New Rite Aid 10Q 2022 Q3 Quarterly report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended November 27, 2021

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

For the transition period from to

Commission File Number: 1-5742

RITE AID CORPORATION

(Exact name of registrant as specified in its charter)

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

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

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

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

Not Applicable

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

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

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

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

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

Large Accelerated Filer ⌧

Accelerated Filer ◻

Non-Accelerated Filer ◻

Smaller reporting company ☐

Emerging growth company ☐

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

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

The registrant had 55,782,174 shares of its $1.00 par value common stock outstanding as of December 17, 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 November 27, 2021 and February 27, 2021	6
	Condensed Consolidated Statements of Operations for the Thirteen Week Periods Ended November 27, 2021 and November 28, 2020	7
	Condensed Consolidated Statements of Comprehensive (Loss) Income for the Thirteen Week Periods Ended November 27, 2021 and November 28, 2020	8
	Condensed Consolidated Statements of Operations for the Thirty-Nine Week Periods Ended November 27, 2021 and November 28, 2020	9
	Condensed Consolidated Statements of Comprehensive Loss for the Thirty-Nine Week Periods Ended November 27, 2021 and November 28, 2020	10
	Condensed Consolidated Statements of Stockholders’ Equity for the Thirteen and Thirty-Nine Week Periods Ended November 27, 2021	11
	Condensed Consolidated Statements of Stockholders’ Equity for the Thirteen and Thirty-Nine Week Periods Ended November 28, 2020	12
	Condensed Consolidated Statements of Cash Flows for the Thirty-Nine Week Periods Ended November 27, 2021 and November 28, 2020	13
	Notes to Condensed Consolidated Financial Statements	14
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations	46
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	62
ITEM 4.	Controls and Procedures	63

	PART II OTHER INFORMATION

ITEM 1.	Legal Proceedings	64
ITEM 1A.	Risk Factors	64
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64
ITEM 3.	Defaults Upon Senior Securities	64
ITEM 4.	Mine Safety Disclosures	64
ITEM 5.	Other Information	64
ITEM 6.	Exhibits	64

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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 including shipping delays, container and trucker shortages, port congestion and other logistics problems, our associates and executive and administrative personnel, our third-party service providers (including suppliers, vendors and business partners), and customers. The COVID-19 pandemic may result in further shutdowns or have a negative impact on our cough, cold and flu sales. In addition, continued shortages of pharmacists and pharmacy technicians, and the impact of potential vaccine mandates in the markets in which we operate, may inhibit our ability to maintain store hours at preferred levels. Any of these developments could result in a material adverse effect on our business, financial conditions and results of operations;

●

our ability to 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, including impacts of inflation or other pricing environment factors on the Company's costs and our ability to pass on price increases to our customers, including as a result of inflationary and deflationary pressures, a decline in consumer spending or deterioration in consumer financial position, whether due to inflation or other factors, as well as other factors specific to the markets in which we operate;

●

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

●

the impact on retail pharmacy business as PBM payors 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;

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●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

We undertake no obligation to update or revise the forward-looking statements included in this report, whether as a result of new information, future events or otherwise, after the date of this report. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences are discussed in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations” included herein and in our Annual Report on Form 10-K for the fiscal year ended February 27, 2021 (the “Fiscal 2021 10-K”), which we filed with the SEC on April 27, 2021, our Quarterly Report on Form 10-Q for the thirteen weeks ended May 29, 2021, which we filed on July 6,

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2021, and our Quarterly Report on Form 10-Q for the thirteen weeks ended August 28, 2021, which we filed on October 5, 2021, as well as in “Part I – Item 1A. Risk Factors” of the Fiscal 2021 10-K. To the extent that COVID-19 adversely affects our business and financial results, it may also have the effect of heightening many of the risk factors described herein and in our Fiscal 2021 10-K.

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(unaudited)


	November 27,		February 27,
	2021		2021
ASSETS
Current assets:
Cash and cash equivalents	$	155,289	$	160,902
Accounts receivable, net		1,844,234		1,462,441
Inventories, net of LIFO reserve of $486,759 and $485,859		1,949,841		1,864,890
Prepaid expenses and other current assets		106,666		106,941
Total current assets		4,056,030		3,595,174
Property, plant and equipment, net		1,014,662		1,080,499
Operating lease right-of-use assets		2,915,748		3,064,077
Goodwill		1,108,136		1,108,136
Other intangibles, net		307,345		340,519
Deferred tax assets		14,964		14,964
Other assets		82,239		132,035
Total assets	$	9,499,124	$	9,335,404
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt and lease financing obligations	$	6,119	$	6,409
Accounts payable		1,547,770		1,437,421
Accrued salaries, wages and other current liabilities		873,201		642,364
Current portion of operating lease liabilities		522,272		516,752
Total current liabilities		2,949,362		2,602,946
Long-term debt, less current maturities		3,167,060		3,063,087
Long-term operating lease liabilities		2,692,669		2,829,293
Lease financing obligations, less current maturities		15,270		16,711
Other noncurrent liabilities		202,734		208,213
Total liabilities		9,027,095		8,720,250
Commitments and contingencies		—		—
Stockholders’ equity:
Common stock, par value $1 per share; 75,000 shares authorized; shares issued and outstanding 55,761 and 55,143		55,761		55,143
Additional paid-in capital		5,902,445		5,897,168
Accumulated deficit		(5,462,519)		(5,313,103)
Accumulated other comprehensive loss		(23,658)		(24,054)
Total stockholders’ equity		472,029		615,154
Total liabilities and stockholders’ equity	$	9,499,124	$	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
	November 27, 2021		November 28, 2020
Revenues	$	6,228,880	$	6,117,038
Costs and expenses:
Cost of revenues		4,894,497		4,913,939
Selling, general and administrative expenses		1,276,920		1,156,355
Facility exit and impairment charges		47,455		7,453
Interest expense		47,794		50,835
Gain on sale of assets, net		(5,899)		(16,305)
Loss on Bartell acquisition		5,346		—
		6,266,113		6,112,277
(Loss) income from continuing operations before income taxes		(37,233)		4,761
Income tax (benefit) expense		(1,175)		437
Net (loss) income from continuing operations		(36,058)		4,324
Net income from discontinued operations, net of tax		—		—
Net (loss) income	$	(36,058)	$	4,324
Computation of (loss) income attributable to common stockholders:
(Loss) income from continuing operations attributable to common stockholders—basic and diluted	$	(36,058)	$	4,324
Income from discontinued operations attributable to common stockholders—basic and diluted		—		—
(Loss) income attributable to common stockholders—basic and diluted	$	(36,058)	$	4,324
Basic and diluted (loss) income per share:
Continuing operations	$	(0.67)	$	0.08
Discontinued operations	$	—	$	—
Net basic and diluted (loss) income per share	$	(0.67)	$	0.08

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

(unaudited)


	Thirteen Week Period Ended
	November 27, 2021		November 28, 2020
Net (loss) income	$	(36,058)	$	4,324
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		911
Change in fair value of interest rate cap		—		116
Total other comprehensive income		123		1,027
Comprehensive (loss) income	$	(35,935)	$	5,351

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
	November 27, 2021		November 28, 2020
Revenues	$	18,502,865	$	18,126,384
Costs and expenses:
Cost of revenues		14,637,683		14,564,621
Selling, general and administrative expenses		3,790,035		3,469,644
Facility exit and impairment charges		67,639		22,734
Intangible asset impairment charges		—		29,852
Interest expense		145,507		151,389
Loss (gain) on debt modifications and retirements, net		3,235		(5,274)
Gain on sale of assets, net		(79)		(17,473)
Loss on Bartell acquisition		5,346		—
		18,649,366		18,215,493
Loss from continuing operations before income taxes		(146,501)		(89,109)
Income tax expense (benefit)		2,915		(7,534)
Net loss from continuing operations		(149,416)		(81,575)
Net income from discontinued operations, net of tax		—		9,161
Net loss	$	(149,416)	$	(72,414)
Computation of loss attributable to common stockholders:
Loss from continuing operations attributable to common stockholders—basic and diluted	$	(149,416)	$	(81,575)
Income from discontinued operations attributable to common stockholders—basic and diluted		—		9,161
Loss attributable to common stockholders—basic and diluted	$	(149,416)	$	(72,414)
Basic and diluted loss per share:
Continuing operations	$	(2.77)	$	(1.52)
Discontinued operations	$	0	$	0.17
Net basic and diluted loss per share	$	(2.77)	$	(1.35)

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(unaudited)


	Thirty-Nine Week Period Ended
	November 27, 2021		November 28, 2020
Net loss	$	(149,416)	$	(72,414)
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		369		2,734
Change in fair value of interest rate cap		27		347
Total other comprehensive income		396		3,081
Comprehensive loss	$	(149,020)	$	(69,333)

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except per share amounts)

(unaudited)


								Accumulated
				Additional				Other
	Common Stock			Paid-In		Accumulated		Comprehensive
	Shares	Amount		Capital		Deficit		Loss		Total
BALANCE FEBRUARY 27, 2021	55,143	$	55,143	$	5,897,168	$	(5,313,103)	$	(24,054)	$	615,154
Net loss							(13,057)				(13,057)
Other comprehensive loss:
Changes in Defined Benefit Plans, net of $0 tax expense									123		123
Change in fair value of interest rate cap									27		27
Comprehensive loss											(12,907)
Exchange of restricted shares for taxes	(2)		(2)		(33)						(35)
Cancellation of restricted stock	(48)		(48)		48						—
Amortization of restricted stock balance					1,618						1,618
Stock-based compensation expense					150						150
BALANCE MAY 29, 2021	55,093	$	55,093	$	5,898,951	$	(5,326,160)	$	(23,904)	$	603,980
Net loss							(100,301)				(100,301)
Other comprehensive loss:
Changes in Defined Benefit Plans, net of $0 tax expense									123		123
Comprehensive loss											(100,178)
Issuance of restricted stock	823		823		(823)						—
Exchange of restricted shares for taxes	(146)		(146)		(2,040)						(2,186)
Cancellation of restricted stock	(38)		(38)		38						—
Amortization of restricted stock balance					3,519						3,519
Stock-based compensation expense					150						150
BALANCE AUGUST 28, 2021	55,732		55,732		5,899,795		(5,426,461)		(23,781)		505,285
Net loss							(36,058)				(36,058)
Other comprehensive loss:
Changes in Defined Benefit Plans, net of $0 tax expense									123		123
Comprehensive loss											(35,935)
Issuance of restricted stock	81		81		(81)						—
Exchange of restricted shares for taxes	(10)		(10)		(121)						(131)
Cancellation of restricted stock	(42)		(42)		42						—
Amortization of restricted stock balance					2,660						2,660
Stock-based compensation expense					150						150
BALANCE NOVEMBER 27, 2021	55,761	$	55,761	$	5,902,445	$	(5,462,519)	$	(23,658)	$	472,029

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except per share amounts)

(unaudited)


								Accumulated
				Additional				Other
	Common Stock			Paid-In		Accumulated		Comprehensive
	Shares	Amount		Capital		Deficit		Loss		Total
BALANCE FEBRUARY 29, 2020	54,716	$	54,716	$	5,890,903	$	(5,222,194)	$	(48,898)	$	674,527
Net loss							(63,541)				(63,541)
Other comprehensive loss:
Changes in Defined Benefit Plans, net of $0 tax expense									911		911
Change in fair value of interest rate cap									116		116
Comprehensive loss											(62,514)
Issuance of restricted stock	19		19		(19)						—
Exchange of restricted shares for taxes	(7)		(7)		(92)						(99)
Cancellation of restricted stock	(53)		(53)		53						—
Amortization of restricted stock balance					1,725						1,725
Stock-based compensation expense					150						150
BALANCE MAY 30, 2020	54,675	$	54,675	$	5,892,720	$	(5,285,735)	$	(47,871)	$	613,789
Net loss							(13,197)				(13,197)
Other comprehensive loss:
Changes in Defined Benefit Plans, net of $0 tax expense									912		912
Change in fair value of interest rate cap									115		115
Comprehensive loss											(12,170)
Issuance of restricted stock	717		717		(717)						—
Exchange of restricted shares for taxes	(131)		(131)		(1,872)						(2,003)
Cancellation of restricted stock	(37)		(37)		37						—
Amortization of restricted stock balance					3,272						3,272
Stock-based compensation expense					150						150
BALANCE AUGUST 29, 2020	55,224		55,224		5,893,590		(5,298,932)		(46,844)		603,038
Net loss							4,324				4,324
Other comprehensive income:
Changes in Defined Benefit Plans, net of $0 tax expense									911		911
Change in fair value of interest rate cap									116		116
Comprehensive income											5,351
Issuance of restricted stock	30		30		(30)						—
Exchange of restricted shares for taxes	(6)		(6)		(58)						(64)
Cancellation of restricted stock	3		3		(3)						—
Amortization of restricted stock balance					2,060						2,060
Stock-based compensation expense					150						150
BALANCE NOVEMBER 28, 2020	55,251	$	55,251	$	5,895,709	$	(5,294,608)	$	(45,817)	$	610,535

