2, 2017:
Revenue	$	11,833,195	$	4,451,212	$	(149,703	)	$	16,134,704
Gross Profit	3,203,270		307,069		—			3,510,339
Adjusted EBITDA (2)	264,253		138,237		—			402,490
November 26, 2016:
Revenue	$	12,319,445	$	4,883,070	$	(178,361	)	$	17,024,154
Gross Profit	3,426,265		289,384		—			3,715,649
Adjusted EBITDA (2)	428,864		143,616		—			572,480

Fiscal Year	2018			2019			2020			2021			2022			Thereafter			Total			Fair Value at 12/02/2017
	(dollars in thousands)
Long-term debt, including current portion, excluding capital lease obligations
Fixed Rate	$	90		$	—		$	—		$	902,000		$	810,000		$	2,223,000		$	3,935,090		$	3,691,346
Average Interest Rate	7.61		%	0.00		%	0.00		%	9.25		%	6.75		%	6.38		%	7.11		%
Variable Rate	$	—		$	—		$	1,925,000		$	470,000		$	500,000		$	—		$	2,895,000		$	2,897,387
Average Interest Rate	0.00		%	0.00		%	2.97		%	5.96		%	5.09		%	0.00		%	3.82		%

Fiscal period:	Total Number of Shares Repurchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that may yet be Purchased under the Plans or Programs
September 3 to September 30, 2017(1)	12	$	2.64	—	—
October 1 to October 28, 2017	—	$	—	—	—
October 29 to December 2, 2017	—	$	—	—	—