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)


	Thirty-Nine Week Period Ended
	November 27, 2021		November 28, 2020
Operating activities:
Net loss	$	(149,416)	$	(72,414)
Net income from discontinued operations, net of tax		—		9,161
Net loss from continuing operations	$	(149,416)	$	(81,575)
Adjustments to reconcile to net cash provided by (used in) operating activities of continuing operations:
Depreciation and amortization		222,691		249,556
Facility exit and impairment charges		67,639		22,734
Intangible asset impairment charges		—		29,852
LIFO charge (credit)		900		(30,303)
Gain on sale of assets, net		(79)		(17,473)
Loss on Bartell acquisition		5,346		—
Stock-based compensation expense		8,820		8,677
Loss (gain) on debt modifications and retirements, net		3,235		(5,274)
Changes in deferred taxes		(1,602)		—
Changes in operating assets and liabilities:
Accounts receivable		(398,079)		(507,778)
Inventories		(87,150)		(19,532)
Accounts payable		129,436		1,460
Operating lease right-of-use assets and operating lease liabilities		(19,517)		(25,319)
Other assets		34,946		75,265
Other liabilities		219,390		45,867
Net cash provided by (used in) operating activities of continuing operations		36,560		(253,843)
Investing activities:
Payments for property, plant and equipment		(145,001)		(127,389)
Intangible assets acquired		(24,289)		(28,703)
Proceeds from insured loss		10,436		12,500
Proceeds from dispositions of assets and investments		7,821		9,086
Proceeds from sale-leaseback transactions		39,790		89,012
Net cash used in investing activities of continuing operations		(111,243)		(45,494)
Financing activities:
Proceeds from issuance of long-term debt		350,000		849,918
Net proceeds from revolver		300,000		341,000
Principal payments on long-term debt		(544,020)		(1,057,376)
Change in zero balance cash accounts		(15,087)		5,545
Financing fees paid for early debt redemption		(833)		(2,399)
Payments for taxes related to net share settlement of equity awards		(2,352)		(2,165)
Deferred financing costs paid		(18,638)		(14,674)
Net cash provided by financing activities of continuing operations		69,070		119,849
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		(5,613)		(167,367)
Cash and cash equivalents, beginning of period		160,902		218,180
Cash and cash equivalents, end of period	$	155,289	$	50,813

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-Nine Week Periods Ended November 27, 2021 and November 28, 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 week periods ended November 27, 2021 are not necessarily indicative of the results to be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Rite Aid Corporation (“Rite Aid”) and Subsidiaries (together with Rite Aid, the “Company”) Fiscal 2021 10-K.

Revenue Recognition

The following table disaggregates the Company’s revenue by major source in each segment for the thirteen and thirty-nine week periods ended November 27, 2021 and November 28, 2020:


	November 27,		November 28,		November 27,		November 28,
	2021		2020		2021		2020
In thousands	(13 weeks)		(13 weeks)		(39 weeks)		(39 weeks)
Retail Pharmacy segment:
Pharmacy sales	$	3,132,821	$	2,837,137	$	9,069,520	$	8,123,143
Front-end sales		1,272,342		1,245,340		3,901,285		4,033,739
Other revenue		27,345		27,115		90,603		93,893
Total Retail Pharmacy segment		4,432,508		4,109,592		13,061,408		12,250,775
Pharmacy Services segment		1,858,830		2,084,402		5,629,325		6,100,026
Intersegment elimination		(62,458)		(76,956)		(187,868)		(224,417)
Total revenue	$	6,228,880	$	6,117,038	$	18,502,865	$	18,126,384

The Retail Pharmacy segment offered a chain-wide loyalty card program titled wellness+. Individual customers were able to become members of the wellness+ program. Members participating in the wellness+ loyalty card program earned points on a calendar year basis for eligible front-end merchandise purchases and qualifying prescription purchases. The wellness+ program was terminated as of July 1, 2020, with benefits earned as of that date available to be used through the end of calendar 2020. In December 2020, the Company granted a temporary extension of benefits to previous members that were eligible for a discount as of December 31, 2020 such that those prior members were 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 extension of benefits to certain members that were eligible for a discount as of June 30, 2021 such that those prior members were eligible to receive discounts on purchases made through December 31, 2021 with no additional purchase requirement. In December 2021, the Company granted an additional extension of benefits to members that were eligible for a discount as of December 31, 2021 such that those prior members will be eligible to continue to receive discounts on purchases made through February 26, 2022 with no additional purchase requirement. New and existing customers who were not already

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

eligible for “Gold” benefits have the opportunity to earn additional discounts on purchases made through February 26, 2022.

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

Points earned pursuant to the wellness+ program represent a performance obligation and the Company allocates revenue between the merchandise purchased and the wellness+ points based on the relative stand-alone selling price of each performance obligation. The relative value of the wellness+ points is initially deferred as a contract liability (included in other current and noncurrent liabilities). As members receive discounted front-end merchandise or when the benefit period expires, the Retail Pharmacy segment recognizes an allocable portion of the deferred contract liability into revenue. For the thirteen week period ended November 27, 2021, the Company recognized $2,359 of deferred contract liability into revenue. The Retail Pharmacy segment had accrued contract liabilities of $2,321 as of November 27, 2021, which is included in other current liabilities. The Retail Pharmacy segment had accrued contract liabilities of $3,754 as of February 27, 2021, which is included in other current liabilities.

Recently Adopted Accounting Pronouncements

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

2. Acquisition

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

The Company’s condensed consolidated financial statements for the thirteen and thirty-nine weeks ended November 27, 2021 include Bartell’s results of operations. The Company’s condensed consolidated financial statements at November 27, 2021 reflect the final purchase accounting adjustments in accordance with ASC 805 “Business Combinations”, whereby the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values on the Acquisition date.

The following allocation of the purchase price and the estimated transaction costs is final:


Final purchase price
Cash consideration	$	89,724
Total		89,724
Final purchase price allocation
Cash and cash equivalents	$	3,494
Accounts receivable		23,860
Inventories		67,745
Prepaid expenses and other current assets		1,857
Total current assets		96,956
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		339,341
Accounts payable		24,166
Accrued salaries, wages and other current liabilities		20,335
Current portion of operating lease liabilities		24,617
Total current liabilities		69,118
Long-term operating lease liabilities		124,023
Other long-term liabilities		166
Total liabilities assumed		193,307
Deferred tax liabilities recorded on purchase		13,951
Net assets acquired		132,083
Bargain purchase gain		(42,359)
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 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 final 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

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

lives for intangible assets were determined based upon the remaining useful economic lives of the 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 purchase price allocation include:


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

During the thirteen week period ended February 27, 2021, the Company recorded a gain on Bartell acquisition of $47,705 primarily due to fair value adjustments related to prescription files and the tradename compared to book values. During the thirteen week period ended November 27, 2021, in connection with determining its final purchase price allocation, the Company recorded a loss on Bartell acquisition of $5,346 primarily due to contract termination charges, inventory valuation adjustments and changes in deferred income taxes, resulting in a net bargain purchase gain of $42,359. The Company believes that the bargain purchase gain was primarily the result of the decision by the Bartell stockholders to sell their interests as Bartell had been experiencing increasing borrowings under its credit agreements to meet its operating needs and increasing net losses. The agreed upon purchase price reflected the fact the seller would have needed to incur further significant debt to cover the operating costs of Bartell, which would have required amendments to its credit arrangements. With the Company’s existing infrastructure, scale and expertise, the Company believes that it has access to the necessary synergies to allow necessary operational improvements to be implemented more efficiently than the seller was capable of.

During the thirteen and thirty-nine week periods ended November 27, 2021, acquisition costs of $3,642 and $12,119, respectively, were expensed as incurred. During the thirteen and thirty-nine week periods ended November 28, 2020, acquisition costs of $1,136 were expensed as incurred. The following unaudited pro forma combined financial data gives effect to the Acquisition as if it had occurred as of March 1, 2019.

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

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

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)


	November 27,		November 28,		November 27,		November 28,
	2021		2020		2021		2020
	(13 weeks)		(13 weeks)		(39 weeks)		(39 weeks)
	Pro forma		Pro forma		Pro forma		Pro forma
Net revenues as reported	$	6,228,880	$	6,117,038	$	18,502,865	$	18,126,384
Supplemental Pro forma revenues	$	6,228,880	$	6,249,566	$	18,502,865	$	18,524,539

Net (loss) income as reported	$	(36,058)	$	4,324	$	(149,416)	$	(72,414)
Supplemental Pro forma net loss	$	(36,058)	$	(4,422)	$	(149,416)	$	(97,017)

3. Restructuring

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

For the thirteen week period ended November 27, 2021, the Company incurred total restructuring-related costs of $9,657, 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)	$	—	$	97	$	97
Non-executive retention costs associated with the March 2019 reorganization (b)		—		—		—
Professional and other fees relating to restructuring activities (c)		3,746		5,814		9,560
Total restructuring-related costs	$	3,746	$	5,911	$	9,657

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

For the thirteen week period ended November 28, 2020, the Company incurred total restructuring-related costs of $12,175, 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)	$	738	$	421	$	1,159
Non-executive retention costs associated with the March 2019 reorganization (b)		—		—		—
Professional and other fees relating to restructuring activities (c)		10,867		149		11,016
Total restructuring-related costs	$	11,605	$	570	$	12,175

For the thirty-nine week period ended November 27, 2021, the Company incurred total restructuring-related costs of $25,173, 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)	$	—	$	1,098	$	1,098
Non-executive retention costs associated with the March 2019 reorganization (b)		—		—		—
Professional and other fees relating to restructuring activities (c)		7,951		16,124		24,075
Total restructuring-related costs	$	7,951	$	17,222	$	25,173

For the thirty-nine week period ended November 28, 2020, the Company incurred total restructuring-related costs of $71,096, of which $45,333 is included as a component of SG&A and $25,763 is included as a component of cost of revenues. These costs are as follows:


	Retail Pharmacy		Pharmacy
	segment		Services segment		Total

Restructuring-related costs
Severance and related costs associated with ongoing reorganization efforts (a)	$	13,346	$	3,212	$	16,558
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)		27,510		253		27,763
SKU optimization charges (d)		25,763		—		25,763
Total restructuring-related costs	$	67,755	$	3,341	$	71,096

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

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.

A summary of activity for the thirty-nine week period ended November 27, 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
Additions charged to expense		97		—		9,560		9,657
Cash payments		(1,685)		—		(7,817)		(9,502)
Balance at November 27, 2021	$	4,579	$	—	$	3,399	$	7,978

(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 $35,000 during fiscal 2022 in connection with its continued restructuring activities.

4. Asset Sale to WBA

On September 18, 2017, the Company entered into the Amended and Restated Asset Purchase Agreement with Walgreens Boots Alliance, Inc. (“WBA”) and Walgreen Co., an Illinois corporation and 100% owned subsidiary of WBA (“Buyer”), which amended and restated in its entirety the previously disclosed Asset Purchase Agreement, dated as of June 28, 2017, by and among the Company, WBA and Buyer (the “Original Asset Purchase Agreement”). Pursuant to the terms and subject to the conditions set forth in the Amended and Restated Asset Purchase Agreement, Buyer purchased from the Company 1,932 stores (the “Acquired Stores”), 3 distribution centers, related inventory and other specified assets and liabilities related thereto for a purchase price of $4,375,000, on a cash-free, debt-free basis (the “Asset Sale” or “Sale”). The Company completed the store transfer process in March of 2018, which resulted in the

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

transfer of all 1,932 stores and related assets to WBA, and received cash proceeds of $4,156,686. The Company sold the 3 distribution centers for cash proceeds of $218,314. The sale of the final distribution center was completed during the first quarter of fiscal 2021 and resulted in a pre-tax gain of $12,690, which was included in the results of operations and cash flows of discontinued operations during the thirteen week period ended May 30, 2020. The transfer of the final distribution center and related assets constitutes the final closing under the Amended and Restated Asset Purchase Agreement.

The Company had agreed to provide transition services to Buyer for up to three years after the initial closing of the Sale. Under the terms of the Transition Services Agreement (“TSA”), the Company provided various services on behalf of WBA, including but not limited to the purchase and distribution of inventory and virtually all selling, general and administrative activities. In connection with these services, the Company purchased the related inventory and incurred cash payments for the selling, general and administrative activities, which, the Company billed on a cash neutral basis to WBA in accordance with terms as outlined in the TSA. Total billings for these items during the thirteen and thirty-nine week periods ended November 28, 2020 were $0 and $35,167, respectively. The Company recorded WBA TSA fees of $0 and $1,467 during the thirteen and thirty-nine week periods ended November 28, 2020, respectively, which are reflected as a reduction to selling, general and administrative expenses. On October 17, 2020, the Company and WBA mutually agreed to terminate the services under the TSA.

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

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

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

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


	November 27,		November 28,		November 27,		November 28,
	2021		2020		2021		2020
	(13 weeks)		(13 weeks)		(39 weeks)		(39 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.

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

5. Income (Loss) Per Share

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

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)


	Thirteen Week Period Ended				Thirty-Nine Week Period Ended
	November 27,		November 28,		November 27,		November 28,
	2021		2020		2021		2020
Basic and diluted (loss) income per share:
Numerator:
Net (loss) income from continuing operations	$	(36,058)	$	4,324	$	(149,416)	$	(81,575)
Net income from discontinued operations		—		—		—		9,161
(Loss) income attributable to common stockholders— basic and diluted	$	(36,058)	$	4,324	$	(149,416)	$	(72,414)
Denominator:
Basic weighted average shares		54,168		53,744		54,004		53,600
Outstanding options and restricted shares, net		—		335		—		—
Diluted weighted average shares		54,168		54,079		54,004		53,600
Basic and diluted (loss) income per share:
Continuing operations	$	(0.67)	$	0.08	$	(2.77)	$	(1.52)
Discontinued operations		-		-		-		0.17
Net basic and diluted (loss) income per share	$	(0.67)	$	0.08	$	(2.77)	$	(1.35)

Due to their antidilutive effect, 719 and 171 potential common shares related to stock options have been excluded from the computation of diluted income (loss) per share for the thirteen week periods ended November 27, 2021 and November 28, 2020, respectively. Due to their antidilutive effect, 719 and 782 potential shares related to stock options have been excluded from the computation of diluted income (loss) per share for the thirty-nine week periods ended November 27, 2021 and November 28, 2020, respectively. Also, excluded from the computation of diluted income (loss) per share for the thirteen week periods ended November 27, 2021 and November 28, 2020 are restricted shares of 1,583 and 0, respectively, which are included in shares outstanding. Excluded from the computation of diluted income (loss) per share for the thirty-nine week periods ended November 27, 2021 and November 28, 2020 are restricted shares of 1,583 and 1,499, respectively, which are included in shares outstanding.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

6. Facility Exit and Impairment Charges

Facility exit and impairment charges consist of amounts as follows:


	Thirteen Week Period				Thirty-Nine Week Period
	Ended				Ended
	November 27,			November 28,	November 27,		November 28,
	2021		2020		2021		2020
Impairment charges	$	40,323	$	3,797	$	51,372	$	15,230
Facility exit charges		7,132		3,656		16,267		7,504
	$	47,455	$	7,453	$	67,639	$	22,734

Impairment Charges

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

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

●

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

●

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

●

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

Non-Financial Assets Measured on a Non-Recurring Basis

Long-lived non-financial assets are measured at fair value on a nonrecurring basis for purposes of calculating impairment using Level 2 and Level 3 inputs as defined in the fair value hierarchy. The fair value of long-lived assets using Level 2 inputs is determined by evaluating the current economic conditions in the geographic area for similar use assets. The fair value of long-lived assets using Level 3 inputs is determined by estimating the amount and timing of net future cash flows (which are unobservable inputs) and discounting them using a risk-adjusted rate of interest (which is Level 1). The Company estimates future cash flows based on its experience and knowledge of the market in which the store is located. Significant increases or decreases in actual cash flows may result in valuation changes. During the thirty-nine week period ended November 27, 2021, long-lived assets from continuing operations with a carrying value of $74,270, primarily right-of-use assets in connection with stores or leased office spaces, were written down to their fair value of $22,898, resulting in an impairment charge of $51,372 of which $40,323 relates to the thirteen week period ended November 27, 2021. During the thirty-nine week period ended November 28, 2020, long-lived assets from

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

continuing operations with a carrying value of $20,485, were written down to their fair value of $5,255, resulting in an impairment charge of $15,230 of which $3,797 relates to the thirteen week period ended November 28, 2020. Of the $15,230, $4,640 relates to a terminated software project and the replacement of existing software, $4,995 relates to the closure of the remaining RediClinic operations and $5,595 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 November 27, 2021 and November 28, 2020:


							Fair Values		Total
							as of		Charges
	Level 1		Level 2		Level 3		Impairment Date		November 27, 2021
Long-lived assets held for use	$	—	$	—	$	22,898	$	22,898	$	(51,372)
Long-lived assets held for sale	$	—	$	—	$	—	$	—	$	—
Total	$	—	$	—	$	22,898	$	22,898	$	(51,372)


							Fair Values		Total
							as of		Charges
	Level 1		Level 2		Level 3		Impairment Date		November 28, 2020
Long-lived assets held for use	$	—	$	—	$	1,071	$	1,071	$	(12,635)
Long-lived assets held for sale	$	—	$	4,184	$	—	$	4,184	$	(2,595)
Total	$	—	$	4,184	$	1,071	$	5,255	$	(15,230)

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

Facility Exit Charges

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

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 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				Thirty-Nine Week Period
	Ended				Ended
	November 27,		November 28,		November 27,		November 28,
	2021		2020		2021		2020
Balance—beginning of period	$	5,611	$	2,605	$	3,443	$	2,253
Provision for present value of executory costs for leases exited		3,620		664		5,328		664
Changes in assumptions and other adjustments		1,387		(496)		2,880		—
Interest accretion		4		21		20		21
Cash payments		(3,941)		(15)		(4,990)		(159)
Balance—end of period	$	6,681	$	2,779	$	6,681	$	2,779

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 November 27, 2021 and February 27, 2021, the Company has $7,525 and $7,041, respectively, of investments carried at amortized cost as these investments are being held to maturity, which are included as a component of other assets. The Company believes the carrying value of these investments approximates their fair value.

The fair value for LIBOR-based borrowings under the Company’s senior secured credit facility is estimated based on the quoted market price of the financial instrument which is considered Level 1 of the fair value hierarchy. The fair values of substantially all of the Company’s other long-term indebtedness are estimated based on quoted market prices of the financial instruments which are considered Level 1 of the fair value hierarchy. The carrying amount and estimated fair value of the Company’s total long-term indebtedness was $3,167,060 and $3,199,404, respectively, as of November 27, 2021. The carrying amount and estimated fair value of the Company's total long-term indebtedness was $3,063,087 and $3,176,322, respectively, as of February 27, 2021.

8. Income Taxes

The Company recorded an income tax benefit of $1,175 and income tax expense from continuing operations of $437 for the thirteen week periods ended November 27, 2021 and November 28, 2020, respectively. The Company recorded an income tax expense of $2,915 and an income tax benefit from continuing operations of $7,534 for the thirty-nine week periods ended November 27, 2021 and November 28, 2020, respectively. The effective tax rate for the thirteen week periods ended November 27, 2021 and November 28, 2020 was 3.2% and 9.2%, respectively. The effective tax rate for the thirty-nine week periods ended November 27, 2021 and November 28, 2020 was (2.0)% and 8.5%, respectively.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

The effective tax rate for the thirteen and thirty-nine week periods ended November 27, 2021 was net of an adjustment of (18.5)%, and (21.4)%, respectively, to adjust the valuation allowance against deferred tax assets. The effective tax rate for the thirteen and thirty-nine week periods ended November 28, 2020 was net of an adjustment of (61.0)% and (5.2)%, respectively, to adjust the valuation allowance against deferred tax assets.

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

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

The Company regularly evaluates valuation allowances established for deferred tax assets for which future realization is uncertain. Management will continue to monitor all available evidence related to the net deferred tax assets that may change the most recent assessment, including events that have occurred or are anticipated to occur. The Company continues to maintain a valuation allowance against net deferred tax assets of $1,687,444 and $1,657,562, which relates to federal and state deferred tax assets that may not be realized based on the Company's future projections of taxable income at November 27, 2021 and February 27, 2021, respectively.

9. Medicare Part D

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

EI is a licensed domestic insurance company under the applicable laws and regulations. Pursuant to these laws and regulations, EI must file quarterly and annual reports with the National Association of Insurance Commissioners (“NAIC”) and certain state regulators, must maintain certain minimum amounts of capital and surplus under formulas established by certain states and must, in certain circumstances, request and receive the approval of certain state regulators before making dividend payments or other capital distributions to the Company. The Company does not believe these limitations on dividends and distributions materially impact its financial position. EI is subject to minimum capital and surplus requirements in certain states. The minimum amount of capital and surplus required to satisfy regulatory requirements in these states is $11,678 as of September 30, 2021. EI was in excess of the minimum required amounts in these states as of November 27, 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 Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

On November 12, 2020, the Company entered into a receivable purchase agreement (the “November 2020 Receivable Purchase Agreement”) with Bank of America, N.A. (the “Purchaser”).

Pursuant to the terms and conditions set forth in the November 2020 Receivable Purchase Agreement, the Company sold $464,019, a portion of its calendar 2020 CMS receivable, for $444,812, of which $412,795 was received on November 12, 2020. The remaining $32,017, which is included in accounts receivable, net as of November 27, 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 $19,207, which is included as a component of gain on sale of assets, net during the thirteen week period ended November 28, 2020.

On November 12, 2020, concurrent with the November 2020 Receivable Purchase Agreement, the Company entered into an indemnity agreement (the “November 2020 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 November 2020 Indemnity Agreement. Based on its evaluation of the November 2020 Indemnity Agreement, the Company has determined that it is highly unlikely that the events covered under the November 2020 Indemnity Agreement would occur, and consequently, the Company has not recorded any indemnification liability associated with the November 2020 Indemnity Agreement.

On August 12, 2021, the Company entered into a receivable purchase agreement (the “August 2021 Receivable Purchase Agreement”) with 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 November 27, 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 during the thirteen week period ended August 28, 2021.

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

During the thirteen week period ended November 27, 2021, the Company has incurred additional fees of $2,049, which are included as a component of gain on sale of asset, net, related to the sale of the 2020 CMS Receivable to Bank of America. The additional fees were incurred due to a CMS delay in settling the 2020 CMS receivable. On January 3, 2022, the final remittance of the calendar 2020 CMS receivable was received and, pursuant to their terms and conditions, used to settle the November 2020 and February 2021 Receivable Purchase Agreements with Bank of America.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

As of November 27, 2021 and February 27, 2021 accounts receivable, net included $72,997 and $52,718 due from the Purchaser, subject to final CMS claim reconciliation adjustments, upon receipt of the final remittance for the respective calendar years from CMS.

As of November 27, 2021, and February 27, 2021, accounts receivable, net included $360,894 and $69,800 due from CMS.

10. Manufacturer Rebates Receivables

The Pharmacy Services Segment has manufacturer rebates receivables of $568,344 and $632,267 included in Accounts receivable, net, as of November 27, 2021 and February 27, 2021, respectively.

11. Goodwill and Other Intangible Assets

Goodwill and indefinite-lived assets, such as certain trademarks acquired in connection with acquisition transactions, are not amortized, but are instead evaluated for impairment on an annual basis at the end of the fiscal year, or more frequently if events or circumstances indicate it may be more likely than not that the fair value of a reporting unit is less than its carrying amount. For goodwill, if the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company performs a quantitative goodwill impairment test. The fair value estimates used in the quantitative impairment test are calculated using an average of the income and market approaches. The income approach is based on the present value of future cash flows of each reporting unit, while the market approach is based on certain multiples of selected guideline public companies or selected guideline transactions. The approaches, which qualify as Level 3 within the fair value hierarchy, incorporate a number of market participant assumptions including future growth rates, discount rates, income tax rates and market activity in assessing fair value and are reporting unit specific. If the carrying amount exceeds the reporting unit’s fair value, the Company recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. In addition, the Company considers the income tax effect of any tax deductible goodwill when measuring a goodwill impairment loss.

During the thirteen week period ended November 27, 2021, the Company noted a decline in the operating results of its Pharmacy Services segment. Based upon the decline, the Company determined that a quantitative goodwill impairment assessment was required. The quantitative assessment concluded that goodwill was not impaired. The fair value of the Pharmacy Services reporting unit was approximately 6% higher than its carrying value as of November 27, 2021. At November 27, 2021, the goodwill related to the Pharmacy Services segment is at risk of future impairment if the fair value of this segment, and its associated assets, decrease in value due to further declines in its operating results or an inability to execute management’s business strategies. Future cash flow estimates are, by their nature, subjective, and actual results may differ materially from the Company's estimates. If the Company's ongoing cash flow projections are not met or if market factors utilized in the impairment test deteriorate, including an unfavorable change in the terminal growth rate or the weighted-average cost of capital, the Company may have to record impairment charges in future periods. As of November 27, 2021, the Pharmacy Services segment had goodwill of $1,064,643.

At November 27, 2021 and February 27, 2021, accumulated impairment losses for the Pharmacy Services segment was $574,712.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 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 November 27, 2021 and February 27, 2021.


	November 27, 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)	$	198,765	$	(178,523)	$	20,242	3	years	$	193,916	$	(172,618)	$	21,298	3	years
Prescription files		1,037,357		(919,723)		117,634	6	years		1,023,200		(900,321)		122,879	6	years
Customer relationships(a)		388,000		(280,410)		107,590	10	years		388,000		(261,584)		126,416	11	years
CMS license		57,500		(14,797)		42,703	19	years		57,500		(13,072)		44,428	20	years
Claims adjudication and other developed software		58,985		(54,209)		4,776	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	$	1,752,107	$	(1,459,162)		292,945			$	1,733,101	$	(1,406,982)	$	326,119
Trademarks		14,400		—		14,400	Indefinite			14,400		—		14,400	Indefinite
Total	$	1,766,507	$	(1,459,162)	$	307,345			$	1,747,501	$	(1,406,982)	$	340,519

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

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

Amortization expense for these intangible assets and liabilities was $18,780 and $59,193 for the thirteen and thirty-nine week periods ended November 27, 2021, respectively. Amortization expense for these intangible assets and liabilities was $21,236 and $68,351 for the thirteen and thirty-nine week periods ended November 28, 2020, respectively. The anticipated annual amortization expense for these intangible assets and liabilities is 2022—$71,652; 2023—$62,431; 2024—$48,695; 2025—$37,389 and 2026—$26,784.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

12. Indebtedness and Credit Agreement

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


	November 27,		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 ($1,150,000 and $0 face value less unamortized debt issuance costs of $23,484 and $0)		1,126,516		—
FILO Term Loan due August 2026 ($350,000 and $0 face value less unamortized debt issuance costs of $2,476 and $0)		347,524		—
		1,474,040		1,283,667
Second Lien Secured Debt:
7.5% senior notes due July 2025 ($600,000 face value less unamortized debt issuance costs of $7,337 and $8,876)		592,663		591,124
8.0% senior notes due November 2026 ($849,918 face value less unamortized debt issuance costs of $15,167 and $17,477)		834,751		832,441
		1,427,414		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 $676 and $776)		236,710		236,610
6.875% fixed-rate senior notes due December 2028 ($29,001 face value less unamortized debt issuance costs of $105 and $116)		28,896		28,885
		265,606		265,495
Lease financing obligations		21,389		23,120
Total debt		3,188,449		3,086,207
Current maturities of long-term debt and lease financing obligations		(6,119)		(6,409)
Long-term debt and lease financing obligations, less current maturities	$	3,182,330	$	3,079,798

Credit Facility

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

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

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

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

The Company’s borrowing capacity under the Senior Secured Revolving Credit Facility is based upon a specified borrowing base consisting of accounts receivable, inventory and prescription files. At November 27, 2021, the Company had $1,500,000 of borrowings outstanding under the Amended Facilities and had letters of credit outstanding under the Senior Secured Revolving Credit Facility in a face amount of $134,572, which resulted in remaining borrowing capacity under the Senior Secured Revolving Credit Facility of $1,515,428. If at any time the total credit exposure outstanding under the Senior Secured Revolving Credit Facility exceeds the borrowing base, the Company will be required to repay amounts outstanding to eliminate such shortfall.

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

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

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

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

The Amended Credit Agreement has a financial covenant that requires the Company to maintain a minimum fixed charge coverage ratio of 1.00 to 1.00 (i) on any date on which availability under the Senior Secured Revolving Credit Facility is less than $200,000 or (ii) on the third consecutive business day on which availability under the Senior Secured Revolving Credit Facility is less than $250,000 and, in each case, ending on and excluding the first day thereafter, if any, which is the 30th consecutive calendar day on which availability under the revolver is equal to or greater than $250,000. As of November 27, 2021, the Company’s fixed charge coverage ratio was greater than 1.00 to 1.00, and the Company was in compliance with the Amended Credit Agreement’s financial covenant. The Amended Credit Agreement also contains covenants which place restrictions on the incurrence of debt, the payments of dividends, the making of investments, sale of assets, mergers and acquisitions and the granting of liens.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

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

Fiscal 2021 and 2022 Transactions

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

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

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

Maturities

The aggregate annual principal payments of long-term debt for the remainder of fiscal 2022 and thereafter are as follows: 2022—$0; 2023—$0; 2024—$0; 2025—$0; 2026—$600,000 and $2,616,305 thereafter.

13. Leases

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 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 thirty-nine week periods ended November 27, 2021 and November 28, 2020:


	Thirteen Week Period Ended				Thirty-Nine Week Period Ended
	November 27, 2021		November 28, 2020		November 27, 2021		November 28, 2020
Operating lease cost	$	167,224	$	160,794	$	505,192	$	483,558
Financing lease cost:
Amortization of right-of-use asset		876		1,092		2,807		3,316
Interest on long-term finance lease liabilities		533		595		1,652		1,927
Total finance lease costs	$	1,409	$	1,687	$	4,459	$	5,243
Short-term lease costs		516		476		2,611		913
Variable lease costs		44,417		42,949		134,603		128,078
Less: sublease income		(3,404)		(3,511)		(10,174)		(11,530)
Net lease cost	$	210,162	$	202,395	$	636,691	$	606,262

Supplemental cash flow information related to leases for the thirty-nine week periods ended November 27, 2021 and November 28, 2020:


	Thirty-Nine Week Period Ended
	November 27, 2021		November 28, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	$	528,035	$	507,989
Operating cash flows paid for interest portion of finance leases		1,652		1,927
Financing cash flows paid for principal portion of finance leases		3,146		3,613
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		262,937		342,915
Finance leases		0		0

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

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


	November 27,			February 27,
	2021			2021
Operating leases:
Operating lease right-of-use asset	$	2,915,748		$	3,064,077

Short-term operating lease liabilities	$	522,272		$	516,752
Long-term operating lease liabilities		2,692,669			2,829,293
Total operating lease liabilities	$	3,214,941		$	3,346,045

Finance leases:
Property, plant and equipment, net	$	14,779		$	16,074

Current maturities of long-term debt and lease financing obligations	$	6,119		$	6,409
Lease financing obligations, less current maturities		15,270			16,711
Total finance lease liabilities	$	21,389		$	23,120
Weighted average remaining lease term
Operating leases		7.7			7.9
Finance leases		8.6			8.9

Weighted average discount rate
Operating leases		6.0	%		6.0	%
Finance leases		10.0	%		9.8	%

The following table summarizes the maturity of lease liabilities under finance and operating leases as of November 27, 2021:


	November 27, 2021
	Finance		Operating
Fiscal year	Leases		Leases (1)		Total
2022 (remaining thirteen weeks)	$	2,026	$	175,957	$	177,983
2023		6,920		683,445		690,365
2024		3,438		625,795		629,233
2025		3,223		530,790		534,013
2026		2,670		440,181		442,851
Thereafter		13,990		1,574,922		1,588,912
Total lease payments		32,267		4,031,090		4,063,357
Less: imputed interest		(10,878)		(816,149)		(827,027)
Total lease liabilities	$	21,389	$	3,214,941	$	3,236,330

(1)	– Future operating lease payments have not been reduced by minimum sublease rentals of $34 million due in the future under noncancelable leases.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

The Company sold 9 and 13 owned and operating stores to independent third parties during the thirteen and thirty-nine week period ended November 27, 2021, respectively. Net proceeds from the sales were $25,605 and $39,790 for the thirteen and thirty-nine week periods ended November 27, 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 gains of $4,884 and $5,794 which is included in the gain on sale of assets, net for the thirteen and thirty-nine week periods ended November 27, 2021, respectively. The Company has additional capacity under its outstanding debt agreements to enter into additional sale-leaseback transactions.

During the thirteen week period ended November 28, 2020, the Company sold 6 owned and operating properties, including the Company’s Perryman, MD distribution center and 5 retail stores to independent third parties. In addition, during the thirty-nine week period ended November 28, 2020, the Company also sold 1 owned and operating property, the Company’s Ice Cream Plant, to an independent third party. Net proceeds from the sales were $80,551 and $89,012 for the thirteen and thirty-nine week periods ended November 28, 2020, respectively. Concurrent with these sales, the Company entered into agreements to lease the properties back from the purchasers over minimum lease terms between 15 and 20 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 gain of $33,092 and $39,311 which is included in the gain on sale of assets, net for the thirteen and thirty-nine week periods ended November 28, 2020, respectively.

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 week periods ended November 27, 2021 and November 28, 2020 include $8,820 and $8,677, respectively, of compensation costs related to the Company’s stock-based compensation arrangements.

The Company provides certain of its associates with performance based incentive plans under which the associates will receive a certain number of shares of the Company’s common stock or cash based on the Company meeting certain financial and performance goals. If such goals are not met, no stock-based compensation expense is recognized and any recognized stock-based compensation expense is reversed. During the thirty-nine week periods ended November 27, 2021 and November 28, 2020, the Company incurred expense of $573 and $1,170 related to these performance based incentive plans, respectively, which is recorded as a component of stock-based compensation expense.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 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 week periods ended November 27, 2021 and November 28, 2020 are as follows:


	November 27, 2021			November 28, 2020
	Shares	Weighted Average Fair Value		Shares	Weighted Average Fair Value
Stock options granted	—	$	N/A	—	$	N/A
Restricted stock awards granted	904	$	15.15	766	$	17.70
Total awards	904			766

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

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

As of November 27, 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:


	November 27, 2021
	Unvested		Unvested		Unvested
	stock		restricted		performance
	options		stock		shares
Unrecognized pre-tax costs	$	869	$	18,652	$	12,188
Weighted average amortization period		1.5 years		2.1 years		2.1 years

15. Retirement Plans

Net periodic pension expense for the thirteen and thirty-nine week periods ended November 27, 2021 and November 28, 2020, for the Company’s defined benefit plan includes the following components:


	Defined Benefit				Defined Benefit
	Pension Plan				Pension Plan
	Thirteen Week Period Ended				Thirty-Nine Week Period Ended
	November 27,		November 28,		November 27,		November 28,
	2021		2020		2021		2020
Service cost	$	128	$	144	$	384	$	432
Interest cost		1,232		1,199		3,696		3,598
Expected return on plan assets		(1,313)		(1,177)		(3,939)		(3,531)
Amortization of unrecognized net loss		123		911		369		2,734
Net periodic pension expense	$	170	$	1,077	$	510	$	3,233

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

During the thirteen and thirty-nine week periods ended November 27, 2021 the Company contributed $0 and $1,700 to the Defined Benefit Pension Plan. During the remainder of fiscal 2022, the Company expects to contribute $0 to the Defined Benefit Pension Plan.

16. Segment Reporting

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

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

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

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


	Retail		Pharmacy
	Pharmacy		Services		Eliminations(1)		Consolidated
November 27, 2021:
Total Assets	$	6,671,781	$	2,841,096	$	(13,753)	$	9,499,124
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 November 27, 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 $13,753 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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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

The following table is a reconciliation of the Company’s business segments to the consolidated financial statements for the thirteen and thirty-nine week periods ended November 27, 2021 and November 28, 2020:


		Retail		Pharmacy		Intersegment
		Pharmacy		Services		Eliminations(1)		Consolidated
Thirteen Week Period Ended
November 27, 2021:
Revenues		$	4,432,508	$	1,858,830	$	(62,458)	$	6,228,880
Gross Profit			1,233,237		101,146		—		1,334,383
Adjusted EBITDA(2)			125,931		28,862		—		154,793
Additions to property and equipment and intangible assets			44,501		4,954		—		49,455
November 28, 2020:
Revenues		$	4,109,592	$	2,084,402	$	(76,956)	$	6,117,038
Gross Profit	��		1,079,708		123,391		—		1,203,099
Adjusted EBITDA(2)			88,557		48,848		—		137,405
Additions to property and equipment and intangible assets			67,727		2,708		—		70,435
Thirty-Nine Week Period Ended
November 27, 2021:
Revenues		$	13,061,408	$	5,629,325	$	(187,868)	$	18,502,865
Gross Profit			3,543,533		321,649		—		3,865,182
Adjusted EBITDA(2)			290,214		109,616		—		399,830
Additions to property and equipment and intangible assets			155,942		13,348		—		169,290
November 28, 2020:
Revenues		$	12,250,775	$	6,100,026	$	(224,417)	$	18,126,384
Gross Profit			3,223,157		338,606		—		3,561,763
Adjusted EBITDA(2)			273,879		122,521		—		396,400
Additions to property and equipment and intangible assets			146,455		9,637		—		156,092

(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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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

The following is a reconciliation of net income (loss) to Adjusted EBITDA for the thirteen and thirty-nine week periods ended November 27, 2021 and November 28, 2020:


	November 27,		November 28,		November 27,		November 28,
	2021		2020		2021		2020
	(13 weeks)		(13 weeks)		(39 weeks)		(39 weeks)
Net (loss) income from continuing operations	$	(36,058)	$	4,324	$	(149,416)	$	(81,575)
Interest expense		47,794		50,835		145,507		151,389
Income tax (benefit) expense		(1,175)		437		2,915		(7,534)
Depreciation and amortization		72,973		83,336		222,691		249,556
LIFO charge (credit)		8,886		(9,487)		900		(30,303)
Facility exit and impairment charges		47,455		7,453		67,639		22,734
Intangible asset impairment charges		—		—		—		29,852
Loss (gain) on debt modifications and retirements, net		—		—		3,235		(5,274)
Merger and Acquisition-related costs		3,642		1,136		12,119		1,136
Stock-based compensation expense		217		2,867		8,820		8,677
Restructuring-related costs		9,657		12,175		25,173		71,096
Inventory write-downs related to store closings		86		704		1,356		2,596
Litigation settlements		2,000		—		50,212		—
Gain on sale of assets, net		(5,899)		(16,305)		(79)		(17,473)
Loss on Bartell acquisition		5,346		—		5,346		—
Other		(131)		(70)		3,412		1,523
Adjusted EBITDA from continuing operations	$	154,793	$	137,405	$	399,830	$	396,400

17. Commitments, Contingencies and Guarantees

Legal Matters and Regulatory Proceedings

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

None of the Company’s accruals for outstanding legal matters or regulatory proceedings are currently material, individually or in the aggregate, to the Company’s consolidated financial position. However, during the course of any proceeding, developments may result in the creation or an increase of an accrual that could be material. Additionally, unfavorable or unexpected outcomes in outstanding legal matters or regulatory proceedings could exceed any accrual and impact the Company’s financial position. Further, even if the Company is successful in its legal proceedings, the Company may incur significant costs and expenses defending itself or others that it is required to indemnify, and such costs and expenses may not be subject to or exceed reimbursement pursuant to any applicable insurance.

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

California Employment Litigation.

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

Usual and Customary Litigation.

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

In January 2017, qui tam plaintiff Azam Rahimi (“Relator”) filed a sealed False Claims Act (“FCA”) lawsuit in the United States District Court for the Eastern District of Michigan. The United States Attorney’s Office for the Eastern District of Michigan, 18 states, and the District of Columbia declined to intervene. The unsealed lawsuit alleges that the Company failed to report its Rx Savings Program prices as its usual and customary prices under the Medicare Part D program, federal and state Medicaid programs, and other publicly funded health care programs, and that the Company is thus liable under the federal FCA and similar state statutes. On December 12, 2019, the court granted the Company’s motion to dismiss and judgment on the pleadings based upon the FCA’s public disclosure bar. The Relator filed a motion for reconsideration which was denied. The Relator appealed to the Court of Appeals for the Sixth Circuit. On June 29, 2021, the Sixth Circuit upheld the lower court's granting of the Company's motion to dismiss the federal FCA claims, leaving Relator the option of refiling the remaining state court claims.

The State of Mississippi, by and through its Attorney General, filed a lawsuit against the Company and various purported related entities on September 27, 2016 alleging the Company failed to accurately report usual and customary prices to Mississippi’s Division of Medicaid. The matter has settled for an amount that is not material.

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

On February 6, 2019, Humana, Inc., filed an arbitration claim alleging that the Company improperly submitted various usual and customary overcharges by failing to report its Rx Savings Program prices as its usual and customary prices to Humana. An arbitration hearing was held in this matter in 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 8 different states (North Carolina, North Dakota, Alabama, Utah, Minnesota, Oregon, Washington and New Jersey) alleging that the Company improperly submitted various usual and customary overcharges by failing to report its Rx Savings Program pricing to several Pharmacy Benefit Managers with which Rite Aid and the insurers had independent contracts. The Company is also defending a lawsuit filed in Delaware state court in 2019 by multiple Centene entities alleging that the Company overcharged for prescriptions by improperly reporting usual and customary prices that did not include Rx Savings Program pricing.

Drug Utilization Review and Code 1 Litigation

In June 2012, qui tam plaintiff, Lloyd F. Schmuckley (“Relator”) filed a complaint under seal against the Company alleging that it failed to comply with certain requirements of California’s Medicaid program between 2007 and 2014. In June 2013, the Company was served with a Civil Investigative Demand (“CID”) by the United States Attorney’s Office for the Eastern District of California regarding (1) the Company’s Drug Utilization Review and

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

prescription dispensing protocol; and (2) the dispensing of drugs designated as “Code 1” by the State of California. Specifically, the Relator alleged that the Company did not perform special verification and documentation for certain medications known as “Code 1” drugs. While the complaint remained under seal, the United States Department of Justice conducted an extensive investigation and ultimately declined to intervene. Although numerous states declined to intervene, in September 2017, the State of California filed a complaint in intervention. The Company filed a motion to dismiss Relator’s and the State of California Department of Justice’s Bureau of Medical Fraud and Elder Abuse respective complaints in January 2018, the hearing was held on March 23, 2018. On September 5, 2018, the court issued an order denying the motion to dismiss. No trial date has been set but the parties have agreed in principle to participate in a mediation process.

Controlled Substances Litigation, Audits and Investigations

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

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

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

Miscellaneous Litigation and Investigations.

The U.S. Securities and Exchange Commission (“SEC”) is investigating trading in the Company’s securities that occurred in or around January 2017, and has subpoenaed information from the Company in connection with that investigation. The Company is cooperating with the SEC in this matter. In July 2021, Elixir participated in a binding

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Week Periods Ended November 27, 2021 and November 28, 2020

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

(unaudited)

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.

18. Supplementary Cash Flow Data


	Thirty-Nine Week Period Ended
	November 27, 2021		November 28, 2020
Cash paid for interest(a)	$	102,633	$	101,668
Cash payments for income taxes, net(a)	$	3,521	$	6,945
Equipment financed under capital leases	$	1,698	$	1,682
Gross borrowings from revolver(a)	$	4,191,000	$	6,233,000
Gross repayments to revolver(a)	$	3,891,000	$	5,892,000

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

A significant component of cash provided by Other Liabilities of $219,390 for the thirty-nine week period ended November 27, 2021 includes cash provided from an increase in payroll, benefits and bonus accruals of $46,030, accrued interest of $33,840, accrued litigation of $25,269 and other operating expense accruals of $94,226.

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

Overview

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

Retail Pharmacy Segment

Our Retail Pharmacy segment sells brand and generic prescription drugs and provides various other pharmacy services, as well as an assortment of front-end products including health and beauty aids, personal care products, seasonal merchandise, and a large private brand product line. Our Retail Pharmacy segment generates the majority of its revenue through the sale of prescription drugs and front-end products at our over 2,400 retail pharmacy locations across 17 states. We replenish our retail stores through a combination of direct store delivery of pharmaceutical products facilitated through our pharmaceutical Purchasing and Delivery Agreement with McKesson, and the majority of our front-end products through our network of distribution centers.

Pharmacy Services Segment

Our Pharmacy Services segment provides a fully integrated suite of PBM offerings including technology solutions, mail delivery services, specialty pharmacy, network and rebate administration, claims adjudication and pharmacy discount programs. Elixir also provides prescription discount programs and Medicare Part D insurance offerings for individuals and groups. Elixir provides services to various clients across its different lines of business, including major health plans, commercial employers, labor groups and state and local governments, representing approximately 3.2 million covered lives, including approximately 0.8 million covered lives through our Medicare Part D insurance offerings. Elixir continues to focus its efforts and offerings to its target market of small to mid-market employers, labor unions and regional health plans, including provider-led health plans and government sponsored Medicaid and Medicare plans.

Restructuring

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

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

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Asset Sale to WBA

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

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

In connection with the asset sale, we agreed to provide transition services to Buyer. Under the terms of the Transition Services Agreement (“TSA”), we provided various services on behalf of WBA, including but not limited to the purchase and distribution of inventory and virtually all selling, general and administrative activities. In connection with these services, we purchased the related inventory and incurred cash payments for the selling, general and administrative activities, which, we billed on a cash neutral basis to WBA in accordance with terms as outlined in the TSA. Total billings for these items during the thirteen and thirty-nine week periods ended November 28, 2020 were $0 million and $35.2 million, respectively. We recorded WBA TSA fees of $0 million and $1.5 million during the thirteen and thirty-nine week periods ended November 28, 2020, respectively, which are reflected as a reduction to selling, general and administrative expenses. On October 17, 2020, we and WBA mutually agreed to terminate the services under the TSA.

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

Overview of Financial Results from Continuing Operations

Our net loss from continuing operations for the thirteen week period ended November 27, 2021 was $36.1 million or $0.67 per basic and diluted share compared to net income of $4.3 million or $0.08 per basic and diluted share for the thirteen week period ended November 28, 2020. Our net loss from continuing operations for the thirty-nine week period ended November 27, 2021 was $149.4 million or $2.77 per basic and diluted share compared to a net loss of $81.6 million or $1.52 per basic and diluted share for the thirty-nine week period ended November 28, 2020.

The increase in net loss for the thirteen week period ended November 27, 2021 was due primarily to higher facility exit and impairment charges, a LIFO charge in the current quarter compared to a LIFO credit in the prior year third quarter and a lower gain on sale of assets. These items were partially offset by an increase in Adjusted EBITDA, lower restructuring-related costs and lower depreciation and amortization expense.

The increase in net loss for the thirty-nine week period ended November 27, 2021 was due primarily to higher litigation settlements, increased facility exit and impairment charges, a LIFO charge in the current year compared to a LIFO credit in the prior year, and a lower gain on sale of assets. These items were partially offset by an increase in Adjusted EBITDA, lower restructuring-related costs and lower depreciation and amortization expense. 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 week period ended November 27, 2021 was $154.8 million or 2.5% of revenues and $399.8 million or 2.2% of revenues, respectively, compared to $137.4 million or 2.3% of revenues and $396.4 million or 2.2% of revenues, respectively, for the thirteen and thirty-nine week period ended November 28, 2020.

The increase in Adjusted EBITDA for the thirteen week period ended November 27, 2021, was due to an increase in the Retail Pharmacy segment, partially offset by a decrease in the Pharmacy Services segment. Adjusted

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EBITDA increased $37.4 million in the Retail Pharmacy segment driven by an increase in gross profit, partially offset by an increase in SG&A expenses. Adjusted EBITDA in the Pharmacy Services segment decreased $20.0 million driven by the decline in revenues, a reduction in rebates and an increase in the medical loss ratio at EI.

The increase in Adjusted EBITDA for the thirty-nine week period ended November 27, 2021 was due to an increase in the Retail Pharmacy segment, partially offset by a decrease in the Pharmacy Services segment. Adjusted EBITDA increased $16.3 million in the Retail Pharmacy segment due primarily to an increase in gross profit, partially offset by an increase in SG&A expenses. Adjusted EBITDA in the Pharmacy Services segment decreased $12.9 million driven by a decline in revenues, a reduction in rebates and an increase in the medical loss ratio at EI. 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
	November 27,			November 28,			November 27,			November 28,
	2021			2020			2021			2020

	(dollars in thousands except per share amounts)
Revenues(a)	$	6,228,880		$	6,117,038		$	18,502,865		$	18,126,384
Revenue growth		1.8	%		12.0	%		2.1	%		11.9	%
Net (loss) income	$	(36,058)		$	4,324		$	(149,416)		$	(81,575)
Net (loss) income per diluted share	$	(0.67)		$	0.08		$	(2.77)		$	(1.52)
Adjusted EBITDA(b)	$	154,793		$	137,405		$	399,830		$	396,400
Adjusted Net Income (b)	$	8,164		$	21,578		$	7,132		$	33,104
Adjusted Net Income per Diluted Share(b)	$	0.15		$	0.40		$	0.13		$	0.61

(a)

Revenues for the thirteen and thirty-nine week periods ended November 27, 2021 exclude $62,458 and $187,868, respectively, of inter-segment activity that is eliminated in consolidation. Revenues for the thirteen and thirty-nine week periods ended November 28, 2020 exclude $76,956 and $224,417, respectively, of inter-segment activity that is eliminated in consolidation.

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

Revenues

Revenues increased 1.8% and 2.1% for the thirteen and thirty-nine weeks ended November 27, 2021, compared to an increase of 12.0% and 11.9% for the thirteen and thirty-nine weeks ended November 28, 2020, respectively. Revenues for the thirteen week period ended November 27, 2021 were positively impacted by a $322.9 million increase in Retail Pharmacy segment revenues, partially offset by a $225.6 million decrease in Pharmacy Services segment revenues. Revenues for the thirty-nine week period ended November 27, 2021 were positively impacted by a $810.6 million increase in Retail Pharmacy segment revenues, partially offset by a $470.7 million decrease in Pharmacy Services segment revenues.

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

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Costs and Expenses


	Thirteen Week Period Ended						Thirty-Nine Week Period Ended
	November 27,			November 28,			November 27,			November 28,
	2021			2020			2021			2020

	(dollars in thousands)
Cost of revenues(a)	$	4,894,497		$	4,913,939		$	14,637,683		$	14,564,621
Gross profit		1,334,383			1,203,099			3,865,182			3,561,763
Gross margin		21.4	%		19.7	%		20.9	%		19.6	%
Selling, general and administrative expenses	$	1,276,920		$	1,156,355		$	3,790,035		$	3,469,644
Selling, general and administrative expenses as a percentage of revenues		20.5	%		18.9	%		20.5	%		19.1	%
Facility exit and impairment charges		47,455			7,453			67,639			22,734
Intangible asset impairment charges		—			—			—			29,852
Interest expense		47,794			50,835			145,507			151,389
Loss (gain) on debt modifications and retirements, net		—			—			3,235			(5,274)
Gain on sale of assets, net		(5,899)			(16,305)			(79)			(17,473)
Loss on Bartell acquisition		5,346			—			5,346			—

(a)

Cost of revenues for the thirteen and thirty-nine week periods ended November 27, 2021 exclude $62,458 and $187,868, respectively, of inter-segment activity that is eliminated in consolidation. Cost of revenues for the thirteen and thirty-nine week periods ended November 28, 2020 exclude $76,956 and $224,417, respectively, of inter-segment activity that is eliminated in consolidation.

Gross Profit and Cost of Revenues

Gross profit increased by $131.3 million for the thirteen week period ended November 27, 2021 compared to the thirteen week period ended November 28, 2020. Gross profit increased by $303.4 million for the thirty-nine week period ended November 27, 2021 compared to the thirty-nine week period ended November 28, 2020. Gross profit for the thirteen week period ended November 27, 2021 includes an increase of $153.5 million in our Retail Pharmacy segment and a decrease of $22.2 million in our Pharmacy Services segment. Gross profit for the thirty-nine week period ended November 27, 2021 includes an increase of $320.4 million in our Retail Pharmacy segment and a decrease of $17.0 million in our Pharmacy Services segment. Gross margin was 21.4% for the thirteen week period ended November 27, 2021 compared to 19.7% for the thirteen week period ended November 28, 2020. Gross margin was 20.9% for the thirty-nine week period ended November 27, 2021 compared to 19.6% for the thirty-nine week period ended November 28, 2020. Please see the section entitled “Segment Analysis” for a more detailed description of gross profit and gross margin results by segment.

Selling, General and Administrative Expenses

SG&A increased by $120.6 million and $320.4 million for the thirteen and thirty-nine week period ended November 27, 2021, respectively, compared to the thirteen and thirty-nine week period ended November 28, 2020. The increase in SG&A for the thirteen week period ended November 27, 2021 includes an increase of $118.9 million relating to our Retail Pharmacy segment and an increase of $1.6 million relating to our Pharmacy Services segment. The increase in SG&A for the thirty-nine week period ended November 27, 2021 includes an increase of $299.3 million relating to

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our Retail Pharmacy segment and an increase of $21.1 million relating to our Pharmacy Services segment. Please see the section entitled “Segment Analysis” below for additional details regarding SG&A.

Facility Exit and Impairment Charges

Facility exit and impairment charges consist of amounts as follows:


	Thirteen Week				Thirty-Nine Week
	Period Ended				Period Ended
	November 27,			November 28,	November 27,		November 28,
	2021		2020		2021		2020
Impairment charges	$	40,323	$	3,797	$	51,372	$	15,230
Facility exit charges		7,132		3,656		16,267		7,504
	$	47,455	$	7,453	$	67,639	$	22,734

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

Interest Expense

Interest expense was $47.8 million and $145.5 million for the thirteen and thirty-nine week period ended November 27, 2021, respectively, compared to $50.8 million and $151.4 million for the thirteen and thirty-nine week period ended November 28, 2020, respectively. The weighted average interest rate on our indebtedness for the thirty-nine week periods ended November 27, 2021 and November 28, 2020 was 4.3% and 4.7%, respectively.

Income Taxes

We recorded an income tax benefit of $1.2 million and income tax expense from continuing operations of $0.4 million for the thirteen week periods ended November 27, 2021 and November 28, 2020, respectively. We recorded an income tax expense of $2.9 million and an income tax benefit from continuing operations of $7.5 million for the thirty-nine week periods ended November 27, 2021 and November 28, 2020, respectively. The effective tax rate for the thirteen week periods ended November 27, 2021 and November 28, 2020 was 3.2% and 9.2%, respectively. The effective tax rate for the thirty-nine week periods ended November 27, 2021 and November 28, 2020 was (2.0)% and 8.5%, respectively. The effective tax rate for the thirteen and thirty-nine week periods ended November 27, 2021 was net of an adjustment of (18.5)% and (21.4)%, respectively, to adjust the valuation allowance against deferred tax assets. The effective tax rate for the thirteen and thirty-nine week periods ended November 28, 2020 was net of an adjustment of (61.0)% and (5.2)%, respectively, to adjust the valuation allowance against deferred tax assets.

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

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

We regularly evaluate valuation allowances established for deferred tax assets for which future realization is uncertain. We will continue to monitor all available evidence related to the net deferred tax assets that may change the most recent assessment, including events that have occurred or are anticipated to occur. We continue to maintain a valuation allowance against net deferred tax assets of $1,687.4 million and $1,657.6 million, which relates to federal and state deferred tax assets that may not be realized based on our future projections of taxable income at November 27, 2021 and February 27, 2021, respectively.

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Segment Analysis

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


	Retail		Pharmacy		Intersegment
	Pharmacy		Services		Eliminations(1)		Consolidated
Thirteen Week Period Ended
November 27, 2021:
Revenues	$	4,432,508	$	1,858,830	$	(62,458)	$	6,228,880
Gross Profit		1,233,237		101,146		—		1,334,383
Adjusted EBITDA(*)		125,931		28,862		—		154,793
November 28, 2020:
Revenues	$	4,109,592	$	2,084,402	$	(76,956)	$	6,117,038
Gross Profit		1,079,708		123,391		—		1,203,099
Adjusted EBITDA(*)		88,557		48,848		—		137,405
Thirty-Nine Week Period Ended
November 27, 2021:
Revenues	$	13,061,408	$	5,629,325	$	(187,868)	$	18,502,865
Gross Profit		3,543,533		321,649		—		3,865,182
Adjusted EBITDA(*)		290,214		109,616		—		399,830
November 28, 2020:
Revenues	$	12,250,775	$	6,100,026	$	(224,417)	$	18,126,384
Gross Profit		3,223,157		338,606		—		3,561,763
Adjusted EBITDA(*)		273,879		122,521		—		396,400

(1)

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

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Retail Pharmacy Segment Results of Operations

Revenues and Other Operating Data


	Thirteen Week Period Ended						Thirty-Nine Week Period Ended
	November 27,			November 28,			November 27,			November 28,
	2021			2020			2021			2020

	(dollars in thousands)
Revenues	$	4,432,508		$	4,109,592		$	13,061,408		$	12,250,775
Revenue growth		7.9	%		5.1	%		6.6	%		5.4	%
Same store sales growth		4.4	%		4.3	%		3.2	%		4.8	%
Pharmacy sales growth		10.4	%		8.1	%		11.7	%		4.8	%
Same store prescription count growth, adjusted to 30-day equivalents		7.9	%		3.1	%		8.7	%		2.0	%
Same store pharmacy sales growth		5.9	%		6.1	%		7.0	%		3.5	%
Pharmacy sales as a % of total retail sales		71.1	%		69.5	%		69.9	%		66.8	%
Front-end sales growth (decline)		2.2	%		(0.4)	%		(3.3)	%		7.1	%
Same store front-end sales growth (decline)		0.4	%		(0.7)	%		(5.2)	%		6.1	%
Front-end sales as a % of total retail sales		28.9	%		30.5	%		30.1	%		33.2	%
Adjusted EBITDA(*)	$	125,931		$	88,557		$	290,214		$	273,879
Store data:
Total stores (beginning of period)		2,501			2,450			2,510			2,461
New stores		1			—			2			—
Store acquisitions		—			—			1			—
Closed stores		(14)			(3)			(25)			(14)
Total stores (end of period)		2,488			2,447			2,488			2,447
Relocated stores		—			—			—			—
Remodeled and expanded stores		3			3			9			4

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

Revenues

Revenues increased 7.9% for the thirteen weeks ended November 27, 2021 compared to an increase of 5.1% for the thirteen weeks ended November 28, 2020. The increase in revenues for the thirteen week period ended November 27, 2021 was primarily a result of an increase in same store sales and incremental sales from our Bartell acquisition.

Pharmacy same store sales increased by 5.9% for the thirteen week period ended November 27, 2021 compared to an increase of 6.1% in the thirteen week period ended November 28, 2020. The increase in pharmacy same store sales is due to the increase in same store prescription count. Same store prescription count, adjusted to 30-day equivalents, increased 7.9% for the thirteen week period ended November 27, 2021 driven primarily by our COVID-19 vaccination program and increases in other acute and maintenance prescriptions, partially offset by a reduction in flu immunizations.

Front-end same store sales increased 0.4% during the thirteen week period ended November 27, 2021 compared to a decrease of 0.7% during the thirteen week period ended November 28, 2020. Front-end same store sales, excluding cigarettes and tobacco products, increased 1.0% over the prior year quarter. The increase in front-end same store sales was driven by good performance in our health categories including upper respiratory, take-home COVID-19 tests and vitamins, partially offset by a reduction in liquor sales during the quarter.

Revenues increased 6.6% for the thirty-nine weeks ended November 27, 2021 compared to an increase of 5.4% for the thirty-nine weeks ended November 28, 2020. The increase in revenues for the thirty-nine week period ended November 27, 2021 was primarily a result of an increase in same store sales and incremental sales from our Bartell acquisition.

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Pharmacy same store sales increased by 7.0% for the thirty-nine week period ended November 27, 2021 compared to an increase of 3.5% in the thirty-nine week period ended November 28, 2020. The increase in pharmacy same store sales is due to the increase in same store prescription count. Same store prescription count, adjusted to 30-day equivalents, increased 8.7% for the thirty-nine week period ended November 27, 2021 driven primarily by our COVID-19 vaccination program and increases in other acute and maintenance prescriptions, partially offset by a reduction in flu immunizations.

Front-end same store sales decreased 5.2% during the thirty-nine week period ended November 27, 2021 compared to an increase of 6.1% during the thirty-nine week period ended November 28, 2020. Front-end same store sales, excluding cigarettes and tobacco products, decreased 4.7%, 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.

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

Costs and Expenses


	Thirteen Week Period Ended						Thirty-Nine Week Period Ended
	November 27,			November 28,			November 27,			November 28,
	2021			2020			2021			2020

	(dollars in thousands)
Cost of revenues	$	3,199,271		$	3,029,884		$	9,517,875		$	9,027,618
Gross profit		1,233,237			1,079,708			3,543,533			3,223,157
Gross margin		27.8	%		26.3	%		27.1	%		26.3	%
FIFO gross profit(*)		1,242,123			1,070,221			3,544,433			3,192,854
FIFO gross margin(*)		28.0	%		26.0	%		27.1	%		26.1	%
Selling, general and administrative expenses	$	1,185,974		$	1,067,027			3,505,365			3,206,078
Selling, general and administrative expenses as a percentage of revenues		26.8	%		26.0	%		26.8	%		26.2	%

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

Gross Profit and Cost of Revenues

Gross profit increased $153.5 million for the thirteen week period ended November 27, 2021 compared to the thirteen week period ended November 28, 2020. The increase in gross profit was driven by higher pharmacy same stores sales, including immunizations, and an increase in front-end gross profit resulting from higher front-end same store sales and a reduction in markdowns, and incremental gross profit from our Bartell acquisition of $37.3 million, partially offset by pharmacy reimbursement rate pressures that were not fully offset by generic drug cost reductions.

Gross profit increased $320.4 million for the thirty-nine week period ended November 27, 2021 compared to the thirty-nine week period ended November 28, 2020. The increase in gross profit was driven by higher pharmacy same stores sales in the current year, incremental gross profit from our Bartell acquisition of $104.4 million, and cycling a prior year restructuring charge of $25.8 million related to exiting product lines as part of our rebranding initiatives. These increases were partially offset by pharmacy reimbursement rate pressures that were not fully offset by generic drug cost reductions and a decline in front end gross profit as we cycled the impact of the prior year’s COVID-19 buying surge.

Gross margin was 27.8% of sales for the thirteen week period ended November 27, 2021 compared to 26.3% of sales for the thirteen week period ended November 28, 2020. The improvement in gross margin as a percentage of revenues is due primarily to higher gross margin associated with COVID-19 vaccines. These improvements are partially offset by continued pharmacy reimbursement rate pressures that were not fully offset by generic drug cost reductions.

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Gross margin was 27.1% of sales for the thirty-nine week period ended November 27, 2021 compared to 26.3% of sales for the thirty-nine week period ended November 28, 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 partially offset by continued pharmacy reimbursement rate pressures that were not fully offset by generic drug cost reductions.

We use the last-in, first-out (“LIFO”) method of inventory valuation, which is estimated on a quarterly basis and is finalized at year end when inflation rates and inventory levels are final. Therefore, LIFO costs for interim period financial statements are estimated. LIFO charges were $8.9 million and $0.9 million for the thirteen and thirty-nine week periods ended November 27, 2021, respectively, compared to LIFO credits of $9.5 million and $30.3 million for the thirteen and thirty-nine week periods ended November 28, 2020, respectively. The LIFO charges in the thirteen and thirty-nine week periods ended November 27, 2021 was mostly due to higher anticipated front-end inflation in fiscal 2022.

Selling, General and Administrative Expenses

SG&A expenses increased $118.9 million for the thirteen week period ended November 27, 2021 due primarily to incremental payroll costs to support COVID-19 immunizations, increases in bonus expense for store, field and corporate associates, increases in workers compensation costs, cycling the benefit from the prior year change to modernize our associate PTO plans and incremental costs from our Bartell stores of $39.3 million in the current year results. SG&A expenses as a percentage of revenues for the thirteen week period ended November 27, 2021 was 26.8% compared to 26.0% for the thirteen week period ended November 28, 2020. The increase is due primarily to the items noted above.

SG&A expenses increased $299.3 million for the thirty-nine week period ended November 27, 2021 due primarily to cycling the prior year change to modernize our PTO plan, incremental costs from our Bartell stores of $116.9 million, costs incurred to support our COVID-19 vaccination program and litigation settlements, partially offset by labor savings due to the cycling of the prior year’s Hero Pay and Hero Bonus programs and the COVID-19 buying surge. SG&A expenses as a percentage of revenues for the thirty-nine week period ended November 27, 2021 was 26.8% compared to 26.2% for the thirty-nine week period ended November 28, 2020. The increase is due primarily to the items noted above.

Pharmacy Services Segment Results of Operations

Revenues and Other Operating Data



	Thirteen Week Period Ended						Thirty-Nine Week Period Ended
	November 27,			November 28,			November 27,			November 28,
	2021			2020			2021			2020

	(dollars in thousands)
Revenues	$	1,858,830		$	2,084,402		$	5,629,325		$	6,100,026
Revenue (decline) growth		(10.8)	%		29.2	%		(7.7)	%		28.2	%
Adjusted EBITDA(*)	$	28,862		$	48,848		$	109,616		$	122,521

(*) 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 $225.6 million for the thirteen week period ended November 27, 2021 compared to the thirteen week period ended November 28, 2020. Revenues decreased $470.7 million for the thirty-nine week period ended November 27, 2021 compared to the thirty-nine week period ended November 28, 2020. The decrease in revenues was primarily the result of a planned decrease in Elixir Insurance membership and a previously announced client loss.

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Costs and Expenses

							��

	Thirteen Week Period Ended							Thirty-Nine Week Period Ended
	November 27,			November 28,				November 27,			November 28,
	2021			2020				2021			2020

	(dollars in thousands)
Cost of revenues	$	1,757,684		$	1,961,011			$	5,307,676		$	5,761,420
Gross profit		101,146			123,391				321,649			338,606
Gross margin		5.4	%		5.9	%			5.7	%		5.6	%
Selling, general and administrative expenses	$	90,946		$	89,328				284,670			263,566
Selling, general and administrative expenses as a percentage of revenues		4.9	%		4.3	%			5.1	%		4.3	%

Gross Profit and Cost of Revenues

Gross profit decreased $22.2 million for the thirteen week period ended November 27, 2021 compared to the thirteen week period ended November 28, 2020. The decrease in gross profit is primarily due to the decline in revenues, a reduction in rebates and an increase in the medical loss ratio at EI.

Gross profit decreased $17.0 million for the thirty-nine week period ended November 27, 2021 compared to the thirty-nine week period ended November 28, 2020. The decrease in gross profit is primarily due to the decline in revenues, a reduction in rebates and an increase in the medical loss ratio at EI.

Gross margin was 5.4% of sales for the thirteen week period ended November 27, 2021 compared to 5.9% of sales for the thirteen week period ended November 28, 2020. The decline in gross margin is due primarily to an increase in the medical loss ratio tied to our Medicare Part D business.

Gross margin was 5.7% of sales for the thirty-nine week period ended November 27, 2021 compared to 5.6% of sales for the thirty-nine week period ended November 28, 2020. The improvement in gross margin is due primarily to improvements in our discount card business and good network management, partially offset by an increase in the medical loss ratio tied to our Medicare Part D business.

Selling, General and Administrative Expenses

SG&A expenses increased $1.6 million for the thirteen week period ended November 27, 2021 compared to the thirteen week period ended November 28, 2020 due primarily to increased restructuring charges, partially offset by further consolidation of administrative functions. SG&A expenses as a percentage of revenue was 4.9% for the thirteen week period ended November 27, 2021 compared to 4.3% for the thirteen week period ended November 28, 2020. The increase in the thirteen week period selling, general and administrative expenses as a percentage of revenues is due primarily to the items noted above and the loss of sales volume.

SG&A expenses increased $21.1 million for the thirty-nine week period ended November 27, 2021 compared to the thirty-nine week period ended November 28, 2020 due primarily to increased litigation settlements, restructuring charges and higher discount card program costs, partially offset by further consolidation of administrative functions. SG&A expenses as a percentage of revenue was 5.1% for the thirty-nine week period ended November 27, 2021 compared to 4.3% for the thirty-nine week period ended November 28, 2020. The increase in the thirty-nine week period selling, general and administrative expenses as a percentage of revenues is due primarily to the items noted above and the loss of sales volume.

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Liquidity and Capital Resources

General

We have two primary sources of liquidity: (i) cash provided by operating activities and (ii) borrowings under our revolving credit facility. Our principal uses of cash are to provide working capital for operations, to service our obligations to pay interest and principal on debt and to fund capital expenditures. Total liquidity as of November 27, 2021 was $1,610.8 million, which consisted of revolver borrowing capacity of $1,515.4 million and invested cash of $95.4 million.

Credit Facilities

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

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

Our borrowing capacity under the Senior Secured Revolving Credit Facility is based upon a specified borrowing base consisting of accounts receivable, inventory and prescription files. At November 27, 2021, we had approximately $1,500.0 million of borrowings outstanding under the Amended Facilities and had letters of credit outstanding under the Senior Secured Revolving Credit Facility in a face amount of approximately $134.6 million, which resulted in remaining borrowing capacity under the Senior Secured Revolving Credit Facility of $1,515.4 million. If at any time the total credit exposure outstanding under the Senior Secured Revolving Credit Facility exceeds the borrowing base, we will be required to repay amounts outstanding to eliminate such shortfall.

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

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

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

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

The Amended Credit Agreement has a financial covenant that requires us to maintain a minimum fixed charge coverage ratio of 1.00 to 1.00 (i) on any date on which availability under the Senior Secured Revolving Credit Facility is less than $200.0 million or (ii) on the third consecutive business day on which availability under the Senior Secured Revolving Credit Facility is less than $250.0 million and, in each case, ending on and excluding the first day thereafter, if any, which is the 30th consecutive calendar day on which availability under the revolver is equal to or greater than $250.0 million. As of November 27, 2021, our fixed charge coverage ratio was greater than 1.00 to 1.00, and we were in compliance with the Amended Credit Agreement’s financial covenant. The Amended Credit Agreement also contains covenants which place restrictions on the incurrence of debt, the payments of dividends, the making of investments, sale of assets, mergers and acquisitions and the granting of liens.

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

The indentures that govern our unsecured notes and secured notes contain restrictions on the amount of additional secured and unsecured debt that we may incur. As of November 27, 2021, we had the ability to issue additional secured and unsecured debt under the indentures governing our unguaranteed unsecured notes, including the ability to draw the full amount of our Senior Secured Revolving Credit Facility and enter into certain sale and leaseback transactions.

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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, the 7.500% Notes and the 8.00% 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, the 8.00% Notes and the obligations under the related guarantees are secured by (i) a first-priority lien on all of the Subsidiary Guarantors’ equipment, fixtures, investment property (other than equity interests in subsidiaries), intellectual property (following the repayment of the Senior Secured Term Loan) and other collateral to the extent it does not constitute ABL priority collateral (as defined below), and (ii) a second-priority lien on all of the Subsidiary Guarantors’ cash and cash equivalents, accounts receivables, payment intangibles, inventory, prescription files (including eligible script lists) and, intellectual property (prior to the repayment of the Senior Secured Term Loan) (collectively, the “ABL priority collateral”), which, in each case, also secure the Amended Facilities.

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

Condensed Combined Financial Information

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


	November 27,		February 27,
In millions	2021		2021
Due from EI	$	323.4	$	96.1
Other current assets		3,645.2		3,431.8
Total current assets	$	3,968.6	$	3,527.9

Operating lease right-of-use assets	$	2,915.7	$	3,064.1
Goodwill		1,108.1		1,108.1
Other noncurrent assets		1,457.1		1,604.2
Total noncurrent assets	$	5,480.9	$	5,776.4

Due to EI	$	—	$	—
Other current liabilities		2,908.5		2,579.9
Total current liabilities	$	2,908.5	$	2,579.9

Long-term debt less current maturities	$	3,167.1	$	3,063.1
Long-term operating lease liabilities		2,692.7		2,829.3
Other noncurrent liabilities		209.3		216.9
Total noncurrent liabilities	$	6,069.1	$	6,109.3

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	Thirteen Week Period Ended		Thirty-Nine Week Period Ended
In millions	November 27, 2021		November 27, 2021
Revenues (a)	$	6,083.2	$	18,070.4
Cost of revenues (b)		4,748.2		14,204.3
Gross profit		1,335.0		3,866.1

Net (loss) income from continuing operations (c)		(30.8)		(114.8)
Net income from discontinued operations		—		—
Net (loss) income (c)	$	(30.8)	$	(114.8)

Net loss attributable to Rite Aid	$	(36.1)	$	(149.4)

(a)

Includes $(24.0) million and $(6.7) million of revenues generated from the non-guarantor for the thirteen and thirty-nine week periods ended November 27, 2021, respectively.

(b)

Includes $(24.0) million and $(6.8) million of cost of revenues incurred in transactions with the non-guarantor for the thirteen and thirty-nine week periods ended November 27, 2021, respectively.

(c)

Amount presented for net (loss) income from continuing operations for the thirty-nine week period ended November 27, 2021 corrects a clerical error previously presented for net (loss) income from continuing operations for the twenty-six week period ended August 28, 2021. While the clerical error did not impact the net (loss) income from continuing operations for the thirteen week period ended August 28, 2021, it did result in an overstatement of net (loss) income from continuing operations of $92.9 million for the twenty-six week period ended August 28, 2021. This error had no impact on the consolidated financial statements and notes presented in Part 1 - Item 1 of our Quarterly Report on Form 10-Q for the thirteen weeks ended August 28, 2021.

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

Cash provided by operating activities was $36.6 million compared to cash used in operating activities of $253.8 million for the thirty-nine week periods ended November 27, 2021 and November 28, 2020, respectively. Operating cash flow was positively impacted by increases in payroll, benefits and bonus accruals, increased accrued interest and other operating expense accruals, partially offset by growth in our CMS receivable during the thirty-nine week period ended November 27, 2021. The improvement in cash provided by operating activities compared to the prior year is due primarily to the acceleration of the sale of our CMS receivable, and changes in operating assets and liabilities due to timing.

Cash used in investing activities was $111.2 million and $45.5 million for the thirty-nine week periods ended November 27, 2021 and November 28, 2020, respectively. Cash used for the purchase of property, plant, and equipment was higher than the prior year due primarily to higher sale-leaseback proceeds in the prior year. During the thirty-nine week period ended November 27, 2021, we remodeled nine stores, spent $24.3 million on prescription file purchases, received proceeds of $39.8 million from sale-leaseback transactions and received proceeds of $10.4 million associated with insurance claims.

Cash flow provided by financing activities was $69.1 million and $119.8 million for the thirty-nine week periods ended November 27, 2021 and November 28, 2020, respectively. Cash used in financing activities for the thirty-nine weeks ended November 27, 2021 reflects the amendment and extension of our Senior Secured Revolving Credit Facility and Senior Secured Term Loan and incremental revolver borrowings, partially offset by the repayment of our 6.125% Notes.

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Capital Expenditures

During the thirteen and thirty-nine week periods ended November 27, 2021 and November 28, 2020 capital expenditures were as follows:



	Thirteen Week Period Ended				Thirty-Nine Week Period Ended
	November 27,		November 28,		November 27,		November 28,
	2021		2020		2021		2020

New store construction, store relocation and store remodel projects	$	11,624	$	45,511	$	70,584	$	62,207
Technology enhancements, improvements to distribution centers and other corporate requirements		28,021		18,793		74,417		65,182
Purchase of prescription files from other retail pharmacies		9,810		6,131		24,289		28,703
Total capital expenditures	$	49,455	$	70,435	$	169,290	$	156,092

Future Liquidity

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

Critical Accounting Policies and Estimates

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

Factors Affecting Our Future Prospects

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

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

In addition to net income (loss) determined in accordance with GAAP, we use certain non-GAAP measures, such as “Adjusted EBITDA”, in assessing our operating performance. We believe the non-GAAP measures serve as an appropriate measure in evaluating the performance of our business. We define Adjusted EBITDA as net income (loss) excluding the impact of income taxes, interest expense, depreciation and amortization, LIFO adjustments (which removes the entire impact of LIFO, and effectively reflects the results as if we were on a FIFO inventory basis), charges or credits for facility closing and impairment, goodwill and intangible asset impairment charges, inventory write-downs related to store closings, gains or losses on debt modifications and retirements, and other items (including stock-based compensation expense, merger and acquisition-related costs, non-recurring litigation settlements, severance, restructuring-related costs and costs related to facility closures, gain or loss on sale of assets and the loss on Bartell acquisition). 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.

The following is a reconciliation of our net income (loss) to Adjusted EBITDA for the thirteen and thirty-nine week periods ended November 27, 2021 and November 28, 2020:


	Thirteen Week Period Ended				Thirty-Nine Week Period Ended
	November 27,		November 28,		November 27,		November 28,
	2021		2020		2021		2020

	(dollars in thousands)
Net (loss) income from continuing operations	$	(36,058)	$	4,324	$	(149,416)	$	(81,575)
Interest expense		47,794		50,835		145,507		151,389
Income tax (benefit) expense		(1,175)		437		2,915		(7,534)
Depreciation and amortization		72,973		83,336		222,691		249,556
LIFO charge (credit)		8,886		(9,487)		900		(30,303)
Facility exit and impairment charges		47,455		7,453		67,639		22,734
Intangible asset impairment charges		—		—		—		29,852
Loss (gain) on debt modifications and retirements, net		—		—		3,235		(5,274)
Merger and Acquisition‑related costs		3,642		1,136		12,119		1,136
Stock-based compensation expense		217		2,867		8,820		8,677
Restructuring-related costs		9,657		12,175		25,173		71,096
Inventory write-downs related to store closings		86		704		1,356		2,596
Litigation settlements		2,000		—		50,212		—
Gain on sale of assets, net		(5,899)		(16,305)		(79)		(17,473)
Loss on Bartell acquisition		5,346		—		5,346		—
Other		(131)		(70)		3,412		1,523
Adjusted EBITDA from continuing operations	$	154,793	$	137,405	$	399,830	$	396,400

The following is a reconciliation of our net income (loss) from continuing operations to Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share for the thirteen and thirty-nine week periods ended November 27, 2021 and November 28, 2020. Adjusted Net Income (Loss) is defined as net income (loss) excluding the impact of amortization expense, merger and acquisition-related costs, non-recurring litigation settlements, gains or losses on debt modifications and retirements, LIFO adjustments (which removes the entire impact of LIFO, and effectively reflects the results as if we were on a FIFO inventory basis), goodwill and intangible asset impairment charges, restructuring-related costs, and the loss on Bartell acquisition. We calculate Adjusted Net Income (Loss) per Diluted Share using our above-

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


	Thirteen Week Period Ended				Thirty-Nine Week Period Ended
	November 27,		November 28,		November 27,		November 28,
	2021		2020		2021		2020

	(dollars in thousands)
Net (loss) income	$	(36,058)	$	4,324	$	(149,416)	$	(81,575)
Add back - Income tax (benefit) expense		(1,175)		437		2,915		(7,534)
(Loss) income before income taxes		(37,233)		4,761		(146,501)		(89,109)
Adjustments:
Amortization expense		18,780		21,236		59,193		68,351
LIFO charge (credit)		8,886		(9,487)		900		(30,303)
Intangible asset impairment charges		—		—		—		29,852
Loss (gain) on debt modifications and retirements, net		—		—		3,235		(5,274)
Merger and Acquisition‑related costs		3,642		1,136		12,119		1,136
Restructuring-related costs		9,657		12,175		25,173		71,096
Loss on Bartell acquisition		5,346		—		5,346		—
Litigation settlements		2,000		—		50,212		—
Adjusted income before income taxes		11,078		29,821		9,677		45,749
Adjusted income tax expense (a)		2,914		8,243		2,545		12,645
Adjusted net income		8,164	$	21,578	$	7,132	$	33,104
Net (loss ) income per diluted share	$	(0.67)	$	0.08	$	(2.77)	$	(1.52)
Adjusted net income per diluted share	$	0.15	$	0.40	$	0.13	$	0.61

(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 thirty-nine weeks ended November 27, 2021 and November 28, 2020, respectively.

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

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

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

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

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The table below provides information about our financial instruments that are sensitive to changes in interest rates. The table presents principal payments and the related weighted average interest rates by expected maturity dates as of November 27, 2021.


																						Fair Value at
	2022			2023			2024			2025			2026			Thereafter			Total			November 27, 2021

	(Dollars in thousands)
Long-term debt, including current portion, excluding financing lease obligations
Fixed Rate	$	—		$	—		$	—		$	—		$	600,000		$	1,116,305		$	1,716,305		$	1,699,404
Average Interest Rate		0.00	%		0.00	%		0.00	%		0.00	%		7.50	%		7.91	%		7.76	%
Variable Rate	$	—		$	—		$	—		$	—		$	—		$	1,500,000		$	1,500,000		$	1,500,000
Average Interest Rate		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		1.90	%		1.90	%

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

The interest rate on our variable rate borrowings, which include our revolving credit facility and our term loan facility, are based on LIBOR. If the market rates of interest for LIBOR changed by 100 basis points as of November 27, 2021, our annual interest expense would change by approximately $15 million.

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

ITEM 4. Controls and Procedures

(a) Disclosure Controls and Procedures

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

(b) Changes in Internal Control over Financial Reporting

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

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

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

ITEM 1A. Risk Factors

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

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

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


	Total			Total Number of Shares	Maximum Number of
	Number of	Average		Purchased as Part of	Shares that may yet be
	Shares	Price Paid		Publicly Announced	Purchased under the
Fiscal period:	Repurchased	Per Share		Plans or Programs	Plans or Programs
August 29, 2021 to September 25, 2021	2	$	15.13	—	—
September 26 to October 23, 2021	8	$	13.61	—	—
October 24 to November 27, 2021	—	$	—	—	—

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

Not applicable.

ITEM 6. Exhibits

(a)

The following exhibits are filed as part of this report.


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

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

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

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

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

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

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

† Management contract or compensatory plan or arrangement.

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SIGNATURES

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


Date: January 5, 2022	RITE AID CORPORATION

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

Date: January 5, 2022	By:	/s/ BRIAN T. HOOVER
		Brian T. Hoover
		Senior Vice President and Chief Accounting Officer

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